How a Montana retiree will save on spiking home insurance and taxes by living in a type of housing that's illegal in many places

Sylvia, a 71-year-old retiree in Montana, is taking advantage of city and state laws encouraging the construction of accessory dwelling units.

• Many older Americans with fixed incomes are struggling with rising housing costs.
• A retiree in Missoula, Montana, has found a way to downsize by building an ADU in her son's backyard.
• Missoula's reformed zoning laws and state-level housing reforms support more ADU construction.

When Sylvia and her husband found out they were welcoming their first grandchild in 2018, the retired couple decided they would move from Arizona to live near their son and daughter-in-law in Missoula, Montana.

In early 2019, they relocated to a four-bedroom house around the corner from their then-one-year-old grandson.

But over the last couple of years, Sylvia, who was a city government administrative assistant in California before she retired, has felt financially stressed. Her husband got sick a couple of years after the couple moved to Montana, and he died in 2022.

While her house is paid off, her home-related costs, including insurance, property taxes, and maintenance, have risen. In 2019, her home insurance cost about $890, but last year, according to her record-keeping, she paid almost $1,500. She's also felt squeezed by general inflation, including rising grocery costs. Plus, the 3,000-square-foot house is just too big for her.

"Owning my home is going to drive me to the poor house," said Sylvia, who's 71 and requested her last name be omitted to protect her privacy.

But last year, her son and daughter-in-law came to her with an idea: she could build and relocate to an accessory dwelling unit — a small detached home — in their backyard. The ADU would likely cost less to build than it would to buy another home in the neighborhood, they reasoned. And it would allow Sylvia to live in a smaller, accessible home very close to family as she grows older.

Sylvia talked with her other two kids, and they all agreed it was a good idea. So they found an architect and a contractor, and Sylvia signed a contract to pay $274,000 for the construction, according to documents viewed by BI. The 600-square-foot one-bedroom home will have a vaulted ceiling, a big front porch, and a back deck. It'll be painted to match her son's house.

"It's going to be real pretty," Sylvia said. "I'm hoping it's the last place I live."

She's planning to pay for the ADU in cash, and the contractors are on track to complete it by December.

Sylvia plans to sell her current house, which she and her husband bought for $315,000 in 2019. According to documents viewed by BI, since home prices have soared across Montana, the home is now valued at $718,000.

ADUs — often called "granny flats" or "casitas" — are a particularly useful form of housing for older people who want to downsize into a smaller, more accessible home and also want to be close to family. Increasingly, cities and states across the country are legalizing and even incentivizing ADU construction as a way to boost the supply of smaller, more affordable homes.

"This was the most viable option for me," Sylvia said. "I don't think I would be able to buy a home for $274,000."

ADUs as a solution for cash-strapped older people

Sylvia's ADU might not have been legal in Missoula until about a decade ago — and it still isn't legal in many American residential neighborhoods. Even in states that encourage tiny home construction, local anti-development groups and policymakers often make it all but impossible to build a backyard ADU.

The western Montana city first took action to encourage the construction of ADUs in 2013 and further loosened restrictions in 2020 after just 30 ADUs had reportedly been built in the city. As part of broader zoning code reforms, the city council this year agreed to increase the allowable size of ADUs and liberalize a few other rules.

The state government has also pushed for more of these homes as part of its broader housing reform effort aimed at boosting supply. Last year, the Montana state legislature passed a bipartisan law requiring all cities and towns to allow the construction of ADUs on single-family lots. But before the law went into effect in January, a judge temporarily blocked the measure, along with several other pro-housing laws. The court sided with an organization of Montana homeowners who argued denser housing would alter the character of their neighborhoods. The state appealed the decision to the state supreme court earlier this year.

This comes as older people, including homeowners, are struggling with rising housing costs in communities across the country. Insurance costs have risen dramatically all over — a result of both increasingly severe climate issues, including flooding and fires, and the elevated cost of home construction and repairs. Nationally, home insurance premiums rose by an average of 21% between May 2022 and May 2023, Policygenius found. Home repairs are also more costly these days, with a shortage of construction workers and the elevated cost of materials.

The portion of homeowners 55 and older who are cost-burdened — or spend more than 30% of their income on housing and utilities — rose from 30% in 2001 to 45% in 2022, a new report from the Harvard Joint Center for Housing Studies on the state of US housing found.

In Montana, a severe housing shortage has caused home prices to soar. But property taxes and insurance costs are also way up, making it hard for many homeowners to afford their payments.

"Elderly and disabled people are struggling really, really hard," Beverly Dashnaw, a HUD-certified housing counselor in Helena, recently told BI. "The cost of living, inflation is going up for everything, and their income doesn't go up."

Sylvia is lucky she can cash in on the rise in her home's market value without having to buy another home in an impossible market with high interest rates. And Missoula has proven to be a good place to age, she says. If she can't drive, she can take the city's free buses to the library, where she volunteers each week, and to the pickleball courts, where she plays regularly.

"This is a small town, I love it," she said. "It's easy to get around, and I know my way around."

Are you a homeowner struggling with rising insurance premiums or other costs? Reach out to this reporter at erelman@businessinsider.com.