Accessory Dwelling Units (ADUs) are small, secondary homes built on the same lot as a primary residence—sometimes called mother-in-law suites, granny flats, or backyard cottages. The Grand Rapids City Commission broadly legalized ADUs in April 2024 by removing long-standing barriers.

After his election, Mayor LaGrand made ADUs a top priority and personally convened a task force to develop strategies to make them easier and cheaper to build. I was asked to serve on that task force, and we recently concluded our six months of work. Our co-chairs will present recommendations to the Committee of the Whole on December 16th, but before discussing how to increase ADU construction, it’s worth stepping back to establish the fiscal case for why.

Why should Commissioners care about ADUs?

They make Grand Rapids significantly wealthier!

Each ADU adds about $43k in lifetime city revenue and $39.5k per year in local economic activity.

Building 1,000 ADUs would:

• Add $42.8 million to the City’s long-term fiscal position
• Increase annual recurring City revenue by $1.9 million
• Generate $39.5 million each year in new neighborhood economic activity
• Produce $105 million in one-time construction activity
• And create 1,000 naturally affordable homes

Everything below shows how I arrive at those numbers.

Key Assumptions

The estimates below rely on the following assumptions about property taxes, household income, and construction costs in Grand Rapids:

• Average Millage Rate: 51.1249¹
• City Share of Property Tax Revenue: 25%²
• City Discount Rate / Cost of Capital: 4.15%³
• Median Household Income (Grand Rapids): $70,515⁴
• Average ADU Build Cost: $131,667

ADU Property-Tax and Revenue Estimates

ADUs can be detached, attached, or internal conversions. These differ in cost and taxable value:

In the table above, “City Share of Property Tax” is the annual amount that actually reaches the City’s budget after other jurisdictions take their share.

Because ADUs last longer than 30 years, but their future revenue declines in present-value terms, using the midpoint is a standard technique when benefits extend beyond a fixed window but diminish in present-value terms.

Thus, the average ADU produces $17,282 in lifetime property-tax benefit for the City.

Adding the City Income Tax Benefit

Grand Rapids levies a 1.5% income tax, and unlike property taxes (where the City keeps only 25–33%), the income tax goes 100% to the General Fund.

Median annual income: $70,515
Income tax paid by a typical ADU resident:

Because this revenue is effectively perpetual, we treat it like a savings account that pays 4.15% interest every year. The present-value formula says: if you receive $1,057.73 every year forever, and your “interest rate” is 4.15%, that stream of payments is worth about $25,500 today.

Total Lifetime Municipal Benefit Per ADU

Each ADU built increases the collective wealth of Grand Rapids by approximately $43,000. Each ADU built strengthens the community’s long-term fiscal health.

Another way to think about this: the lifetime benefit is like the size of a savings account, while the annual benefit is like the paycheck that keeps arriving every year. Both matter: one tells you how much wealth you’ve created; the other tells you how much extra you can spend each year.

While the ADU Task Force stopped short of recommending direct subsidies — in part because we did not have a full fiscal analysis at the time — the Commission may wish to revisit the idea; any subsidy below $43,000 per ADU would still produce a net financial gain for the City. Subsidies could even be tiered by ADU type (detached, attached, or internal conversion), since each has a different fiscal profile. More precise estimates could be obtained through a formal request to the City Assessor’s office.

For context: The City of Charlotte recently launched an $80,000 interest-free, forgivable loan program to support ADUs rented to low-income households.

Local Economic Activity from New Residents

Tax revenue is only part of the story. New ADU residents also support local businesses.

A typical household:

• Spends 80% of income
• About 50% of that spending stays local (common for mid-sized metros)
• Local spending circulates via a 1.4x multiplier⁷

So each ADU adds roughly $39,500 per year to the local economy.

This is money spent at coffee shops, grocery stores, salons, childcare providers, and neighborhood restaurants — exactly the kinds of neighborhood-serving businesses Commissioners often hear need more foot traffic. ADUs quietly strengthen the retail catchment of existing commercial nodes, making it easier for small businesses to thrive without subsidies, incentives, or new large-format developments.

The Retail Viability Threshold

There’s a reason why some neighborhoods can support corner stores and coffee shops while others can’t. It comes down to household density within walking distance:

“A neighborhood grocery store needs about 5,000 households within a mile to remain viable.
A coffee shop needs 2,500.
A bookstore needs 10,000.

When neighborhoods spread out with large lots and single-family homes only, these thresholds become impossible to reach.
The result is that every errand requires a car, every trip is a production, and people without reliable transportation face genuine hardship.”

— Ryan Kilpatrick, The Hidden Architecture of Thriving Places

These aren’t arbitrary numbers. A University of Pennsylvania study of walkable shopping districts found that supermarket-anchored neighborhood centers typically require 2,500–3,300 households (about 5,000–6,500 residents) within roughly a one-mile radius to remain viable.⁸

But proximity matters just as much as total households. Another study found that retail value drops off extremely quickly with distance: rent premiums fall by about 50% within the first 0.2 miles, and the proximity benefit is essentially gone beyond 0.4 miles.⁹

That means two things:

1. Neighborhood-serving businesses depend on people living close by, and
2. Small increases in nearby households have an outsized impact on whether those businesses survive.

This is where ADUs become strategically important.
Every ADU adds one household to an existing block—one that already has streets, sidewalks, utilities, schools, and potential commercial nodes. Build 1,000 ADUs distributed across Grand Rapids, and you’ve added 1,000 new households to retail catchment areas, nudging marginal commercial corridors closer to the thresholds where small businesses can thrive without subsidies.

It’s quiet, incremental, but mathematically powerful:

More customers within walking distance → more viable neighborhood retail → more walkable neighborhoods → a stronger local economy.

These ideas aren’t just theory—they align directly with the vision outlined in Grand Rapids’ 2024 Community Master Plan. The first goal of the “Great Neighborhoods” section reads:

Goal: Connected and diverse neighborhoods where residents can thrive.

Grand Rapids’ neighborhoods will have access to housing, retail, open space, and more that meet the needs of residents in all phases of life.

— 2024 Community Master Plan, p. 18

ADUs help move neighborhoods toward this vision by adding households exactly where retail and transit viability depend on a stronger population base—incrementally, affordably, and without changing neighborhood character.

One-Time Construction Impact

Building ADUs also stimulates the local economy. As someone who designs and builds ADUs, I estimate roughly 80% of construction spending stays with local contractors, suppliers, and material vendors.

Every ADU adds approximately $105,000 in one-time local economic activity.

ADUs, Transit, and Infrastructure ROI

There’s also a quieter, long-term benefit that doesn’t show up in these dollar estimates: ADUs help move Grand Rapids toward transit- and retail-supportive density using the infrastructure we already have.

Every ADU adds a household to a block that already has streets, pipes, schools, parks, police, and fire coverage. Instead of extending roads and utilities outward, we’re asking our existing infrastructure to do slightly more work for a lot more value.

Over time, that incremental infill is how a city reaches the thresholds that make frequent transit, corner stores, and small neighborhood commercial nodes viable. We can only get to truly walkable, transit-supportive “good urbanism” through infill, and it will take time, which is why starting now with gentle, small-scale ADUs matters.

Financial Impact of ADUs in Grand Rapids

Impact of 1,000 ADUs

Notes:

• “Total Lifetime City Revenue” is the present value of all future dollars (both property and income tax) the City will receive from 1,000 ADUs combined.
• “Additional Annual City Revenue” is how much extra money shows up in the budget every year once those 1,000 ADUs exist (again, from both property and income tax).

Per ADU Averages (for scaling purposes)

Conclusion

When viewed through a municipal finance lens, ADUs are not just a housing strategy — they are a long-term wealth-building engine for the City.

They:

• Strengthen the General Fund
• Increase recurring municipal revenue
• Drive neighborhood economic activity
• Support local trades and small businesses
• Create new homes without new subsidies
• Expand affordability in a fiscally responsible way

Grand Rapids has already done the hard part by legalizing ADUs. The next step is ensuring residents can (and will) build them. That means:

• Streamlining permitting processes
• Reducing regulatory barriers and fees
• Considering financial incentives (any subsidy under $43k still profits the City)
• Making ADU construction easier, faster, and more affordable

The Task Force has developed specific recommendations to achieve these goals. The opportunity is now, and the fiscal case is clear.