If you've been Googling "ADU cost Bay Area" you've probably seen numbers ranging from $125 per square foot to $650 per square foot, which is a totally useless range. Morgan Hill specifically lives in a different cost tier than Sacramento, a different one than San Jose proper, and a different one again than San Martin's unincorporated parcels.
We pulled 2026 permit data, builder bids, and California's state ADU law updates to put real Morgan Hill, Gilroy, and San Martin numbers in one place. If you want the 60-second version for your specific build, use our ADU Cost Calculator. Otherwise here's the longer answer.
The short answer (Bay Area, 2026)
Detached new build: 600-1,200 sqft, $350,000-$650,000 all-in, $380-$600/sqft
Attached addition: 400-1,200 sqft, $280,000-$510,000 all-in, $320-$510/sqft
Garage conversion: 400-900 sqft, $180,000-$340,000 all-in, $220-$380/sqft
Junior ADU (JADU): Max 500 sqft, $80,000-$160,000 all-in, $170-$310/sqft
Detached new builds are the most expensive because you're starting from scratch: foundation, framing, roof, plumbing, electrical, utility hookups. Junior ADUs are cheapest because you're carving them out of existing square footage. Garage conversions land in the middle.
What specifically drives Morgan Hill and Gilroy cost
Three things move South Valley ADU cost more than anything else.
1. The 750 sqft impact fee cliff
California state law AB 68 waives local impact fees (school, park, fire, traffic) on any ADU under 750 sqft. Blow past that threshold by 10 sqft and you can add $5,000-$8,000 in fees overnight.
This is the single most impactful design decision. If your project goals can be hit under 750 sqft, you save real money. Between 750-1,200 sqft, you're paying impact fees but still capped by state law (can't exceed proportional square footage of the main house). Above 1,200 sqft, you can't build at all. That's the state cap for detached ADUs.
2. Pre-approved vs custom plans
Morgan Hill, Gilroy, and Santa Clara County each offer free pre-approved ADU plans. Standard sizes, standard layouts, standard materials. If one fits your lot, you skip most of the design/architect phase:
Custom architect plans: $18,000-$25,000, 2-4 months of design, 1-3 months of plan review
Pre-approved plans: Free-to-$5,000 adjustments, 2-4 weeks of site-specific revisions, 15-60 day plan review
Gilroy specifically has been issuing some pre-approved permits in 15 working days.
3. Site conditions (the wild card)
Everything above assumes a standard lot. The things that blow up budgets:
San Martin parcels on septic + well: adds $5,000-$10,000 in review + utility connection, 4-6 extra weeks
Slope or grading: $10,000-$25,000 in extra site prep
Electrical panel upgrade: $4,000-$8,000 if your main panel needs to go from 100A to 200A
Sewer lateral replacement: $8,000-$20,000 if your line is failing
Impact fee-triggered permits for utility meter separation: $2,000-$5,000
Budget for at least 10% contingency (our calculator adds this automatically). Realistic construction budgets run 15-25% over initial bids for anything that discovers an unknown condition during demo or foundation work.
Morgan Hill specifics
Morgan Hill has actively courted ADUs in the last two years. The city eased regulations in 2024, which is why permit costs now run $3,000-$10,000 instead of the $12-15K you'd have seen before. The city also offers pre-approved plans through the county ADU program.
Key Morgan Hill facts:
Permit + plan-check: $3,000-$10,000 for typical projects
Impact fees: zero on ADUs under 750 sqft (state law)
Maximum detached ADU size: 1,200 sqft (state cap)
Setback requirements: 4 ft side/rear typical (less than primary residence rules)
Parking: NOT required if lot is within half-mile of transit (most of MH qualifies)
Run our Morgan Hill Property Tax Calculator to see the property tax impact of your specific ADU build. Only the new construction triggers an assessment. Your Prop 13 base on the existing house stays intact.
Gilroy specifics
Gilroy runs a similar program to Morgan Hill but with slightly different fee structures:
Permit + plan-check: $3,000-$8,000 for pre-approved plans, $5,000-$12,000 for custom
Impact fees: same 750 sqft cutoff under state law
School district: Gilroy Unified has a higher impact fee ($4.79/sqft) but only applies above 750 sqft
Pre-approved ADU program expanded in 2023 to include backyard cottages and garage conversions
San Martin (unincorporated SCC)
San Martin is the most expensive of the three because most parcels are on well and septic. Building an ADU triggers:
Santa Clara County Environmental Health septic review: $500-$2,000 + 4-6 weeks
Fire marshal review (for parcels in high fire severity zones): $1,000-$3,000
Well water testing (if ADU adds new bedrooms increasing demand): $300-$1,000
Typical all-in permit cost: $10,000-$18,000
The upside: San Martin lots are bigger, detached ADUs look and live better on 1+ acre parcels, and rental rates are higher per sqft ($3.40/sqft vs $3.20 in MH, $2.70 in Gilroy).
What the ADU is actually worth
Two ways to answer this: rental income and appraisal value.
Rental income: an 800 sqft detached ADU in Morgan Hill rents for roughly $2,500-$2,800/month. After property management, vacancy, maintenance, and insurance (call it 25% of gross), net is around $23,000/year. At $475,000 all-in cost, that's a 20-year undiscounted payback. Not a screaming cash-flow deal. Most South Valley owners build for family reasons (aging parents, adult kids, in-laws) and treat the income potential as optional upside.
Appraisal value: an ADU typically adds 60-80% of its all-in cost to the home's post-construction appraisal. A $475,000 ADU build adds roughly $330,000-$380,000 to your home's appraised value when you eventually sell. That's not a great return on its own, but it's a better return than simply leaving the cash in a savings account if you also get use out of the unit.
The ADU Cost Calculator shows you both numbers side by side.
Financing
Most South Valley owners finance ADUs through:
HELOC (home equity line of credit): Rates currently 8-10%, draws against existing equity, flexible. Most common approach.
Cash-out refinance: Locks in current rates on the whole mortgage, only makes sense if rates are better than your existing mortgage.
Dedicated ADU construction loans: Rare but growing. Underwriting is stricter but loan-to-value is often higher than HELOC.
Our partner lender group in Morgan Hill can walk you through all three options. Submit the lead form on the calculator with "Ready to build" timeline + "Rental income" reason to get the financing breakdown.
The fast version
If you're serious, four moves:
Run the ADU Cost Calculator with your actual design parameters
Check whether a pre-approved plan fits your lot (saves $15-20K in design)
Stay under 750 sqft if goals allow (saves $5-8K in impact fees)
Get three builder bids before committing to anything
Sheena and Ryan cover Morgan Hill, Gilroy, and San Martin in a free weekly newsletter. Subscribe here.