ADU Pass
Palau
Palau's island geography and limited housing stock make accessory dwelling units an appealing option for property owners seeking to add living space. ADU Pass helps Palau residents work through the permitting requirements for secondary residential structures.
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State ADU details
State financing programs
Palau has no ADU-specific loan, grant, or subsidy program, and no US-style state housing finance agency. The closest analogue is the National Development Bank of Palau (NDBP), a small development-finance institution headquartered in Koror that offers general housing loans financing house construction, purchase (including land), extensions, and renovations. NDBP charges a preferential 8% rate for first-time homeowners and 10% for general housing loans; published materials do not state a fixed loan cap or term. A detached second dwelling, or an extension to an existing house, would be financed under the same general housing-loan product subject to NDBP underwriting — there is no separate accessory-dwelling line item. The dominant gating factor is land tenure: NDBP, like any lender, needs collateral, and customary clan/lineage land cannot be mortgaged or alienated the way fee-simple land can, so financing realistically reaches only registered individually-owned parcels or long-term leasehold interests. US federal mortgage products (Fannie Mae, FHA, VA) do not operate in Palau because it is a sovereign Compact nation, not US territory; the Fannie Mae ADU lending rules that apply in the 50 states and US territories do not reach Palauan parcels.
State insurance regimes
Palau has a small private property-insurance market served by a handful of regional carriers and agencies; it does not have a US-style state insurance department, FAIR Plan, or government wind pool. Palau is exposed to tropical cyclones (Typhoon Bopha caused damage in 2012; Typhoon Surigae passed near in 2021) and to seismic activity, and these hazards drive both construction practice and underwriting. Critically, Palau is NOT in the US FEMA National Flood Insurance Program (NFIP). NFIP participation is open to US states, the District of Columbia, and US territories; Palau, as a sovereign nation in free association with the US, is not an NFIP-eligible community. Federally backed flood insurance of the kind available in Guam, American Samoa, or the US Virgin Islands is therefore not available on Palauan parcels. Disaster recovery in Palau flows through the Compact of Free Association — which provides US economic assistance and allows specific federal disaster support — and through Palau's own National Emergency Management Office (NEMO), rather than through routine FEMA programs. A second dwelling is insured, if at all, under the same private homeowners or dwelling-fire policy as the primary house, with a typhoon/cyclone exposure premium and no flood-insurance backstop.
Known state issues (3)
- other — ADU Pass consumers should treat Palau as a jurisdiction where the standard ADU analysis (zoning allowance, permit timeline, financing, payback) applies only on the minority of registered individually-owned parcels — mostly in Koror. On customary land, the controlling questions are clan consent and customary authority, not zoning code. Any cost or payback model imported from US markets will mislead.
- policy-review — Predictability is low by US standards outside Koror. An owner cannot consult a zoning code and know in advance whether a specific second dwelling will be permitted. The practical first steps are confirming land-tenure status with the Bureau of Lands and Surveys, securing customary owner consent, and clearing EQPB earthmoving/wastewater permits — and, in Koror, the Koror State Building & Zoning office.
- other — Any second-dwelling cost model for Palau should include a cyclone-resistant-construction premium and should not assume the availability of subsidized flood insurance. Coastal and low-elevation parcels carry uninsured or under-insured storm-surge and sea-level-rise risk. Disaster recovery depends on Compact-based assistance and Palau's NEMO, not routine FEMA programs.
Federal (United States) — ADU-relevant rules and programs
Federal ADU law
The United States has no federal statute that directly regulates accessory dwelling unit entitlement or design. Land-use authority over ADUs resides with states and local governments under the traditional police power. Federal engagement is limited to financing (Fannie/Freddie/FHA/VA/USDA), flood insurance (FEMA/NFIP), and discretionary housing programs (HUD), which are recorded in sibling sections of this file.
Federal financing programs
Federal housing-finance agencies and GSEs set nationwide underwriting rules that govern whether an ADU can be financed, appraised, and counted toward mortgage qualifying income. The relevant actors are Fannie Mae, Freddie Mac, FHA (HUD), VA, and USDA Rural Development.
Federal tax credits
There is no ADU-specific federal tax credit. ADUs may incidentally qualify for existing federal energy-efficiency and clean-energy tax credits when the ADU construction includes qualifying measures.
Federal housing programs
HUD administers several discretionary programs that can fund ADU-related activity at the grantee's election, but none is an ADU-specific program.