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A couple of things to consider for the homeowner, increases in property taxes and insurance but also the taxable revenue from the rental and its impact on personal taxes you will have to pay. And then there is resale value for a property that is locked into multi year agreement.

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>increases in property taxes

Not an issue in the bay area

>the taxable revenue from the rental and its impact on personal taxes

Progressive income taxation should make this moot. Also many expenses are likely tax-deductible. Combined with FHA terms, mortgage interest deduction, etc. and this is actually rather tax-advantaged over regular rentals

Not an issue in the bay area

Why not?

Prop 13 protects the homeowners from higher taxes if the property appreciates, but as far as I know that doesn’t cover renovations.

Otherwise you could buy a beat up $1M, year it down and still pay the same taxes.

The way this works with ADUs is a blended approach. The existing home's tax status is protected by Prop 13 and the ADU as a structure is appraised. While adding an ADU adds considerable resale value to a home, tax assessors don't typically value them that highly. It's also worth noting the ADU also becomes protected under Prop 13 after the initial assessment (https://maxablespace.com/granny-flat-tax-implications/)

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