North Carolina Governor Josh Stein signed four bills into law on Tuesday, August 11, 2026, including a sweeping regulatory reform package that will make it significantly easier for homeowners to build backyard cottages, garage apartments, and tiny homes across the state. Senate Bill 445, the Regulatory Reform Act of 2026, requires cities with populations of at least 50,000 to allow accessory dwelling units—often called granny flats—on qualifying residential lots.
The law addresses North Carolina’s mounting housing crisis head-on. A 2025 housing gap analysis found that North Carolina has a shortage of available homes estimated at 764,000 through 2029 (322,000 rental homes and 442,000 homes for purchase). “North Carolina is growing rapidly, and the cost of housing is increasing,” Stein said. “We need to build more housing units of all types to drive down rents and mortgages.” Stein said the legislation would reduce red tape and help increase the state’s housing supply.
The new law is one of the most significant housing reforms to pass the North Carolina legislature this session, winning bipartisan support in both chambers. The House voted 82-28 to adopt the conference report for Senate Bill 445, the Regulatory Reform Act of 2026. Eighteen Democrats and one unaffiliated lawmaker joined Republicans in supporting the measure, while all 28 opposing votes came from Democrats. The Senate approved the final version 37-0 on July 29.
The details
Which cities must allow ADUs and when the rules take effect
The law applies to most of North Carolina’s larger cities, with a few key exceptions.
The Regulatory Reform Act would require cities with more than 50,000 residents, excluding coastal communities, to allow accessory dwelling units (ADUs) in lots zoned for single-family homes. That means cities like Charlotte, Raleigh, Greensboro, Durham, Winston-Salem, Fayetteville, Cary, and Asheville will be covered, but coastal cities like Wilmington are exempt from the mandate.
The ADU requirement would take effect Jan. 15, 2027. Affected cities would have until July 1, 2027, to adopt local regulations. Homeowners in qualifying cities will be able to apply for ADU permits starting in early 2027, though provisions would become effective October 1, 2026, and apply to applications for accessory dwelling unit permits submitted on or after that date.
Accessory dwelling units—also known as backyard cottages, garage apartments, in-law suites, or tiny homes—are smaller, independent living spaces built on the same property as a primary residence. ADUs, sometimes called backyard cottages, garage apartments, or in-law suites, are smaller homes built on the same property as a primary residence. They can be detached structures in the backyard, attached additions to the main house, or conversions of existing spaces like garages or basements.
What the law prohibits cities from doing
Under the bill, cities could not require special zoning approval, impose minimum parking requirements, charge higher permitting fees, or limit ADUs to less than 800 square feet. Cities also could not prevent the primary home and ADU from being rented to separate households on a long-term basis. In other words, both the main house and the ADU can be rented out—the owner does not have to live on the property. Local governments could still impose certain setback and placement requirements.
Context
Why North Carolina is facing a housing shortage
The state needs hundreds of thousands more homes to meet demand from rapid population growth.
North Carolina has been one of the fastest-growing states in the nation. Demand for housing is growing as North Carolina last year attracted more new residents from other states than any other state and was the 2025 top state for economic development, with announcements of more than 35,000 good-paying jobs and $24 billion in capital investments. But the state’s housing stock hasn’t kept pace with population growth.
“We have a shortage of about 700,000 homes over the next few years, and we need to do what we can to address that,” said state Sen. Steve Jarvis (R-Davidson), the bill’s sponsor. “We have many people that cannot afford a big house, and this gives a more affordable option that they can purchase.”
Accessory dwelling units are seen as a relatively low-cost way to add housing supply because they use land and infrastructure that already exist. Lester noted that North Carolina is projected to face a housing shortage of 764,000 units by 2029. She argued that ADUs can provide lower-cost housing because they use existing land and infrastructure.
The law builds on a previous North Carolina reform. House Bill 409, which took effect October 1, 2023, requires every local government in North Carolina to allow at least one ADU per detached single-family dwelling in residential zones. Senate Bill 445 goes further by setting statewide standards that prevent cities from imposing onerous restrictions that make ADUs impractical to build.
You can read the full text of Senate Bill 445 on the North Carolina General Assembly’s website.
What it means
How this law helps homeowners and renters
The new rules create opportunities for homeowners to add income, house family, or increase property value.
For homeowners, accessory dwelling units open up several possibilities. You can build an ADU to house aging parents or adult children, generate rental income to help pay your mortgage, or create a home office or guest suite. Because the law prohibits owner-occupancy requirements, you can also rent out both your main house and the ADU if you choose to move elsewhere.
For renters and buyers, ADUs represent a new source of smaller, more affordable housing options in established neighborhoods with good schools, transit access, and amenities. Rather than forcing all new housing to the urban fringe where land is cheaper, ADUs allow “gentle density”—adding homes in existing neighborhoods without dramatically changing their character.
The law also includes provisions to make it easier to convert previously developed commercial, business, or industrial property into housing. The bill would also make it easier to convert previously developed commercial, business, or industrial property into single-family, two-family, or multifamily housing. Local governments could not limit those developments to less than 60 feet in height. That provision would apply to cities with at least 80,000 residents in counties with at least 1 million residents. This primarily affects Charlotte and could unlock significant new housing in areas near the urban core.
If you’re a first-time buyer in North Carolina, see our complete guide to buying a house in North Carolina, including down payment assistance programs, closing cost help, and tax credits available in the state. For information on mortgage options and current rates, visit our home financing guide. And if you’re working with a tight budget, our affordability calculator and strategies can help you figure out what you can afford.
Important exceptions and limitations
The validity or enforceability of private covenants or other contractual agreements among property owners, properties designated as a National Historic Landmark by the United States Department of Interior, and an ADU that is not connected to water and sewer, well or septic are all exempt from the law’s requirements. That means if your neighborhood has a homeowners association (HOA) that prohibits ADUs, that restriction still stands. Historic landmark properties are also exempt. And you must have proper water and sewer connections—you can’t build an ADU without utilities.
Quick answers
North Carolina ADU law: common questions
When does the new ADU law take effect in North Carolina?
The law was signed on August 11, 2026. The ADU provisions take effect on January 15, 2027, and cities have until July 1, 2027, to adopt local regulations implementing the new rules. Homeowners can begin applying for ADU permits starting October 1, 2026.
Which North Carolina cities are required to allow ADUs?
Cities with populations of 50,000 or more, excluding coastal communities, must allow at least one accessory dwelling unit on single-family residential lots. This includes Charlotte, Raleigh, Greensboro, Durham, Winston-Salem, Fayetteville, Cary, Asheville, and other large inland cities.
How big can an accessory dwelling unit be in North Carolina?
Under the new law, cities cannot limit ADUs to less than 800 square feet. There is no statewide maximum size, but local governments can set reasonable size limits. The ADU must be smaller than the primary dwelling on the lot.
Do I have to live on the property if I build an ADU?
No. The new law prohibits cities from requiring owner-occupancy. You can rent out both your main house and your ADU to separate tenants on a long-term basis, or you can live in one and rent the other.
Can my HOA still prohibit me from building an ADU?
Yes. The law does not override private covenants or homeowners association rules. If your HOA prohibits accessory dwelling units, that restriction remains enforceable. The law only limits what city governments can regulate.
Do cities have to allow ADUs on every single-family lot?
The law requires cities to allow at least one ADU on lots zoned for single-family homes, but cities can still impose reasonable setback requirements, design standards, and placement rules. Properties in National Historic Landmark districts and ADUs without proper water and sewer connections are exempt.