What’s causing the dip in permits issued for a second, smaller home sharing a city lot with an existing house?

Longtime small housing advocate Kol Peterson studied data from the City of Portland and found permits for accessory dwelling units (ADUs) decreased in 2019.

He thinks the decline was the result of a flurry of interested homeowners applying for a permit, before the rules changed in 2018, to benefit from fee-waiver incentives with no restrictions on short-term rentals.

City planner Phil Nameny says more ADU permit applications were submitted in the month of July 2018 alone – right before new requirements went into effective on Aug. 1 – than were submitted in the final five months of that year.

“I think the main reason for this was that applicants wanted to keep the flexibility to use their ADUs for various purposes, sometimes as a short-term rental, sometimes for family or friend visits or as a longterm rental,” says Nameny. “Also, covenants run with the land, so they would transfer in the case of a property sale.”

Some of issued permits were used to build in 2019, creating “an artificial acceleration of ADU activity resulting in a ‘boom’ of ADU permits,” Peterson explains on AccessoryDwellings.org, an online resource that posts case studies and updates on ADUs, which is still a rare form of housing.

Portland ADU permits issued from 1995-2020 as reported by Kol Peterson

Seven ADU permits were issued by the city in 1995 followed by small increases until 2011 when the city approved 93 permits. That number more than doubled to 206 by 2014 then quadrupled to 376 in 2015.

By 2016, there were almost six times as many permits issued – 545 – before the total fell to 511 in 2017 and 488 in 2018.

Last year, issued permits dropped to 315.

A portion of the continued reduction in the number permit applications submitted for ADUs 2019 may be due to the ongoing resistance to having the 10-year covenant against short-term rentals apply to the property, says Nameny, but there could be other factors such as increased construction and labor costs, as well as a general slowdown in permit activity, possibly due to uncertainties in the economy.

ADU Interest Remains High

Permits for self-contained, smaller second homes are down but interest remains high.

So far, about 2,487 legal ADUs have been built in Portland, with another 652 under inspection.

A Portland Homeowner Report released recently by Pro.com found that 84 percent of Portland homeowners who participated in the survey believe ADUs make homes more appealing to potential buyers.

In Portland, the most popular ADUs are living spaces for elderly relatives, adult children and family friends, and as income-producing apartments to rent (36 percent each), according to the Pro.com survey.

More developers are including a flexible living space with a separate entrance – a home within a home – that grants privacy to a member of a multi-genational family or tenant who helps pay the mortgage.

The “gen suite” was first popularized by the Lennar Corp., which introduced its NextGen floor plan in 2011 after the recession and foreclosure crisis, when extended families moved back in together to save on housing costs.

The Regional Multiple Listing Service (RMLS) added a new search field that allows real estate agents, appraisers, buyers and sellers to quickly find Oregon residential properties with a second, separate dwelling.

Architects and designers are increasingly being hired to plan space- and energy-efficient guest homes and manufacturers are building prefabricated micro units to sit on foundations in backyards.

Homeowners add an apartment wing to an existing house, carve out space from underused rooms inside the residence or convert an unfinished basement or structurally sound garage into new living quarters.

Or they can erect a second story to the garage or standalone, stick-framed structure on the property.

These are not the DIY basement conversions of 20 years ago, but highly specialized projects, says Matt Williams, founder and CEO of Pro.com, which has a team of construction experts who work with architects, designers and engineers to build custom ADUs.

He says his clients are motivated to leverage their land to increase its value, use and enjoyment.

Population growth and thicker density also create a need and desire for separate living spaces and ADUs are one solution, Williams says, especially for people with a low mortgage or who like their location but need more space or want to rent out an apartment for added income.

Some owners plan to live in the small house and rent out the larger house to reduce expenses while staying in their neighborhood.

A rental dwelling allows them to fund their retirement and age in place, if the unit has been designed without steps and with universal features that aid people with limited mobility.

Williams’ company offers a free, detailed estimate and visualization services to let property owners see what an ADU project could look like inside and out. Clients can also order a customizable prefab structure to fit a space and Pro.com can construct it.

In Seattle’s Lake Washington area, Pro.com built a new, two-story ADU behind a house where there were two asphalt parking spaces. Construction costs were $140,000.

The Pro.com survey also found that 76 percent of respondents did not know Portland’s laws governing ADUs.

Peterson is hoping to help. He has taught more than 2,000 people about the ADU development process in full-day workshops and has organized a half dozen Build Small, Live Large: Portland’s Accessory Dwelling Unit Tours.

He says more municipalities on the West coast – from Vancouver, BC, to every city in California – allow homeowners to slice up urban lots to shelter family members or a caregiver, or draw in extra income.

Small, standalone new homes are expensive – $210,000 on average for 800 square feet of living space, says Peterson – but they can be models of efficiency with a compact footprint and high-performance insulation and heating and cooling systems.

ADUs are considered the least expensive type of housing that can be built in Portland if the land is already owned and if it qualifies for a waiver of the city’s expensive system development fees, which can mount up to $22,500.

As of 2018, the waiver cannot be used by people who want to use the ADU as a short-term rental in the first 10 years.

Peterson says that an 800-square-foot second home rented longterm at $1,800 a month could bring in $21,600 a year and pay for itself in 10 years, then continue to generate income.

He encourages potential landlords to find out how their jurisdiction assesses ADUs for property tax evaluations. There will also be increases in utility costs, periodic vacancies and maintenance expenses.

“Financial motivation is only part of the calculation,” he says. “There are also social benefits for the family.”

An in-law suite could allow an aging parent to be close to family rather than spending what could be $72,000 a year for assisted living, says Peterson, who interviewed hundreds of sources for his book, “Backdoor Revolution-The Definitive Guide to ADU Development.”

Critics don’t like ADUs’ added density and parking issues as well as the decrease in gardens, trees and creature habitats. Privacy can be intruded upon when single- or second-story windows look into the neighbor’s house or backyard.

Advocates say ADUs provide infill housing opportunities in neighborhoods with existing utilities and services like roads, sewers and schools near employment, retail centers and transit corridors.

A detached, accessory dwelling unit (ADU) in the Foster-Powell neighborhood that Propel Studio Architecture was designed as a modern Airbnb. Carlos Rafael Carlos RafaelCarlos Rafael

To learn more, Peterson and Propel Studio Architecture are organizing a free Design Week Portland event, ADU Open Doors, from 4 p.m.-8 p.m. on April 23-24, in which owners invite people to tour their ADU (register to showcase an ADU or attend at propelstudio.com/adu-open-doors-2020).

Peterson will also be holding a full-day ADU Academy workshop on April 24 ($359 or $319 by April 24, accessorydwellings.org/academy/).

ADU lenders, builders, designers and owners will talk at a free, no sales-pitch event from 11 a.m. to 3:30 p.m. on Saturday, Jan. 18, at the Kennedy School in Northeast Portland. RSVP at ADUplusYOU.org, which offers an eight-session ADU course ($300-$455 per month over three months).

--Janet Eastman | 503-294-4072

jeastman@oregonian.com | @janeteastman

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10 Tips to a Better ADU

In the comprehensive book "Backdoor Revolution: The Definitive Guide to ADU Development" ($25 print, $15 digital), author Kol Peterson offers design ideas he endorses after visiting well-planned small houses, talking with people who specialize in accessory dwelling units (ADUs), and reading books and websites about small-space planning, including books by Sarah Susanka.

Second, smaller homes sharing a city lot are the only housing form typically developed by homeowners, says Peterson, who has a master's degree in environmental planning from Harvard's Graduate School of Design.

Still, he cautions against DIY design for complex, ground-up construction.

Since these second dwellings infill a residential property, their design and placement need to be customized. Peterson says he’s never seen two that look alike.

Legal, comfortable second homes, however, do have some features in common. Here are Peterson’s insights: