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Author: Mark Ainely | Partner GC Realty & Development & Co-Host Straight Up Chicago Investor Podcast
Chicago is on the verge of a housing game-changer: Accessory Dwelling Units (ADUs), think coach houses, basement apartments, and attic units, are expanding from a limited pilot to citywide allowance. After decades of outright bans on these “granny flats” and in-law suites, the City Council has given the green light to ADUs across much more of Chicago, with a new ordinance set to take effect on April 1, 2026. This shift means Chicago landlords and investors will soon have new opportunities to add rentable units to their properties.
But as with anything in Chicago real estate, the devil is in the details. Here’s an in-depth look (in true Mark Ainley style) at the ADU expansion, what’s changing, key rules, and why it matters for landlords’ bottom lines.
From Illegal to Encouraged: A Brief History of ADUs in Chicago
If it feels like ADUs are something new for Chicago, that’s because in many ways they are, or at least, they were illegal for a long time. Chicago banned new ADUs way back in 1957, shuttering an era when coach houses and basement units were common. For over 60 years, that ban stood, meaning no new “granny flats” or coach houses could be built, and many existing ones fell out of use. Fast forward to the 21st century: faced with rising housing costs and demand for more flexible living options, the city slowly started to reverse course.
In December 2020, the City Council approved an ADU pilot ordinance that gingerly allowed permits for ADUs, but only in five limited zones of the city. These pilot areas were scattered across the North, Northwest, West, South, and Southeast sides, intended to test the waters for ADUs. Starting in May 2021, homeowners in those zones could apply to add a coach house in the backyard or convert attics and basements into legal apartments.
The response, though modest at first, proved that Chicagoans were interested: roughly 400 ADUs have been permitted since 2021 in the pilot areas, including a couple dozen designated affordable units at reduced rent. This showed genuine demand for these small-scale additions to Chicago’s housing stock.
Momentum built over the next few years to take ADUs citywide. Various proposals came and went, some more aggressive, some more cautious. By 2023, legislation was introduced to expand the pilot citywide, and after negotiations in 2024 and 2025 (including some political tug-of-war we’ll get into), a compromise ordinance emerged. On September 25, 2025, the City Council unanimously voted to approve expanding ADUs beyond the pilot zones.
This wasn’t just a simple “let there be ADUs everywhere” proclamation, though, it came with strings attached. The new ordinance opens vast swaths of the city to ADUs, but also gives local aldermen significant control over how and where these units can be added. In other words, Chicago is embracing ADUs with a distinctly Chicago twist of local oversight.
Citywide ADU Expansion in 2026: What’s Changing?
Come April 1, 2026, Chicago’s ADU rules get a major upgrade. Here are the big changes landlords need to know:
Much Broader Geography
The ADU eligibility area will expand by about 135% compared to the pilot program. This means all multifamily residential zoning districts citywide (RT, RM districts), except in the downtown core, will allow ADUs as-of-right, whereas before ADUs were confined to small pilot pockets. If you own a property in any multifamily zone anywhere in Chicago, you’ll be able to add an ADU unit (or a few, depending on building size) without needing a special zoning change.
In addition, single-family residential (RS) zones within the old pilot areas remain eligible. Thousands more homeowners will suddenly have the option to create an ADU, whether it’s to house an aging parent or generate rental income from unused space.
Aldermanic Opt-In for Single-Family Areas
Here’s the caveat, ADUs are not simply rubber-stamped in every single-family neighborhood by default. The ordinance was a compromise between a plan that wanted ADUs in 61% of the city (all residential areas except downtown) and a plan that wanted only 20% of the city eligible. The compromise gives aldermen a big say in single-family (RS-zoned) districts.
ADUs will be allowed “by right” in multifamily zones and in the original pilot zone areas, but outside of those, each alderperson can choose to opt-in blocks or areas of their ward that are RS-zoned to allow ADUs. They can also impose additional local rules (more on that next).
As a result, Chicago will have a patchwork of where exactly ADUs are allowed in RS districts. In plain terms: if your rental property is in a single-family zone, you’ll need to check if your alderman has opened that area up for ADUs and under what conditions.
Local Restrictions Still Apply
Each alderman who opts in their area can set unique restrictions on ADU development there. The ordinance explicitly lets aldermen cap how many ADUs can be built per block per year (for example, only 1 new coach house per block annually in an RS-1 zone) and require that ADUs only be built if the property is owner-occupied.
They can also require an extra bureaucratic step called an “administrative adjustment”, basically a special application to the planning department, before an ADU permit is approved.
In practice, this means in some neighborhoods you might need to live on the property to add an ADU, and you might face a waiting list if a neighbor down the block already got an ADU permit this year. Other neighborhoods could have no such limits if the alderman is fully on board with ADUs.
By design, this slow-rolls ADUs in more sensitive areas: for example, under default rules, RS-3 zones would max out at 3 ADUs per block per year, RS-2 at 2 per block, and RS-1 at just 1 per block per year, unless the alderman removes or alters those caps. The owner-occupancy rule similarly is likely in play for 1- to 3-unit properties in many areas (meaning a landlord who doesn’t live on-site might be barred from adding a coach house unless that rule is waived).
The result is a very localized set of rules: 50 different aldermen could have 50 different ADU regimes. For landlords, this means “know thy ward”, be sure to research what your specific alderman has decided (or will decide) about ADUs on your block.
Downtown Still Excluded
It’s worth noting that the downtown zoning districts remain excluded. The focus is on residential neighborhoods and small-scale infill, not high-rises or the Loop.
Effective Date and Timing
April 1, 2026 is the magic date when the new citywide ordinance kicks in. That’s when owners outside the pilot areas can start applying for ADU building permits. If you’re in one of the original pilot zones, you can still move forward now under the pilot rules, no need to wait.
But for everyone else, mark that date; the city won’t accept permit applications for new ADUs in the expanded areas until then. City officials have indicated they’ll use the lead-up time to work out procedures and also encourage more aldermen to opt in additional areas before April.
In short, Chicago is opening the doors to ADUs far wider than before, but it’s not the Wild West, local oversight and phased implementation are built into the plan. It’s a very Chicago approach: incremental and alderman-influenced, balancing the push for more housing with the pull of “neighborhood character” concerns. As landlords, understanding these nuances is key to taking advantage of the change.
What Exactly is an ADU? Types of Units Now Allowed
Before diving into why this matters for landlords, let’s clarify what counts as an ADU under Chicago’s rules. An Accessory Dwelling Unit is essentially a secondary living space on a property that would normally only have one primary residence. In Chicago, ADUs generally fall into a few categories:
Conversion Units (Interior ADUs)
These are additional units created within an existing building, for example, a garden apartment in a basement or a new unit carved out of an attic or lower level of a house or 2-flat. Many Chicago landlords are already familiar with these setups (perhaps you have an “illegal garden unit” that’s been rented informally). The ADU ordinance provides a pathway to make those legit, as long as building codes (like ceiling height, exits, light/ventilation) are met.
Note: The building must be at least 20 years old to add an interior ADU, this prevents people from constructing a brand new 3-flat and immediately tacking on a fourth unit, for example. Most existing buildings in Chicago easily clear the 20-year mark.
Coach Houses (Detached ADUs)
A coach house is a separate smaller structure, usually built in the backyard of a property, often above a garage or replacing a garage. These hark back to the days of alley houses, a freestanding mini-house in the rear yard. Under the new ordinance, you can build a coach house on a lot with an existing residential building (subject to zoning lot size and placement rules).
Typically, Chicago coach houses are limited to around 700 sq ft footprint or less, and often are two-story with parking or storage on the ground floor and the living space above. Only one coach house is allowed per lot, and even then only one of your ADUs (if you add multiple) can be a coach house, the rest would have to be inside the main building. Not every property will physically accommodate a coach house (you need adequate yard space and alley access for one to make sense), but many standard 25×125 Chicago lots can.
Attic Units / Granny Flats
In other cities “granny flat” might mean a detached tiny house, but Chicago’s usage often means any small secondary unit for, say, an elderly family member. Practically, an attic conversion that turns a pitched roof space into a separate apartment would qualify as an ADU as well (this is just another form of interior conversion unit).
Chicago’s ordinance doesn’t use terms like tiny house or mobile homes, ADUs must be standard permanent structures. But whether it’s a basement apartment or a backyard cottage, the goal is the same: create an additional, independent housing unit on a property that remains under one ownership. Importantly, ADUs cannot be sold off separately as condos, they’re legally tied to the main property. And to preserve housing use, Chicago does not allow ADUs to be used as short-term rentals, these units must be for longer-term tenancy.
How Many ADUs Can You Add?
For most small landlords, the answer will be one ADU per property under the ordinance, but larger buildings can add more in some cases:
1–4 unit properties
You can add one ADU maximum. It could be one interior unit or one coach house (not one of each). For example, if you own a single-family home or a 3-flat, you’re allowed to create one additional unit, either by building a coach house or converting space inside the existing building.
5–7 unit buildings
Up to 2 ADUs allowed (one of them could be a coach house, the other likely an interior unit). However, if you add two, the rules include an affordability requirement: one of the two new ADUs must be offered at an affordable rent (commonly tied to 60% AMI benchmarks).
8–10 unit buildings
Up to 3 ADUs allowed (again, max one coach house among those). If adding two or three, at least one must be affordable.
11+ unit properties
You can add ADUs equal to about 33% of your unit count (rounding allowed), and in these cases a portion of the added ADUs must be affordable units at regulated rents.
In all scenarios, only one coach house per lot is permitted. So a big building could convert storage rooms or basements into multiple units, but it can’t pepper the backyard with several tiny houses, just one detached structure maximum. Also remember the “20-year rule” for interior units: the existing building must be at least 20 years old (most multi-unit buildings qualify). There’s no age requirement for building a new coach house.
These limits ensure ADUs remain a “gentle density” tool, adding a few units here and there, not doubling the size of buildings overnight. For most small landlords and homeowners, the practical outcome is you get one new unit to rent out and help cover the mortgage.
Key Rules, Restrictions, and Requirements to Keep in Mind
As exciting as the ADU expansion is, landlords need to be mindful of the fine print. Here are the key rules and requirements that come with Chicago’s ADU program:
Aldermanic Control & Patchwork Rules
As noted, your local alderman holds the cards for single-family zoned areas. Some wards may embrace ADUs wholeheartedly, others may only allow them on certain blocks or with strict conditions. Before planning an ADU, confirm your property’s eligibility through the city’s resources or by checking with your alderman’s office.
Owner-Occupancy Requirements
In some areas (particularly in RS zones with opt-ins), you might be required to live on-site if you want to add an ADU. This means that if you’re a purely off-site landlord in a single-family district, you could be blocked from adding that coach house unless you move in or the rule is lifted. Multi-unit buildings generally have fewer owner-occupancy restrictions.
Caps on Number of ADUs per Block
To prevent a sudden flood of coach houses on a single street, the ordinance can limit ADU permits to 1–3 per block per year in low-density zones. If you’re in an area with a cap and your neighbors already got permits, you might have to wait. In some wards, the alderman may remove caps; in others, they may enforce them strictly.
Building Codes & Permitting
Adding an ADU triggers full compliance with building codes and a permit process involving multiple city departments. You’ll need architectural plans, and the plans must meet modern codes for fire safety, exits/egress, ceiling heights, light and ventilation, and structural requirements. Expect more red tape than a simple remodel.
Labor Requirement for Coach Houses
Coach houses are new construction, and Chicago may require specific workforce participation standards for contractors. Translation: fewer contractors may qualify, bids may be higher, and timelines may stretch. Budget conservatively and start the contractor search early.
Parking Requirements
Chicago’s ADU approach generally avoids forcing new parking mandates in many situations. That helps feasibility, but site layout still matters.
No Short-Term Rentals
ADUs can’t be used as short-term rentals. Plan for traditional long-term leasing.
Older Illegal Units
If you already have an “illegal” garden apartment, ADUs can be a path to legalize it. You’ll need to bring it up to code and permit it properly, but legalizing reduces risk and can add long-term value.
In summary, while the new ADU policy opens a lot of doors, it comes with a framework of controls. For every landlord thinking of jumping in, it’s crucial to do homework on local rules, plan for a thorough permit process, and budget accordingly.
Why Landlords and Investors Should Care
Why all the buzz about basement units and coach houses? In a word: opportunity. This citywide ADU expansion presents several potential benefits for Chicago property owners, especially investors and landlords:
Extra Rental Income
An ADU can become an additional revenue stream. Turning a dusty attic into a rentable unit or building a coach house that commands strong rent can dramatically improve cash flow and help offset rising taxes, insurance, and maintenance costs.
Boosting Property Value
More income typically means higher value. Adding an ADU can increase value because you’ve increased unit count and income potential. As ADUs become more common, expect buyers to pay more attention to “ADU potential” and permitted plans.
Value-Add Strategy and Underwriting
Savvy investors will integrate ADUs into underwriting. That means factoring in ADU construction cost and the post-ADU rent increase as part of the deal. ADUs create a new path for forced appreciation, not just hoping the market rises.
Meeting Housing Demand
ADUs add housing units without changing neighborhood streetscapes dramatically. That can support long-term city stability and rental demand.
Multigenerational Living and Personal Use
ADUs also allow flexibility like housing family members. And if circumstances change later, that space can revert to rental income.
All told, the ADU expansion gives Chicago landlords more paths to maximize property value. The key is executing wisely. It’s not free money, you invest upfront to build or renovate, and you collect the return over time.
Tips for Landlords Looking to Add an ADU
If you’re a landlord or investor eyeing an ADU project, approach it methodically:
Do Your Homework on Eligibility
Verify your property can have an ADU under the new ordinance. Check zoning and whether your ward has opted in for your area. Don’t assume.
Budget and Financing Plan
Interior conversions can be less expensive than a new coach house, but both require real money and a long-term view. Run ROI like an investor, not like a homeowner hoping it “works out.”
Hire Knowledgeable Professionals
Use an architect and contractor who understand Chicago permitting and code. Coach houses especially can require a more specialized contractor pool.
Plan for the Permit Timeline
Permits can take time. If you want the unit performing in 2026, you need to start planning early.
Community and Neighbors
Communicate proactively. In Chicago, neighbor pushback tends to become political quickly.
Property Management Considerations
Adding another unit means:
leasing one more unit
managing another resident
handling more maintenance
setting clear rules for shared spaces and utilities
If you don’t want to wing the leasing part, tenant placement makes this easier:
https://www.gcrealtyinc.com/tenant-placement
And if you want to sanity-check rent numbers before you spend a dime:
https://www.gcrealtyinc.com/free-rental-analysis
Looking Ahead: Opportunities and Challenges
Chicago’s move toward citywide ADUs is a significant evolution in our local housing landscape. It promises opportunities for small-scale development that can benefit landlords, tenants, and communities by adding housing choices. A few years ago, coach houses and granny flats were barely on the radar here; by 2026 and beyond, we could see them blossoming in backyards from Rogers Park to Roseland.
That said, the rollout will determine how impactful this really is. The aldermanic opt-in structure may leave gaps on the map. There are also concerns that added labor requirements and bureaucracy could make ADUs too expensive or complicated for the average homeowner to pursue. That’s why it’s important to stay informed and approach ADUs like a real investment strategy, not a quick project.
One thing is for sure: ADUs are now part of the Chicago real estate equation. For landlords who love to innovate and add value, this is a tool you’ll want in your toolbox.
Starting in 2026, look at your properties with a fresh eye. That unfinished basement, that big backyard, that underused attic, they might be diamonds in the rough. By creating an ADU, you’re not just adding a unit; you’re increasing your income, boosting your property value, and contributing to easing Chicago’s housing crunch one coach house at a time.
Just do it by the book, because the book (the ordinance) is specific. With solid planning, your next investment victory might be right in your own backyard (literally).
About GC Realty & Development
GC Realty & Development LLC is a full-service Chicago property management company that has been managing residential, multifamily, and commercial properties since 2003. With over 1,400 units and 1 million square feet of commercial and industrial space under management, GC Realty has built a reputation as Chicago’s Responsive Property Manager.
Our team is known for clear communication, transparency, and quick action. Whether you need help with tenant placement, full-service property management, or understanding Chicago landlord laws like the RLTO or RTLO, GC Realty provides the expertise, systems, and local insight to protect your investment and increase profitability.
Visit www.gcrealtyinc.com to learn more or request your Free Rent Analysis today.
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