City council agrees to end costly development fees for accessory dwelling units

City commissioners agree to make a temporary waiver of system development charges permament, if the units aren't rented out as Airbnb-style units.

The Portland City Council has moved aggressively to boost construction of more "granny flats" or accessory dwelling units, by permanently eliminating costly development fees for those who build them.

Since 2010, the city has deployed a series of short-term exemptions of systems development charges for new accessory dwelling units orADUs, and that policy helped boost annual construction from roughly 50 a year to 500 a year, said City Commissioner Chloe Eudaly.

Last Wednesday, facing the July 1 expiration of the latest fee waiver for ADU development fees, the City Council voted 4 to 1 to make the fee waiver permanent, while adding a new requirement that the owners don't rent out the units for Airbnb or other short-term rentals.

The development fees can add $15,000 or more to the construction cost of the new homes.

"That clearly was a great contributor to why we're seeing so many built," said Eli Spevak, a developer who has built some ADUs and also serves on the Portland Planning and Sustainability Commission.

Eudaly has argued that ADUs can form an important solution to the city's housing crisis, by providing more affordable units in close-in areas where people work. Though some complain the units aren't all that affordable, they must, by city code, be no more than 800 square feet, and, since they are on the lots of existing homes or inside homes or garages, homeowners don't have to buy land or spend as much to extend utility lines.

"It is fundamentally more affordable, just because it's smaller," Spevak said. "They provide the only way to do small units in single-family zones," he said.

Though there's relatively little opposition to new ADUs by neighbors in Portland, a backlash has been brewing because many Portlanders have turned the accessory units into short-term rentals. Critics argued those owners didn't warrant breaks on their development fees for what amounts to quasi-commercial development.

The resolution adopted by the council, at Eudaly's suggestion, requires ADU builders to attest that they won't rent the units as short-term rentals for 10 years. If homeowners do rent them out via Airbnb or similar platforms during the ensuing decade, the SDC fees must be paid, along with a 50 percent penalty.

System development charges are levied by the Water, Parks, Transportation, and Environmental Services bureaus to pay for the cost of serving new growth.

ADU advocates argue that because they are built on existing residential lots, they don't require the same new road, utility and other infrastructure. City Commissioner Amanda Fritz, the lone vote against extending the waiver indefinitely, cited the need for more systems development charges for parks. Fritz oversees Portland Parks and Recreation.

The new city resolution calls on those bureaus to bring forth amendments to their SDC fee schedules so they are consistent with the resolution. It also includes a provision calling for a study of what rents ADUs are fetching.

Kol Peterson, an ADU consultant, said the new policy makes sense to him, though he noted that some homeowners are able to finance new ADUs by leasing them out seasonally for short-term rentals, and then wind up making them available as living quarters to family at other times, such as when adult children return home. "It will hurt the ability of those owners to financially justify building an ADU," Peterson said, "but overall, the new policy is fine."

Earlier this year, Peterson released a book called "Backdoor Revolution: The Definitive Guide to ADU Development." He predicts the fee waiver will cause a dip in ADU permits for a year but will ultimately bring more stability because owners can count on the fee waiver in the future. "Then ADUs are well-poised to become an even more important part of Portland's housing strategy in the years and decades to come."

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