The Denver City Council signed off on an agreement Monday that provides $500,000 for westside residents to build guest homes on their property.

Accessory dwelling units, also known as granny flats, are smaller homes built next to bigger ones. Owners can lease them out (or live inside while renting out the main house). ADUs give people a new way to make money and can temper displacement wrought by gentrification, city staffers say. They also encourage multigenerational living.

City planners want to see more accessory dwelling units, but they’re expensive — more than $200,000 on average, according to city staffers — and require navigating a maze of bureaucracy. The money approved Monday will fund loans of up to $25,000 for low-income residents to put towards building a second home. Under the program, homeowners must lease the ADUs to people who aren’t rich, but they only have to pay the loan back if they sell the property within 25 years.

The money complements a program by the Denver Housing Authority and the West Denver Renaissance Collaborative, which have streamlined the building process, making building ADUs a less expensive task.

‘This is a viable program,” said City Councilman Paul López, who worked on the initiative with the Renaissance Collaborative’s Renee Martinez-Stone. “It’s a program we can really take advantage of in west Denver.”

About 32 percent of owners and 54 percent of renters on the city’s west side pay more than 30 percent of their income on housing, which is enough for the city to call them “cost-burdened.” The two-year pilot is open to westsiders only, for now.

City planners want to see 40 ADUs built over the next four years. Four are already moving through the process, López said.

The Council approved the agreement 11 to 0 with City Council members Rafael Espinoza and Albus Brooks absent.