The ADU Hour w/guest Abdur Abdul-Malik

1 jun 2021 · The ADU Hour

00:48:54

Kol Peterson: We are jumping into the ADU Hour series with our guest, Abdul Abdur-Malik. Thanks for joining us today. It's going to be really good getting into some really technical, nitty gritty stuff that I think we're all learning about. There's no codified information about some of the things that we're covering next, we're going to be learning a lot together, so look forward to it. Alright, Abdur come on out.

Abdur Abdul-Malik: Good morning, Kol. How you doing?

Kol Peterson: Good man. Good to see you.

Abdur Abdul-Malik: Good to see you.

Kol Peterson: Thanks for thanks for being our guest today. I think a lot of people are going to be really interested in what you've been researching. Why don't we just start by having you introduce yourself to our group?

Abdur Abdul-Malik: Sure. So my name is Abdul Abdul-Malik. I'm a certified residential appraiser, that's licensed to appraise in Oregon and Washington. I'm a board member of the local Portland chapter of the American Society of Appraisers. I serve as their secretary. [00:03:00] I recently completed my candidacy for designation, and I'm now a designated member of the Appraisal Institute, NSRA, and I'm also very active in teaching appraisal concepts. I assist a nationally recognized instructor, George Dell, occasionally when he comes to teach appraisers. And recently I've been really delving deep into ADU valuations.

Kol Peterson: Thanks Abdur. So we're going to dive right in, tell us about a term that. I've learned from you "functional obsolescence" and its relative application to ADUs.

Abdur Abdul-Malik: Sure. So to explain that I'm going to use basically what's known as the Bible for real estate appraisers is called the Appraisal of Real Estate. And I'm going to read from the 13th edition, a couple of concepts that are very important to understand when it comes to the valuation of ADUs.

So depreciation is a word that many of us have heard. And the definition for that is "the difference between the contributory value of an [00:04:00] improvement and the costs at the time of the appraisal." So the costs may have been higher initially, but at the time of the appraisal, it may be less .

And there are many different sources of depreciation. And one of them, the one that's particularly relevant for Ady evaluations, is the term "functional obsolescence". And, bear with me here, I'm going to read this definition, but it's very important for the understanding of valuations of ADUs. So it's the functional obsolescence is caused by a flaw in the structure, materials, or design of the approvement when compared with the highest and best use and most cost-effective functional design requirements at the time of the appraisal. A building that was functionally adequate at the time of construction can become inadequate or less appealing as design standards, mechanical systems, and construction materials change over time. Functional obsolescence is attributable to defects within the property in contrast with external obsolescence, which deals with conditions outside the property.

And here's the key portion for ADUs' functional obsolescence, which [00:05:00] may be curable or incurable can be caused by deficiency, which means that some aspect of the property is below standard and respect to market norms. It is also caused by a super adequacy, which means that some aspect of the subject property exceeds market norms. So that last part is the most relevant for the valuations of ADUs. It's not that an ADU is a bad thing to construct. In fact, they're very useful and they serve many different needs in the marketplace, but because the general market expectation is that these structures would not be present in most single family, detached homes, it's considered a super adequacy. Now what's considered a super adequacy today may not be considered one tomorrow. And my suspicion is, is that as ADUs continue to gain a greater market penetration, and they become a much more important part of the housing solution, they may actually in some marketplaces, be considered a norm, and perhaps that functional obsolescence will go away.

[00:06:00] So it's not "once categorized a functional obsolescence, always an obsolescence". It's just that at the current time, the difference between what you'll pay for it and what the value return will be at the time an appraisal is done. Generally, is less than what you put into the home.

Kol Peterson: Now it's not just ADUs that have some degree of functional obsolescence using appraiser speak, but almost any home improvement would have some degree of functional obsolescence. What types of home additions add value for resale from an appraiser's perspective?

Abdur Abdul-Malik: Well a lot of times the easy ones are like a kitchen remodel, a bath remodel. Sometimes if the home is indeed very small for the consideration of the market, sometimes the person may add more physical space, a living area, to their home, and that may bring their home up to market expectation for the typical size of a house in their market. ADUs aren't the only additions that may sometimes have [00:07:00] less of a return in value. A great example here in Portland is a swimming pool. In some markets, a swimming pool will add value, but I have done a number of appraisals where a swimming pool contributed $0 to the return of investment. In fact agents will tell me some times that a home that had a pool when it's sold, the next owner would just backfill it and get rid of it. So definitely EDU's are doing a lot better than swimming pools in the Portland residential market.

Kol Peterson: I saw a new one last week Abdur that was pretty cool. A woman was buying a high-end house in the West Hills that had a pool in a pool house and she was gonna convert the pool to an ADU.

How's that for functional obsolecence? So how do ADU stack up relative to these other home improvements in terms of cost of construction versus resale value? So let's take kitchens, additions, garages.

Abdur Abdul-Malik: Appraisers like to always hedge their statements by, "It depends". And so it really does depend on a number of different factors how they [00:08:00] stack up. We've all been to some kitchen remodels, maybe a friend shows you their kitchen remodel and you're just blown away. And you could tell that the quality and the craftsmanship is of high value and you would certainly expect in that case for high return then you've maybe been to a kitchen remodel where, you know, to put it politely, maybe it's "lipstick on a pig", right? And it just doesn't really give you the return that it could have otherwise have, if it had been done at a higher quality. So with ADU s, my research is showing that pretty much. Any ADU is going to give you some incremental boost in value. I have yet to do a valuation of an ADU where it was a $0 return, so that's the good news. When it comes to returns, it just depends on what your needs are for an ADU. Some people convert their basements into accessory dwelling units, and that can be a very cost effective way to get that ADU built for an inexpensive price. Others maybe do a [00:09:00] garage conversion or maybe they'll do a stack on to a garage. And then of course the most expensive option would be a detached ADU perhaps in the backyard. Those can be very expensive to construct. And so the market return will be high on those, but not as high as the cost to construct.

Kol Peterson: We're going to have you give like a 10 minute summary in a minute here, but I want to take frame that by just raising the fact that you've mentioned in the past that this research may not necessarily be applicable in other markets. Before we provide this information for people's contexts, I want you to explain that a little bit for us.

Abdur Abdul-Malik: The general principles of valuation, they certainly apply nationwide, but I always caution people. The numbers that I present are for the Portland market and they may or may not be directly translatable to a different market. An example might be the Bay area in California where median home prices are like $1.5 million. So if I say this [00:10:00] type of ADU gives you a 10% bump. It may or may not correlate directly to that market just because the dynamics are so different. I do say that, but Hopefully especially in Metro markets that maybe their medium prices are very similar to Portland, maybe even the market dynamics are very similar.

Hopefully the numbers actually would provide some meaningful insight into what you could expect in your own local market.

Kol Peterson: Unlike other days where we've just done a straight up interview for the whole time, I'm going to have Abdur do a 10 minute version of a really rich study that he's been gracious enough to be working on for a while.

Really just for the benefit of everybody who's interested in this topic. So I'm going to hand it over to you Abdur, take it away.

Abdur Abdul-Malik: This is a, an adaptive presentation that I gave at a conference called the Build Small Live Large, and this is titled "Case Studies, Appraising ADUs".

We're just going to talk about how this project got started super quick. As you know, Kol Peterson is the national ADU expert and he made available to me a list of 1500 legal [00:11:00] ADU properties. And that was very useful because I took those properties and I went into the local MLS system, and I said, Hmm, which of these ADU properties have resold on the open market?

As you can see here in this slide, I painstakingly went through the entire list of properties, and I highlighted the ones that did sell. And the idea was, let's take a look at the city of Portland. Let's take a look at the properties that have resold and as you can see, quite a few of them have actually resold since the ADU was constructed. And then let's just do appraisals. On the ADU and the appraisal definition from the Appraisal of Real Estate, 13th Edition is "the act or process of developing an opinion of value". So a bunch of mini appraisals are being done and appraisal theory recognizes three approaches to value. You have the income approach, you have the cost approach, and you have the sales comparison approach.

The approach that we're using for this study is a sales comparison approach. The [00:12:00] other two have limitations when it comes to ADUs and the sales comparison approach, honestly, is the gold standard for valuation. It's going to be the the methodology that will give you the most likely return when you go to list and sell. The sales comparison approach it just involves comparing a property to similar sales in the open market.

So if you have apples, you want to compare it to apples. You definitely don't want to compare it to oranges or the valuation will be suspect, but in this case, appraisers have toolkits that go on and on, and we're using many of those tools for the valuation.

The main thing that we're doing with this valuation is we are staying in Portland for technical reasons. And the city of Portland is actually pretty nice because it has strongly defined neighborhoods. Everyone that's in the city of Portland is as part of a defined neighborhood. So we're, we're taking a property we're seeing which neighborhood is sold in, and then we're comparing [00:13:00] it to properties that are as similar as possible to that ADU property. With one exception, we are not using other properties with ADUs. Now, why would we do that? Because we're trying to isolate the contributory value of the ADU.

If the main structure is a 1500 square foot home with a one-car garage we want to look at all the other 1500 square foot homes with a one-car garage, lacking an ADU, because if we do that, the difference between the two sales prices will tell us what the market attributed to that ADU. So, as we mentioned, we're sticking with those defined neighborhoods. We are doing our best to bracket every single attribute of the property, except that ADU. So I just want to run through maybe just a few examples. Here's a property that has a detached garage conversion [00:14:00] ADU this particular home sold in, in 2018.

And so in this case, the ADU added 18% to the value. However, because the garage was converted, the homeowner lost the use of that garage, so that did result in some decrement in value. So when you shake out the gain for the ADU, the loss in the utility for the garage, the net gain for this property was 12%.

This one was a new construction property with a basement ADU. It actually sold twice once as a new construction and then 14 months later on the open market as a resale. So in 2016, when it was a brand new construction that ADU contributed 6.1% to the value. Interestingly enough, when it's sold in 2017 , a year or two months later, the ADU added more. It actually added 16% to the value at that time. My guess, and this is, and this is just a guess, is that the new construction property, typically a buyer is very intentional [00:15:00] about what they want when it comes to new construction.

And if they want something, they generally will seek out to have that constructed at the time that the home is being built. But once a home is resold, kind of like driving a car off a parking lot the dynamics of the market change, and in that case, the ADU actually gave a higher degree of contributory value because it was just a useful feature for people looking to purchase a home in the resale market. So again, another high-quality ADU conversion.

Here is an attached ADU. So it is a separate unit, but it's attached on one side to the home. So in this case, the ADU added 24.6% of the value and for a dollar figure amount that was slightly over $125,000. So as you can see, that's a pretty substantial bump in value, but anyone who's constructed an ADU knows that it probably costs upwards of $200,000 to construct that attached ADU. This is where that term [00:16:00] again comes in depreciation. The difference between the cost of construction and the value at the time of the appraisal, functional obsolescence.

Not that there's a flaw in having an ADU, but the definition encompasses the idea of a super adequacy. So maybe this is still a bit more than what the market would expect, but it's certainly contributed a substantial gain in value almost 25%.

This was a detached garage conversion ADU. And this is where I started to see trends because detached garage conversion ADUs, when you factor in the loss of value for the garage versus the net gain, usually the differentials between five to 10%. So again, I don't know if that would apply in every market throughout the United States, but here in Portland, that's what I'm seeing that if you convert your garage you will probably boost the value up to close to 20%, but then you're going to lose maybe five to 10% because you've got to factor out the loss of the garage utility. [00:17:00]

Size does play a role in how much an ADU will contribute to the resale value of a property. The smaller ones, the value can be quite small, still there, but smaller. And in the larger ones, of course, a bigger return.

So this is a, another garage conversion. This one added 28.3%. Then again, factoring in the loss of the garage you can see about that 10% loss. So the net gain was 17.2%, and this one was actually a two, two level ADU garage conversion, which was very nicely done.

Now this one, and this will be the final one, we take a look at. This one is essentially two homes. So this home was pretty small to begin with. And instead of maybe enlarging the existing home, the owner decided to just build a separate ADU structure. And as you can see, the main house was 866 square feet, the ADU 690 square feet. [00:18:00] So the parody between the two structures is extremely high.

Because of that, you can see that the value gain on this one was substantial. The ADU added 71.2% to the value, about $160,000. Probably the cost to construct was a little bit more, but in this case, the market rewarded the owner with a pretty substantial bump in value.

Essentially, an appraiser might look at this and say, well, is this an ADU or is this a duplex? And we might talk a little bit about that later. Terminology can matter because depending on the loan that someone is trying to get to finance the purchase of one of these things, the terminology can matter, but it's kind of like calling it six or half a dozen.

That is the end there, but hopefully that gives the listeners a little bit of an insight as to the value gains that some of these ADUs are contributing.

Kol Peterson: Thanks Abdur. That was a great expedited summary of your findings. What are some [00:19:00] other methods that could be used to determine a research-based method for determining the contributory value of an ADU?

Abdur Abdul-Malik: Well, as I mentioned before, I really do think that the Sales Comparison Approach is your gold standard. There are many different types of value. In fact, there are dozens of ways to define a value. Market value is the typical way that most people are asked to define it. And that's just basically, what would someone else in the market pay for the structure?

Now, investors might have completely different motivations. People who go out and buy like apartment complexes, or even like quadplexes, triplexes, duplexes, they're looking for rental income. So their valuation of the property would really be tied to the revenue stream. With ADU s I think the Income Approach is a little bit shaky right now because the market has other motivations besides income.

There's the Cost Approach, the cost to construct something, but then again, that term depreciation, functional obsolescence, you got to figure out [00:20:00] well, what's the hit that this is going to take. And so Income, Cost Approach, those are other methodologies, but again, sticking to the one that I think works the best, Sales Comparison Approach, is going out and finding other properties similar and seeing what they're selling for.

Kol Peterson: Let's say there's no sales comps, let's say we're in a market where there has been less than five ADUs built and none of them had been sold. In the absence of sales comps, do you think the income-based valuation method could be used to determine an opinion of value in that case?

Abdur Abdul-Malik: A study was actually done about seven to nine years ago here in the Portland market, looking at the income approach as a way of valuing ADUs. This gets a little technical, but the income approach has, at its core, an implicit valuation of land.

And so attributing the, the land value apart from the ADU gets extremely complicated and difficult. In fact, when you read the paper that these gentlemen wrote who did this study, the equation they came up with was pretty complicated. [00:21:00] I think the issue is that many people who build an ADU are looking for revenue stream, but many are not. In fact, as, you know, you put on an ADU Academy and you've also done ADU tours where people can come to Portland and actually see the homes that have had ADUs done and a wide variety of types.

It was very illuminating a trip to do. I got to talk to some of these homeowners and while some did acknowledge they were doing it for income. Some also said that they were doing it to have a family member live close by, to take care of maybe of an ailing parent, or if they were the ailing parent, to have their children be able to live close to them, to assist them in, in assisted living basically on the property.

What happens is the market becomes fuzzy. There isn't as direct a correlation between the revenue stream and the resale value of the property, because it's not just for that purpose.

The government programs are looking into different ways to use that revenue stream . I really do think, five years down the road, [00:22:00] that may be one of the primary ways to value an accessory dwelling unit, because it will become so important for underwriting and the market. Once the market sees that the underwriters are all in on the income stream, it will start to respond. And that might become the primary way for valuing these structures.

Kol Peterson: It's interesting idea that the evaluation methodology might actually shift over time. If other jurisdictions or regions are interested in studying this same question that you've studied how would you recommend that they start the research process?

Abdur Abdul-Malik: A really good way to start this would to be to clone Kol Peterson and have them operating in your market because he'll be a wonderful source of information. But in the absence of that, I would say the best thing to do would probably be to talk to the, city the municipality. Portland is actually really good because a lot of this data is freely available online, but if it's maybe not so readily available online in your market, go straight to the source. Say, "Can I get a list of legal ADU properties that have been [00:23:00] permitted in this municipality?" And then what appraisers could do is they can check to see if any of these properties have resold. Basically what you're doing is you're doing a benchmark study, so you don't have to necessarily value 200 properties in your local market, but maybe some local appraisers could value 10, 20, 30 properties and get a sense of what the market is rewarding that ADU at what level they're rewarding it at. Then other appraisers could point to that study and say, okay, a peer reviewed study was done, in this market we have X percentage bump up for this type of ADU X percentage for the other, and in the absence of any other data that would be probably perfectly acceptable to an underwriter as long as a legitimate study was done.

Kol Peterson: Anecdotally, I've spoken with several people in California who are just dumbfounded at the idea that an ADU construction costs wouldn't add as much value for resale as a [00:24:00] cost to construct. They insist that it's different and that somehow an ADU there is going to add far more value than it costs to construct. What are your feelings about that?

Abdur Abdul-Malik: That may be perfectly true and their market. Again I like to emphasize that real estate's local, we've all heard the expression now when it comes to real estate it's location, location, location.

So perhaps in the Bay area or in Southern California where the density is so high constructing an ADU would easily bring back the cost to construct. But that would only be supposition unless someone actually does a detailed examination of those values.

Kol Peterson: Yeah. And I think that's the, that's the linchpin, I think is like, it's easy to assume that, but I think the only way to really know that is to do what you're doing, which is takes an appraiser to put in some rigor.

Abdur Abdul-Malik: Yeah, a little bit of time and effort for sure. It's not an easy thing to do. But I do think that probably some benchmark [00:25:00] studies in most major metropolitan regions will be useful. I'm hoping to produce a paper sometime this year with the findings in Portland.

And if a certain municipality finds that their market tracks pretty closely to Portland, maybe plus, or minus a certain number of percentage points, they might be able to use that study in the absence of anything else. But I would also emphasize that in many markets, there is always some kind of data. It's very rare to come to a market where there's absolutely no data.

As you know, Kol, you're always on top of the latest legislative developments affecting ADU construction. The state of Oregon had a law pass called HB 2001. And that zoning change basically almost mandates for the entire state that multiunit properties are now admissible and areas that were formerly only single family residential and Oregon is not the only state to do that. Seattle has similar regulations, California passed some landmark ADU [00:26:00] legislation. And so I think that as the climate becomes more favorable, the data is only going to get richer and richer in every market.

Kol Peterson: Yeah, indeed.

Kelcy King: That wraps up the interview portion of this episode of the ADU hour. As a reminder, these episodes are the edited audio version of interviews that we conducted via a webinar series. Good news. You can access the full video series via Kol's website, BuildinganADU.com. Now for the second half of the show I curate questions from the audience that gives our guests the opportunity to dive deeper into a topic or address new ideas and questions.

How does price per square foot change between the ADU and the primary dwelling unit and are there diminishing returns for larger ADUs?

Abdur Abdul-Malik: So the answer to that is that price per square foot for ADUs is usually astronomically higher than the price per square foot for [00:27:00] the main house, just because there's so much smaller. The price per square foot, it always goes up as a unit gets smaller because there are fixed costs to constructing something that even if it was theoretically a zero square foot unit it would still have these fixed costs, like permitting fees, site development, et cetera.

As anything gets bigger, the price per square foot, unless it's like a super rich mansion where everything's gold-plated, the price per square foot is going to always drop as something gets bigger.

Kelcy King: Thank you. Next question. Is there a difference between appraisal method used for financing the building versus used for insurance replacement of the building?

Abdur Abdul-Malik: Yes. In fact many appraisers likes to include statements of limitations and cautionary disclosures. One of the things they always put in their reports is that this may, this is not really valid for insurance purposes because it's a different type of valuation. The two could be very similar, but they could be also very different depending on how that definition is applied.

Kelcy King: Can you appraise based on potential rental income rather than the [00:28:00] square foot value?

Abdur Abdul-Malik: That gets into the income approach and the income approach is used in residential appraising. We do what's known as a rent survey. It gets a little tricky with ADUs just because we have to, again, tease out what the land value contribution is and that's complex. To be quite blunt, many appraisers really aren't trained to deal with the complexity that comes with separation of the land value when you got two different revenue streams. Now, one of the ways this could be dealt with is you could kind of look at the home as a duplex. If you classify it as a duplex, it gets put on a very different type of appraisal form, the expectations of the underwriter also different. You could simply say, this is a duplex where one unit is not rented because perhaps one unit is owner occupied, which is the case quite often with ADUs. Again, if your lender would allow that, that's a question mark. They may say, well, "this really isn't a duplex". It gets very semantic, but that's one way to kind of sidestep the [00:29:00] issue, I think is to just classify it as a duplex and then proceed as you would as a regular duplex valuation.

Kelcy King: Thank you. Are you aware of any localities or programs that are addressing the barrier of super adequacy through policies like financing above appraised value?

Abdur Abdul-Malik: Actually I have had some very marginal contacts with people connected with Fannie Mae, which is kind of the 800 pound gorilla in the secondary mortgage market. They make the regulations that govern most appraisals. And so one person told me that Fannie Mae is really looking into this. So maybe not so much allowing the home to be valued above the appraised value, but maybe having a stronger program for the inclusion of that income that, that ADU might be able to bring in.

And if that becomes the norm, as I've mentioned before, I really do think that that's going to be reflected in the values for these properties.

Kelcy King: This one's pretty specific to Portland. Do you find that [00:30:00] different neighborhoods value ADUs differently example East side R5 neighborhoods versus R10s?

Abdur Abdul-Malik: That's a very good question. And I haven't yet started to break it out by neighborhoods on a granular scale. That is something I will be looking into, but so far I haven't really seen as big an impact to the contributory value of the ADU based on neighborhood as I have based on the size and the quality of the ADU.

So I think those factors are more important right now for location, because if a person really is looking for property with an ADU, they're probably not going to be fixated on just one neighborhood. They'd probably be willing to explore a different substitute areas to get that value. What we call "value in use". They might be specifically looking for an ADU and so the neighborhood may not be as much of an impact.

Kelcy King: Thank you. Are appraisers from other ADU friendly markets sharing information and techniques?

[00:31:00] Abdur Abdul-Malik: So I'm pretty dialed in with a lot of the appraiser forms. Right now I'm probably one of a handful of appraisers that's actually trying to systematically look at this. Bad news is not too many appraisers are really doing an in depth look. Good news is, is that I think that might be slowly changing, I do share information on the forms and I have been contacted by other colleagues. So perhaps that will blossom. And as I mentioned before, it might be maybe some people in local markets need to prod local appraisers and kind of fire 'em up to look into this issue.

Kelcy King: How does the value differ between a detached ADU and an attached ADU?

Abdur Abdul-Malik: I may not have enough data for statistically valid generalizations, but just from what I've seen so far, I think the detach 80 is will, we'll give you the biggest, like absolute dollar return.

And I think there could be as much as a 10 to 20% difference. Don't quote me on that or hold me to it forever, but from what I'm seeing tentatively the detached ADU would probably [00:32:00] maybe be 10 to 20% higher.

Kol Peterson: I'm going to interject a couple observations here. You referred to when you convert a garage, you indicate that you would have to remove the functional economic utility value that the garage provided. While at the same time, you can add on the value of this new housing in it makes total sense. In fact, that's precisely what a taxation assessor does as well. So if you were to convert a garage, the assessor would say, "Oh, well, that's great. You've added an ADU, but we're also going to subtract the amount of value that the garage was worth because you've gotten rid of the garage".

Similarly, from a homeowner's perspective, if you're converting a garage, presumably you're going to save some money because your structural shell is there. And so you don't have to put the money into building that structural shell. These are all intuitive alignments of these three different methodologies is looking at what that value would cost.

So yes, [00:33:00] garage conversions going to cost less to build in an ideal world, and it's going to add less value and it's going to increase your property taxation less than detached new construction would. Similarly a basement would have that same kind of economic impact, I suspect.

I think what we might find is over time, all these things really are in alignment with more or less what it costs to construct. So one of the questions that I saw come in if you're doing new construction with a basement ADU in it. That is the one and only way that a spec developer, at least in the Portland market right now with land values, what they are, it's the most common way that I've seen ADUs for spec development. It cost the builder, like $30,000 to $50,000 extra to put in that additional unit in that structural shell that they're already building. Whereas you do not see detached new construction ADUs being built with spec development as much, at least I haven't.

In the Portland market right now, some spec developers are starting to do that and they might realize $30,000 to $50,000 bump in the resale [00:34:00] value of that property.

Detached new construction you're not going to get a dollar for dollar valuation on that resale. Does all that mesh with your understanding of things Abdur?

Abdur Abdul-Malik: Right now I've yet to see a dollar for dollar return. I've seen the percentages get pretty up there, you know, all the way up to 70% bump in value. But I do think that, at least for right now, most people in the Portland Metro area who built an ADU should expect that there's going to be some sort of an economic hit in terms of the return. But, of course, if a person is building an ADU for the long-term and they're not looking to sell immediately. That could change dramatically. Many areas, including Portland have had housing issues. And I do think ADUs are a very important part of the solution to that.

And it could very well be that down the road, perhaps markets will not only give you the full dollar for dollar return, but maybe you'll get a profit. And that might spur on more building of these ADUs.

Kol Peterson: Another question, giving voice to the threads of conversations that have had with people in California, they seem to [00:35:00] think about these additions as additional square footage. I don't know whether they're basing this in any fact or not, but say, well, if you're adding, you know, 300 square feet of additional square footage and square footage costs $400 a square foot, you're going to get huge value out of that additional 300 square feet.

But that's not how I've heard that appraisals or resales are looked at. What do you think?

Abdur Abdul-Malik: So that's probably one of the biggest tropes to valuation that appraisers have to deal with. And it's one of the reasons why sometimes people can be disappointed when an appraisal comes in and the value is far off from what they want, if it was that easy, just take the square footage and multiply it by one number and boom, you've got your value. There would not be an appraisal profession. You would just need a calculator and you'd be done. But the fact that you could spend a certain amount of money and not get that full value back, shows that there's a greater degree of complexity with valuation than that.

Just as a technical note, there's a standard for calculating living space called [00:36:00] the ANSI standard. And it's the de facto national standard for how square footage is calculated and this guide, if you Google ANSI, you can find it, it's like a 16 page document. One of the things that it specifically says is that if something doesn't flow from the main living area, it cannot be considered gross living area. Gross living area is extremely important because if anyone in the audience has seen an appraisal, there's a line "GLA", that line, that one line is probably 60 to 70% of the value of any home . If you can't put something in that line, it's not going to have as much of an impact on the final valuation.

Kol Peterson: Thanks.

Kelcy King: Should I carry on? What effect are you seeing of adding an ADU on the property tax assessments?

Abdur Abdul-Malik: That's a good question. Since I'm really just focusing on the resale value, I haven't actually put those figures together, but it be pretty trivial for me to do because the nice thing is with the RMLS database they actually do supply the tax [00:37:00] figures with the resale.

So that's a great question. And I'm going to put that as a, to do project. You just gave me some homework.

Kol Peterson: All right. Abdur likes homework. I'll yeah, I'll give my take on that. Property taxation is done at the state level, so it varies from state to state. In Oregon, my rule of thumb, again, assessors would, would be so annoyed if they heard me say this, but here's the way that you can think about it, for every a hundred thousand dollars of contributory value that you add to a property in the eyes of an assessor, that will increase your property taxes by $1,400 per year.

An assessor undervalues the contributory value by roughly 25%. So If you add a $200,000 ADU, 800 square foot average price ADU in Portland market, that's going to add $150,000 in the eyes of the assessor, which translates to $1,400 plus $700 is a $2,100 tax bump per year.

That's my way of thinking about it. Conversely, if you did a garage [00:38:00] conversion, since you have shell and you're not adding on that additional value, then you're only adding on like say $50,000 of finished cost. And so that would bump up your taxes by roughly $700 a year, rule of thumb.

Abdur Abdul-Malik: That's actually not too bad.

Kelcy King: Is there an option on the appraisal report saying what type and size of the ADU? Attached? Detached?

Abdur Abdul-Malik: That's a very good question. So right now the standard appraisal form that most people in the audience have probably seen or interacted with is old. It's actually considered obsolete even by Fannie Mae, which is the originator of this form.

So it doesn't specifically have a detailed section for ADUs. It does have a little box on the first page where you can say single family or single family with an accessory unit, but then in the grid, if anyone's ever seen the sales grid that appraisers use to make adjustments. The appraiser typically would have to put an ADU in one of those free little lines at the bottom.

So what that tells you is, is that when that form was [00:39:00] designed, they really did not give much thought to accessory dwelling units. It was a non-factor in the development of that form. Fannie Mae is in the process of developing more comprehensive and detailed forms. And I suspect, in fact, they're supposed to be more web based where the form would dynamically change based on the information the appraiser supplies.

So if they were to check that accessory unit box, I imagine it would then start asking questions. How big is the ADU? What's the quality of the ADU? How many bedrooms, how many bathrooms, et cetera. So for right now, it's kind of an afterthought on the existing forms and appraisers kind of have to wedge it into place, but in the future, I expect there will be dedicated fields for ADUs.

Kelcy King: How did you calculate the loss in value for losing the garage on a garage conversion?

Abdur Abdul-Malik: So that's a great question, and that gets into valuation methodology. As I mentioned earlier, and I know I gave a very rapid fire presentation, I am looking at properties in a neighborhood. So typically I would pull [00:40:00] all the sales within that neighborhood over, perhaps a two year period of time, to get statistically valid amounts of data.

And what you can do, you can do different types of valuation methodologies. One of them is regression, where you can do a regression equation to see what the value of that feature is. Another one, and this is a little technical, is called aggregate difference methodology. That's when you pool properties by differences that are controlled by you, and maybe you adjust for differences in square footage and then presumably the difference remaining is for that feature that you're looking for. I use that quite often.

Using either regression or aggregate differences, I say, okay, a garage is worth $20,000 - $30,000 in this neighborhood. So we lost that, but here's what we gained with the ADU, and then I can subtract out the difference.

Kelcy King: Great. And then to kind of piggyback off of that, are there any benefits for having the ADU above an existing garage? So you don't lose that garage space?

Abdur Abdul-Malik: That is useful, but you know, what I've seen is that the ones that are above [00:41:00] the garage are generally the, one of the smaller ADU types. And one property I looked at, I think it only contributed about a 4% bump in value.

So it was actually quite surprising. It was a very small, it was measurable. It was there, but it was pretty small. There aren't that many that I've seen in my data set. So I maybe don't have statistically valid data to give a definitive answer on that, but just a rule of thumb, it seems like if they're going to be really small, that factor more than anything else weighs in on the value and it might be a more modest return.

Thank you. What is the most common factor used to find the five comps such as East side versus West side, schools, property types?

So again, this is the typical appraiser answer, it depends. The market dictates which attributes are the most important. In most parts of Portland, the single variable that's going to influence value is going to be gross living area.

Then you have lot size, you have [00:42:00] quality of construction, you have the overall condition of the property. Schools can matter, but generally appraisers are going to do their best to pull comparables that are nearby. So a lot of the locational variables kind of wash out because all the comparables polled share the same school district, or maybe share a similar locational influences.

So, as long as you're not going too far out of the boundaries for a neighborhood, like if you were in Ladd's Addition, I would not pull any comp outside of Ladd's Addition for those who are from the Portland market, Ladd's Addition, is a historic district, you got maybe 50, 60 homes that are on the historic registry.

You don't want to leave the boundaries for Ladd's Addition. Visually, if you Google Ladd's Addition, for those outside of Portland, you can see visually from an aerial view, it's a very distinctive looking neighborhood. So in that case, I'm going to stay in that neighborhood and that's going to wipe out a lot of the locational differences.

And then I'm going to be able to focus in on those key variables of gross living area, lot size quality. And of course, if it's Ladd's Addition, if it's on a historic registry, I'm going to want [00:43:00] to pull some comps also on a historic registry. So again, apples to apples, as I said earlier, you just want to be as similar as possible when you're pulling comps.

Kelcy King: What banks are currently lending most on ADUs? Meaning which ones have underwriters that understand this process?

Abdur Abdul-Malik: I don't know if I can give a generic answer to that. ADUs are common enough that no bank or institution should be completely befuddled by the existence of an ADU. So I think the main thing that most banks and credit unions and other lenders want. Is, if they're going to have a property with an ADU, they want the appraiser to clearly demonstrate, through the use of comparables and through their methodology, what the value that ADU is. I'll be the first to admit, there are some appraisers out there they'll just throw their hands up and they'll just say, plus $10,000 for an ADU and just phone it in and move on.

And that can be very infuriating for people who maybe drop a hundred, $200,000 on an [00:44:00] ADU to just get cursory treatment by the appraiser. The underwriters, if they're knowledgeable about ADUs, and that's very variable as to which underwriters are conversive with them, they can push back on that and say, "wait a second this is not adequately documented in this appraisal report." but unfortunately, if you get an appraiser who doesn't know what they're doing, coupled with an underwriter, who also is you know, kind of ignorant on the topic, you might just get a bad appraisal and it might be hard to challenge it.

Kol Peterson: I want to follow up on that.

We've got a couple of questions in the Q and A that I want to mesh together. For some historic context, appraisals of properties with ADUs has been a big problem in the sense that oftentimes they've been given zero value. Another case , as Sarah mentions , in Denver, there's been appraisals that have fluctuated as much as $80,000 on a property with an ADU.

What degree of this appraisal process is arbitrary for lack of a better word? What, what degree is attributable [00:45:00] to misinformation on the part of the appraisers about the legality of ADUs?

Abdur Abdul-Malik: Okay, so you really opened up a can of worms by throwing in the term legality.

So one of the things I want to stress is that the study that I'm doing is only legal ADUs, I'm not looking at ones that are illegal. Illegal, that creates problems because, depending on the municipality, something that's illegal could result in an exorbitant fine. And it could make a really big difference in how the valuation will proceed.

If it's illegal, a lot of lenders have a policy, you can't value it according to an illegal purpose, they may say the appraiser is to value it based on the legal purpose and what's known as a "cost to cure", meaning how much would it take to get this back to legal compliance?

But in some markets like any of you who are out there in Hawaii, you very well know that in Hawaii, getting a permit is almost a joke for certain additions and alterations for a property. And the municipality is very laid back about it. In that case, yeah, technically it's not allowed in the market, but the [00:46:00] market doesn't care about the illegality because no one enforces the code, so you can just proceed pulling any old comps you want. So again, it's local, it's all local, depends on your jurisdiction.

Kelcy King: Can you address the condoization model?

Abdur Abdul-Malik: That's an extremely good question. So I'm not studying condoization right now. And from what I can tell, just on pulling data from the market, it's extremely rare, at this point, for a property that's been condoized to then be resold on the open market where the units are sold independent.

So I have seen listings in my research where the realtor is saying that it's in the process of condoization, but I haven't seen too many sales. That's a project for future time, I think right now, if you have condoized your ADU, expect an extraordinarily difficult appraisal process. I'm just going to be very blunt about that because the data for that is pretty scarce. And you might say, well, why can't you just pull other condos ? We're trying to compare apples to apples. And if we have a [00:47:00] detached ADU that's a condo, which has its own little site around it, so to speak, and then you have apartment style condos, they're not quite apples to apples. And so then that's where as a brought out this fluctuation of $50,000- 480,000, it's all over the map because the data is all over the map. It's just not clear. .

Kol Peterson: I'll just comment that there has been roughly 25 condoized ADUs in the last year. It's definitely becoming a a little bit of a, a trend amongst spec developers, for whom ADU development doesn't make sense otherwise. And we've seen that in, in Seattle, we've seen that in Austin, Texas, California doesn't allow it.

So that's something that we can look for more comps of in the future, I believe.

Abdur Abdul-Malik: As I said before, I think the data across the board, it's just going to get richer and richer.

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The ADU Hour w/guest Ethan Stuckmayer
25 ago 2021· The ADU Hour
[00:02:18] Kol Peterson: Welcome, Ethan, good morning.
[00:02:22] Ethan Stuckmayer: Thanks for having me.
[00:02:23] Kol Peterson: Yeah. I'm excited for this, I was bantering with Ethan before this and I was kinda thinking what is exactly is the professional experience that you need to have to do this job that nobody else in the country has ever done before?
What an interesting position you've been put in. For people's benefit, could you describe kind of your particular role within DLCD as far as your relationship to House Bill 2001, which we will describe in a minute?
[00:02:47] Ethan Stuckmayer: Yeah. So I'm the Senior Housing Planner at the Department of Land Conservation and evelopment, which is really state of Oregon's land use department.
We regulate what are called the Statewide [00:03:00] Planning Goals, and there's 19 of them, one of those is Goal 10. Goal 10: Housing, which is my domain, I guess, and this is the area which we implement the intent and the purpose of Goal 10. House Bill 2001 in 2003 are two pieces of legislation that advance DLCD's work in housing.
And prior to House Bill 2001 and 2003, really, the 2019 session DLCD did not have a housing team, which we do have now, which is really exciting.
[00:03:30] Kol Peterson: Do other states have a Goal 10 equivalent that is like a statewide housing goal mandate or is that unique to the state of Oregon?
[00:03:39] Ethan Stuckmayer: I don't think it's unique to the state of Oregon. What is unique about the state of Oregon is just the context within which that sits. The state of Oregon is one of the few growth management states, Washington, there's others, that have high preference on preserving forest and farm lands and regulating the development [00:04:00] within a certain geographic boundary, urban growth boundary or, or similar.
So I know that the state of California has things like The Housing Element that their Housing Community Services Division at the state level manages. But from my understanding, the state of Oregon is, is really quite unique in that.
[00:04:17] Kol Peterson: All right. So let's describe House Bill 2001 in two minutes for a random Planner in N ew Hampshire, who's never heard of it. What is House Bill 2001?
[00:04:26] Ethan Stuckmayer: Sure, so House Bill 2001, really pretty simply end s exclusive single family zoning in big and medium sized cities and the state of Oregon. So as a requirement to House Bill 2001, cities must basically update their development codes to allow certain middle housing types, which I'll define in just a bit, but those need to be allowed in every residential zone that also allows for the development of a single family detached home.
So, converting those lower densities zones into a little bit higher density zones. Cities are still [00:05:00] allowed to regulate the citing and design and the look and the feel of middle housing, as long as those standards don't cause what's called unreasonable cost and delay. So basically those cities can apply only standards that they might only apply to single family detached homes, previously, things like building height, setbacks, lot coverage, all of those standards can't place an undue burden on the development of middle housing.
That's pretty short version of House Bill 2001.
[00:05:25] Kol Peterson: And describe for us this term, middle housing you're using that term that most people have been familiar with was coined by Daniel Parolek, "Missing Middle"housing. What is it? Are those the same thing? Why, why are we using the term "middle housing"?
[00:05:38] Ethan Stuckmayer: Yeah. So middle housing, for the state of Oregon is a well-defined term.
It's a collection of missing middle housing types that Perolek talks about. For the Oregon context, there is five: duplexes, triplexes, quadplexes, townhomes, and cottage clusters. And the reason why Oregon's not using "missing middle" housing is because it's [00:06:00] a long-term policy.
We're hoping that in 20, 50 years, we're not missing those middle housing types anymore. It's just called middle housing. It's just part of our housing continuum.
[00:06:10] Kol Peterson: Now House Bill 2001, unfortunately did not capture ADUs within this middle housing definition, which has some weird administrative history that we don't need to go into, but can you describe what House Bill 2001 did for ADUs, explicitly?
[00:06:26] Ethan Stuckmayer: Yeah, I think the beauty of House Bill 2001 is that it's got so many different layers. For ADUs House Bill 2001 followed up the previous bill that you were just talking about, Senate Bill 1051, that required cities to allow ADUS in conjunction with a single family detached home. And city could only subject those ADUs to what are called reasonable standards. So basically House Bill 2001, with some years of experience of implementing Senate Bill 1051, the legislature identified a couple standards that cities were using that were maybe more unreasonable than reasonable.
So [00:07:00] basically House Bill 2001 clarified that off-street parking requirements and owner occupancy of either the primary or accessory dwelling were quote unquote unreasonable for ADUs specifically. Yeah.
[00:07:11] Kol Peterson: Right. For those who are on the call, it's the opinion of many people, including myself, that owner occupancy and off-street parking requirements are the two most common largest poison pills for ADUs that you will see prominently throughout regulations across most of the country. If you look at cities that actually do allow ADUs, they are oftentimes have those provisions in effect, so this is a really good example of a very simple one line legislative effort that effectively changes the course of the potential for ADUs to happen. Not that not to say that they will happen in great numbers, but that they can now potentially happen in Oregon cities.
So how many cities does House Bill 2001 impact in the state of Oregon? And what does the total population that House Bill 2001 effects compared to the [00:08:00] overall state policy?
[00:08:02] Ethan Stuckmayer: Yeah. So House Bill 2001, applies to cities and counties, but cities outside of the Portland Metro with a population of 10,000 or greater, and then cities within the Portland Metro of 1000 or greater. And there's different thresholds within those broad categories, but in total that's 56 cities across the state and three metropolitan counties. And then there's quite a few cities who are just under those thresholds. There's maybe about five or six cities that are definitely coming online in the next couple of years, but that's pretty close to two and a half million people in the state of Oregon.
In the whole state, that's about 60% of the population.
[00:08:43] Kol Peterson: Yeah. So 60% of the population is captured by hospital 2001. Okay. You know, and, and that's we have, I guess it's a fairly small population relative to a lot of us states. But th but the majority of the population is covered by this.[00:09:00]
All right. So tell us about the history of house bill 2001 came into being.
[00:09:03] Ethan Stuckmayer: Yeah, well that's tough, because there's a lot of history, there's kind of like two major history threads here. The first is the long-term history of race and income segregation in America. And then that plays into the short-term history of just rising home prices brought on by housing market that's really failed to keep up with the number and the capacity of the units that we've really needed over the past decade or so.
Naturally that short term history is influenced by that long-term history and the conversation about middle housing is is important because it used to be part of our housing market, right? It used to be these row houses, multiplexes kind of all over our, our state and our country. And they're even referenced as kind of like traditional housing types because that's traditionally what we've seen built across the country.
But I think in [00:10:00] the even shorter term, House Bill 2001 came into being as part of a follow-up to what the city of Minneapolis did in 2018, which was the first kind of city-wide elimination of exclusive single family zoning.
And Oregon kind of took that a step further and did that on a statewide level, but really it learned from the success of Minneapolis, where they will able to create these coalitions of, of, of interest groups or advocates that don't usually play on the kind of same team and brought them together for this, this greater purpose of creating more housing, housing choice, housing options, and then leading to more affordable housing. And I think the lead up to House Bill 2001 saw a lot of housing advocates teaming up with the home builders association and Realtors teaming up with their housing advocates.
Some of those things you just don't really see on a regular basis legislative session to session. So House Bill 2001 really I think, learned and was successful in [00:11:00] part because of City of Minneapolis.
[00:11:02] Kol Peterson: Yeah. I think one of the themes this week has been the impact of this coalition building at a local, regional, and now a state level and the importance that that's had in terms of this general movement towards small infill housing or middle housing or whatever we're going to call it.
So, what is your role and DLCD's role, more broadly, in developing regulations for House Bill 2001. For those who aren't familiar with the general rule making process, there's the law, the legislation, then there's the rulemaking process. So what is DLC D's role within the rulemaking or regulatory development process?
[00:11:37] Ethan Stuckmayer: Yeah. So DLCD has got a very singular role in the state process. Like I mentioned, there's these 19 statewide planning goals and we're kind of like the protector of those statewide the Oregon statewide land use system. I say protector. I think some others would probably say more like passive observers or even some other people might say we're the [00:12:00] arbiters of the land use system. So DLCD's role is to be that face in front of the land system. Implementing it statewide and interpreting rules and, you know, playing referee at some points. And so basically when legislation comes through, right, the legislature sets the land use policy direction, that gets codified in statute, and then basically DLCD's role in that is to translate those statutes, which are broad policy directions, into actual rules and regulations to put forward an operationalize that that policy direction. So my role within all of that was to lead the rule-making effort for House Bill 2001, along with a huge group of advisory committee members to create the framework around how cities can and should and must implement House Bill 2001.
[00:12:55] Kol Peterson: We'll talk more about the rulemaking process in a minute. Before we get there, let's talk [00:13:00] about the number of states staff DLCD department of land conservation and development staff that are 100% dedicated towards the implementation of these new standards across the state.
[00:13:09] Ethan Stuckmayer: Right. So now, finally, DLCD has a housing team, which is an incredible asset, I think, for the state.
So right now we've got four full-time staff members who are working on housing implementation across the state, focusing on Goal 10. And then we're supported by probably close to five others on a part-time basis. So we've got this big crew now to focus on monitoring, reporting, rule writing, enforcement, reviewing standards, providing technical assistance.
And so it's really kind of incredible to see the amount of work that we've been able to do now that DLCD has a housing team, right. It's kind of new core work for DLCD.
[00:13:50] Kol Peterson: And you referred to this as a big crew, and I just want to put a pin in that and be like, there's only four people for the whole state of Oregon that are executing this bill [00:14:00] that is going to have such significant impact across two thirds of the state as a reference point for other states that are considering this. The amount of bang for the buck there is really significant. Perhaps we'll see, we'll see how this all plays out.
[00:14:12] Ethan Stuckmayer: Fingers crossed. Yes, that's correct.
[00:14:14] Kol Peterson: So how is monitoring for compliance with the state standards going to be handled?
[00:14:20] Ethan Stuckmayer: Right. So now that we've actually got some capacity to do that monitoring, reporting, and enforcement, it makes that job of fulfilling the intent of Goal 10 a lot easier. But historically DLCD has never really had much authority to play in an enforcement role. We manage the process that's known as the Post Acknowledgement Plan Amendment Process.
For people outside of Oregon, that's basically the process by which cities and counties submit their new comprehensive plan and development code language, and the state kind of reviews it and says, yes, you meet all of the state's laws and requirements, that's kind [00:15:00] of DLCD is domain there. And thankfully we already have that infrastructure in place, so we can kind of utilize that. And there's some checks and balances there. House Bill 2001 is unique in that I think the legislature played a little bit of hardball to some extent with House Bill 2001. There's definitely more authority for DLCD to enforce the provisions in House Bill 2001. Specifically the state's model code for middle housing, which really has an enforcement mechanism. If cities fail to comply with House Bill 2001, by the specific deadlines and timelines. Then the state's model code removes or preempts the local control of how middle housing gets regulated in their city. So it's yet another tool in the toolbox for the department.
[00:15:47] Kol Peterson: I had the perception going into the rulemaking process that model code meant we were talking about the best possible gold standard platinum level standard code. And that isn't [00:16:00] necessarily what the model code is, is that accurate?
[00:16:03] Ethan Stuckmayer: Yeah, I think it's a blend of reasonable standards with best practice standards for regulating middle housing.
It's definitely, I would say quote unquote goes above and beyond what most cities would consider reasonable regulations for middle housing, and that's really the intent of the model code is to be this shining star in some manner, but also be able to be implemented, right?
It has to be drafted in a way that can be implemented without further amendment or adaptation.
[00:16:35] Kol Peterson: And just to give some ground-truthing for those who are not intimately involved with this process. Let's give an example of model code for parking for say a quadplex what is the state's model code for parking for a quadplex going to be? How is that framed? And then what is the minimum compliance standards for a quadplex if a city doesn't want to use the statewide model codes?
[00:16:56] Ethan Stuckmayer: Right. Yeah. For even more context there, we've got the [00:17:00] model code, which is very specific set of standards. And then what Kol mentioned was these minimum compliance standards, which are basically just setting the range of acceptable outcomes.
And the model code is just one of those kind of cherry-picked acceptable outcomes. So the model code for parking might say for a duplex, you do not, or you can not require any off street parking spaces for that duplex. And then in the minimum compliance standards that says a city can apply basically no more than one off-street parking space for per dwelling in that duplex.
So up to a maximum of two, but they have that option of going zero one or two from the total development, but nothing higher.
[00:17:42] Kol Peterson: Got it. Thanks. Give us some context for the state laws that pertains to housing production metrics, land use and how a state housing policy is handled. How does this vary from how other states handle housing policies?
[00:17:55] Ethan Stuckmayer: Yeah. So like I mentioned Oregon is I think, [00:18:00] fortunate to benefit from some fore- thinking way back in the seventies of the statewide planning goals, right. Goal 10: Housing sets the framework for all of what we do in the state for housing planning in the future over a 20 year period, the 20 year planning horizon.
And so housing production, land use, all of that stuff sits within that frame. And there's a couple of things that the state of Oregon does that I think other states do, but the state of Oregon requires cities to basically run an analysis of their needed housing over a 20 year period.
And then they have to take action on that information that they gleaned from that analysis. And so we're getting better at using things like data and metrics to actually measure progress towards achieving those needed housing units, but I think House Bill 2001 and even House Bill 2003, to some extent, which we haven't talked about, just beef up those metrics and beef up the state's ability to have at least a sense of [00:19:00] accountability at the local level.
[00:19:02] Kol Peterson: Describe quote unquote clear and objective standards and why this is important in Oregon law.
[00:19:08] Ethan Stuckmayer: Yeah. So part of past legislation, a few years ago already, required cities to only, they're only able to subject residential development to what are known as clear and objective standards. So those are standards where there's a measurable outcome that results from that standard and say your standard for building height is 25 feet.
And that standard is, you know, very clear, very objective. There's no subjectivity in that analysis. And those are the only types of standards that cities can apply to residential development. And it's an incredibly important in not only the state of Oregon, but if other states or other jurisdictions use it because it removes some of that conflict or the tension at the local level in making land use and residential approvals. It removes the conversation about neighborhood compatibility and, and [00:20:00] all of that kind of stuff, which just opens the door for more residential development, which we know is needed.
[00:20:06] Kol Peterson: I will say that there's still opportunities for a loophole exploitation from local jurisdictions. For example, you could measure 25 feet from the lowest point of grade or the highest point of grade against a structure. So there's plenty of opportunities for cities to still be squirrelly if they wish to do so. Any commentary on that?
[00:20:27] Ethan Stuckmayer: Yeah, there's certainly no no end to the conversation of what is truly clear and objective all of those standards. There's definitely some like you say, wiggle room to regulate those in a particular way that may or may not be clear and objective.
And we even within, like you say, the building height standard it varies from city to city, do you measure it at the average grade or the lowest grade, the top grade? What is a true, clear, and objective standard that we've only kind of begun down that path in the state of Oregon. It's [00:21:00] a couple of years old at this point, but even some cities are still struggling to get to that true clear objective path, even today.
[00:21:07] Kol Peterson: So speaking of jurisdictions attitudes towards this particular set of regulatory rules that they must be subject to now. There's potentially some awkward tension that is embedded within removing land use authorities from local controls. And this is, you know, historically a lot of zoning occurs at the local level as opposed to at the state level.
So as an advocate for more housing or outside observer, I don't have any particular issues with reassigning those authorities towards the state if it achieves my particular interests in promoting more small infill housing. But can you speak to this issue for us? What have been some of the tensions that you've observed or that you foresee as House Bill 2001 rules come into effect?
[00:21:52] Ethan Stuckmayer: Yeah, I think part of the impetus for House Bill 2001 was an understanding of the [00:22:00] extent of the crisis that we find ourselves in. And there's been a structure in place where cities regulate housing for a long time in a particular way. And in part, and there's lots of other factors, but in part, those regulations have led us down a path that we are in right now.
And so I think the sentiment at the legislature in advocates is that if cities and regulatory bodies had kind of had their chance to allow these housing types and they just haven't taken up the opportunity. And so it was time for the state legislature to step in and make some changes at a top level so that it could achieve some outcomes at the local level.
And I think that's really where the tension arises. When I speak to planners across the state about, "Well, now there's all these regulations and it's opening the door for the state to preempt my local codes. And, you know, I thought that [00:23:00] was part of our statewide planning system where there's community engagement and we're able to regulate our community in a certain way. And now you're kind of removing that."
I think that can both work in unison, right? The legislature sets the policy that you hope kind of better society in a way. And I think yeah there's opportunity for both the community to regulate itself and for the state to set the direction. I think both of those can exist at the same time.
[00:23:26] Kol Peterson: Let's give a one minute overview to differentiate the political legislative process and the actual administrative rulemaking process. Can you describe what the rule making process for House Bill 2001 established for the state?
[00:23:40] Ethan Stuckmayer: Yeah, so the political legislative process at the state level, like we've mentioned, sets the policy direction and it sets these broad parameters that then get codified into Oregon revised statutes.
[00:23:54] Kol Peterson: Give us an example of the broad parameter.
[00:23:56] Ethan Stuckmayer: Sure like a definition of a cottage cluster [00:24:00] or something like that.
[00:24:01] Kol Peterson: Okay.
[00:24:01] Ethan Stuckmayer: Maybe that's a bad example. How about the language in House Bill 2001 that says "the cities must allow middle housing in areas zoned residentially that allow for the development of middle housing." Right. And so what does "in areas" even mean? That's, DLCD's role to define what that actually means in rules and regulations. So, those kind of north stars that the legislature provides become really important because the rules have to implement that purpose, that intent of that policy. And so to help us do that, DLCD brought together a group of about 55 people on an advisory committee and then various technical advisory committees that help us kind of build out those rules. It was really important to DLCD to have a broad range of experiences on that advisory committee, because, we don't have the understanding of local context in a city like Eugene, and then a city like Hood River, and Ontario, and all of these places are [00:25:00] completely different.
So bringing those people to the table is really important to create a good set of rules and something that could be implemented on a statewide level or rules that are drafted on a statewide level, but then can be implemented at the local level.
Our rulemaking process was a full year. We had hours and hours and hours of long meeting. Cole was there for, for lots of them. And really, it ultimately led to kind of three major pieces of rules. The first is like the nuts and bolts of these rules, sections of the definitions, purpose, the applicability, how DLCD will enforce the rules. But then it also adopted a model code, one for medium cities and one for large cities, those are different.
And then it established the set of minimum compliance standards, which we kind of talked about. What is the range of acceptable outcomes? How do we define unreasonable siting and design standards? So those packaged together is what we adopted in the rulemaking process.
[00:25:56] Kol Peterson: And what were some of an example of a significant [00:26:00] policy change or outcome that occurred as a result of the rulemaking process? Just to ground truth, like give some examples for people to understand.
[00:26:08] Ethan Stuckmayer: Yeah. I actually have like a top five.
[00:26:10] Kol Peterson: Okay.
[00:26:10] Ethan Stuckmayer: Highlight list.
[00:26:11] Kol Peterson: Okay.
[00:26:12] Ethan Stuckmayer: So first is that the rules established a clear expectation for cities and that middle housing needs to be allowed and an as needed housing, its desired housing and that cities must allow it. And then, second, it kind of shifts the paradigm away from city development codes that basically kind of subsidized single family detached home dwellings exclusively, and then kind of treats middle housing on at least an equal footing.
Maybe even a stronger foothold for middle housing in some cases, but at least equal footing. And then we had this legislative direction about unreasonable cost and delay, and I think the rule making process better defined what that phrase actually means.
And so that was a huge piece to tackle in that rulemaking process. Number four, I think one of the things [00:27:00] that surprised people in the rulemaking process is that the state kind of took a little bit of a hard line stance on off street parking mandates, basically limiting that to no more than one off-street parking space per dwelling unit in the middle housing.
And then finally, and I think maybe the most important one is that it opened the door for continued conversation about Goal 10 and just how badly Goal 10 needs to be reformed, or at least how DLCD and forces Goal 10 across the state.
[00:27:29] Kol Peterson: As other state legislative bodies and advocates consider a statewide legislation, akin to House Bill 2001, which has now occurred in Nebraska, Connecticut, and has been considered in states such as Washington, California, Montana, Minnesota, Maryland, Virginia, North Carolina, New Hampshire, and Vermont. Can you speak to what advice you would offer to make legislation better than House Bill 2001?
[00:27:55] Ethan Stuckmayer: Yeah. It's hard to get better than House Bill 2001. No, I'm just kidding. I think the catalyst [00:28:00] behind all of these states taking this action is really just an understanding of just how in depth and how broad the housing crisis is.
And there's just a need to use kind of every tool at our disposal to overcome it. So it's great to hear about all of those states and I've had conversations with some of the folks in those states kind of trying to learn from the state of Oregon, but I think really the suggestion that I would make for the cities is just to ask the legislature to be abundantly clear on the purpose and intent of all the specific provisions in the bill.
Kol, you know, that there was many times in the rulemaking process where we had the kind of sit down and try to read between the lines as best we could on certain phrasing things like "unreasonable cost and delay", the "in areas" question that we talked about. So I just think that the more clear the legislature can be and the intent and the conversation around those provisions, the better.
I also think that the model code played a huge role and is absolutely critical in [00:29:00] the enforcement of House Bill 2001. And in all of those kinds of future legislation pieces. So it's really invaluable. I've talked to a lot of planners across the state about how the model code acts as this like boogeyman in the corner of the council chambers, when they're having conversations about how to implement House Bill 2001 and elected officials are, really, I think nervous to accept the state's model code as a default option.
And so they're kind of making decisions that they may not have made in lieu of a model code kind of looming over them. So it is a little kind of like punitive in that, in that sense the model code is, but I think it plays that role really well.
[00:29:44] Kol Peterson: So California state laws related to ADUs are very prescriptive, such as cities must allow for ADUS to be four feet from the property line in contrast to House Bill 2001, which are not as prescriptive. The legislation might say something to the effect of mental [00:30:00] housing must be as, as easy to develop or to permit as single family dwellings. So I see pros and cons to this level of prescriptiveness within legislative language.
Do you wish the House Bill 2001 had been more clearly defined or do you think it's better to have left it vague enough for a more technocratic rule making processes like the one we were just talking about to allow for flexibility on the implementation of these legislative intents.
[00:30:27] Ethan Stuckmayer: I understand the vagueness and the undefined terms that need to be used in the legislative process, because there's, I think a desire for legislators to not really be very prescriptive in how they're providing this policy and then kind of let it play out.
And they don't want to be the final decision maker on some of those topics. So things like "unreasonable cost and delay". I think questions around unreasonable cost and delay may be better answered by litigation and legal challenges to fully set case law around what is and what isn't [00:31:00] unreasonable cost and delay.
So I understand the need to be vague in that respect. But every time something's left undefined it led to a lot of headaches that I wished I didn't have to have in the rulemaking process and conversations that seemed like they were going around in circles about really what was intended by the legislature, in that, with that certain provision.
But I think it's important to have those conversations because you get to a better policy outcome when you're able to kind of sit down and work in the trenches with like a really knowledgeable advisory committee and work through those sticky issues to, to come up with a better outcome than maybe a a legislative direction might've been.
So I understand the pros and cons. I see both, but I don't think I would change it.
[00:31:47] Kol Peterson: So let's talk about Senate Bill 458, which is not House Bill 2001, but it was just enacted recently in the last few weeks, subsequent to House Bill 2001. Can you describe what Senate Bill 458 is and what the timeline [00:32:00] for the passage of this new law was and how it relates to House Bill 2001?
[00:32:04] Ethan Stuckmayer: Yeah. So Senate Bill 458 is really a bill that's directed at House Bill 2001 implementation. So basically Senate Bill 458 requires cities that are subject to House Bill 2001. They allow middle housing lot division. For any middle housing type that's built after June 30th, 2022, which is also the deadline for implementation of House Bill 2001.
So cities must allow if a property owner comes with the development of a form of middle housing, they must also allow for the division of that lot into an equal number of lots to the middle housing type. So if it's quadplex and they have to allow a division of four lots of that parent lot.
Senate Bill 458 was in response to some how the rulemaking was playing out for House Bill 2001. We had lots of conversations in the rulemaking about, do we allow detached Plex [00:33:00] developments and cottage clusters? What does that mean for a property owner to build that? And how difficult is that actually, to move that housing type after you've built it? Knowing that House Bill 2001 had really kind of this limited home ownership opportunity associated with it.
I think there was a need for Habitat for Humanity who is the sponsor and author of that Bill to go forward with this follow up to House Bill 2001.
[00:33:26] Kol Peterson: What was the legislative intent of Senate Bill 458? Maybe putting words in the mouth of habitat for humanity here. And what does this mean for the relative impact and scalability of the House Bill 2001?
[00:33:40] Ethan Stuckmayer: Personally, I think Senate Bill 458 has a huge impact on House Bill 2001 implementation. I think one of the major criticisms that I heard of House Bill 2001, that it's, "Oh, it's created all this new rental stock. And, you know, that's not really creating generational wealth through home ownership."
So I think really the [00:34:00] legislative intent of Senate bill 48 was to clarify that no, House Bill 2001 really is this home ownership opportunity, but we just needed to fix a couple of things because splitting those lots to be able to sell those in a fee simple manner was really difficult and now it's much easier. So I think it's it, even in my mind goes a little bit beyond House Bill 2001 and Kol, you and I were talking about this earlier. I think it really opens up the door for deeper conversations that we need to have about our kind of systems that we have in place that really center around home ownership.
So infill developments, infrastructure, cost, sharing, tax base, how cities spend money on schools and health outcomes. I think it really goes beyond just providing more housing choice. Especially when you tie the home ownership aspect to that.
[00:34:52] Kol Peterson: What was the rationale for allowing for detached middle housing types in the model code? And just to be clear you know, a lot of cities [00:35:00] defined duplex or triplex or fourplex as attached dwellings within a single structure, but the model code that is the default code to which cities will be subject, if they don't pass their own code, that is compliant with House Bill 2001.
You must allow for a detached duplex or triplex or fourplex on your property
[00:35:17] Ethan Stuckmayer: So further clarifying that the Oregon Administrative Rules that the quote, unquote, minimum compliance standards also give cities that option. So we define a Plex as an attached in an attached configuration, but give cities the option to also allow a detached configuration.
So basically the rationale for that was that really boils down to like ultimate flexibility. And I think also a realization that there's now a lot of parody in housing types in Oregon. If a property owner can build a detached ADU because of Senate Bill 1051, what is the real difference between a detached ADU in somebody's backyard and building a detached duplex?
It's still at the end of the day two units on that same [00:36:00] lot. There's no real difference there than maybe I guess size is the only thing I can think of. But so I think detached middle housing is really just a recognition of we need to kind of get out of the way of like these standards that don't make a whole lot of sense.
And why are we kind of segmenting all of these housing types when we should just be focused on providing as many options and as much choice as we can.
[00:36:23] Kol Peterson: So cottage clusters are a concept that have a lot of potential application, but we haven't seen many actual cottage clusters examples built in modern times.
What are cottage clusters and why haven't we seen many of them built?
[00:36:35] Ethan Stuckmayer: Yeah. So cottage clusters is one of the only housing types in House Bill 2001 that was really defined. Townhouses had some definition, you know, units on a lot that share property and share a wall on the property line. And then they kind of just said, quadplexes, triplexes, and duplexes.
Like everybody knew what that was. But cottage clusters was different. Where it's no [00:37:00] less than four units an acre, they're surrounding a common courtyard, each unit has a building footprint of 900 square feet or less. And so the legislature really defined that closely, which is different than how they talked about other middle housing types.
But I think cottage clusters are an interesting prospect. They look really nice when drawn on a schematic drawing. And I think like this green space and these trees and all that kind of stuff really resonates with people and they can visualize what it looks like. But the reason why we don't see any of that built is I think this Russian nesting doll effect of standards that just create all of these barriers.
First, most cities don't even allow those outright and forced them to go through some sort of like design review or PUD process. Maximum density requirements basically preempt all consideration of cottage clusters because of the density is just so high on a per on an acre level. Off-street parking requirements, setbacks, pedestrian connections, the size of the [00:38:00] courtyard all create this, a small building envelope where you just can't pencil the development.
And then the owner, the home ownership portion of that, and the fee simple sale of those units was really difficult. I mean, what do you you're supposed to do condoize those units? I don't, I, I don't know of many property owners who are interested in doing that. So now today, as we sit here in 2021, kind of all of those hurdles have been removed or diminished greatly.
So I do have high hopes for cottage clusters, but I think the other part that I didn't talk about was just like the capacity, interest, institutional knowledge of people who have the opportunity to build those and whether they would choose to build those over some other type of middle housing.
So that's my only concern. In relation to cottage clusters, we've kind of cleared the hurdles, but is there a desire for those?
[00:38:52] Kol Peterson: Yeah, we don't know it's interesting now that the hurdles are removed. The way I think about it is with the way that the legislation was [00:39:00] written, you can't do this realistically on a lot that's less than 7,000 square feet and really, really want 10,000 square feet or more. Aside from that, I think certainly coupled with 458, there's a lot of potential with that particular bill to make less expensive fee simple housing, ADU sized housing out there, which is pretty cool.
But what unique roles do you see cottage clusters playing compared to other middle housing types and also to follow on what unique role do you see townhouses playing compared to other middle housing types?
[00:39:28] Ethan Stuckmayer: I think cottage clusters are really primed for things like mixed income, mixed generational, mixed family opportunities.
I think those are really interesting. I'll also like cottage clusters for co-housing and cooperative housing developments, where I think cottage clusters create this home ownership opportunity for maybe smaller like budding family groups, or even kind of downsizing boomers who just want their own little space, their private space, but then [00:40:00] also are okay with sharing an open space and interacting with their neighbors in that particular way.
And then compare that to townhouses, which I think is a slightly different segment of the population where I see townhouses being built and more infill lots where services and transit and jobs are readily available. Whereas I think cottage clusters are kind of on this, like Greenfield, large lot developments.
Whatever's kind of left in a city because like you said, they just need more space. And I think that's kind of the beauty of middle housing, right? The whole purpose of middle housing is to create these options for people and creating the choice to live in a particular area or in a particular building or unit depending on your needs is really the, the underlying purpose of middle housing and House Bill 2001.
[00:40:49] Kol Peterson: Do you think it made sense to include both those particular housing types within the definition of middle housing? And conversely, do you think ADUs should have been perhaps included in the [00:41:00] definition of House Bill 2001?
[00:41:02] Ethan Stuckmayer: I think it was important to include both cottage clusters and townhouses.
I think also it was important at the time because the legislature was operating in like a pre Senate Bill 458 world where cottage clusters and townhouses. The townhouse was really kind of like the home ownership opportunity where you have all of these these lots that can be built in this infill kind of context.
And then cottage cluster is where something similar, but maybe in like a Greenfield context. So including both of those, I think was really important. And, I think part of the reason why the legislature went with cottage clusters was because they really defined the cottage cluster and because they were looking for smaller units that were quote unquote, more affordable as a result.
So I think it was important to include both of those. I, I do think the conversation about ADUs is an interesting one because when people talk about middle housing, I think it's, it's mostly intended [00:42:00] to be kinda like a form-based response to creating more density. I think that's probably what Daniel Parolek would kind of lean on when he talks about middle housing and maybe why ADUs aren't there, because it is still rely on the single family detached home to be part of that development.
And so it's a transition piece that ADUs can be used as this kind of transition piece into a more dense neighborhood context where I think middle housing is more like we're going to jump in and it's still looks and feels like single family detached homes. So there's not this kind of conversation about out of context, but then it is kind of like this paradigm shift, whereas ADUs are maybe a little bit more incremental.
[00:42:43] Kol Peterson: What are some lessons that you've learned about how to talk about middle housing so that it's not perceived as a threat?
[00:42:50] Ethan Stuckmayer: Hmm. Yeah. I think a lot of people still do, to this day think of middle housing as a threat. And early on, I tried to dispel [00:43:00] some of the the fears or the, or at least the kind of article headlines about House Bill 2001, that it was kind of criminalizing the single family detached home that you owned or would result in somebody coming knocking on your door, asking to buy up your house so they can tear it down and build a cottage cluster, a huge apartment complex or something like that.
And I, which is just not the case of House Bill 2001. If anything, it provides you as a property owner with more options to do things with your property, which I think kind of flips that conversation a little bit when you're talking with people and they're like, oh, okay, I think that makes sense.
The other thing is that I think a lot of people think that, oh, now all of a sudden this is going to just, you know, completely overnight, snap on my fingers and it's going to change the context of my neighborhood and nothing's going to be the same and it's going to be this rapid change.
But my boss at DLCD, Gordon Howard, likes to remind everyone that this is really a 20 year, 50 year transition of our neighborhoods. It's definitely not overnight. He [00:44:00] likes to try that the analysis that he did for the city of Portland a couple of years ago when they allowed ADUs across their city and basically kind of did the math that at the rate city of Portland is building ADUs, it would take something like 300 years for every eligible lot to have an ADU. So the timeframe of change is really long. And so it's not going to be this kind of rapid change. And I think another part of how we talk about middle housing is that if you're trying to relate to people in understanding how their housing needs have changed over the course of their life.
And at certain times you wanted or needed or had to live in apartment because maybe that's what you could afford, or it's near a job, or maybe later on in your life, when you have married and kids, you want to more room or more space or something like that. And so your needs are constantly shifting.
And so why do we need to limit ourselves to just these two options? If we have the ability to make people's lives easier and have provide more choice and more affordability, [00:45:00] why not do it?
Talking about middle housing in those terms makes people think in a little bit of a different.
[00:45:05] Kol Peterson: Final question. What role do you see mobile dwellings, such as tiny homes on wheels or RVs on residential properties playing in the future of residential zoning?
[00:45:16] Ethan Stuckmayer: Yeah, I think House Bill 2001 and the other piece of legislation in House Bill 2003 is opening up this conversation about how does the state of Oregon define housing? And especially needed housing?
We know that we need more housing, but do we need every single type of housing at our disposal to meet our housing need? And lots of people say, yes, lots of people say we should be focusing on other types of housing other than what lots of people think are temporary dwellings, right? And so I think the conversation about mobile dwellings and specifically tiny houses on wheels and RV, comes into that conversation about [00:46:00] what type of housing should we be planning for? And that really boils down to the bigger question of what is housing in the state of Oregon. So you know, 2020 was an interesting year in terms of writing rules for middle housing in the context of people experiencing COVID based homelessness because of the loss of a job or loss of income or things like that.
And then in the state of Oregon, huge wildfire displacement impacts. And we're kind of sitting in this crisis even greater than the one that we were experiencing prior to 2020 and just trying to get people housed. So we need to have a greater conversation in the state about what's the appropriate amount of housing or what types of housing should we be planning for to accommodate those people?
So I don't have a good answer, but other than it's a work in progress and I think those will become more and more important in that conversation.
[00:46:54] Kol Peterson: Thanks. Great. Great answers Ethan. Kelsey, come on out. Well, one question we wanted to [00:47:00] pose to you before we get to the attendee questions and I understand there's quite a few good ones.
What, what big changes do you foresee having some of the largest impact in terms of housing production in the coming decade if you were to speculate?
[00:47:11] Ethan Stuckmayer: Yeah, well, some of the things the state's already done, which is great. Making fee simple ownership of middle housing more approachable and easier. And I think Senate Bil 458 does that. It dispels a lot of the fears about this boon in rental housing, which we do need, but we also need the home ownership. So I think you get both with 2001 and Senate bill 458 paired together. One of the things we didn't talk about, the other thing is that the state of Oregon is doing is House Bill 2003, which has two big pieces that I think are really important.
The first is housing production strategies, which requires cities to set forth their 20 year plan to accommodate the housing that they're needing over the next 20 years. So what are the specific policies and actions that you'll be taking to facilitate the [00:48:00] production of housing in your city? And what role are you playing as a city to see the production of that housing?
That's going to be huge. I think that has a long-term impact on removing barriers, providing incentives, helping out financially with development of affordable housing, big time stuff. And then the other piece of House Bill 2003 is the Regional Housing Needs Analysis, which the state of California does currently, the state of Oregon is considering adapting that to the Oregon context. And that includes an analysis that is not currently included in how the state does housing planning of including the underproduction, the historic underproduction of housing in the calculation of future housing. And then also trying to ask cities to respond to people experiencing homelessness in their community.
So it's kind of a, yet another reform to Goal 10, which I think ultimately is what's necessary.
[00:48:56] Kol Peterson: Thank you. Kelcy take it away.[00:49:00]
[00:49:00] Kelcy King: So why are you still using the term single family? Single detached is more equitable and does a better job of describing the housing type.
[00:49:09] Ethan Stuckmayer: Amazing, amazing point. And I catch myself doing that all the time. Part of why single family dwellings we use in the in the Oregon Administrative Rules is because of the way that the legislature has codified the conversation around residential development.
It's still listed as the needed housing type. And I think ultimately what needs to just take places, a full rewrite of the statutes, or at least in the edit to eliminate the use of single family detached from the conversation in the state of Oregon. It's, it's one of those things where the state has not gotten to the point to the point of rewriting those basically.
[00:49:51] Kelcy King: Owner occupancy is not an unreasonable cost and delay. It can actually lower cost and rents by preventing large developers from buying up density in market rate [00:50:00] housing. Affordability needs to have the same priority as densification.
[00:50:03] Ethan Stuckmayer: Yeah, I can, I can definitely sympathize with that. The, the ADU provisions and hospital 2001 I think were a reactionary response to some of the standards and the litigation that took place over the course of the four or five years prior to House Bill 2001. Related to ADU is as a result of Senate bill 1051. And those were the two major pieces that constantly went to legal challenge.
And so the legislature kind of just said, you know what, we're just gonna eliminate that. And these are now considered unreasonable standards for ADUs.
[00:50:42] Kelcy King: Can you comment on the potential downsides of state preempting, local control, such as state legislatures controlled by rural districts, potentially prohibiting local jurisdictions from banning single family housing?
[00:50:54] Ethan Stuckmayer: Yeah, that's the conversation that we have all the time internally. As DLCD is [00:51:00] getting more and more directive from the legislature about using House Bill 2001 as kind of a model for state preemption of local codes what is the right balance to strike there? Like I said earlier, part of the catalyst for House Bill 2001 was the sentiment about, well you had your chance, and now we need to take action at the state level to remedy some of those those a decade long or decades long injustices in the housing market. So I think there is a time and place for those kinds of preemptions, but again, couched in understanding that we should not let it run rampant.
Especially because that's part of the heart and soul of Oregon's land use system, right? Everybody likes to tout Goal 1 as the community engagement, Goal 1 for a reason. But yeah, fine line to be drawn.
[00:51:49] Kelcy King: So I'm gonna ask this question then I also have a personal follow-up question based on this one. What plans do you have for legislation that facilitates permanently affordable home ownership, such as Trusts and [00:52:00] Co-ops?
[00:52:00] Ethan Stuckmayer: Hmm. Hmm. So I think that's part of a broader conversation that we expect cities to have related to the housing production strategy portion of House Bill 2003. So, typically, cities have gone through the housing needs analysis process and the accommodation of needed housing through usually only zoning and land use using only those kinds of tools, rezoning lands, bringing lands into UGB, annexing so on and so forth.
But House Bill 2003 changes all of that and asked cities to use all the tools at their disposal to accommodate the needed housing. And so no plans currently, and I think it takes legislative direction to go that way to require cities to do that. It's definitely encouraged, just include in one of the menu of options.
[00:52:47] Kelcy King: Is eminent domain a tool that is available in terms of the menu of tools?
[00:52:53] Ethan Stuckmayer: From DLCD perspective, it's an option, certainly, I think that's the, [00:53:00] the legal right for cities to use that, whether they use it in the political firestorm, that results after using that is kind of up to the city.
And I think, partially, the reason why you don't see it use a whole lot is because of that.
[00:53:13] Kelcy King: House Bill 2001 defines cottage clusters as made up of detached housing units with a footprint less than 900 square feet each. Do you think that there is a path or a plausible advocacy opportunity to have cities, example Portland in RIP to project or by state model code, including this in conception, tiny houses that are movable either by being on wheels or being redeployable, detached to foundations?
[00:53:38] Ethan Stuckmayer: Interesting. I think there's probably a pathway there. I think one of the issues that we run into with the cottage cluster definition in House Bill 2001 and in rules is that it is so specific. And so we've had lots of conversations with cities about, well, we want to allow some sort of like attached version of cottage clusters, where it's in this U shape and the [00:54:00] courtyards in the middle and something like that, and that's a great housing type. Right. But the way that the legislature has defined a cottage clusters as detached units with a building footprint of 900 square feet or less, doesn't really lend itself to that option. So we're encouraging cities to go that route, but then please provide the path for the definitional cottage clusters in your code and anything above and beyond that is great.
[00:54:28] Kelcy King: I think of that from a financing perspective of how hard it is already to finance any sort of mobile dwelling, what products you would have to come up with to make those things work?
Specifically, how was the fee simple problem of cottage clusters or ADU addressed by Senate bill 458?
[00:54:45] Ethan Stuckmayer: Yeah. So basically Senate bill 4 58 allows that land division process for those middle housing types. So example I can provide is a detached quadplex right. You have four detached units on a lot.[00:55:00] Prior to Senate Bill 458, it was really hard to be able to sell those units.
Each of those four, individually, without going through some sort of like condominium visitation of those lots, creating an HOA, creating all of the insurance issues that come with that. But now, thanks to Senate Bill 458. You can subdivide those. You can sell those lots in those units off individually without having to go through those administrative hurdles of condoizing.
[00:55:26] Kelcy King: What leverage or strategy is there to get cities to allow more than four units in the cottage cluster?
[00:55:32] Ethan Stuckmayer: Sure. So the way that the administrative rules for cottage clusters are drafted is that cities can not apply things like maximum density standards, they can not apply maximum lot coverage standards above and beyond what is allowed for single family detached homes. So there's no kind of maximum litmus for how many cottages you can put on a lot. And we ask cities to just regulate that trending maximum [00:56:00] based on things like setbacks, parking, building separation, pedestrian connections, the courtyard.
So cities are are, in fact, prohibited from placing that maximum number of units standard on those cottage clusters.
[00:56:14] Kelcy King: Thank you. Are there any provisions in place for consideration of square footage per occupant in the primary dwelling before allowing expansion of footprint?
[00:56:23] Ethan Stuckmayer: Hm, not in House Bill 2001, no. There may be local city standards for ADU is that Kol might be able to speak to better on that, but hospital two doesn't one does not.
[00:56:34] Kelcy King: Are cottage clusters is intended to be a rental or ownership option or either?
[00:56:39] Ethan Stuckmayer: Yeah, either. So the way that the definition of cottage cluster exists in Oregon Administrative Rules is that the cities can allow cottages to be built on one parent lot. Or this was again, prior to Senate bill 4 58, they could have those be built on individual lots.
So cities have the [00:57:00] option to play a role in creating more home ownership opportunities in that regard. So definitely both that's, there's nothing in 2001 that speaks to how they must be tenured.
[00:57:10] Kelcy King: I'm also really curious about this. Why are mobile home parks never mentioned as options?
[00:57:16] Ethan Stuckmayer: Yes. Recently we've been having a conversation about manufactured dwellings as middle housing. And what does that mean and how do the two state statutes, one for middle housing and one for manufactured dwellings interact and overlap? And so part of the pathway that we're proposing or recommending is that cities shouldn't be prohibiting manufactured dwellings as middle housing, but what they can do is just require that those dwellings be meeting the Oregon residential building codes.
I think there's a lot of anxiousness at the city level about, oh, somebody is going to take an old 1960s manufactured dwelling and put it in their backyard and call it a [00:58:00] detached duplex or something like that. And so, I don't know how real of a problem that actually is or how real the concern that actually is, but the cities, I think, can't get in the way of somebody doing that, other than just saying it should meet building codes.
[00:58:16] Kelcy King: I'd be curious, too, to see in terms of affordability, whether it can be more of a land trust model instead of a single ownership model with a lot of space fees.
[00:58:27] Ethan Stuckmayer: One of the early iterations of the rules and defining middle housing was that we specified that it could be either site built or built offsite.
And we kind of remove that because we felt like it tried to be inclusive, but it was actually exclusive. And so we just remained silent on it to give the ultimate amount of flexibility in that regard.
[00:58:48] Kelcy King: Last question, the general framework of Oregon's new laws focuses on supply and demand to solve the affordability problem.
We know that this is inadequate. How do you plan to push back against this in the future legislation? [00:59:00]
[00:59:00] Ethan Stuckmayer: Yeah, so thankfully DLCD is not the only state agency working on housing. And I think House Bill 2001 is a land use bill that focuses on that supply and demand conversation about the housing affordability crisis.
Thankfully , in the same legislative session, and in this current legislative session that ends in about 13 days, the legislature is doubling and tripling down on the amount of subsidy that they're providing for affordable capital, a affordable housing development across the state. So it's not a, we just do House Bill 2001 and we do nothing else, it's House Bill 2001 plus 13 other options as well.
[00:59:42] Kelcy King: Thank you.
[00:59:43] Ethan Stuckmayer: Thank you, Ethan. Great answers. Super helpful.
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The ADU Hour w/guest Michael Andersen
17 ago 2021· The ADU Hour
Michael Andersen: Thanks for the invitation.
Kol Peterson: I'm just gonna start by having you say a few more words about yourself that are not covered by your bio, that you would like for people to know about you. You've done a lot of things over the years that are relevant to the questions we'll be talking about today is so provide a little context for things about you that we should know.
Michael Andersen: Sure. I, I became obsessed with housing policy and transportation sort of in tandem. When I was a reporter in suburban Portland covering Clark county, Washington I was covering county government and like two parts of county government are covering poor people who are interacting with the criminal justice system and covering rich people who are building new homes or even middle class people who are building new homes on the fringe of the urban landscape.
And I was seeing all these poor people, but get being screwed by the fact that they were being forced to live in [00:03:00] places without that we're not designed for people without cars. And then they would own a car, but it'd be a crappy car. And then their car would fall apart. Then their life would fall apart.
And I was like, there's got to be better. Our solution. Meanwhile, I was spending time with all my 20 something, friends in Portland who didn't have cars and they didn't care. Like, and so I was like, it's not as simple a story as that. Like there's a lot of privileges both ways, but that was sort of what got me thinking about transportation and housing.
So since I've been working on public transportation, journalism and biking journalism, and since more recently housing advocacy, I've been sort of doing content in various ways.
Kol Peterson: So tell us a little bit about your own family's experience, living in an ADU.
Michael Andersen: Yeah. It started with just trying to continue to live with our housemates.
So I was interested in living with housemates when I started a little business 10 years ago because I was new, I was going to be socially isolated otherwise, and I needed to save money it worked in both dimensions. And then my wife moved in and then our housemates had a kid and then we were going to have a kid.
We [00:04:00] were like, this is too much for this 1942 building. And we're gonna have to figure out some way to do it. And we decided that best way was for us to keep them whole while they built an ADU. And so we lived as tenants for several years. And it was great. It was a perfect setup for both of our kids to grow up together as best friends and the they had to move for a job recently.
So we've relocated since, but it was a really rewarding thing.
Kol Peterson: All right, so you have some direct personal experience with ADUs in particular, and we're going to talk about ADUs for sure, but we're also going to focus on this broader conversation of middle housing today. So let's start off with talking about Sightline Institute first. Tell us a little bit about what Sightline Institute is and what's the mission of Sightline Institute? How would you describe it to other people for those who are not familiar with it?
Michael Andersen: Sure. We're a sustainability think tank founded in 1993 based in Seattle, but covering the Pacific Northwest.
So my, my boss's big idea is that you can't get people to care about their planet. The evidence seems to suggest, but maybe you can get people to care about their [00:05:00] ecosystem. And so we focus on the Pacific Northwest as an ecosystem across the border states and nations, and write about the ways that we can make it the best, most welcoming, most sustainable version of itself as a model to other ecosystems.
Kol Peterson: Is there any other examples of similar Sightline Institute types of think tanks out there in other regions or comparable institutions that you can think of in the United States.
Michael Andersen: We're definitely weird, but Rocky Mountain Institute is a little bit similar. There are a lot bigger now founded in Colorado, I think.
And there's my my colleague Eric is trying to working on creating one for Appalachian actually. So there may be more.
Kol Peterson: Cool. All right. So how tell us about the scope of the material that you cover for the Sightline Institute.
Michael Andersen: I write mostly about housing, a little bit about transportation and that overlap, which is parking, which I love talking about parking, in the Portland and Oregon areas.
So mostly focusing on the statewide level and regional level and what we can do there, but also a little bit of Portland stuff to the extent that it's [00:06:00] like a model for other cities.
Kol Peterson: And how does the material that you cover for Sightline Institute fit into the institutes larger mission?
Michael Andersen: I think one of our niches is that we are a sort of environmental organization that is really into economics and harnessing the power and insights of economics for our progressive sustainability sort of vision.
And one of our insights, or one of our decisions, our perspective is that we desperately need to reduce the need for energy over the longterm without making it feel like we're giving anything up. And the way to do that is to allow urbanization, but we've banned urbanization because of zoning laws that have made it impossible for people to basically choose where they want to live, which is good for lots of reasons.
So we try to work to undo that while also not being blind to the other complications that creates for disruption and so on.
Kol Peterson: You previously wrote for a bike blog, local [00:07:00] bike blog. That's quite beloved, quite popular called Bike Portland. Can you talk about the material that you wrote for Bike Portland and how it relates to what you covered at the Sightline Institute?
Michael Andersen: Yeah. So when I came to Bike Portland, it was just 2013. Portland was sort of swinging into a big boom in home building was coming out of a four year, like plateau, like almost no home building. So like there was, it was obvious that there was going to be some sort of a rent crisis. We already had a rent shortage and then the rents were starting to climb.
And I was really interested in like, we should be solving this problem, but we should be solving it in a way that makes things more proximal. Like if you look at the greatest biking cities in Southeast Asia or Northern Europe, they're all full of these little close together homes. And that's the bedrock.
People are not biking that many miles, they're just biking a lot because there are a lot of short trips. And the only way we create short trips is by building ADUs and attached homes and apartment buildings that are all close to jobs and everything [00:08:00] else. So that was the case I was making. And I had a weekly column about that and got more and more obsessed with sort of that side of how to improve biking and by living in the places where biking is already good.
Instead of having to spend all our wheels, trying to make biking great in more and more places, which we should be doing both of.
Kol Peterson: This is off topic, but in South Asia, Southeast Asia, and I would imagine Europe electric, motor scooters are becoming more common, right? That's not really taking off in the US.
I mean, those little like ride on hop on scooters are really taking off, but not like the kind of ride on scooters that give you longer distances. And they're electric. What are your thoughts about electric scooters and their potential. Are those as good as bikes or what are the differences? What are the ways in which like electric scooters are?
Provided serving the same role that bikes could play. And how does that deal? How do you think about that in terms of urban form? Yeah, that's a good question. I don't really have a strong perspective, I guess. But they're better than cars. They're worse [00:09:00] than bikes. Bikes are better than scooters and worse than skateboards.
Michael Andersen: So yeah, I mean, I think it's like if a, if a tool is going to work, you should be able to use it. I'm pro transportation to the extent that it infringes on the other types of trends of more efficient transportation, that's a problem. So like when those, when like a motor vehicle is using a bike lane to the exclusion of it, being comfortable for people to bike or scoot in, then that's a problem.
But I don't know exactly where you draw that line.
Kol Peterson: Yeah. Okay. I've just been, I have an electric ride on scooter. I love it. And I'm just surprised that it's there's so few of them in the U S wherein, I would imagine they're that they're quite popular now.
Michael Andersen: Yeah. I don't know why. I mean, it's taken over in Northern Europe too, I think.
Yeah. Not taken over, but there's a lot of it
Kol Peterson: Anyway, that was a side topic, but I figured you'd have some thoughts about that. All right. So what sources do you rely upon for staying abreast of the latest legislative policy discourse related to [00:10:00] housing nationally?
Michael Andersen: My main filter is Twitter. So I use Tweet Deck as like a Twitter app that lets use like organize it all by, you know, most recent first.
And so it takes away some of the poisonous dunking fixation that the Twitter algorithm pushes you towards. So I highly endorsed that. And then it lets you segregate by topic. So I can have a column for housing people and a column for transportation people. If anybody's interested, you can look at my housing list on Twitter, it's a public list.
And I use that to constantly update that.
Kol Peterson: I bet you people are interested in that. Cause the fire hose is a real deal. I guess if you're not a reporter, it's like, it's just overwhelming. So I guess my, I guess my question is like following up on that, is there a primary source of like information source that TweetDeck tends to push you towards, or is it individual DIY blogs out there across the, across the internet?
Michael Andersen: Yeah, I used to, so I once heard, you know, [00:11:00] William Gibson, the William, but no, no, this was David Carr, the times, his old, New York times, his own media columnist. He said that like Twitter is like dipping a teacup into a glittering sea of information.
And that's how he likes to enjoy it. And you don't worry about the sea as it flows by you just dip your tea cup and you enjoy that information. So I knew I liked that, metaphor.
Kol Peterson: That it's apt. But does it do to my question, is it you're dodging the question young man. No , is there a primary news source that you tend to be directed towards?
Michael Andersen: No. No, it's just, it's just a painstakingly building, figuring out who's smart on this stuff.
Kol Peterson: All right. So you've recently written about a lot more recently about state level zoning standards. What do you believe are some appropriate frameworks for when states attempt to reform local zoning statewide?
It's evident to me based on my observation of the ADU market, that the legislation that has occurred [00:12:00] in Oregon and California has been extremely effective. Tell us your thoughts about that. Yeah.
Michael Andersen: So you're going to talk more about that this week, I know in Oregon. But the both in Oregon and California, and to some extent in a few other states, Washington, Connecticut, just recently Utah there've been laws that sort of set of basic standards for like you can, you have, you have control over a lot of your zoning, but you're not allowed to ban the following options.
And you know, the following options is a different list based on which state you are. In Oregon, we've had an accelerating pace of state level actions to set certain pro-housing standards at the local level. First with ADUs a few years ago then followed up with middle housing, duplexes, triplexes, fourplexes, cottage clusters and then just in the last session just weeks ago when that allows lot division for middle housing, which is as you were talking about yesterday with Jake, hugely useful to get it actually built.
So we've also passed some like statewide level affordable housing [00:13:00] mandates on a sweeping bipartisan basis that say that like, you're like you have to give extra space and unit count to projects that provide regulated affordability. So I think that essentially makes that possible, no matter the zone which is also great for building an integrated city.
So Yeah, I think I'm really bullish about this trend of using the state to solve this problem that we created piecemeal city by city, by city, but we create everywhere. So like, I've got like, I can, I can kind of go into like, sort of the game theory of it.
Kol Peterson: Yeah.
Michael Andersen: So it seems to me that the, you know, like it's, it's a prisoner's dilemma, right? So if you're familiar, like two people constantly lose if they are purely self interested, but if they can act together in concert, then they can win mutually compared to the constant losing. And that's essentially, I think how the vision for state zoning action works. You've got, so if you think about the county.
You've got. So if you look at all the cities around Puget sound, for [00:14:00] example. You've got a wide variety of different amounts of land zoned for attached housing and to the Seattle and Tukwila having about half of their land and a few cities like richer cities, almost none of that land. With various cities in the middle, if say, Tukwila decided we are going to try and relegalize cities, we're going to say, you can live wherever you want in our city.
You can build a home here. And we are gonna also, that's going to create a tax windfall and we'll use that property tax windfall to spend, to make sure that poor people can live here as well. And we'll build this wonderful situation. It would not solve the problem because Tukwilla would also need every other city around Puget sound to be doing something similar or else it's a drop in the housing bucket.
Like it could not solve the problem on its own. And so, as a result, if you're an elected official in Tukwilla, you're thinking, well, I could do this and I have an incentive to solve this regional housing shortage, but I don't have the means to do it. So why would I ever try? Like, why would I go through the political cost of doing so, and the state level, [00:15:00] the politicians have, not just the incentive, not just a motive, but they also have the opportunity, they have the means.
So that's the puzzle that state level action solves.
Yeah. Interesting way to frame it. Thank you for putting it in those like game theory terms. So in Connecticut they recently passed ADU legislation that allows cities to opt out. Maybe you can describe that a little bit for us before you answer the question I'm about to pose, but presumably this legislation was a form of political compromise in, in an idealistic, you know, ADU legislative bill.
Kol Peterson: How do you feel about this particular legislative political tactic?
Michael Andersen: Yeah. So I don't know a ton about Connecticut. My impression is, and I've seen some of the advocates work on this is one of the most zoning segregated states in the country. There's very few like either regulate affordable or market affordable homes in a lot of the state and especially where the jobs are rich and the fight -the bill that [00:16:00] was just passed a law legalizes ADUs up to, I think, a thousand square feet on almost any residential property.
And, but it says, and also does other good things like it removes like. You know, and it does on other, other more abstract, good things. But the, the key provisions on ADUs and parking, it says that if a city wants to opt out on the ADU legalization, it has to get a two thirds vote of its planning commission followed by a two thirds vote of its legislative body as town council or whatever by a certain date.
I think it's the first of 2023. And if they don't do it by then, then they lose their opportunity. So they have to like line it all up, but it also takes effect the first day of 2022. So unless cities are really Johnny on the spot on this, they're going to be theADUs. They're going to be legal. The sky will not fall.
Some people will hear about the fact that you can build them and get pissed off if they don't get to do it. So I think that is a clever way to structure a thing that lets people [00:17:00] sort of think about how, oh, this won't, we can still stop this if we need to. But then like creates the conditions in which we have these local discussions, which I think are sometimes the most important part of the thing is like forcing a discussion.
And then sometimes housing will win in those discussions. So I think it's clever. I it's also like, obviously, like if a city is built on economic segregation, as I think some municipalities in Connecticut are, they may indeed act on this and they may keep it out. And then like the game is if we want to solve that problem, we get every other city who has already opted in to be like, no, no, we're taking that away from you now you don't get to opt out anymore and that'll be easier once every other city has opted in.
Kol Peterson: So yeah, I, I think you're right about this notion that if you kind of get the gold level ADU regulations in place, the sky will not fall. And and that, that, that will effectively normalize lower barriers to [00:18:00] ADU development. And so I think you're right. That even if it's only in effect for one year, Serve a big role in kind of catalyzing more aggressive or easier adoption of, of higher level ADU standards in the future.
So what are some suggestions that you would have for policy makers and advocates if they're considering pursuing statewide legislative approaches to promote ADUs and middle housing?
Michael Andersen: One thing that so I've got all kinds of opinions, I'm mostly a language person. I'm not really a, like a technician in any way.
I'm a more of a blogger. So that's where my expertise is if anywhere, but I will say politically, some things we've noticed in Oregon, the core of the campaign to get this stuff done was affordable housing developers. So I think affordable housing developers this is an insight by my former colleague, Madeline Kovacs andEli Spevak, who's been a shaker you've worked with on all this stuff, I think and used to work in affordable housing himself. I think [00:19:00] the formula they hit on was that the affordable housing developers have expertise, they've got the incentive. They've got the sort of moral authority and credibility just to like try and get good zoning laws passed.
In some cases like they actually would prefer this to also apply to market rate because they want to work in the market rate system sometimes because of this last paperwork they don't need any more constraints in their deeply regulated careers. And and in some cases, the people who do this stuff, they just understand the need for a broader set of solutions to a housing shortage.
So building on the sort of political support of affordable housing developers and sort of going outward from there to a broad coalition of in for private developers, environmental groups justice groups all sorts of folks. We've been able to sort of communicate to elected officials that this is not a narrow issue.
This is a very, very broad issue. And you may hear from near the narrow interest of the small minority of homeowners who are deeply opposed to this, but they [00:20:00] are like not anywhere close in scale to the benefits that you will get from all these different spectrums. If you can allow more housing where people want it in urban areas.
So that's been like, I think probably the key to it. We also, and I'm talking mostly about the democratic side, really important thing. I think about Oregon and California and Washington. What we've seen is that a fair number of Republicans are also on this. And in fact, in Oregon, and I think in California, what we've needed, we, if we didn't have the Republican votes on the bills, they wouldn't have passed.
There were too many Democrats from the suburbs in general that were voting against these bills even in these democratic super majority states. So like building. Purely partisan argument, which you could totally do for legalizing housing, you know, fighting economic segregation. The that's like unimportant part of it.
But if that's the only argument you're making, if you're not also making a property rights, people [00:21:00] should get to do what they want. Sort of you know, this is a market-based way to advance, you know, material benefits of many, many people, all that's also true. If you're not also making that, then you are less likely to succeed I think
Kol Peterson: What legislative bills are you tracking that excites you? I should say state the state level bills of any.
Michael Andersen: Sure. Yeah. Well, I'm, I'm very eager to see if California finally posts a win with the parking reform, they proposed near transit, I think removing parking requirement mandates near transit.
Also I think it SB 9 in California is a middle housing legalization that allows duplexes on any lot and also a lot of split. So theoretically four units. And also if you want to do a duplex, you can split it. So that's great, or, you know, narrow house. Those are both great bills.
And then in North Carolina, there's an exciting middle housing legalization bill that also [00:22:00] includes ADU. And is similarly bipartisan. It would be really great to get something I think on the east coast or the Southeast that sort of is on the same lines because it's a whole different media universe there.
Kol Peterson: So let's move away from state level legislation at the moment and focus in on where, you know, for practical reasons, a lot of the kind of housing politics are going to play out at a local level. Is there any suggestions that you would have for local level policy makers and advocates, if they're considering trying to pursue better municipal regulations to promote ADU and middle housing?.
Michael Andersen: Yeah. I think Portland, like, so I was, as part of, I was like the several hours a week content person for Portland for Everyone, which was a campaign is, is a campaign is a program of Thousand Friends of Oregon, which is an anti sprawl sort of environmental organization. Former colleague Madeline was the political mastermind of that.
And I think. [00:23:00] Like, she just spent a ton of time. She, she first won the funding and Thousand Friends committed their own funding to like get her to meet thousands of people face to face and like build a gradual alliance of folks. One of her cool things that I've been trying to spread the word about was that when she was building the coalition, she didn't let anyone sort of brand take over.
So she didn't want it to be all affordable housing developers are all market rate housing developers are all environmental groups. She would say, I'm going to meter admission to this club. I'm going to say, we'll take one of these, one of these, one of these. And when you do that, nobody feels excluded.
Nobody feels like it's not their group. It's not for them. So if you have a really like bespoke coalition early on, you can build yourself a really longterm coalition, a hopefully a big tent which is what you need to defeat the people who flip out about this stuff.
Kol Peterson: Outside of the city of Portland, where there's been this really effective mobilization of these [00:24:00] interests to kind of get the Residential Infill Project passed, which we will focus on a lot this week and, and today also. But what other particular local bills are you seeing outside of Portland?
Michael Andersen: Like other municipal stuff.
Kol Peterson: Yeah. Municipal bills. Yeah,
Michael Andersen: Sure. The I mean, I've been really impressed by the wave of California cities that are talking about middle housing legalization. I think it's like seven of them, including San Jose and San Diego and Oakland like Sacramento. And I think that's caused by a combination of like this rhetorical battle happening in the national discourse and the state mandates that are saying you need to come up with locations for actual homes. And it turns out that like middle housing is one of the less controversial ways to increase the supply. So, okay. The dumb, I think Seattle's ADU legalization is sort of underrated.
Like it goes up to a thousand square feet. You can have two of them on any lot [00:25:00] and it doesn't end there. It doesn't apply at the, the floor area ratio cap doesn't apply. So it's basically free space. So there's a huge incentive to put an ADUs anytime a lot turns over. And in fact, the ADU like production has gone way up.
So it's like, it was a stealth triplex legalization in many ways. And I feel like it hasn't gotten the credit deserves for that.
Kol Peterson: What are some federal rules or laws or other national policies that you and or aSightline are supporting to help bolster small infill?
Michael Andersen: I think I, I'm not super optimistic about the payoff of federal efforts in this.
Like, I think it's really hard to write a law that is going to redound in the right ways down to the local stuff. If you like, you can lead a city to water, but you can't make it drink. The, but the and it's easier for states just because the conditions are more similar. I am sort of, I wish that there were more conversation at [00:26:00] the federal level about incentivizing state legislation.
Like I right now the federal things in the, the Biden ministration has put out on this. They're great. It's like here's some money to do a planning process. Okay. If you don't wanna do a planning process or use. Get you to do a planning process, make it cheaper. And then there's a sort of proposal to tie.
I think some transportation, like here's some additional transportation money you get, if you reform your zoning and their correct direction, you know, in a more inclusive direction. And there some nuances there. I don't think either of those is the total game changer. I, like I said, I wish that the, there were only 50 states there, I don't know, 20,000 cities.
So like, it would be much more efficient to incentivize the states to take action along the lines of Oregon's for example. But the I do really like the idea of tying it specifically to transportation dollars because that's something I think every, for my time, as a suburban reporter, every local municipality desperately wants to add turn lanes, whether or not that's [00:27:00] good, that's going to get their attention if they aren't getting where if they could get federal money for that.
So that's better than most ways to incentivize the stuff at the federal level. I think then there's also like the affordable affordable or sorry affirmatively furthering fair housing. Which looks more specifically at affordable housing and where, how that's well, that is distributed and as well as with the, the underlying zoning and that is a process we could be using a lot more than we are.
I'm not sure it's ever going to scale up, like is essentially a punitive way to get cities to do stuff which is effective when it works, but like, it needs to be applied a lot before cities actually changed their behavior. Instead of just asking for apology rather than (transcription ends here)
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The ADU Hour w/guest Tracy Morgan
10 ago 2021· The ADU Hour
This week's guest is Morgan Tracy.   Morgan Tracy, a member of the American Institute of Certified Planners has been actively involved in the Oregon land use planning in both long range planning, projects and development review for the last 25 years. He has worked for the cities of [00:01:00] West Linn, Lake Oswego, Tigard and has been with the City of Portland for the past 15 years in both the Bureau of Development Services and the Bureau of Planning and Sustainability. Currently, he is a staff project manager for Portland's Residential Infill Project, which seeks to increase the range of permitted housing types while lowering housing costs in single dwelling neighborhoods.
Kol, what are your thoughts on our interview with Morgan?
Morgan has been very deep in the weeds and details of overhauling, a complex residential zoning ordinance for the City of Portland for the last five years. This task was daunting and a journey, not just for him, but for all of the engaged citizens who saw this overhaul as a great opportunity to make a difference in the future of the city that likes to chart new territory nationally in matters, related to urban planning and infill.
Capturing his perspective on how this process could be translated to other jurisdictions is hopefully going to be valuable for future research and application of middle housing, zoning, rewrites. Kelcy, what were some of your takeaways?
[00:02:00] Morgan gives great examples of how one can participate in city council meetings in an effort to make change in one's local jury state. And why it's crucial that citizens get involved with the process of rulemaking as a planner, as a planner, deeply involved in quite possibly the most progressive zonings shift in the country.
Morgan shares his experience as someone on the front lines, as the liaison to the community and rule makers.
Let's get to our interview with Morgan.

Kol Peterson: [00:02:25] Good morning,
Morgan Tracy: [00:02:26] Morning, morning, Kol and Kelcy, it's great to be here, thanks for having me.
Kol Peterson: [00:02:30] Thanks for being here.   Morgan, the Residential Infill Project is familiar to those of us who are in Portland, obviously, let's assume that people are not familiar with it, but they're fairly sophisticated in this general urban infill topic, very familiar with ADUs. Can you describe for us what RIP is for somebody who might be unfamiliar with it from outside of the city of Portland?
Morgan Tracy: [00:02:52] Yeah. It's a bit, it's a bit challenging to do this in a condensed form cause it took five years of work. So boiling that down, I can [00:03:00] concise.
As a big challenge, but here, here we go. I would say that the Residential Infill Project was the city's first major overhaul of the single dwelling zoning since corner lot duplexes were allowed in 1991. So it had been about 25 years when we got started. Now, these changes expand the types of housing allowed on most lots to include duplexes, triplexes, fourplexes, and options to create additional ADUs in nearly 90% of the single dwellings zone neighborhoods, simultaneously new tools to limit building sizes will ensure that this development maintains the look and feel of those neighborhoods.
And together, these changes allow a broader range of compatible housing types that are comparatively less expensive than new single family homes, making neighborhoods more accessible, more inclusive, and more sustainable over time.
Kol Peterson: [00:03:45] All right. I should have asked you this , but I'm gonna ask you, now, what is a good title for you to give some framework for what your role was within the residential input project?
Morgan Tracy: [00:03:56] So my, my official title with the city is a City Planner II, which [00:04:00] doesn't mean much to many people. So, but extensively, the work that I'm doing is, is managing the project.
I coordinate our team, our staff, our consultant work, work on the project timelines and make sure that we deliver a project on schedule when we can. Generally, I go by the title of project manager.
Kol Peterson: [00:04:18] So this project running five years, how did the history of Residential Infill Project come to be and why in the world did it take so long to get there?
Morgan Tracy: [00:04:29] Well, as you can imagine, it's a bit of a complicated project, a little bit of, a little bit of controversy involved. But let's, let's start with the history.
So the project began in 2015 and in 2015, we are hearing a lot of calls about concerns resulting from outcomes from infill development. So we were seeing lots of small homes being demolished and replaced by big, expensive new homes. We, we're seeing about more than a house per day being demolished on average.
And we're also seeing the housing prices in 2015 were beginning to price out families earning a hundred percent of the Median [00:05:00] Family Income. So that essentially translates to about half of the families in Portland would be unable to afford to purchase a house in the city. So recognizing the city could not prohibit tear downs and simply applying stricter limits to new development would tighten the supply of new housing, which exacerbates housing costs.
We brought together two objectives, which was addressing the scale of new development and increasing housing options in neighborhoods. And part of the, I think the real challenge in this project were these are two almost at-odd objectives that we had to balance and bet with the public in multiple scenarios, multiple occasions So you know, you, you asked why it took so long.
There were several steps along the way, either fortunate or unfortunate. But first off we started under a different administration under Charlie Hale as mayor, and he had decided towards the end of his term that he wasn't gonna run again, but he wanted to see some product.
And we weren't at a point where we can deliver a new code and new maps and all that stuff. So, [00:06:00] we 'd agreed to bring forward a concept plan, which essentially lays out the basic trajectory that the project is going to follow. And the positive side of that is it's good to take the temperature of your decision makers to see if you're going in the right direction before you really invest a lot of time and effort.
The downside of that is the project took so long that by the time we got back to city council, four years later, it was an almost entirely new council. We just had one city council left. So that was a bit of a fruitless exercise. We also spent 14 interesting, exhilarating months with the planning and sustainability commission.
We went through almost every single detail of that project, point by point by point by point in a series of monthly meetings. And about two thirds through that process, the planning and sustainability commission, after hearing public testimony and considering the objectives, and then the proposals, gave us some rather very different direction, which caused us to go back to the drawing board and start over on our code.
[00:07:00] Not entirely, but it really changed the fundamental building blocks that we come to them with. So we had to redo our analysis, redo the code, and that took some more time. Unfortunate outcome of that was we were also about to lose two of our planning commissioners, they were terming out.
And so by the time we got back to them, we were really in a rush to get a decision from them. And so we came back to them with this revised proposal and said, here it is, here are the stats, the data, and the analysis, what do you think? And we'd unveiled a displacement risk report and didn't really spend a lot of time going through that report. Understanding the implications, what the data was really telling us.
And so they felt rushed to a decision and they had a rather split decision. It was a five to four decision. And so that created a little uncertainty at city council. We had to take time to work with the council offices, go through these reports, help people understand what they were telling us. We started the city council process and right before we were about to finish, COVID struck and that's through another five months [00:08:00] on the end.
So now a little bit of that's me, but a lot of that's just the circumstances of the project.
Kol Peterson: [00:08:05] Just as an observer slash public participant, I could tell this was an extreme, highly engaged public process and there was so much commentary from the public on this.
And I, I couldn't imagine having to balance all of those different inputs that you guys had to manage. So we're going to talk a little bit more about that, but just to give people some context for that, how many public comments would you say the City of Portland received on the residential infill project?
Morgan Tracy: [00:08:33] Close to 15,000. We also were, at one point we sent out 123,000 notices to property owners.
Kol Peterson: [00:08:41] Yeah. So this would be on the scale of a very highly, both engaging and engaged topic in terms of the impact that it was going to have on people and the level of input that they wanted to provide, relative to most public processes. Would you say that?
Morgan Tracy: [00:08:58] Yeah, it was [00:09:00] both super engaging, everybody had an opinion, no matter where you were what, what sort of venue you were at. Just about everybody you talk to either lives in, or has lived in a single family home or single family neighborhood and has opinions about that.
So there's that, and then the geography was city-wide. So that's you know, that's a lot of area, a lot of peoples that are involved.
Kol Peterson: [00:09:19] Can you talk about Bureau of Planning and Sustainability's role in developing policies and regulations for RIP, and maybe talk about, just as a general 101 for those of us who aren't familiar with the process, the Planning and Sustainability Commission's role relative to the Bureau of Planning and Sustainability its role, and then the City Council's role. How does a policy become law at a local level?
Morgan Tracy: [00:09:44] You're asking for the version of, "I'm Just a Bill."
Kol Peterson: [00:09:46] Yep, "I'm Just the RIP". Yeah.
Morgan Tracy: [00:09:49] So BPS, the Bureau of Planning and Sustainability is in charge of legislative projects to change the city's zoning and development regulations. So we have the Bureau of Development Services which [00:10:00] does the implementation. They do the over-the-counter permit review and development review.
Our role is really to go through the legislative process to make those changes happen. We make those decisions based on statewide planning goals. So the state has a statewide planning framework, and they might hear a little bit more about that in tomorrow's session. But we also have our own comprehensive plan and our comprehensive plan identifies 700 plus policies that relate to housing, economic development, environment. And really it lays out the city's trajectory for its growth and development over the 20 year period.
The Planning and Sustainability Commission is our advisory body. So we would, as staff, we develop these projects based on public concerns, public calls for change, and we'll bring projects to the Planning and Sustainability Commission and others that they are the recommending body to the City Council on these projects.
The city council is the formal decision making body.
Kol Peterson: [00:10:54] Got it. So as a staff project [00:11:00] manager working on this project with so much public input and the interests of not only the city council members, but also the Sustainability Commission. What are some general guidelines that you had in mind for incorporating all these different inputs of public ideas and suggestions?
Morgan Tracy: [00:11:19] It's tough. Right? So like I mentioned how these are sort of two competing objectives that we're trying to balance and not surprisingly, we heard testimony on both of those ends of the fulcrum.
But I think just sort of taking a step back, planning is really a reflection of the community's values carried into the future. So we take the input of a lot of public when we developed a comprehensive plan, those translate into policy objectives for what we want our future to look like.
But when we're translating those values, one thing that can be a little bit dangerous is people are resistant to change, right? So if a community is resistant to change, understanding that change is inevitable and understanding of the thriving city is one that adapts and embraces and is prepared for that change.
You kind of [00:12:00] need to look beyond some of the immediacy of the concerns that are being expressed and think about the bigger picture and who's benefiting and who's burdened by these decisions.
We heard a lot of arguments that the solution to our housing affordability problem was just making sure that those small, less expensive homes weren't being demolished.
As long as no one's having children and people aren't moving here, that solution might work, but that's also not realistic. Just ask the real old timers in Carmel, California. Very precious little homes that are $2 million and up.
And land use matters. We also carry this history of not hearing from, or actually some might suggest listening to the underserved and underrepresented communities like communities of color, renters, and the youth.
So we really had to apply an equity lens to our wayfinding on this project to carry forward proposals that were honoring the best parts of our community values, while also keeping an eye on a more prosperous future for all Portlanders.
So in this topic about single family zoning, we heard from a lot of single family homeowners that already had houses. That really [00:13:00] wasn't the crux of the problem we were trying to solve. Compatibility of neighborhoods, the longevity and the livability of neighborhoods certainly was a concern, but to address the housing crisis, it was really about the people that weren't in those homes.
Fortunately, we also completed this eight year planning process to complete the comprehensive plan, so we had a lot of policy guidance that we could rely on it to give us direction on that.
Kol Peterson: [00:13:22] That's really interesting point that I hadn't thought about that from a planning perspective, given these like policy overlays, that the fundamental audience that you were trying to draw inputs from wasn't necessarily those who are currently living in single family homes, but those who might be able to in the future, which exists right now, it's just that that's not the audience that you would necessarily directly go to, generally speaking, for that kind of information. You're rather you're looking for everybody else who isn't in those single-family homes almost.
Morgan Tracy: [00:13:53] Yeah. Yeah. Even more confounding as the generations that aren't born yet. Right. So we're looking at population trends and what [00:14:00] household composition trends are looking like to project what that future need might be.
One of the stats that we repeated and in our outreach was about the dwindling size of households. Fewer people per house, but the buildings themselves were getting larger and larger. So there was this disconnect between the demographic need and, and the development trend.
Kol Peterson: [00:14:20] Portland has somehow managed to put into place this Residential Infill Project Plan that enables for middle housing and two ADUs in a manner that hasn't been done elsewhere yet in the United States. And I'm curious if you have observation as to why it is that Portland was somehow able to get ahead of the curve on this particular topic while other cities who probably have people who are interested in similar ideas have not been able to get more inclusive infill housing regulations enacted.
Morgan Tracy: [00:14:57] Awesome project management! No. So this [00:15:00] is obviously a really hot button topic. And I mentioned, you know, every, every time we had conversations, somebody had an opinion about it. And it's also one of these topics that's sort of seen as counter to elected officials sense of self-preservation. I mean, most of their support, the people that are most politically engaged tend to live in single family zoning.
And the sanctity of the single dwelling zone runs deep in many people's minds. So every time we introduced the project to a group, we had to hold on embrace for what I would call the "Freak Out Curve". And it didn't matter if it was, I mean, the neighborhoods, yeah, obviously. But even other bureaus, other staff, even our own bureaus and honestly, ourselves. When we started this project, there was a moment where we're trying to just wrap our heads around, what does it mean to have four units in a single dwelling zone? What does that even mean? You know and it was, it was at this moment, I was at a neighborhood meeting and it was talking about the fundamentals of zoning, Euclidean zoning, separation of uses industrial, commercial, residential zones. And it struck me in that moment.
I was like, huh, I've never really [00:16:00] thought about why we separate residential uses in the multi-dwelling and single. Since, you know, extensively they're, they're the same use, they're just in different density levels. And if you dig into the history of single dwellings zoning, you start to learn about that. Even from its very inception, and I'll talk about that a little bit more later. But going back to how Portland is able to get ahead of the curve, I can pat ourselves on the back for putting together a great proposal. The planning commission certainly helped improve that. And it was most notably the courage of our city councilors who kind of acted in their own self-interest to approve this project.
But to that point it was our housing advocates who championed those other voices to come forward and give our council the confidence to act. So in terms of other jurisdictions that might be interested in tackling these matters, it's a multi-pronged approach that is needed to do it.
Kol Peterson: [00:16:55] Yeah, I think there's a unique coalescence of both passionate [00:17:00] people, smart people who care about their city here as well as a really competent planning staff at the city. I've long admired what the City of Portland and in Oregon at large have been doing with land use. This Residential Infill Project was a really significant landmark element or point in time in terms of doing something that was pretty cutting edge.
And it was interesting to be along for that ride as the code iterations change over those five years. And finally got to where they are, which was far beyond what really anybody at the outset thought might occur.
I guess following on that commentary, is there some kind of cultural element or the urban growth boundary, or I guess you kind of said, you kind of answered this question already.
You said advocates are maybe the key linchpin to this equation, but why isn't that happening in other cities where there's housing advocates, if that's the case? Is there something about [00:18:00] Oregon or Portland in particular that is the secret sauce that allowed for this type of thing to occur here?
Morgan Tracy: [00:18:07] I'm not totally sure. There's a bit of a secret sauce in terms of the level of sophistication of engagement in the general public. And when we're talking about planning issues, we already have an audience that well, sometimes out-wonk us. So we're not necessarily starting from a bare bones scratch we're already sort of actively engaged in a, in a deep planning conversation, which is, that's a little unique frankly, based on other places I've worked.
The other approach is to try and convince and educate the public to come along, to understand their own self-interest in these types of changes. And that's really challenging.
The messages that spoke most clearly to people that were on the fence were issues about where's your child going to live? If you want your children to be living close to you, where are they going to be able to afford a place to live? And as you grow older and you don't have children in your house anymore, where are you going to live as you want to downsize, [00:19:00] but you don't want to leave your neighborhood, look around your neighborhood and if it's all big houses, you don't have much choice there. So those kinds of messages are helpful.
But we were also in this watershed moment, frankly, and this is really erupted in the last year. But we're at this transition of racial justice and equity and equitable development, and a better understanding about the impacts of zoning and government regulations, that really highlighted the need for this change.
And so all of these things sort of all came together perfect moment and made that happen.
Kol Peterson: [00:19:32] Let's go right into that then. Early on in the Residential Infill Project code update process, there was intended to be some differentiation zoning entitlements based on a variety of geographic factors that more of a conventional kind of "smart growth" type of mentality in terms of thinking about zoning, which is "we will upzone areas, allow for more housing along transit corridors", which is great, best practice.
And there was also some concerns about [00:20:00] abating potential displacement issues that could occur for people who are low income or people of color. In the end, these elements were, as far as I could tell, effectively dropped as geographic overlay variables within the Residential Infill Project, so can you describe how these changes in the policy came to pass?
Morgan Tracy: [00:20:19] I think we're going to talk a little bit about public engagement and involvement, but this was one of those moments that really shifted our, our thinking. And like you said, we started with a more traditional focus around transit increasing density around transit.
But what we heard from this coalition of groups that was sort of the anti-displacement coalition and our housing partners and our advocates, they reminded us that while these areas were farther from frequent transit, they were still relatively close to other types of transit, less frequent transit.
So there's still transit available. It wasn't like there were in the, in the middle of the desert. They were also reminding us that these are still a lot closer to job centers, downtown, and [00:21:00] other commercial nodes than the suburbs that Portlanders were currently being displaced to. Even though they're a little farther from the action, they were still a lot closer than the suburbs or excerpts.
I think the one that really caught us was, with regard to holding back these housing choices in areas that we concerned about displacement risk, they said, aren't these the very areas where you'd want to allow for less expensive housing types to be realized? So it's a little bit of this false equivalency. If we didn't expand the housing options to those areas, in our minds, we were thinking that means no change, nothing's going to change there. Which, in terms of the zoning, that's true. But in terms of the status quo, that's also true. The status quo is these small, less expensive homes being demolished and big, expensive homes being replaced in their place.
So that's not helping the displacement picture. It's creating more expensive housing and doing nothing for the supply problem.
So, with that in mind, we sort of altered our course and said, [00:22:00] well, actually the planning, because this was one of the changes of the planning commission instituted was basically "go everywhere". Allow these in as broad, a place as you can, unless there's a, you know, some environmental or land hazard constraint that says you shouldn't. So that really altered our proposal.
Kol Peterson: [00:22:15] Let's go back to something you alluded to earlier which is a little bit of a history of Euclidean zoning in terms of single family zones.
Maybe you could speak to that a little bit? My reading of the case of Euclid v. Ambler indicated that at that point in time, there wasn't really a differentiation being offered that somehow duplexes shouldn't be allowed next to single family homes. In fact, it explicitly mentioned two family homes within that court ruling as being part of the residential zone.
I'm not sure if that's what you're talking about as far as the origin of single family zoning, but could you speak to this issue a little bit and the history of multifamily dwellings within single family zones?
Morgan Tracy: [00:22:55] Yeah, I mean a better speaker for you would be Richard Rothstein who wrote the Color of Law, [00:23:00] a tremendous book, highly recommended.
I keep bringing it up every time I'm talking about this topic, but essentially if you look at the history we had prior to zoning, we had restrictive covenants, racial covenants that were in place. And when those were struck down, well actually before that we had zoning that was race-based zoning.
We had zones for whites, not in Oregon necessarily, but in other states. Zones for whites and zones for other other races. And when that was struck down had restrictive covenants relied on CC&Rs. And as those started to be challenged and not enforceable by the state ,we shifted to more of this Euclidean zoning, which established larger lot sizes, which put things at a price point that made it, by proxy essentially excluded people of different races, kind of as a direct translation to income.
The Euclid V Ambler decision is interesting. You're right. I think it really is speaking about the differentiation between large multi-family development and smaller probably one and two family dwellings, but it makes some interesting assertions about how the single dwelling [00:24:00] zones need to be protected for the safety of children from the noise and disparities and the impacts of all that high active living in multi-dwelling zones.
But if you look at who's living where now, families with children are not necessarily able to get into a house and many are living in multi-family zoning. Maybe the demographics and the economics have changed a little bit, but if that's the premise for this differentiation and it's about, safety for our children, we really need to rethink that.
So one way we thought it in RIP in terms of providing for different types of housing that are for different size families. And there was a separate project, the Better Housing by Design, that was really looking at ways to improve living conditions in the multi-dwellng sense. So we tackle both of those things.
Kol Peterson: [00:24:46] This is a little bit of a riff here, Morgan.
So this trend that you've appointed to of smaller households is in fact, the reason that ADUs play such a prominent role right now in Portland, but that's also why they [00:25:00] pay prominent role everywhere in the United States. Similarly, you know, when I think about the public in urban development patterns, the same interests that people would have presumably in the city of Portland would probably apply elsewhere in the country.
So I think there's this notion that I hear from planners, like you've said, that you're trying to incorporate the interests of citizens, but wouldn't those interests be more or less the same in any city and therefore, why not just like apply the same principles that were used in RIP everywhere in the country or conversely, why wouldn't we just adopt all this using some common set of values in terms of urban planning?
Morgan Tracy: [00:25:42] I wish it was that simple. think there are a lot of commonalities the way people want to live, especially within the U S. The United States housing culture is not necessarily monoculture there's, there's distinctions between European living, right.
And how people arranged in a European cities and elsewhere. But, within [00:26:00] that, region wide or city by city, there's going to be just a bit of nuance about how development should occur that's reflective of the pattern and style of development that's already occurred in a place.
I think one of the fundamental things that we got to with RIP was let's not talk about architecture. The architecture changes, it's reflective of a time period, and that's a good thing. So we want to be able to see a period of development say, "Hey, I know when that was built" and it wasn't trying to mimic this other period, so we moved away from that. We're really focusing on the basic building blocks of what you see in a typical Portland inner 5,000 square foot lot was kind of the building block. So single primary structure, a detached accessory structure, and you know, maybe it's a detached garage in the back kind of thing.
With that sort of basic building block, we said, what does it really matter? And I think some of those team out in our ADU regulation c hanges, like, what does it really matter if that that building has a garage or it's an ADU unit? What does it really matter? If that [00:27:00] primary structure is a house duplex, triplex, or fourplex?
Now all those units are arranged within that basic form. Go, go nuts. We're just going to be more concerned about not over utilizing the land capacity and generally reflecting the historic pattern of development.
Kol Peterson: [00:27:16] For the planning/zoning wonks amongst us, is it accurate to say that we've kind of are shifting more towards a form-based code within Residential Infill Project?
Morgan Tracy: [00:27:26] Our code is resistant to the form-based label, but really is a hybrid. It has a lot of form based attributes .
Kol Peterson: [00:27:32] Okay.
Morgan Tracy: [00:27:33] Yeah, it's essentially here's your menu of entitlements and your development standards and they kind of prescribe an envelope that you can work within and the rest is up to you.
Kol Peterson: [00:27:42] So, not to get too far in the weeds here, but that's kind of what this show's all about. So HB 2001, Oregon House Bill 2001, we're going to discuss in greater detail tomorrow, passed into effect a couple of years ago. And that statewide rule making process is resulting in the City of Portland [00:28:00] having to do a cleanup bill to be house compliant with house bill 2001.
As a city that is now having its hand forced, effectively, by state legislation under House Bill 2001. What is your reaction to this? Does it come across as heavy handed policymaking by ivory tower electeds? Or do you see it more charitably? How do you perceive your role in terms of complying with these new statewide legislative directives as a city staff person?
Morgan Tracy: [00:28:29] I'm actually a bit split on this one. So you know, I, I think to start on the negative side on the negative side the bill is, is more broad than RIP applied to. So RIP was really focused on the higher density, single dwelling zones, the zones that are kind of closer in neighborhoods, have adequate infrastructure are not terribly constrained in terms of natural resources or land hazards. So we're, we're now looking at housing options for zones that are not centrally located, lack transit. I mean, not even [00:29:00] good transit for some transit, they lack transit and, and often lack infrastructure. And there's not a lot of properties in these really low density zones.
So middle housing in these areas is not really likely to be realized, and if it is realized it's going to cost a lot to build, which kind of runs counter our housing affordability objectives. So it's a bit of a fool's errand.
But, the counter-argument to that is the, what we heard in testimony was why us and not them? So this makes it more uniform. More universal, more equitable, and I don't object to that part.
On the more positive side. Another aspect of HB 2001 is a requirement that we come up with clear and objective standards for cottage clusters. And we took a run, a cottage clusters with RIP, there was already significant amount of work on our plate.
Oh, and for our audience, cottage clusters are essentially like multiple ADUs on a lot around a common open space, smaller units that are all detached and clustered around an open space. But addressing all the variables in that type of development and trying to fit within that sort of historical context [00:30:00] of patterns of development in neighborhoods, just, it seemed insurmountable without an excessive amount of prescriptive standards.
So we were just like, we're going to be creating a workbook of standards for these things to make them clear and objective and not the discretionary review. So this new mandate is making us take another look at that and facing the fact that we're not allowed to address many of those variables and basically says, "here's the things you can address and that's it".
So that takes pressure off a bit and that's pretty exciting, actually. And a lot of the resistance we're going to face where we were going to face internally from other bureaus. Primarily the infrastructure bureaus are, are most concerned about how this plays out. So now it's not a question about whether or not we're doing it, it's a question of how we're doing it. So that changes the conversation.
Kol Peterson: [00:30:44] Okay, let's talk about the Senate Bill 458 for a moment. This is a very brand new piece of legislation that is potentially very impactful. So I'm just going to briefly sketch it out. Basically, if people are on, on residential lots in Oregon that are under [00:31:00] House Bill 2001, if you're building quote unquote middle housing, which is duplexes, triplexes, fourplexes, and cottage clusters, and townhouses, incidentally, not ADUs, which is significant.
But in, any case leaving that aside for a second, this is brand new legislation that the city will have to comply with. If you build middle housing, you can do fee simple partitioning of that lot. So you could, if you build a cottage cluster, for example, on a 10,000 square foot lot, you could have eight, 1,250 square foot lots that you then can sell fee simple as opposed to doing condoization, which is achieving a similar outcome, but perhaps not as desirably from a consumer market perspective. Would the city have ever pursued this type of fee simple partitioning policy of its own accord? And what are some potential problems that you see with lot partitioning of middle housing and what are some opportunities that you see?
Morgan Tracy: [00:31:54] Yeah. So when we were at the Planning and Sustainability Commission, the fundamental challenge with the [00:32:00] RIP housing types is they are largely suited for condo ownership or rentals. So duplex, triplex, fourplex, or multiple units sharing a lot, so the only way to own those units independently is to condo them.
So in the, in the conversations with the Planning Commission, their recommendation to City Council as sort of a follow-up project, ,was a request to look at a streamlined land division process. Similar to our cottage cluster conversations was going to be challenging with our infrastructure bureaus.
Frankly, the concern about 4 58 is really about infrastructure, not necessarily the bureaus. Not to get too into the weeds, but things changed. The requirements for infrastructure change dramatically when you start dropping property lines. So the ability to share utilities versus separate utilites.
And the construction standards for those separate utilities and whether you need a public line or a private line, whether it's plumbing code or infrastructure code, all flips as soon as you start dropping property lines and they're vastly different.
So, Planning Commission had that recommendation to City Council, I think it was something [00:33:00] that the bureau was interested in creating fee simple ownership options. There was a hope that condos would picked up,and maybe there'll be some legislative changes that made the exposure for condo builders a little less and make them a little more palatable to build.
But you know, we'll see if that that still happens. But the fee simple option is just an easier thing for builders to build a structure, sell the unit, and move off and not be associated with the project anymore. They're not tied to that project for 10 years, like they would be with a condo.
From the consumer side, I think there's still going to be the need for some form of homeowners association to deal with the common elements in these middle housing land divisions, but it's not the same type of homeowner's association you would have with a condo, necessarily.
There's a little more consumer acceptance of a fee simple lot. I think what the challenge is the infrastructure, and we try and to develop standards that are feasible and don't lead you down a dead end in terms of your application. So if you can start with a [00:34:00] site plan and come up with your development proposal, come in the infrastructure requirements are generally synced really well with the zoning requirements that you don't necessarily run into problems. Not all the time, I'll hear that in the chat, but but generally they're synced up pretty well to work well together.
I think for the initial future after SB 458 goes into effect, and we see the first few middle housing land divisions happen, there may be a few that run into a brick wall, which will not make anybody happy.
Not going to make the developer happy, it's not gonna make the city staff happy, and it's going to be a little uncomfortable. We're going to work through what a good model plan looks like. And once people figure that out then I say taking off, but there's gonna be a little rough start, I think.
Kol Peterson: [00:34:42] I'll make one little policy note, which is from my vantage. In some ways I feel like it's unfortunate that ADUs were not included in the definition of middle housing in House Bill 2001, and as a result are not being captured by Senate Bill 4 58, which I see is almost an administrative oversight. We [00:35:00] won't focus on that particular topic unless you have any commentary about that.
In general, I see RIP and House Bill 2001 is having an intertwined policy history that is House Bill 2001 couldn't have occurred without the groundwork that RIP laid out in the city of Portland was kind of the biggest city in Oregon and RIP couldn't have perceived that as expeditiously in five years without state legislative law forcing its hand.
So in states that do not have a city like Portland that has pioneered middle housing strategies, which is most states. What roles do you think states
Morgan Tracy: [00:35:35] I think states can play a huge role and I think it's an important role. We realized as the City of Portland, we're a big player sort of a laboratory for the state.
And we can demonstrate that certain approaches are feasible and implementable and not the end of the world, sort of things. ADUs, I think we were on the forefront of that food carts on the forefront of that, not us, but, you know.
I would say, first of all, for those cities in states that don't [00:36:00] have state law dictating them to do these, now they have Portland, Seattle, Minneapolis soon, hopefully Austin to point to. And say, look, it's, it's doable. It's been done. And, and we have a model to follow. So there's that, but I think the role of the state is really an important one because housing is a regional issue.
It's a statewide issue and dealing with it at a really discreet city level puts you at risk, really. I mean, if you, if you look at what's happened in the Bay Area, those cities are gun shy to deal with their housing prices because it's a political hot button topic. And they take the heat for taking their fair share of the growth and other cities get off scot-free.
And so, you know, at a statewide level, it, it helps distribute that burden more equitably. I think that's super important if, if not at the state, at least at a region wide level.
Kol Peterson: [00:36:51] You know, Michael Anderson, the guests yesterday, framed it in terms of game theory, which was interesting way to think about it.
And I think it's more or less [00:37:00] echoing what you're saying, which is like state level legislation takes the game theory equation out of, out of play a little bit for all of them.
Morgan Tracy: [00:37:08] But the other part of it is if you're talking about local politicians making decisions, those decisions are immediate and in people's face and taking it to the statewide level, you can have policy debates on the merits of the policy and less about NIMBYs, and that's less about the opposition to change, you know?
Kol Peterson: [00:37:24] Correct. Yeah. Interesting. So what advice would you have for planning staff that are handed the task of ushering a controversial infill housing policy into being?
Morgan Tracy: [00:37:34] So I have a story to share here. When our new intern started back at the very beginning of our project. We were about to host our first open house, she was a little nervous about that.
I warned her it might be a bit cantankerous, but I told her to think of it like a trip to the dentist. It might be a bit painful, but it's for everyone's benefit. And most importantly, it will come to an end. And if you're thinking [00:38:00] about a project, it's overall, it's sort of the same thing, it's going to be a bit painful. It's for everyone's benefit and it will have a start and an end.
In some cases, you know, that end might not be the end you were hoping for, it might not be might not be a positive outcome but taking a run at it, if nothing else, its at least making a step in the right direction.
Kol Peterson: [00:38:21] What were some of the most unusual or awkward types of public comments that you received during the Residential Infill Project?
Morgan Tracy: [00:38:28] I told Kol earlier that all the points I'm saying today are my own opinion. I'm only expressing my own views. So these are not the official views of the city. So keep that in mind. Okay.
So at our first open house with our new intern she received a handwritten letter saying well, it was admonishing her for being part of this whole thing and that she should do herself a favor and quit.
And it was her second day on the job. No we had this one's a little more uncomfortable. We just pioneered an online platform for [00:39:00] submitting public comments and hadn't really worked through all of our publishing policies. So this is called the Map App and people can just submit letters or type in comments online, and they can be anonymous, but you have to add some basic information. We received one that was so overtly and patently racist.
It was just it was awful. And we're like, well, what do we do with this? You know, now we have to ask the question of freedom of speech versus civility, not something we had to do in mailed in comments. We can just put those in the file and pass them on to the decision makers, to read. Not something you have to deal with in person testimony because you deal with that directly as it's happening. But to have this thing lingering website, what do do with that? So that that create a little internal rethinking.
Another one was a piece of testimony that I found to be incredibly tone deaf. We had a large number of people talking about exclusionary, single family zoning and how I was keeping people out of neighborhoods.
And one neighborhood decided to submit a drawing of a castle with the [00:40:00] words, single dwelling zoning, complete with cards and ramparts, looking at a Trojan horse with RIP written on the side as though the lower income people were there to lay siege to the neighborhood.
More positively on the flip side, one of my favorite bits of testimony was a gentlemen who testified at council, came in with a two liter bottle of Coke and set it on the, on the table and said, you know, if I'm having a party and all I've got is this two liter bottle of Coke, that's not very helpful. And he reaches down and brings up the six pack. He's like, but if I break that two liters up into six pack, I can give everyone a Coke. So that's what, you know, that's what we're talking about with the single family house versus a fourplex.
Kol Peterson: [00:40:40] That was an epic public testimony. I witnessed that.
So on that note, from a project management perspective? What kind of public input do you find to be most helpful and useful? Like super technical technocratic input? Groups of stakeholders all saying the same things? "Hey, we want more affordable housing..." [00:41:00] Diverse opinions from, you know, a whole bunch of different people? Open-ended responses? Or is it more structured statistical data input that you find to be the most helpful?
Morgan Tracy: [00:41:11] Well, I'd say certainly don't ask the planning staff to quit. Don't be overtly racist but more seriously. So you know, planners have their own experiences, their own biases in place. And as policymakers, we challenge ourselves to think more broadly from multiple perspectives.
So general comments are good for expanding those horizons and those perspectives. Compelling anecdotes are good for decision makers, the two liter bottle and the six pack, you know, that was humorous, but there were other more heartfelt stories that spoke to decision makers.
I would say that's less so for planners. So if you're speaking to the decision makers the compelling anecdotes are good, but for planners I would consider constructive public input as something that identifies an issue, supports it with facts, and hopefully proposes a solution. The thing that gets a little challenging as planners to explain is we'll see the issue, we'll take into [00:42:00] consideration the facts. We might not adopt your, your proposed solution because there are other things that we're thinking about; legal, fiscal, political implementability, but it highlights issues that, that we'll start to analyze and come up with different solutions for.
I think a good example of this that's related to this topic about ADUs is, it was something that came up, actually, in an earlier project about ADU conversions in basements and how some basements were larger than 800 square feet. And so we were just not able to convert, we had to do weird, crazy things to meet that 800 square foot limitation. And why don't you just let the basement be converted?
That didn't get resolved in that first project. But when we were thinking about this project, we were like, well, that's a great idea for encouraging home retention. Why don't we make that an allowance for existing houses to do? You can't do it with the new home, but if the home's already there, why not? No harm, no foul. It's just a large basement that's now in ADU.
And then there's also the aspect of the hyper-local conditions. Planners have a good appreciation for the city as a whole, or if we're doing neighborhood scale planning, dive deeper, but a project like [00:43:00] RIP, which is citywide, there's a lot that gets lost in that averaging the city-wide data. Even down at the census tract level just the particularities of the different parts of the city that we're not going to spot that are going to get lost in the noise or in the data.
An example of that was conversations we'd been having about parking, parking was a huge issue in this project. But we were trying to make the point about the benefits of utilizing on-street parking and how that functioned better, is more efficient than requiring onsite parking. And one neighborhood was concerned about their narrow streets and filling up the narrow streets with cars. There were some benefits to that in terms of slowing traffic and some other the things, but they, they brought up a good point that actually hadn't occurred to us, which was well, if those narrow streets fill up entirely with cars and there's no gaps in that parking, when you have two cars approaching on a 200 foot long block, or longer, what happens?
I mean, now people can kind of pull aside and let the other person pass, but if it's all filled up, what happens? If there's no driveways, no [00:44:00] gaps in the parking, that's a problem. And so that really actually kind of changed our thinking about the limitations we had on garages and driveways. And so we sort of loosened up that a little bit and recognize that having some of those gaps is probably going to be necessary.
And ultimately it's going to be a PBOT, our transportation bureau, is going to have to manage those streets a little more actively as we see them filling up. But that's a problem for later.
Kol Peterson: [00:44:26] Problem for a hundred years from now.
All right.   So we're going to skip right into some of the Q and A's from the audience . So Kelcy, take it away.
Kelcy King: [00:44:34] Yeah, great. We have a couple of really great questions Rena has been waiting for a little bit her question is, "we are looking to address housing affordability and the missing middle, as you know, relevant data can suede decision-makers and the general public. Where can municipalities obtain good and reliable real estate data, including housing cost, affordability, housing types, and vacancy rates?
Morgan Tracy: [00:44:54] So sales data is available through CoStar, but it's a subscription service you have to pay [00:45:00] for.   And the reason I said, darn it is because I wasn't involved in the housing needs analysis that was conducted. So all the data research that went into looking at the distribution of the types of housing, the construction trends, the the general income levels by household, all that research was done by a different set of planners.
So I don't have a good answer for you on that.
Kelcy King: [00:45:20] Thank you. Sandra asks. So why is single family separate from multifamily if it is all residential category?
Morgan Tracy: [00:45:29] Yeah, that's, that's my perspective too. Going to the perspective of form-based codes, there are distinctions and where you want to focus your large-scale development, many unit type development, and the reasons for that are primarily driven by infrastructure and transit planning, so you don't want to disperse your residential densities so much that you don't have a the phrase critical mass. And for infrastructure planning, you kind of need to plan how big the pipes are going to be based on how many * are going to be realized on that area.
So [00:46:00] there's a little bit tied to that. I think that's not why these two zones were created initially, but I think there's still planning need for how you allocate how much growth is going to happen in the area. So you can put the right amount of resources and services there.
Kelcy King: [00:46:16] So that kind of goes into something that I I'm hoping to understand a little bit better because I live up north in Bellingham, Washington, and we're still working really hard advocating for density.
So what agencies are you working with and have you worked with, to identify the needs and solutions for how the RIP is addressing the needs of people of color and low wage earners.
Morgan Tracy: [00:46:40] So we, I, again, I'm going to lean on our advocates. We, we had the Anti-Displacement Coalition, which was comprised of the Portland African American Leadership Foundation, The Native American Youth Association, Hacienda, CDC, a few different other community development corporations that provide affordable housing and [00:47:00] are actively dealing with finding housing solutions for those populations. So we had a lot of input from those groups, which was really helpful.
I think one lesson learned from RIP is we didn't necessarily start with that equity lens that sort of evolved through the project and really started to gain traction around the time we were at the planning commission. So a lesson that I would share with other planners or other people getting started is start with that, start with that equity lens, bring those voices in early.
You're going to have a much different starting place than if you follow the more traditional Go to neighborhood associations and start down that path."
Kelcy King: [00:47:38] What is a cleanup bill?
Morgan Tracy: [00:47:41] When House Bill 2001 was adopted it largely followed the model that RIP was adopting, but it had some nuance changes and some things that were inconsistent with what we had adopted and some things that we hadn't necessarily tackled.
And so the cleanup bill is we still have to comply with those requirements. And so [00:48:00] even though RIP is adopted, we have to come back and make the changes to bring ourselves fully into compliance with the state.
Kelcy King: [00:48:05] I'm going to stick to this one just because I had one other person asked this. What studies were done in relation to the RIP to determine the effect of the capacity of utilities over time and is there any part of the RIP that considers promoting highly efficient homes and multifamily dwellings to keep that impact lower?
Morgan Tracy: [00:48:22] Hmm, that's a great question. So the on the analysis side, yeah, we did a lot of work with our infrastructure bureaus to look at the system citywide. I don't think it's really a surprise.
It's a surprise to people that live in neighborhoods that think that their infrastructure is crumbling, but you know, that the infrastructure in the city, in the higher density zones is over-built. So there's additional capacity that that is under utilized with single dwelling zoning.
So the amount and degree of development that we're expecting to see from these new housing types in the next 20 years is not huge. It's in the range of 3% of the housing types are going to be these different housing types. It's [00:49:00] not going to be every new house is going to be a four-plex. So that's one thing.
The interesting part of the question is the look at high efficiency homes to mitigate the impacts of some of those issues. So the things we looked at were stormwater, which really are related to impervious area and your ability to infiltrate.
And so we kept existing building coverage limits the same, and we reduced the total size of the buildings could be. So we actually reduce the potential impact in that regard. For water, I think there's a lot of conversation about what is a household with eight people versus a fourplex with two people in each unit.
You know, we can have those conversations all day. But metering is the first step of mitigating the usage. Sewer, it was an issue in certain locations, but there are projects on our CIP list to upgrade our treatment plants. So kind of had something already in mind for that.
The big thing really is transportation. And that was a bit of our rationale for trying to tie this to transit [00:50:00] initially. But again, the level of impact that we're anticipating from seeing this sort of shifting a reallocation of units in the city is pretty minimal it's on the, on the edges, it's like almost like a carrying a number error kind of thing.
In terms of the big picture of 123,000 units, we're talking about five to 10,000 units that are going to get these different types in a sort of spread throughout the city. So not a, not a major impact in one location.
Kelcy King: [00:50:26] Thank you. I think I'll tie that up.
Kol Peterson: [00:50:27] Thanks for joining us today, Morgan.
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The ADU Hour w/guest Alexis Stephens
3 ago 2021· The ADU Hour
Alexis Stevens is the co-founder of tiny house expedition, the DIY tiny house, dweller and advocate. Along with our partner Christian Parsons, they inspire others to rethink housing through thought, provoking storytelling, educational events, and resource sharing.
Their work includes the acclaimed educational documentary [00:01:00] series. Living tiny legally. Living, tiny legally. It was featured on Washington post NPR business, insider parade magazine, curved entry, hugger. Cool. What were some of your takeaways from listening to this episode? Well, I'm in a real kick right now with mobile dwellings.
So it's really fun to banter with Alexis who is equally wonky about tiny house on wheels regulations. The tiniest moment is very fractured and stealthy by nature. So it's fun to try to anticipate how the stealthy movement will actually play out. In the future technology has enabled mobile dwellings, like RVs vans, tiny homes, and park model RVs to be far more convenient and practical than they would have been for living 20 years ago.
And I expect that we will look back almost consoling only to the days when tiny houses on wheels weren't even legal to live in, in residential zones. And think how weird it was that we didn't allow people to live in mobile dwellings.
Kelsey, what were some of your takeaways? Alexis is incredibly personable and we had a great time chatting with her.
She has traveled the country in search of knowledge [00:02:00] and experience of how tiny house communities are collecting and advocating to improve local regulations, to make this lifestyle more accessible.

Let's get to our interview with Alexis.

Kol Peterson: As, as Kelcy was introducing you, my Alexa device was responding and I was like,oh shoot, ,that's going to happen this whole episode -got unplug that. That that must be so annoying.
It is so annoying.
Alexis Stephens: We recently filmed in like three tiny houses with Alexas and they had to turn them off and yeah, it gets old and Alexa got creepy. I don't know if it was because I was there and she felt competition,
Kol Peterson: What a bummer, huh? [00:03:00] I mean, you can change for your own self. You can change the name of Alexa to somebody else, but like everybody else is still going to have the default Alexa. So it's going to pester you for the rest of your life.
Your bio was just read, but let's just hear a little bit about your personal endeavors with living in tiny homes. Some people have a little bit of context for your history, with the you know, living in one.
Alexis Stephens: Sure. Back in 2014 Christian and I ordered our, our trailer and built our tiny house over the next nine months.
And he was the main builder, but I helped, I learned a lot of new skills and we had a lot of great help for friends and family. And like so many people in tiny houses, we fell pretty hard down the rabbit hole. Before we decided to build and research like crazy for, you know, for personal choice to simplify.
It was a time in my life that where that just felt so right, [00:04:00] but I'm just an all or nothing person. And as I was researching, you know, I really fell in love with the movement and how creatively tiny homes are being used to address personal and community needs. And so I got the idea to travel around with our tiny house and document the movement.
And so I pitched Christian on both at the same time, I was like, let's build a house. Like I want to build a house and I have this documentary idea. Do you want to do it with me? Because we'd only been dating for a year at that time when I pitched it. Fortunately he was a really good sport and really loved the idea of it.
The rest is history. And after we finished our house at 2015, we ended up traveling for about four and a half years zigzagging across the United States, peaking into Canada. And it had just the most wonderful adventure. And most of that was around documenting as much as we could of the tiny house movement, the people, communities legal action that was happening.
And then of course we threw in some, some fun stuff [00:05:00] and some family visits, but I'm really happy to say that now we just traveled three months out of the year and have a home base in central Oregon.
Kol Peterson: Awesome. So this is not going to be so much focused on your personal experiences but rather the tiny house movement at large and specifically the regulatory things that are occurring in the U S so, and, you know, tying that into ADUs to some extent, but just more generally legalization of tiny homes on wheels.
We're going to talk about your specific documentary series on that later, but let's talk more about the nuts and bolts of it. So can you attempt to define tiny homes on wheels?
Alexis Stephens: Yeah, absolutely. You know, the term tiny house is a slippery one. That's for sure, especially in the media, but a tiny house on wheels, also known as a movable tiny house is built on a trailer using traditional housing materials and techniques for the most part, but at its core, it's a hybrid [00:06:00] structure that has a lot in common with like a travel trailer, as far as mobility, but with more durable materials construction, more kin to a traditional house than at RV, which makes it more suitable for a year round living, you know, think insulation, you know, is a big one.
The difference between an RV and a tiny house is night and day it's, it's a residential house versus a camper. It's, that's what we're talking about.
Kol Peterson: Would you say that there's a universally agreed upon definition of a tiny house on wheels in terms of size? Obviously it's on wheels. Aside from that, is there any other like core definitions that we should bear in mind or is it kind of all over the map?
Alexis Stephens: The term is, is still squishy, so to speak. And, but I will say that in tiny house, on wheels or movable tiny house zoning ordinances it is starting to get a little bit more formalized.
And in most of most of those you know, what I, a version of what I said and more formalized language [00:07:00] is, is becoming more widely accepted. Typically they'll say a chassis instead of a trailer. And, and in some areas, particularly California, they do like to distinguish a tiny house from an, a traditional RV, because, well, I'm sure we'll get into this word later.
They are trying to discourage, you know, RVs in backyards and, and want something that looks like a cottage that resembles an ADU.
Kol Peterson: So what roles do you see tiny homes on wheels playing in housing, a formal legal housing on residential properties?
Alexis Stephens: You know, I love a tiny house on a residential property because it's so, so flexible is great as a caretaker unit and not necessarily, you know, it could go either way. It could be like your mom, your mom, you know, comes to live in your backyard. Cause you've had a baby and she just can't stand to be away, but you maybe can't send, have her in the house.
You know, or vice versa where you, you or a [00:08:00] nurse comes and lives in a backyard in a temporary fashion to take care of someone. We just visited someone in Eldorado Hills, California doing just that. Her parents health is starting to wane and she lives on their property, but doesn't plan to be there forever.
So very, very flexible. Yeah. Besides this, the caretaking idea is just another housing option. A long-term more affordable housing option. That's very mutually beneficial for the homeowner and the tiny dweller. You know, I think sometimes people look down on tiny houses on wheels in this like temporary mobile fashion that they are as, you know, taking advantage not paying their fair share.
When in reality, the majority, I mean the majority of tiny houses in my personal experience on residential property are helping pay the mortgage, the property taxes. We just visited a great situation where a woman was divorced, a single income. [00:09:00] What is she going to do? Her whole life is there.
And so she welcomed a couple of tiny houses onto her property to pay her bills.
Kol Peterson: So sounds pretty similar to ADUs in that way. How would you differentiate the roles that tiny houses on wheels and ADUs can play in housing on residential properties?
Alexis Stephens: You know, it's, there's a lot of similarities, like you said. I think the main difference is the flexibility, you know, it's flexible infill housing that can be removed as needed, which is kind of, kind of great because you know, dedicating to an ADU is a very long-term permanent situation where, you know, this, the cost of it alone, you know, I mean, you're not going to want to take it down once it's up where a tiny house like it, you know, if you need it to back could be gone for when you need to sell the house or if your situation changes.
Kol Peterson: And I'll chime in with a couple of responses after my questions, because I have a lot of thoughts about this [00:10:00] too. So forgive me. So I would also say that tiny homes on wheels are vastly less expensive than ADUs in general. And B to your flexibility point. There, this opens up this whole other marketplace of potential things that don't yet exist, but marketplace actors such as third parties that could own the tiny houses and lease it to either the dweller or to the owner of the property could exist.
Whereas with with ADUs, you could theoretically come up with some way to do that, but it would be really challenging. Tiny homes on wheels definitely afford some really innovative new business models.
Alexis Stephens: Yeah, excellent points. You know, the cost is a big one. You know, it's, it's incredible how much money you can save when you, when you skip the foundation.
And the price range of tiny houses. This is so great. I know people complain about that, but you really can get something that's suitable to you. And the loans are just becoming more available all the time.
Kol Peterson: This wasn't one of my questions, but like how much does a tiny house costs, what is the range that you offer? And then can you briefly [00:11:00] speak to this financing option?
Alexis Stephens: Sure the range is tricky because it varies greatly on size customization. The materials used. Also, we got the pandemic factor, you know, with prices going up. So I'll try to be a little bit more generous you know, on the low end from a builder $50,000 and that, and that might be pre pandemic times, but we'll say low ends, $50,000 high-end it's $115,000.
The majority I would say would be probably between 65 and 90 from a builder. Now, if you have the time ability, ability to learn a place to build, you can build for much less by being resourceful. We certainly did. Of course I was many years ago, but we use a lot of salvage and reclaim materials that we got for free or low cost. Oftentimes the cost was our sweat equity into like tearing down the walls off an old farmhouse. [00:12:00] Those opportunities still exist, but it's just not accessible or realistic for everyone
Kol Peterson: And financing?
Alexis Stephens: So financing. So there are a number of credit unions who will lend for a tiny house. They're the biggest player.
And then a number of personal loan. Oh, what's the word I'm looking for? That you can get personal loans from a lot of like online sources now. I would say the most, well-known right now is Liberty Bank of Utah. Even though the Utah bit, they service the nation and they work with a number of builders, they require certification.
There's still feasibility, I think, for a DIYer, but they have very reasonable, reasonable terms. They do 15 to 20 year loans. So something that could be paid off much quicker maybe than a 30 year loan and I'm blanking on the, on the exact rates or whatnot, but they're lending all the time, which is fantastic.
Now I'm like, oh, yay. [00:13:00] There's like a couple of handfuls, you know, I know this is a, a big country, but that's a big difference from a few years ago.
Kol Peterson: Yeah. And I mean, there's both financing opportunities emerging as well as like insurance opportunities emerging. And we don't go into too many details on that, but one point I'll just make for people on the call and maybe you can respond to this.
It's like ADU construction, loan financing is based on like GSE sponsored you know Fannie Mae, Freddie Mac sponsored Types of loans, whereas this type of loan is not secured against a property, is that correct?
Alexis Stephens: Exactly. Yep. These are unsecured loans you know, personal loan. So, you know, there's ups and downsides with that.
Oh, I also have to give a shout out to one of my favorite nonprofits is Operation Tiny Home. They have a fantastic grant program as a down payment assistance grant program. And what, you know, you think, well, what's the down payment on a tiny house, you know, for some people it's a drop in the hat, but for a lot of people who really do need to get into affordable housing and can't [00:14:00] afford a monthly, tiny house payment. And you know, probably a lot lease too, they, they struggle with the upfront money and that's where operation tiny home comes in. They're also launching a secondary grant program. If you haven't heard of them, I highly recommend you check it out.
Kol Peterson: People sometimes ask me like how many people would actually want to really want to live in an ADU. And I'm like pretty much any one and two person household could definitely live in ADU. It's not, it's not that big of a deal to downsize to 800 square feet or 1000 square feet or whatever.
And, you know, that might seem like a weird concept to downsize to an ADU, but once you've been in an ADU, you see that they're actually just like, you know, decent, a good size, comfortable, luxurious. Tiny homes on wheels are a little bit different. They're significantly smaller, oftentimes 200 square feet.
So with that factor in mind, but other factors as well, what percentage of the US population would realistically consider living in a tiny house on wheels if they were just as [00:15:00] legitimate as a single family house in terms of the legal structure for doing so?
Alexis Stephens: Yeah, those are really good question. You know, for, I like to preface by saying, I often find that tiny houses on wheels work really well for a number of people for a season of their life: starter home, retirement home, transition out of divorce. Raise my hand here. There's a lot of ways that tiny house would fit, but not forever. For most people. Fortunately, there was a study done at the end of 2020 by a Fidelity National Financial affiliate and it's not a huge sampling, I think only 3000, but nonetheless 56% said that they would consider living in a tiny home.
That's huge. I think. And I mean, and more than that 86% said they were considering it as a first time home or as a retirement option. And I do feel like that reflects where we are awareness wise of tiny houses, [00:16:00] say from 2014 to 2021, you know, the shows helped make it cool, you know, with a lot of unrealistic expectations, but now people, you know, it's, it's rough out there.
And I think, you know, a lot of people living in a room for most of their adult life, you know, in a shared housing situation, you know, if you think about it in that context, all the single people out there, there's more single people than ever people without children. And if you're used to having your roommate.
What's that difference between a room in a tiny house, really at the end of the day, except that you get a kitchen and a bathroom?
Can you review some of the common regulatory barriers that tiny houses on wheels suffer from in terms of placing them on residential? Yeah. So I mean, very generically building code requirements zoning, you know, but you know, I'll dig into that more. I think really what I've heard the most [00:17:00] is cities just saying, "I don't know how to deal with the tiny house. Like where does it fit? Is it an RV?" And there's a lot of communities that are very opposed to having RVs around. And so I think, and there's a reluctance to. There's a reluctance to go outside of the box, you know, because it requires more work and a lot of aggravation from maybe say some NIMBY groups who don't want, you know, poverty, you know, poor people, housing, as some people see it close to them, because it really what's amazing to me is that you can create a tiny house zoning ordinance overnight.
I mean, it doesn't take long. I mean, in the, the ones that exist out there, it can happen in two months. It can happen in two years. You know what the difference is is people, I'll just be frank, bitching and moaning about it, because it's not that hard, especially now where you have templates for big cities, small cities you know, it's really easy to [00:18:00] copy and paste.
I think it's important to note, which, you know, this is pretty elementary, but you know, there are still a minimum square footage requirements. And, you know, in certain areas that especially who work on outdated versions of, of building code you know, I, I really love seeing the California and I think we might get into this later, California is embracing like some RV standards because building departments are overloaded.
And so I can't understand that this is a real challenge because figuring out how to use the residential building code to apply to a movable structure is really tricky. You know, the IRC, appendix Q can address a movable tiny house from the trailer up, and then really you can use alternative means and methods to address the trailer.
But it, it just is something that requires a lot of extra work that I, I don't think cities are that willing to do.
Kol Peterson: Some of the common barriers , going into the building codes a little bit, from my vantage are things like minimum headroom [00:19:00] requirements. Like you have to have six foot eight inches of headroom on the lower level, not to mention the upper level and tiny house. And the wheels are 13 and a half feet high because they have to be road legal in order to be pulled down the highway once in their life or twice in their life or whatever.
And it's almost impossible, therefore, to fit a legal second story, which is by default where most sleeping areas are in tiny homes on wheels, because you don't want to put it on the ground level because there isn't enough space because it's such a small structure because it can only be eight and a half feet wide.
And that's just one example of a building code regulation that doesn't really mesh well
Alexis Stephens: Yeah, and actually I'm such a tiny nerd that I realize maybe not everyone knows what appendix Q is. So appendix Q was created for houses 400 square feet and, and below to address some of those exact things like head height, emergency egress alternative.
Vertical access to the loft, you know, allowing for ship's ladder, which take up much less floor space. Cause it's very hard to get a code compliance set of stairs [00:20:00] in a house that's under 300 square feet, you know, most times. And so it really looked at those pain points and, and addressed them and made it much easier.
There is a catch it's a fabulous step forward, the catch is, it doesn't encompass everything for instance, you know, in the code, which I find ridiculous there's things like how much room you got to have around your toilet or whatever for servicing purposes has nothing to do with safety. Why is that a requirement?
And then the law comes down to the inspector then, right? Having an inspector who looks at what you're doing, let me pause and say that in the Lake Dallas Tiny Home Village in Texas, this is the first community on a local level that adopted the appendix Q and then applied it to moveable tiny houses.
And what they did is they require a tie down requirement and that you have to be skirted and have your electrical connection inspected locally. The houses also have to be inspected by a third [00:21:00] party. Now, what I know is a third-party inspector. In this case, he will look at the tiny house. Does it meet the appendix Q? Does it meet the intent of the code? Not so much the letter of the code sometimes.
Kol Peterson: I think there's a, as you alluded to, there's a host of different building code barriers, aside from just leaving sleeping lofts, insulation requirements. If you have an eight and a half foot wide, tiny house, you can really only fit two by fours. Two by fours aren't you can't meet the insulation energy code requirements for a lot of jurisdictions.
You can't easily put in guardrails to get up to the front deck to get inside to the tiny house. There isn't, as you mentioned, you know, the minimum room sizes of 70 square feet. My opinion is we're trying to put like a square peg in a round hole with this stuff, and I'm really hesitant to try to formalize or squeeze tiny house on wheels, development regulations within conventional IRC codes for all of these reasons.
Alexis Stephens: I can really appreciate [00:22:00] that. It does feel that way. And I mean, it's just amazing how dense, you know, the IRC has become over the years and I think you nailed it. It just doesn't, it feels like apples and oranges sometimes. It shouldn't be that hard, but you know, stuff doesn't work on common sense, you know, unfortunately.
Kol Peterson: And yet to the average person, it seems very odd that tiny homes on wheels that look cute, look like adorable ADUs, are not allowed. What's your perspective on this in terms of common perception of, you know, 'Hey, why, why shouldn't I be allowed to live in this tiny house?'
Alexis Stephens: Yeah, great question. I'm wearing a home is where you park it shirt today. But oftentimes I wear, I have a legalized tiny shirt and I also have a bumper sticker that says that I can't tell you the number of people who stopped me to say, well, what do you mean by that?
It's a great conversation starter. So I don't wear it if I don't want to talk to people , I'll tell you that much, because I think people [00:23:00] are like, are very confused by the idea that it wouldn't be allowed. Why not? One, I see it on TV and it's like, I don't, it's like, I'm not trying to talk down to people about, you know, by saying I see it on TV.
Therefore it should be a thing, but, but really on a grassroots level, we don't get educated on building codes and zoning and land use and all this stuff. The average person that was very little about that. And I, I think because of that, you know, people miss out on opportunities that exist to them, especially in places where there are ADUs, for instance, because they're not aware of it.
If you're not a super nerd. I digress a little bit. You know, I think a lot of common sense kind of people say, well, it seems practical to me is a great idea. I could just stick it in my yard. And voila, , I got a place for the kid when he comes home for college or whatever, people, people understand more and more people understand the flexibility of the use.
And so it is kind of [00:24:00] befuddling is that a word that they're not allowed?
Kol Peterson: Maybe tell us a little bit about THIA. . And what is the mission of THIA with regard to legalization of tiny homes in residential zones?
Alexis Stephens: Cool. So THIA is the tiny home industry association is currently the leading advocacy organization in the United States that we also collaborate with folks in other countries, especially Canada.
So we are on a mission to advocate for regulation changes develop standards, promote best practices, basically for the wide spread use of tiny homes as permanent and permissible housing. We try many approaches towards making permanent and permissible housing happen and using different tools that are available, whether it be RV standards, residential standards you know, we focus a lot on the movable tiny house, but we also do, we are huge fans of, [00:25:00] of ADUs.
And so I mean, we often do tell people, like if you, if your town is having a meeting on ADUs, a hearing on it, show up, this is for you because the first step and a lot of, a lot of times is to get ADUs allowed. And then, and then that leads the way to having the, the movable tiny house conversation.
Kol Peterson: What are some of the current regulatory approaches that you've observed in terms of legalizing tiny homes on wheels on residential properties?
Alexis Stephens: The most common right now in the most places. And most of those are in California, but they are sprinkled in cities across the nation is allowing moveable tiny houses as ADUs. So I know I really love that Portland didn't classify them as ADUs so that people can have multiple structures on their property.
That makes a lot of sense to me, but where it has I think why the movable tiny houses ADU has really taken off [00:26:00] is, is because that it bypasses the way these ordinances are written, it bypasses the building department in that they require them to be built to RV standards. Oftentime requires a certification and this takes a pressure off of an overloaded building department and allows the permitting to be done on a much more expedited level to, to meet, you know, the.
The housing crisis, you know, just, this is, I love about the cities who've embraced this, it's like finally saying, 'Hey, we have a crisis. Maybe we should do something different. Maybe we should allow something and actually expedite it so that people can implement these on their properties much more quickly.' And I think that has a lot of appeal to communities are really struggling.
So we try to hit on that a lot at THIA is, you know, look how practical and easy this can be. And yeah, so I that's, that's probably the best approach right now on the whole. And it makes the most sense, especially with land costs, to really focus on getting them on [00:27:00] residential properties and people using the ADU is the best way for people to wrap their head around it.
Kol Peterson: The tiny house on wheels being built to as a movable tiny house under the ADU code. Is there other parts that you've seen elsewhere in the country aside from Portland, which we can talk about briefly?
Alexis Stephens: Sure. So I mean, there's not, that's not a ton. That's that's the primary one though. There are a few pocket neighborhoods and like I mentioned, Lake Dallas is great. There's another one and Durango, Colorado called Escalante village, both very, very similar where they use planned unit development ordinance they, they put it in an.
Not always the most desirable place. So Lake Dallas is just walking distance to downtown. And they use a residential code but amended locally for the, to apply for the trailer to get over that that hurdle. And in those instances, those are cities where the RV [00:28:00] code didn't seem attractive to them.
And they like having a place for tiny houses, right. They like, they need a place, they need a park. And part of me doesn't like that because it's like, we shouldn't be pushing them to the fringes, but on the other hand, I've stayed in a lot of tiny home communities and they could be a wonderful environment to live in.
So I'm okay. I'm okay with that idea, especially I love Lake Dallas and some of the others you know, they're set up very much like a traditional pocket neighborhood was shared green space and landscaped very nicely. So it does feel like a neighborhood and not like an RV park
Kol Peterson: As somebody who's developed like a RV park for tiny homes on wheels. When, you know, one of the issues with, with designating or historically with like both RVs and with tiny homes on wheels would be that you can only do that within commercial zones. Commercial zones are more expensive. And if you can afford to do it in the size lot that you need, it's going to be on the fringe the walkable bikeable area, if at all. And so [00:29:00] like, yeah, it's a problem, you know, from a zoning perspective, if you're designating it designating, you know, RVs or tiny homes solely to parks you're, you know, essentially relegating them out of existence because of the economic, or at least in desirable, walkable bikeable areas because of the nature of how cities are zoned and the cost of real estate.
Let's briefly talk about Portland's code innovations. Take a crack at spelling out what you think Portland did differently than other jurisdictions have done with, with in terms of legalizing tiny homes on wheels on residential properties
Portland is a fabulously progressive ordinance regarding tiny houses and RVs, which began with an emergency housing ordinance a handful of years ago where they temporarily allowed them on residential property with some minimal restrictions. And as it was getting the sunset this year, Great group of [00:30:00] advocates, including yourself you know, help to rally, to push the city, to create a permanent pathway for that.
And the city very gladly embraced that. And so now tiny houses and RVs are allowed on residential property with minimal restrictions and tools to help overcome hurdles like hookup fees like sewer hookup fees by providing a grant program. But what's special about this is why they're on residential property.
Alexis Stephens: They do not, they are not classified as ADUs. So a homeowner can still build an ADU and have an RV or a tiny house on their property. Which is really wonderful.
. I think those are, those are some of the big points. And, and, you know, importantly they're not required to be built to park model RV standards.
Kol Peterson: And so when you were really, when you were alluding to the movable tiny homes, you, you mentioned have to build, be built to RV standards. Isn't it true that they have to be built to park model RV standards. And are those the same as RV [00:31:00] standards or is that a category of RV standards?
Alexis Stephens: Oh, that's a great question.
Both, both are, in some cases, either one is utilized I mean an RVs and RVs, just either a park model, a travel trailer in the, and the main difference, you know, in abroad in broad strokes is size and and you know, just to keep it really simple, you really get in the weeds, but at the end of the day, they're, they're very similar.
Kol Peterson: Interesting. Okay. I didn't, I didn't realize that I thought there was maybe more differentiation between the two, but I mean, one, one difference that comes to mind is like motorized non-motorized isn't that? I mean, cause you can have like. A motorized RV, but that's not what we're talking.
Alexis Stephens: Yeah. Fair, fair point. In the United States, when we use the word RV, we are referring to motorized and non-motorized RVs and it's true in the, the park model category is never motorized.. Where the travel trailer side of it can be, we'll see, I say travel trailer, but it's [00:32:00] travel trailer, motor home because I had had enough coffee and I'm blanking on the exact names of the codes at this moment and I don't want to say the wrong thing. But when you're outside a park model, it can be motorized. But in any time where you have a tiny house on residential property, they specify a non-motorized RV. Even if they use park model code, they just go out of their way just to say, you know, we don't want a house truck, you know, we're talking about something, built on the chassis period.,
Kol Peterson: Of the approaches that you've seen, have you seen any evidence of which ones are actually working in terms of tiny houses on wheels being put on the ground in residential properties?
Alexis Stephens: I'll tell you what's widely successful in a range of small cities, large cities, rural counties more urban counties is making the pitch that a tiny house on wheels is no different than an ADU except for the chassis.
And of course, we just talked about all the, the various nuances, but let's face it. The world doesn't run on nuance, [00:33:00] unfortunately, as much as we'd like it to. But Dan Fitzpatrick, who's the president of THIA, is an incredible advocate and we're so lucky to have him. And he, he created this wonderful presentation that all our members have access to and can customize for their local area.
But we have seen it's incredible. We have seen how showing how the, the numbers make sense how it could be a really great investment for a primary homeowner to create a spot for a tiny house in the backyard.
It really it's really seems to hit home. The key is to change some of the details. So that you're not talking, you're not talking about LA. when you're in a small Texas town, you got to, you got to make it in a way that feels relatable to them. And that's the benefit of where we are today is that so many different size places have accepted it, that you can slightly change the wording to be more appealing. I know this is oversimplified, but like it's incredibly effective.
Kol Peterson: Tiny houses on wheels have an embedded DIY [00:34:00] ethos. It's really stemming from the figurative godfather of the tiny house movement, Jay Shafer. What are your thoughts about the differentiation of RVs or similarities to RVs in terms of the development of tiny homes on wheels?
Alexis Stephens: Okay. So I guess there's two, two bits here on the differences. You know, a tiny house on wheels, you know, for the most part is highly insulated, sturdy, customizable, huge difference. Okay. This is not really possible in an RV. That's mostly stapled together. I mean, let's face it. That's how most RVs are.
Of course you can renovate an RV and it can look beautiful, but it's not going to change the bones of the structure. And a tiny house on wheels can hold up more like the life of a residential structure, unlike an RV that after 10, 15 years is looking pretty rough. Especially without proper upkeep. Now even though they can be moved most only move a tiny house one to three times ever in their ownership of that tiny [00:35:00] house, and that's typically for big life changes. And that's a big thing to point out because unlike an RV, a tiny house does tend to be a little taller and heavier. Though there has been innovation in steel framing kits to help reduce weight of some tiny houses on wheels.
But in RV as much more can be much more agile on the road. Not always, there's some beast out there. So that's that really boils it down. There's a very similar footprint, you know, between 16 to 40 foot long, typically eight and a half feet wide. Now I do want to let people know you can build a tiny house that's 10 foot wide with a very low cost wide load permit. It's when you get wider than that, where it gets complicated with moving where you might need to have a follow car and that sort of thing.
And the DIY aspect of it. Yeah. So of course, small homes, tiny homes really have been around since forever in its truest sense of just like square footage. And the RV in the 20th century really led the [00:36:00] way to tiny houses as, as artisan and, and creative tinkers started playing around with building different custom things that could, that could be mobile.
I think that's really like, that's a really where I think the movable tiny house came from was from totally from the RV world. Just so happens that Jay Schaffer who built a residential style house on a trailer in 1999, really popular, popularized it. Course he was on Oprah. She's a big tastemaker. So, you know, word gets out.
But what I love about Jay's roots and, and the creative RV folks is that there's something very American about it, very very much bootstrapping people getting creative and that's like, Jay he's like, 'Wow, okay. Building codes are really restrictive. I dunno where I wanna live. You know, I want to do something that [00:37:00] fits me.
That's not available in the market. So he built himself, the teeniest tiniest house on a trailer that he could move around to try to skirt these rules. And you know, on one day you can say, you know, he's rule breaking, but on the other hand, you can say, no, this guy is bootstrapping something that works for him.
And that's something that I love about the DIY aspect of the movement. And as it's become more popular, there's less people building their own home, but that's a good thing. And the reason why it's a good thing is not because I don't think you can build a safe home yourself. It's because more people have access to tiny homes than they used to, which means that we're doing something right, because not everyone realistically can build their own home.
Kol Peterson: Tell us about the third party certification process that DIY builders can use to build the park model RV standards.
Alexis Stephens: Sure. So the real quick, the quick thing about certification, is it certifies that [00:38:00] you're an RV and that just gives you flexibility for, for parking.
So you could park an RV park without any problems you can park and cities that have a certification requirement, which is more and more all the time. The main benefit of it is it's accountability, making sure some key things are done correctly. It's definitely not as stringent as building code, but there are third party certifiers like Pacific West Tiny Homes that do a remote certification process for both professionals and DIYers.
Kol Peterson: What order of magnitude would you guess there are people actually living full time in tiny homes on wheels and in RVs in the U.S. And I'm not, you know, you might not know the exact answer, but order of magnitude, are we talking a hundred, a thousand, 10,000 or a million
Alexis Stephens: Good question. That's a tricky one.
RVs is easier because of the RVIA and the way they track things. According [00:39:00] to them, there's maybe more than a million Americans living in RVs full time. I could totally believe that tiny houses on wheels, there are so many people under the radar. We don't have a registration system, but I would say more in the like tens of thousands you know, to be on the safe side,
Kol Peterson: What are some aspirations that you have for the tiny house movement in the coming years?
Alexis Stephens: I would love to see a cascading ripple effect from what's already been started, which is more local, tiny house ADU ordinances. I love that Oakland is following suit in Portland's footsteps, doing something very similar.
I would love to see more people do that because if we want more housing and shelter options, now the way to do it is to make it as easy as possible. And that's what Portland has done. Maine just passed the tiny house state law that says, 'Hey, tiny houses on wheels can be primary and accessory dwellings' .That doesn't solve local [00:40:00] issues.
It still has to get, have local approvals. But what it does is it takes away the question we hear all the time. How do I deal with it? Well, the state just told you how you can deal with it now, write it in, get it over with, I mean, so, you know, what's exciting is now having more east coast and west coast examples.
There's something for everyone. And so if we can really just get more officials to take this housing crisis, seriously, we can say here's a menu. Which one do you like the best let's let's get this party started.
Kol Peterson: Tell us about your new book and your documentary series on legalizing tiny homes and your YouTube channel.
Alexis Stephens: So we wrote a book it's coming out September. It's the beginner's guide to tiny houses what you need to know about 400 square foot living or under. It's a really fantastic, thorough overview of all the various aspects of the tiny house world. Useful for people who are complete beginners, but even if you have dipped your toes into the water, I know you're going to learn something new from this book and our [00:41:00] documentary series.
So we have a YouTube channel, tiny house expedition, where we cover the, the diverse and dynamic aspects of the tiny house world. And we're now working on third part of our documentary series, living tiny legally. And this one is really going to focus on the implementation of the most exciting tiny house ordinances and laws that exist out there from LA, Portland, Lake Dallas, which is a very small community and to show people what, what does it look like?
Because it was, is charming and there's nothing like a charming visual to influence it, but then what are the particulars like? How does the permitting work in the infrastructure?
.
Kelcy King: That wraps up the interview portion of this episode of the ADU hour. As a reminder, these episodes are the edited audio version of interviews that we conducted via a webinar series. Good news. You can access the full video series via Kol's website, [00:42:00] BuildinganADU.com. Now for the second half of the show I curate questions from the audience that gives our guests the opportunity to dive deeper into a topic or address new ideas and questions.
Alexis Stephens: So from Joseph, how has title or deed regarding to tiny homes versus ADUs?
Very different, I guess, cause it's personal property bringing personal property. So it's not really associated with those at all.
Kol Peterson: And, and, and by extension it's also generally speaking, not going to be taxed as real estate, which is a nice, nice advantage of a mobile dwelling versus fixed dwelling such as and ADU. .
Kelcy King: Do you have any experience to share on prefab in tiny houses?
Alexis Stephens: Not a lot, but I will say that some of the biggest, tiny house builders or manufacturers out there can, can do multiple kinds of tiny homes like California Tiny House is a great example. And the modular code is very friendly to the tiny house world that they don't call it that, but it can, it can be used to easily build a [00:43:00] movable structure, which is great.
Kelcy King: I think this is from Gary and it was from earlier in the show. So I think that you guys touched on it. But just to reiterate, can you recommend a good, tiny home ordinance that might be a good starting point.
Alexis Stephens: Good question. It might, to me, it's going to depend on what size community you live in but I will look at what's happening in California. And if you go to the tinyhomeindustryassociation.org, search California on the blog, you're going to see a variety of different size communities. And they're all very similar, but there's some, some nuances, so that's a good place to start.
Kol Peterson: And I'm going to give a shout out to Portland's code.. I think it's a different approach. And I think, I think this is one of those areas where there's room for experimentation there isn't, you know, it's not evident yet to me that there's any one best approach yet. And I think we really need more experience with this and more data to support ideas of what is actually going to be the, you know, the best or most effective set of [00:44:00] regulations.
But, but that, that not withstanding, I think Alexis suggestion and needing on the T H I is content is, is a good suggestion for now..
Alexis Stephens: Great. Yeah, I agree. It's an all of the above approaches so we can see what sticks
Kelcy King: Where do you recommend people get started with figuring out what zoning and permitting requirements are for their area?
Alexis Stephens: You want to call your city planning department and ask them you can, a lot of times there's information on the website I've learned. I know people have learned the hard way is that sometimes things don't get updated from the website. So research ahead of time and then verify in person or on by the phone.
Kelcy King: Do you know of any tiny houses going into traditional mobile home parks?
Alexis Stephens: I do. And Durango, Colorado. Again, this is just one of my great examples because they're so traditional mobile home park and they have Tiny Town. They have a section for movable, tiny houses in it. This is one of, of numerous [00:45:00] examples of this happening.
It's one of those grandfathered in old mobile home parks. So I don't think they have any requirements or certification. So it's pretty lax, which is great.
Kelcy King: Are there any third-party inspectors who inspect IRC rather than ANSI?
Alexis Stephens: Yes. The one-off, I mean, you could probably find them everywhere. I would say if you, if you want Lake Dallas, tiny home village, you go to their website. They, I think they have a link. The third party inspector they use. And they've had a really great experience with him. Really gets tiny homes. Yeah.
Kelcy King: For the places that are allowing tiny houses, what requirements are put on the landowners such as concrete pads, what kind of hookups are required?
Alexis Stephens: Great question. I know this, this can vary. Sometimes the pad is required. It could be gravel.
Doesn't have to be concrete. Sometimes not, but often they are required to hook up to the primary homeowner's sewer. Sometimes they have to go to the street. It depends on the community. It's not always required to have a separate electrical [00:46:00] hookup, like a 30 amp or 50 amp. In some cases you can run directly like extension cord style from the main house.
Go cold. You want to,
Kol Peterson: Yeah, I'll speak to the utility connection protocols in Portland briefly. Number one, you do not have to have a parking pad at all. You could put it. Grass grass. I wouldn't recommend that recommend hard tap gravel or concrete, but you could do it on grass. You do not have to have plumbing, connections if there's no internal plumbing within the tiny house on wheels or RV. But if there is internal plumbing, then you do have to have a hose connection, which could be the primary house or a dedicated hose bib. For sewer, you would have to do it, a sewer clean out that it is compliant with however they're going to spec out the regulations for that, probably just a clean-out or perhaps a proper RV sewer cleanout.
And then you do have to have a dedicated circuit, 30 amp or 50 amp circuit for the mobile dwelling.
Kelcy King: Practically speaking, how do you prepare the electric and water [00:47:00] sewer and hookups for a tiny home?
Alexis Stephens: Well, I think we discovered a little bit of that. You know, typically a tiny house is going to be like 30 amp or 50 amp.
And so I mean, that's, that's very typical. They'll have a water inlet a lot like an RV. So it's really, I dunno, that's about it on that. Yeah.
Kol Peterson: Part of the elegance of this is it's so easy and so inexpensive to do the setup for these types of homes. It's going to be, you know, roughly $10,000 to get up, to get the infrastructure and parking pad put in.
So again, this is like vastly less expensive than an ADU.. And, and what I'm telling people in Portland now that it's legal is when you're putting in an ADU , you put in a parking pad or put in the connections for water, sewer, and electrical connection for an RV/tiny house. You don't have to use it. It's going to cost almost nothing. And then you can have an ADU and a tiny house on wheels if, and when you want it, but you don't have to put the tiny house on wheels there ever, if you don't want to, because [00:48:00] it's just, it's a marginal cost addition to that type of infrastructural improvement to your property.
Kelcy King: Could it be helpful in extending uptake of movable tiny houses to develop ways to make them attachable detachable to foundation?
Alexis Stephens: Yes. And that's something that has been explored and you know, is interesting thing. I think it could really be, I mean, you can make it complicated or you can make a really simple, a really simple way I'd say is like, if you had a pad and you had tie downs and then you skirted it and I mean, that's as simple as you can get, you could get more complicated where you're taking off the axles and that sort of thing, but kind of like why.
But that is something I, a lot of folks have, have explored to, to overcome that. And it does make a lot of sense if you built to appendix Q standards from the trailer up and you can have affix to some kind of foundation system, it'd be great if they, if a community accepted a mobile home foundation system. Cause that would also keep it very simple. [00:49:00]
Kol Peterson: I baulk a little bit at,at tying to concrete pads in that at least in Portland, like there, we don't have hurricanes tornadoes, like, do we really need to do that? I've never seen a need for that. Do you actually think there's a need for that or is that just a way to comply with IRC essentially?
Alexis Stephens: I think that's just a comply. It's like a, it's a thing it's like, sure. You want that? Sure. You know, there's a tiny community and North Texas, they have tie-downs because it's high winds in tornado alley, you know, of course you're not going to survive a tornado, but the high winds that come sweeping through there, it makes sense for them.
Otherwise it doesn't make a lot of sense in that the trailer the axles and the wheels, you know, are meant to, to hold the weight actually quite nice. When there's a little bit of, of, of wind, you know, it's very sturdy. You don't feel like you're in a boat or anything, but I'm willing to make little compromises to, to make it legal in more places.
The thing is like we've parked in so many places. We don't worry about being legally permitted permitted. It doesn't mean we don't want [00:50:00] to, but like, we're just okay with the risk, because at the end of the day, it's a neighbor complaints where we currently are all the neighbors like us, we've proven to be responsible and respectful neighbors.
And that works for us.
Kol Peterson: Yeah. And you know, part of the elegance of the tiny house movement is it's inherently like a flexible way that if you get busted, you can move, you know, like, and that's, that's part of the beauty of this, the way this whole movement
Kelcy King: Betsy would like to know where we can link to the Portland code and any progress in tiny home village ordinances, small camps, parks, or urban infill?
Kol Peterson: I'll I'll take the first one you take the second one. The tiny house on wheels regulations for the City of Portland have not yet been posted, but they will be posted by August 1st, 2021, which is when they will be legalized. So that's when you can start to find the real regulations that will be enacted on Portland's website.
So you'll just have to Google it. Alexis?
Alexis Stephens: In regards to villages and developments a couple favorite examples again, Lake [00:51:00] Dallas Tiny Home village- that's just a killer one. Very different would be Tiny Tranquility, which is on the Oregon coast where they use like a campground ordinance. And he weaved a really fine line with those guys is where he had approved that our tiny house was an RV, but then also how to make the case for them being attractive as a community.
So really, really odd. He's a lawyer and he's really good. And his name is Josh Palmer - the developer there, and he'd be a great person to talk to.
Kelcy King: Any experience with composting toilets permitted in tiny homes rather than sewer or septic hookups?
Alexis Stephens: Composting toilets are allowed in very few places. You know, there is an Oregon you can technically, I don't know, not even a tiny house it's complicated. I think more likely is if you really want one, like you feel passionate about it is that you just have to plumb it and then switch it out. Or go under the radar.
How do landlord tenant enforcement situations come into play or also, are there a two-part question? So [00:52:00] we'll, let's start there and then we'll come back to that one. Well, that's a tricky one. If it's an under the radar situation, like so many of us, they, they don't it's just an informal agreement and I think it'd be very hard to have anything legally binding, but you know what, I haven't really explored that topic too much in places where it has been allowed officially and that I would love to Kol, do you have anything on that?
Kol Peterson: It's an extremely interesting and complicated question. So I, I think landlord tenant law is going to apply in Portland. But I am not certain how all that's going to play out. I think it's going to be a really interesting process as we go through the formal codification of legalization of mobile dwellings on residential properties. I think it's going to open up a whole new set of questions about that particular issue, because the owner of the residential property might not own the tiny house on wheels. Right? And so are they, you know, so who's, who's responsible for [00:53:00] a roof issue that causes mold in the walls or whatever. Well, it's obviously not the owner of the property if they're not on the tiny house. So anyway, I don't know the answer to that question yet, but it will be litigated over time I'm sure. .
Kelcy King: And then last question, are people using any tiny house models for people with disabilities? You know?
Alexis Stephens: Yes. Typically more foundation-based is used for that though. I have seen a couple interesting proof of concepts on a movable chassis for that involving ramps and typically a wider, tiny house.
But there's some really great non-profit groups, including some habitat for humanity affiliates in this great group in North Carolina, Tiny Houses on Penny Lane is the name of their village. I can't remember the nonprofit name, but they're specifically developing a proof of concept village for tiny homes for people with disabilities.
Kol Peterson: I just want to mention that we have a tiny house on wheels that is built to ADA's actual ADA standards. [00:54:00] So it's been done because we did it. 10 feet wide.
Kelcy King: What type of vehicle is needed to move a tiny house?
Alexis Stephens: Typically, you're going to need a half ton or one ton truck pickup truck. We tow, we through our partnership with U haul. We towed our house for many years with a U- Haul box truck. And it's a great option.
If your house is 10,000 pounds or under and bumper pool, I'd like to share that because I think in this day and age of, of fires being so common that if you needed something in a pinch and you don't own a truck, because remember most people don't move. So they hire a professional or typically to do it.
But if you're stuck in a situation, you don't know anyone with a pickup truck, U Haul could be an option. If you're not a gooseneck.

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The ADU Hour w/guest Kol Peterson
27 jul 2021· The ADU Hour
Kelcy King: Kol Peterson is an ADU expert based in Portland, Oregon. He has helped catalyze the exponential growth of ADUs in Portland over the last decade through ADU advocacy, education, consulting, policy work and entrepreneurship. He is the author Backdoor Revolution, The Definitive Guide to ADU Development, and also happens to be the host of this podcast.
For this episode of the ADU [00:02:00] Hour, we decided to shake it up a little bit, and I take on the role of the interviewer. So Kol, what were some of your takeaways from listening to this episode?
Kol Peterson: In this episode, we talked about building coalitions. Now that ADUs being folded into broader policy conversations about middle housing, more generally. A conversation that has really taken off in a big way in the last year.
I think that this idea of coalition building and meeting regularly with that coalition has even more salience. The power of a disparate group with diverse expertise, but with a common mission of getting more ADUs built cannot be overstated. Groups like this can definitely, help change regulations, change laws, impact financing opportunities, raise awareness about ADUs and much more.
Kelcy, what were some of your takeaways?
Kelcy King: Well, I will second that your interview offers some great nuggets in regard to forming coalitions in an effort to advocate for ADUs as a piece of the puzzle for building greener, resilient cities, and as affordable housing, you've also built quite a few ADUs on your properties and you offer a few [00:03:00] design tricks that you've used offer highly enjoyable living spaces in a small structure.
Let's get to our interview with you.
A quick heads up to our listeners. My audio in this episode is subpar. So sorry about that. We also had some technical issues during the original recording and lost the introduction. So we'll start here with the second question I asked Kol.
For those looking to advocate at their local municipal level. Where would one start to address ordinances that only allow ADUs in certain zones within a city? For example, some residential zones, but not other residential zones.
Kelcy, just to be clear here. So the question is if you're aware of the best practices, as far as what regulation should be, how should you go about making those changes?
Correct, yes.
Kol Peterson: So, this ties into a later point that we'll get into, but I think there's so many different things that need to be changed in local regulations to make the regulations for ADUs good. It's not as though, if you are able to [00:04:00] address, say off street parking requirements that you will have a good ADU code.
Rather, there's like 20 or 30 different little things that will all significantly impact whether or not a code is good. So let me just pick on one example, California has an incredibly good state code. However, they have one element of their state code that says by right you can build a 16 foot ADU. Well, that is a big poison pill, in my opinion, that isn't a good policy. They have this incredibly good ADU regulations statewide, except they have this one thing that makes a whole lot of ADUs is not possible, which is you can only build a one story ADU. Which is a killer, that doesn't work. ADUs will not pencil if you have that in place.
And that's a minor thing, but that's very major in a lot of ways, like sure. A lot of people will still want to build ADUs in California and some jurisdictions will have liberalized height standards, but statewide, most jurisdictions will not. And therefore they're killing [00:05:00] 20% of their market without one bad regulation.
Having visited several hundred ADUs in Portland, where that isn't in place, most of the ADUs that are built, the majority of them are two story detached ADUs. Why, because they're being built on small lots because they want more square footage in those ADUs.
And so if you're requiring people to build an 800 square foot, one story ADU, they're not, they're going to lose their backyard and that isn't going to work for a lot of people. That one little example, it doesn't doesn't really matter that much, but I guess the point is there's so many different things that need to be worked on that.
I think there's a need for a group of people to be working collectively. Slowly improve their regulations over time.
Kelcy King: Is there a certain place where you would start? Like, would you start with zoning? Would you start with owner occupancy or is it just chisel away as you can?
Kol Peterson: Yeah. So I think that depends on what level you're working on. Right? If you're working at the state level, really, if you're working at any level, I think the [00:06:00] way to go about this is understanding from an advocacy point of view. This is a hard one for people to swallow, but your code needs to be A-plus bomber for people to actually want to build an ADU. So if you have the 16 foot poison pill in your regs, it's not good enough. It needs to be much better. And that, and like that doesn't, that means that everywhere in the country has bad codes except for Portland, Seattle, and a few jurisdictions in California.
So there's a lot of room for improvement. And then you can get to these kinds of like next level ADU codes that are like two ADUs and allowing two detached ADUs. My vantage on this is you have to aim really high, and hopefully they'll get most of that because if you incrementally chip away at these regulations over time, it's going to take a long time.
For example, the entire east coast of the United States doesn't have a single city with what I would classify as a halfway decent set of ADU regulations. I would not build an ADU in any city on the entire east coast.
So, a city [00:07:00] could work on chipping away at those regulations over time, but it's really challenging. It takes decades to pass good code. Rip off the band-aid and pass a really good code once. That's the approach that I'm in favor of.
And as a result of kind of working on this for the last decade is advocacy changing regulations, because I've now come around to thinking, you know what? This is too painful at the jurisdictional level there's too much nimbyism too many, too much local politics to deal with. We have to do this at the state level because it's taking too long and we don't have the time to wait, this is not a tenable approach to improving your ADU regulations, bit by bit at the local level, across 128,000 jurisdictions and not at the pace at which we really need this form of housing to actually take hold.
Kelcy King: So this is a great segue because I'm moving into the state regulations here.
So in order to advocate at the state level and have that be the most effective, first, who are the target legislators and representatives you would target?
Kol Peterson: I don't know the political scene [00:08:00] necessarily at any state let alone every state, but I would say what I've seen, what did a little bit knowledge I have about this as what I've seen as lobbyists, so to speak whether that's the Home Builders Association or AARP or an affordable housing group working with an elected state legislator, House or Senate, putting forward a proposal and then working that through the sausage making process. There's been a couple examples of statewide legislation now in Oregon, in California, in New Hampshire in I'm sure a few other places. A lot of these have not been particularly effective in the sense that they are not getting rid of any of the poison pills, they're simply enabling ADUs to be built.
That's what happened in California prior to the latest two years of legislation. That's what had happened in Oregon. That's what had happened elsewhere. you might as well not allow you to use if you're not going to have really good ADU regulations, it's the same thing.
So just saying we allow ADUs, that's pointless. Don't even bother. Go do something else. [00:09:00] If you're going to get serious about enabling ADUs, you have to have excellent ADU regulations. So. Getting back to this idea of work with the state legislator, who's going to be open to pushing the envelope really far, making people uncomfortable.
And hopefully you'll be able to build a coalition of stakeholders that really support that policy measure. And that's what it's going to take to actually set environment where hopefully at that point, maybe we'll start to see some ADUs built, don't count on that. Even if you have the best ADU regulations, it doesn't make it easy to build an ADU at scale. They're not going to just take off overnight. You will get a pathetic, pitiful number, ADUs being built, even in the best conditions. Like what we'll see in California, we'll see many more times ADUs being built, but it's still a very small number of ADUs overall.
So I think that's kind of the good and the bad side of this stuff is it's going to take a long time for ADUs to make a substantive dent and the kind of housing crisis that we have. But we can only start to get there if we have really good ADU regulations.
I would say working [00:10:00] on approaching it really aggressive ask using a lot of data that I point out in the book and that's available elsewhere. As far as going for the gold standard kind of default model zoning code for your whole state is the way to go. And if you can't get that, work on it on the, at the local level.
The most controversial things to work on are owner-occupancy and off-street parking. I'd say those are the ones that, if anything, I would work on those at the state level, because locally it's really politically challenging to get rid of those two poison pills.
Kelcy King: How do you show up as an advocate? You personally, are you showing up in person? Who are you showing up to see? And are you, are you like writing letters, gathering signatures on petition? How do you show up?
Kol Peterson: Yeah, I do all the above. I write letters when there's draft proposed regulations at local jurisdictions.
I write letters to state level policymaking efforts. And it's surprising, these letters are actually meaningful. I think, you know, [00:11:00] little, one sentence letters that say I support this bill are fine, but I, at least as, as a subject matter expert, I weigh in with specific critiques and criticisms and suggestions of how to improve policies.
And that is actually surprisingly meaningful. I think those things do get adopted. So that's, that's really helpful. I guess the other thing to note, is at least in my experience, With trying to inform policy using data is far more powerful than just using your opinion. A lot of people will use their opinion in rule making and it doesn't, at least in my experience in the different advocacy work I've done, that hasn't held as much sway as providing evidence.
Kelcy King: How do you find out this has just been a challenge, but I've found and have read all over, but how do you find out the information who is meeting when and how to meet them? So as far as policy makers, [00:12:00] like when policy makers are meeting and how to show up for that?
Kol Peterson: That's a great question. I wish I had a better answer for you. It's a little bit opaque, isn't it?
I think if this is again where having a coalition is helpful.
Kelcy King: You are a part of a number of advocacy groups and teams. So could you explain what those different teams are, how they got formed and advice for attendees who are interested in forming their own?
Kol Peterson: Yeah. There is several coalitions now that I'm aware of happening in different jurisdictions and at the state level in California, there's coalitions. And having been a part of these different coalitions at the local level now for a decade, I'm convinced that they are critical and a best practice for improving ADU regulations.
So if we go back to this question you had posed about how do you find out about an upcoming meeting that pertains to ADUs you don't because websites for government stink and I used to be a government web manager and it's terrible.
So, sure. You find out about one thing, [00:13:00] but you don't find out about another meeting and you don't find out about the state level meaning. So the state level website is even worse than the local level website. So That's a problem, but the way that you address that is to get a coalition of people who have their boots on the ground and are working in these different organizations or associations or entities that have some knowledge about what's going on with regulations, et cetera.
So in terms of that best practice concept, I say that people, the entities that are important to include in a coalition and ADU coalition, so to speak would be, these are just some examples, AARP, a local university that has say an architecture department. The municipality itself I'd say is maybe the most key stakeholder, because that's where you'd start to get tips about what things are coming up in from a regulatory point of view. State level environmental or land planning agencies. Utility providers, affordable housing [00:14:00] advocates, green builders, architects, urban planners, tiny house advocates, realtors, all those different stakeholder could be part of a coalition and should be part of a coalition, ideally that meets on a regular basis, maybe once a month for an hour or two forever, basically.
And that's I think what needs to happen to actually enable the type of change that is meaningful from getting to this gold standard model policy level, but also doing the non-regulatory things that I've been heavily involved with. And I tapped into that coalition to help do so for example, classes, or ADU tours all those kinds of events that involve getting the word out.
So this huge group of homeowners. It's hard to reach homeowners when you're doing marketing. And that's your market audiences like homeowners, you might want to build an ADU. How do you find them? It's not easy. So I think having a coalition that can reach out to their own constituencies using their own email list is a good good technique.
Anyway, [00:15:00] I think there's a lot of different ways that an ongoing coalition can support. Improving the environment for ADUs, if they meet on a regular basis and work on these issues together. It doesn't have to be a super formal structure, but just checking in regularly to hear what's going on.
And and then strategically working on things on a case-by-case basis as needed.
Kelcy King: So I'm gonna move into a couple of questions that were from previous interviews. So this one was from Karen bank. When we were talking to Robert Liberty, What are the best ways to educate elected decision makers on ADU policies that are working in other places? They're busy. They often don't watch webinars like this. What did you do that was successful?
Kol Peterson: Yeah. I think that the policy makers, elected officials , I think they're going to be open to hearing ideas from people who are on this webinar. Like I think people who are aware of what's going on and clued in and understand what the best practices are and are strategic about getting those changes [00:16:00] made can make a difference. Every single person on this webinar can make a difference in their local jurisdiction by being smart and strategic.
Your influence in your capacity to write a good email to the right people. So that's what I would say. They don't have to watch these webinars, but you do, and you can be smart about how you utilize the information that you get from here. You can pull quotes from my book. So pull quotes from my book and send them. Then you have quotes from "the book about ADUs, the definitive guide". I mean, I use that title strategically, right? So it's like, this is from the definitive guide about ADU development, it says our regulations suck. Here's what we should do differently according to the definitive guide about ADU development, do that.
Kelcy King: What is an example of something that policymakers have asked you to bring to the table when searching for ways to work together?
Kol Peterson: Oh yeah. So this gets back to the data question. I think To the extent that you're able to supply evidence, as opposed to just your visceral instinctual [00:17:00] reaction to questions, I think that's far more powerful.
Examples of the types of advocacy that I've done that have been successful, have been fighting a taxation debacle that occurred Multnomah county in 2016, where I provided evidence of how much the tax increase had been for all subsequent years for ADUs. Analyze that data, showed what the new taxation bump increased was and said, "Hey, you've doubled, or tripled, or quadrupled the taxation impact of ADUs in the last year, here's evidence of that, here's some quotes from homeowners who've been adversely impacted. So that's an example of taxation. I've worked on the SDC waiver extension, providing information about how many permanent ADUS there were prior to the SDC waiver, then after the ADU waiver. That's a pretty easy data set to get, but I had to work with the city planning staff to get the number, to get the data set of permitted ADUs. I've been involved with state-level rulemaking and been successful in putting changes into the state level rule making process for house bill 2001, by talking about [00:18:00] off-street parking requirements and giving some evidence about the cost impacts associated with that.
So as a result of a state model code that will allow for missing middle housing statewide, will not require off-street parking in the model code because of that advocacy.
California had owner occupancy requirements, that's a tough one to give evidence for, but I provided some documentation from banks to state level legislators.
The bank documents said, "I will not carry this mortgage for this homeowner if they put an ADU on their property, because that would put a deed restriction on their property. And we, as the mortgage holders of that note, do not wish to give a mortgage for that property." And that that's kind of powerful evidence for a state level legislator.
Kelcy King: I'm switching gears a little bit. It's still an advocacy. How do you personally address neighbors or neighborhood associations about an ADU that's being developed in their neighborhood?
Kol Peterson: So even if ADU regulations are good and you can build ADUs, sometimes [00:19:00] neighbors don't like, well, oftentimes neighbors, don't like new housing development going up near them.
And so on, let's say 10% of ADUs that I've heard about, neighbors have issues with the people building in ADU, and that's just the nature of development. By becoming a developer, which you are, if you're building an ADU, you are all of a sudden taking on the bogeyman hat of developer, even though it's at a a really small level.
And and then you get to start to sympathize and experience what it's like to be a developer where everybody doesn't like change, doesn't want more housing, doesn't want more parking issues near them. And so this comes up again and again and again, and I don't have any really good advice for you other than thank goodness you can do it by right.
And if you can't do it by right, that's a problem, right? Because then you have to go through the permission process of getting a conditional land use review permit. And that's the case in a lot of east coast jurisdictions, where you can only build an ADU if you get permission from the city. And that requires a [00:20:00] public notification where all the neighbors will inevitably say, we don't want more housing near us, we want the sanctity of our single family, residential neighborhood. We don't want a parking problem. We don't want a slum in our neighborhood. You hear the same stuff everywhere.
Kelcy King: This is, this is pretty Portland specific, but Kevin asked this when we were talking to Joe Robertson, Kevin Johnson, sorry. Given your experience that about half the ADUs have family in them at various points, do you think the limitation that Portland sets on the short-term rental and SDC fees limits new ADU?
Kol Peterson: Yeah. So just to summarize this topic a little bit for people, Portland put a system development charge waiver in effect where you didn't have to pay the SDC. The residential impact fee is $10,000 to $20,000 . If you build an ADU But then they changed the policy a couple of years to go to say, if you want to use a property for a short term rental, either the primary house or the ADU, then you do have to pay the SDCs. What this did was [00:21:00] dramatically impact the number of ADUs being built in Portland, number of eighties being permitted this change.
So in a, in a bad way. Meaning the number of ADUs being built up through from 2016 to 2018 was 600 a year. When this new policy went into effect where they said no more short term rentals, unless you pay the SDC. The number of ADUs permitted went down by 50 percent, that's bad, right? Arguable. I don't know if those additional.
50% of ADUs were built if, and only if they could do a short term rental, what are they doing in terms of providing additional housing for the housing stock? Nothing. Right. Does that mean maybe a little bit, but in some cases, for example, a lot of people are building to use with multiple motivations to have additional living space for a visiting family member at points, but then also several months of the year, they use it for short-term rental. And that's good. That's a good use of a short term rental, but if it's going to be a full-time short-term rental, it's not really doing anything, in my mind ,from an economic, or social, or environmental point of view that's [00:22:00] positive. Doing anything negative, really, but it's not doing anything great. So I don't think the city should be necessarily subsidizing that type of development. And I, I agree with that. So though the number went down by roughly 50%, I think it's the right call for the city to have made.
Other jurisdictions have outright banned short term rentals in ADUs, I guess my take on this is as a general matter, is if you, as an advocate can get better ADU regulations in place and throw short-term rentals under the bus as a horse trade, I think that's a worthwhile trade to make.
Whereas if it's just yet another thing that you cannot do with an ADU and you don't get anything out of it from an advocacy point of view, then it's not a great horse trade, but if you're going to be able to eliminate off street parking and owner occupancy, if, and only if ADUs can't be used as short-term rental. Go for it. That's a good trade.
Kelcy King: Okay, great. You approach ADU development from a perspective of how infill can address a city's impact on climate change.
Can you tell us more about how you [00:23:00] use this perspective to advocate and how others might be able to offer this to more areas.
Kol Peterson: Greenhouse gas emissions reduction is my driver. That's like my interest in all this. That's why I'm interested in ADUs, but not everybody is. So in the coalition that I was referring to previously, greenhouse gas emissions reduction was the primary motivation of the people who are most intimately involved in that coalition at initially that included Oregon Department of Environmental Quality, the City of Portland Planning and Sustainability, and Eli Spevak, myself you know, people with a green building kind of orientation, but not everybody cares about that stuff. And I think it's important to be pragmatic about that. I want a lot of ADUs built, but I don't focus on the greenhouse gas emissions aspect of things so much.
For the people who do care about climate change significantly it's very meaningful. And surprisingly, in the California context, greenhouse gas emissions, wasn't part of that conversation in terms of reducing the barriers to ADU development was all about affordable housing. [00:24:00] Wheras in Oregon, it was all about that greenhouse gas emissions stuff, the affordable housing crisis. Wasn't really a factor in the SDC waiver or anything else. So. It's interesting to see how the local motivation, advocacy drivers for improving ADU regulations can vary depending on where you are and what the predisposition of the populous there is.
In California, it's an affordable housing crisis, dammit. Here, it's we want to have the best, you know, greenhouse gas emissions, land use planning, housing development policy out there 'cause we, we really are working on reducing greenhouse gas emissions in Portland.
Kelcy King: I'm going to switch gears into ADUs as they relate to affordability. And I'm going to start with Brian O'Connell's question back when we were talking that Eli's Spevak and he asked, "what can we do to help affordable housing non-profits increase the density of the properties they already have that were developed a single family.
And do you have any examples of projects that are working?
Kol Peterson: Yeah. So I'll start by saying, [00:25:00] this is a topic that a lot of nonprofits are working on is to try to figure out how to build ADUs in general. I think it's a good idea, tactically, for nonprofits to potentially focus on partnering up with CDCs community development corporations that already own rental housing stock in the single family residential zone, and then targeting ADUs to be added to those particular properties. That makes a lot of sense. So I'd say that that is a worthwhile endeavor. I haven't seen a lot of people focus on that.
There's one organization in Portland. That's kind of starting to think about that. Hacienda CDC, and then in Monterey, California, they're the local Habitat for Humanity chapter has been doing that and they've had limited success.
The alley flat initiative has also done some of that in Austin, Texas, but none of these have deployed so to speak a lot of ADUs yet, it's still, we're talking fewer than five ADUs.
Kelcy King: Gabrielle Campana asks again, you're speaking with Eli Spevak. What innovations [00:26:00] are you seeing in the market to lower costs to build ADUs as an affordable housing solution?
Kol Peterson: Great question. Everybody wants to know how do you reduce the cost of ADUS. There isn't really a simple answer to it. The only answers I have to share are, yes, prefab modular does hold promise. I have a little bit of internal bias and skepticism about that industry in that I've seen a lot of companies not work in this space.
But I think there is a potential now that I've seen a few real life successful examples of that. I think that there is a potential for that to become much more broadly used method to reduce the cost of ADUs. So that's one. The other one that I think is just important to always focus on is conversions.
Whether it's conversions of pre-existing habitable space in your house, or convergence of garage or conversions of non habitable space, like your basement or attic, those are the other low hanging pieces of fruit. Aside from that, there is no magic bullet to [00:27:00] reducing costs of ADUs.
I know that there's a lot of ideas and a lot of things that people have banter about predesigned, standardized plan sets, you'd have to pay for architectural fees and so on. I just I'm skeptical because I've seen a lot of ideas. Every novel idea that people have has been thought about before and tried. And so what really works is conversions and what really works, potentially, is prefab modular, for the few companies who have a lot of experience with large scale manufactured housing in factories and know how to do that.
Kelcy King: You're moving into advocacy for tiny houses on wheels being recognized and utilized for alternative housing options in particular as it pertains to affordability. So can you tell us how you're working with policymakers and other interests for adjusting codes to permit these kinds of dwellings?
Kol Peterson: Yeah, tiny house on wheels is something that I have one foot firmly planted in that world with a tiny house hotel. And I have a tiny house on wheels on my residential property for all the same reasons that ADUS are good, tiny house on wheels are good, but I've always kind of put it [00:28:00] in the kind of not invested that much political capital in that idea because it was so not viable not legal anywhere. But I've always been a fan of it. Just kind of put it in the civil disobedience category that is, you know, people who are really willing to become radically downsized or people who are willing to break the law and have an tiny house on wheels on their property. Awesome. Great. For my vantage, it's solving all the same issues at ADU solve.
But now that it's becoming a legal option in a few places, I think that the door has been cracked open to actually start to look at tiny houses as a viable alternative to ADUs. And in fact, that's happened now in five jurisdictions in California.
So we're talking San Luis Obispo, Los Angeles, the second biggest city in the United States now allows tiny houses on wheels to be a form of ADU. That's amazing. And so they have their methodology of how you go about achieving that it can be connected legally to utilities, et cetera, but it's classified as a form of ADU.
That is a big deal. That's a [00:29:00] population 10 million people and tiny houses costs $50,000. Whereas an ADU there might cost $200,000 minimum for detached, a new construction for a garage conversion might cost $80,000 to $100,000. So tiny houses on wheels are going to kill it in terms of the cost.
Now, does everybody want to live in a tiny house on wheels? No, but 5% of people might, 10% of people might. So it can be a substantial and very viable if and when tiny houses become a legal form of ADU or just a legal, acceptable form of living space on a residential property, which is the approach that Portland has taken.
We're not classifying them is ADUs we're just saying you can live in any mobile dwelling on a residential property for the time being during the housing crisis. And that's another regulatory experiment towards legalizing informal dwellings for residential use that address all the same issues as ADUs address that is greenhouse gas emissions reductions, less expensive housing and building a social infrastructure that [00:30:00] infill housing provides.
Kelcy King: Are you working with policy makers on anything for the future?
Kol Peterson: With tiny houses?
Kelcy King: Yeah.
Yeah, I'm hopefully in the city of Portland, there's going to be a rulemaking process for looking at the next iteration of how the tiny houses on wheels will be classified from a residential dwelling perspective and also how they'll be used in like pods and kind of encampments in commercial zones, which is personally of less interest to me than the residential question.
So that's one thing. And then statewide, I think I'm kind of keeping an eye on California to see whether they might actually pass a statewide code. I'm not involved with it though, but I wouldn't be surprised if that does occur, which would be really cool to see that change. And I think that's going to be a huge new, if that happens, that'll be a huge new market for less expensive ADUs than what we have now.
Great. I want to ask you just one last question, because [00:31:00] we are curious just your strategies for how you place and design your personal ADUs what you've done maximize privacy. And then maximizing the lot usage for both to primary and secondary drawing.
Kol Peterson: Okay. Yeah. So in terms of internal design best practices, there's a lot of ideas in the book, but some of the things that I'll just mention that I've done, that I think are really good, that are not talked about too much are trophic variation, so to speak within a dwelling.
So there's a variety of different heights of the ceiling, just makes it more visually interesting to look at. And so two tactics that that can be, you know, if you're doing a two-story ADU using a catwalk to get from say the bedroom to the bathroom or from one bedroom to another allows for there to be a lot of volume from the first story looking up 'cause you're looking past this catwalk and one's it's kind of interesting visually makes the downstairs feel huge, makes the upstairs feel interesting 'cause you can look down. I think that's a really fun little tactic [00:32:00] also that catwalk counts as habitable space, but the space outside that catwalk where it's vaulted does not, at least in Portland's code where you're counting habitable square footage based on the spaces that you can use. You don't count that vaulted volume of air, so I think catwalks are a good trick.
I think exposed wood beams is another good trick in that you can put exposed wood beams in the ceiling, the holdup car decking above and the car deck and serves as the flooring for the bedroom upstairs. Those exposed wood beams are visually interesting, they're beautiful to look at much prettier than say drywall, which is what everybody uses. And then you get above that. You see car decking, which is attractive, visually interesting gives you some trophic variation in the height of the space. And then it's also giving you an additional foot of headroom by having exposed wood beams. Exposed wood beam is where you get this whole shaft of volume here. You'd have dry wall going beneath it typically. And so you're losing a foot of height. So instead of having a [00:33:00] seven foot ceiling, you can have an eight foot ceiling. So I think that's a good little trick that can be used.
Another really big one that I think is a best practice is a covered outdoor space. I think a covered outdoor space pretty much anywhere in the country is going to be valuable and advantageous on an ADU in that it's not counted against you for square footage, but that it can actually add usable square footage anytime of the year. You can even put a heater out there and use it in the winter or in the summer you can make it shaded if you're in a hot climate. So I think having covered out doors space and big, not like a three foot, six foot wide awning, make it like 10 feet wide, make it 10 feet deep, something significant you put a dining table under their chairs, a bench. That's the scale, the size that I'm talking about that actually makes your 800 square footADU 900 square feet without counting against you. And I think everybody should be considering covered outdoor spaces when they're designing ADUs. Whether that covered outdoor space is on a porch or a [00:34:00] deck or leading out to the backyard, that's the best practice I would consider. So I'll leave it at that.
Kelcy King: Okay. Thank you.
So this first one, I'm just going to ask because we can quickly address this, is there a resource for appraisals for properties with ADUs and how are ADU additions impacting the value of homes?
Kol Peterson: Yeah. So there's a presentation that Abdur gave that's available right now. That's the one and only valid research that's being done on this very question. As far as an additional resource, there was a study done back in 2013, you can find that study and the document, the two page best practices document that's for appraisers on AccessoryDwellings.Org, it's called the practitioner's guide to appraising ADUs. It basically is suggesting consider the income-based evaluation method.
In light of the research in what I've learned from Abdur, recently, I can't honestly say that that's necessarily going to be the best practice anymore to use the [00:35:00] income-based valuation method, because I just don't think it's a realistic approach for appraisers. I do think that it's worth reading it and providing it, but understanding that Abdur's presentation about looking at actual sales comps is probably the better approach to looking at how to go about improving the answers to these questions about contributory value, which is still plexing to everybody. Nobody has an answer to this question quite yet, but we're working on it. Abdur is,specifically.
Kelcy King: From NJ Ericsson, is Oregon's new building code allow auxillary housing override neighborhood is CCR Oregon's house bill 2001 doesn't allow new CCNRs to preclude ADUs, but it doesn't override pre-existing CCNRs for HOAs . That's how Oregon's dealing with it.
Kol Peterson: In California, their legislation does override HOA CCNRs. So they're doing it differently. I don't know which way is better. It's new terrain for ADU. [00:36:00] So we'll see what happens.
Kelcy King: From Bernard Matterson. Do you know of any ADU that has been built to the standards of the International Living Futures Institute?
Kol Peterson: I don't I wouldn't be surprised if there has been one. But I, I'm not, not that familiar with that particular standard. So I don't know if any, have been built to that standard.
Kelcy King: Gabrielle Campana, in areas that do not have good city code for ADU, like south Florida. Could a first step, the building accessory dwellings with no kitchen instead.
Kol Peterson: Yeah. I, I totally, I think, I think that's I think right now in a lot of jurisdictions where ADA codes are bad. I mean, this is what I go over in chapter 12 of this book, right?
This is Accessory Dwellings and Civil Disobedience. And my vantage is, if your city has bad codes or your status, bad codes are the entire state of the entire east coast has bad codes and you want to help individually solve all the same problems that ADUs solve, just build an ADU without a kitchen, and you're good to [00:37:00] go.
It's called a detached bedroom or alternatively build an addition to your house or an internal conversion of a portion of your house and just don't put in a legal, full kitchen. You can legally wash dishes in your bathroom sink and you can legally put everything except for the oven and the second sink in any space.
So I think there is interesting workarounds that are totally realistic, viable things that you can do right now, anywhere in the country. You'll run into the same development challenges that you would run into building an ADU in some cases. But I think those are viable things to consider even in Portland there's times where I recommend those options instead of an ADU for one reason or another.
Kelcy King: Okay. Thanks. From Karen, how do I find out about existing coalitions anywhere in her specific areas, LA, but how would you find out about an existing coalition in your local jurisdiction?
Kol Peterson: You know, I know that Southern California has some form of a ADU coalition.
I couldn't tell you the name, but just Google ADU coalition, [00:38:00] California, Southern California, Los Angeles. You'll find it. Just Google. That's it there isn't like, there isn't that many of these out there. And They can happen at the very local level. Like I know Greg is on the call from Berkeley.
There's a coalition in Berkeley that's an example of this. There's statewide coalitions. I'm in a regional coalition. So these can happen at various levels and they're all good. I think they're all, they're all helpful. I'd say maybe one additional point I'll make on the coalition thing is ideally the coalition involves a government person who is convening the meeting because they have some degree of responsibility to enable anybody to attend, perhaps, in a little bit more legitimacy than just an advocate running a group. So that might be one thing to consider. But these coailtions don't necessarily exist everywhere, but you can start one yourself at some small level and try to make this thing a regular occurrence. I think that's a good, good strategy for anybody to be [00:39:00] thinking about it anyway. Like one person can start this or a group of people can start this at a local level to a state level.
So thanks Kelcy, that was fun.
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The ADU Hour w/guest Tim Cocaro
20 jul 2021· The ADU Hour
Timothy is CEO of RESCON Builders the largest dedicated Granny Flat building company in Australia, and founder of Canibuild, a sales app changing how the world’s builders sell construction.
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The ADU Hour w/guest Willie Dean
13 jul 2021· The ADU Hour
Kol Peterson: All right. So this is Willie Dean and Willie Dean is a residential designer working primarily doing ADU design and has worked [00:02:00] quite a bit in both Oregon and now in California. I thought he would be an appropriate guest to have because yeah his experience in both those states.
On top of that, Willie is also an excellent ADU designer. We're going to be talking about ADU design as a general matter. And hopefully everybody can get something out of our conversation. So, Willie why don't I give you a second to introduce yourself in a little bit more detail?
Willie Dean: Sure. My name is Willie Dean. I am an architectural designer in Portland, Oregon. My company is called Ground Up Design Works and I specialize in residential design of all types. But I'd say specifically, probably 80% of my work is accessory dwelling units here in the Portland area. And over the last few years I had a opportunity to work with a company in South bay, San Jose area and with them, we, we executed probably twelve ADUs in the South Bay, Silicon Valley area. It's a good amount of [00:03:00] work within a short period of time. But I definitely have some observations about differences, good and bad and in general.
I got my master's degree in architecture from the University of Oregon and that's what got me out to Oregon. I'm originally from Wisconsin. I got my undergrad from University of Wisconsin, Milwaukee.
Kol Peterson: So for those who don't know, I actually went to a design school myself and everybody wore black rim glasses.
So is it a requirement that you wear a black rim glasses if you're an architect?
Willie Dean: You know, some people with other colored glasses but it's a standard. These are actually technically navy blue.
Kol Peterson: Navy blue. Okay. I'm color blind. All right. So we're going to dive right into your work in Oregon, California.
So which markets specifically have you worked in ? Well, I should say in Oregon you probably just worked in Portland, correct?
Willie Dean: For ADUs. Yes. I've only done ADUs in Portland. I've done a couple of remodels in Vancouver, I've done a single family house [00:04:00] out in rural Wasco county. But as far as ADUs are concerned, actually only the east side.
Kol Peterson: I just point that out to say that I know a lot of people who work in the ADU space in Oregon and when I say Oregon, it's really just Portland because there's not a lot of activity, even five miles away from where we are in Portland, because the regulations haven't been the same. In any event. So California, which jurisdictions have you worked in?
Willie Dean: So San Jose, Campbell, Mountain View, Los Gatos. The interesting thing about that environment is that every few miles you're in a new town, right. And that's pretty different than Portland where we at and sort of the urban growth boundary and the rules are pretty similar for miles in any direction. Whereas down there, I mean, it's a way bigger space. There's way, way more people. And there's all of these little enclaves that all have their own specific zoning rules. So, that's one of the huge differences working down there. You have every town you go to, [00:05:00] you have to learn a whole new set of rules.
And some of them base their rules on the same stuff. And some of them are just different. And then the way that the permitting offices work is always different, too.
Kol Peterson: So tell us about some of the substantial differences between the ADU design work that you've done in these two markets, Portland and the San Jose zone in terms of a number of different things. So process wise, things like Title 24, net zero solar requirements, designing for dry versus wet conditions, culture wise in terms of players, actors and costs.
Willie Dean: Yeah. I know that there's a new set of rules in California in 2020, and I haven't done anything this year within the context of the new rules. So everything that I'm saying is, is a tiny bit dated in that respect. But my experiences was that the rules in that part of California, where I was working were a little bit more restrictive. In Portland, you're [00:06:00] allowed to do 800 square feet or 75% of the existing house, whichever is smaller.
And that's just across the board. Down there the lots are a lot bigger and it's based on a FAR, but a normal lot down there is 7,500 square feet and you can only do a 600 square foot ADU. So, for my experience, we could only do single story one floor, one bedroom, one bath, which if that's the context or the constraints of the project that you're working in and it simplifies things drastically. So it was, I suppose, easier because you didn't have as many tricks that you could pull out of your hat. But also limiting in that, I felt like it's the most expensive housing market in the country and we're limiting it to these one bedroom apartments that we're building where there really is huge, huge, huge opportunities for infill, and we could be doing bigger projects.
From a zoning perspective, it seemed it was smaller and therefore simpler [00:07:00] projects then into like Title 24, that's just an interesting different way of doing things. In Oregon, we have the energy code and it's just a part of the design review and there is no third party verification, which I mean on some level is maybe a better thing, that there is third party verification and it makes it, it maybe adds a little bit more rigor to the process, but it also makes it more expensive.
You usually have to work with a specific Title 24 consultants and then you become sort of a middleman. You're asking somebody else to verify your designs. So it's a little different. And then it's also interesting because while we just have the code here, our code is actually stricter in a lot of ways as well.
So because it doesn't get cold down there, you can still just do a two by four wall with R- 21 insulation. You do slab on grade construction, you don't have to insulate under the slab. So these are things that outward just like standard [00:08:00] designs in my kit when I went and we ended up changing a lot of those things, 'cause when I started two by six walls and under slab insulation and all these things that even with the, the added rigor of T 24, weren't necessary because of the climate.
Kol Peterson: What about drive versus wet, that change anything?
Willie Dean: I still designed it as if it was going to get rained on because it does still rain and when it happens, it's the same .
I guess one big difference is up here, we have to mitigate for storm water. And down there you don't, for the most part. If you're in a low land area where you're not going to have good drainage, then they might specifically single you out to do something about it, but we weren't putting in dry wells and every single project.   It rains everywhere, but here because it rains so much, we have these onsite water mitigation systems that you don't have to do that down there.
Kol Peterson: Right. Just, as a side note, Portland's always been a little bit on the bleeding edge of stormwater management and we have a really good [00:09:00] climate for that. This really light rain that falls a lot of the year, so it can absorb storm water on site. And I've always liked that, but it can't, you can't do that there as much because of the rainfall patterns.
So costs talk about cost-wise some of the differences between the Portland market and the San Jose area.
Willie Dean: Yeah. It's a lot more expensive, it's most expensive housing market in the country and so that just makes everything more expensive.
Because the cost for the people that work down there. It's one of the reasons that I was hired. I know what I'm doing with ADUs and so the people that I was working with met me, and thought that I was a good fit, but also I didn't live there.
It was it was hard because people that are living there are already busy working in the housing market and they were having a hard time finding people because of how busy it is. And then in terms of cost for building, it's just a lot more expensive. And you know, being a designer, I wasn't bidding and building all of the projects, so I don't have the exact number of where and why, but just if a climate's more expensive than it's going to be more expensive to build [00:10:00] down there.
Kol Peterson: Just to dive into that, cause I had to figure this theory out for myself, and I'm sure other like economists have written about this, but if you were to go to a Home Depot, a stick, a lumber down, there would be roughly the same cost as a stick of lumber in Oregon as an Alaska as in Florida.
But it's that I'm guessing it's private, primarily the labor costs that escalate significantly.   I would imagine a direct correlation between land values and labor costs and therefore construction costs. How does that mesh with what you had hypothesized about that?
Willie Dean: That's right. I think that it's in the building, not in the material. It's possible that there's a slight increase in material and there's a lot of people from California on the chat here, maybe somebody else that has bought material in both places regularly could answer these questions better than me because I'm primarily drawing the designs.
But I think that that idea that the labor is for sure the most expensive part, because those people need to be able [00:11:00] to afford to live at least somewhere near there. And even if you're not living in San Jose, but you're living a half hour away, it's still expensive.
I would assume that it's just a more expensive climate to operate in. Yeah.
Kol Peterson: Let's get into a more nuanced element of that question I posed. You were one part of an ADU development process, so you might not be able to speak to all of this, but can you talk about some of the cultural differences and I'll give some context for this, my experience in the Portland market, your experience in the Portland market is we've had the benefit of having this kind of tight knit community of people who kind of all know each other and to some extent, or a lot of people do.
And we've kind of been working in this small cottage industry sector. Cause it's kind of been a slow growing, well, not slow growing, but it's been a fairly modest number of ADUs being developed in a concentrated geography, but California: different situation, rapid fire, huge explosion of ADU development, so I'm just curious if you could speak to any [00:12:00] observations you have about the cultural differences of ADU development, professionally speaking in Portland versus the Bay Area.
Willie Dean: Yeah. It's just coming on very fast and very strong in California. I mean, Portland has been a sort of slow burn process where it's been growing, but not exponentially, or maybe not as exponentially and therefore a lot of us know each other, other, we visit each other's projects when there's tours, but yet it's still a pretty niche industry.
You're not producing huge numbers of projects every year. Where down there, there's the possibility of like really exponential growth as these huge swaths of land with ranch houses on 7,500 square foot lots that have flat backyards.
You'd have to do a GIS sort of query to figure it out, but it's a huge percentage of the way that the land is developed down there is, is it's all primed for it. And then when you take, that would be the most high cost housing market. Like the [00:13:00] market forces are strong. I mean, Portland's a popular place to live, but the market forces are way stronger down there.
And therefore that does change people's motivations for, for doing it. That said when I was down there, it was still a lot of people that were looking to downsize and stay in their house. The same flexible space ideas. It's the most expensive housing market and so if you want your kids to be able to stay there, you might have to build them a house because they can't rent anything, they can't buy anything. So you're going to pool your money and build an ADU, or it's so expensive for your parents to have an apartment that they're going to move into the ADU in the backyard, and you're going to keep things closer.
So a lot of the forces were very similar. I'm sure there's people building them as rentals, but we still experienced a huge amount of the people were building them for ways to be flexible and accommodate family members or friends. The other part of it is there's not huge incentives the way there have been in Portland.
So I think that who sees [00:14:00] it as an opportunity as a little bit of a different group of people, because in Portland, the way that it's been incentivized for a long time and continues to be, helps open the door to a wider range of people.   It's so expensive to own a house down there and then because there aren't incentives to get you to build an ADU, you're trending to a little bit more affluent group of people that would be building them in that area versus how they can get done here.
Kol Peterson: Another difference that I've touched on last week with other guests, and I want to talk about with you for a minute here is prefab, modular aid use and also, you know, standardized designs. It's an interesting topic and I've historically been kind of skeptical of standardized designs and prefab development in general because these companies have not generally gotten a lot of market adoption here in Portland, but I think that is ephemeral in the sense that things are changing with ADUs, they're becoming much more popular now and a lot more jurisdictions. And so [00:15:00] prefab does potentially play a different role or a significant role. Standardized designs might play a different role. And I was hoping you could talk to me about your thoughts about standardized designs in the Portland market versus the California market and prefab modular to some extent.
Willie Dean: Sure. So the short answer is I think I alluded to this earlier, we're a niche market still with ADUs, in particular in Portland, I think it's going to pick up quicker. And then also Portland, especially inner Portland, the lot sizes and typography and layout is very diverse and so it makes it hard to do anything besides a very small standardized design, which most of my experience is a lot of people want to do the biggest thing they can do. And so here, if you're trying to fit the biggest thing you can do into any weird space backyard that you find yourself in, a standard solution is not going to work very well. Where if you had a 300 square foot design, you probably [00:16:00] could still get away with that, but that's not what everybody wants.
In other places my experience down in the south Bay Area, the houses just naturally bigger yards because of the way that they were laid out years ago when they did that. And there is more flat space. There's definitely Hills. When you get to the perimeters of towns, but down in the basin where San Jose is built, there's not a lot of Hills. And so I think that just from a construction standpoint, places with more homogeneous typography and site layout would lend themselves better to that. And also down there the market, especially prefab and modular, you need a big market to make factory building houses to make sense.
In that respect, you need a big market share before that can really get traction. Whereas I think standardized designs could come first because I could have four designs in my pocket that would work in most lots. It's a more affordable route for me to [00:17:00] give you an option of what we can do a custom design, but we could also do an unbuilt model home idea. It's not the most attractive thing to me as a custom home designer, but if I'm just putting on my market glasses and thinking, how could this work? I think that it'd be more affordable way to get people into the market. That said the design is usually the least expensive part of the equation, anyway. I think as the markets grow and in particular, in places like California, where they had standardized housing development when the neighborhoods were built, that it might be a little easier to implement a plan or a design that would work in   60% of the properties or something like that.
Kol Peterson: Can you give us a quick numeric cost range of what you would charge for an average client in Portland for custom detached new construction and ADU without construction administration services, just for the design through the permit?
Willie Dean: It's different every time it depends   I don't have standardized designs, but if somebody comes to me and says, I saw this design that you did [00:18:00] before, and I liked it and we want to use it, then obviously that cuts a big chunk out of the schematic design phase.
If we can start with that and modify it to meet the needs. I would say it's anywhere in $8,000 to $15,000. And then if you need to do a zoning adjustment, so variance ,or there's lots of neighborhoods where a historic review or historical resource is necessary , things add cost up above and beyond.
Kol Peterson: We're going to transition into design best practices.
So I cover ADU design best practices in my book in chapter five. For those of you who want to see my take on this question, but I want to hear from Willie who actually does this day in and day out. I'm going to share a presentation and Willie's going to walk us through quickly some of the ADU designed best practices that he tries to incorporate.
Willie Dean: So these are pretty simple. Access to natural light. I just think it's hugely important, no matter what you're designing and in particular when you're designing small spaces. Opening up the building, making it so that you can walk around [00:19:00] without flipping light switches and just the access to natural light also means access to views. And connection to the outside is really important because it makes a small space feel bigger and feel, my opinion, more comfortable.
So these images you can see a little backyard cabin with eight windows and two skylights. It's got a lot of light coming into it. This is a great room in a two-story ADU that we did in Southeast Portland.
And even though it's in a heavily wooded area, the lights aren't on, and you can totally see what you're doing, you feel a connection to the outside space and it makes it feel like a really comfortable space. So access to natural light is probably number one.
The smaller the space gets the more important these ideas become. So creative storage, just storage in general with ADUs. We're up against square footage, regulations wherever we are and people frequently want to get rid of the storage.
I'm not an advocate of being super materialistic, but I will say that people have stuff and you need a place to put it For a place to be functional, you really do need storage. And [00:20:00] then in an ADU specifically, these are like some just creative ideas of where you can find extra storage.
So not only closets, but on the left, we have drawers that are built in the stair risers middle. This is a niche space above the door and that's like, so it's a vaulted area. And then outside of that is a flat ceiling, little hallway and little niches just to would have been a void just in a little attic space, but we carved it out to make it storage.
And then on the right you have the classic Harry Potter door. So those spaces are always important and fun and romantic little storage areas, especially if you have kids around. Built-in storage under a built-in desk. This is a studio ADU that we did. It's really, really tight, and so having storage pretty much everywhere we could sneak in was important in this one.
Kol Peterson: Incidentally, this is a, how big is this ADU? 200 something, 240.
Willie Dean: It's got a murphy bed, it's got built [00:21:00] in storage. It's built like a little sailboat.
So the long view is an idea that basically from opening up views through the space and out of the space so that it's allows you to see through the space. So putting openings in the space and interesting places.so that your eye can go all the way through the building and that makes the building feel bigger. And again, in a little space that just goes a long way and making it feel bigger than it really is. This, this project in particular, people never believe that it's 800 square feet.
Kol Peterson: I want to pause on this one and say, w you know, in this case we have what I'll classify as a catwalk, and maybe there's another word for it. And in Portland, the code , you only count the habitable living space. You can't include that catwalk, but you wouldn't include this vacant space right here that doesn't have a floor.
So in the Portland context, within the planning zoning code, this might even be classified as a best practice because it expands that upper level so much and gives you so much architectural interest, but that might vary depending on how [00:22:00] they classify a square footage in your jurisdiction.
Willie Dean: Correct, yeah. And this is actually a trick I learned from the ADU that's in the background of Kol right there, and then his house call has a pretty sweet catwalk and a big open vaulted space that's pretty great. So interestingly interior spaces, this is another just giving vaulted spaces and sort of dynamic staircases, skylights, dormers, just things that make the space feel unique, go a long way.
Again, you can just imagine if this space was just a regular flat ceiling rectangular room, it would not feel as big and open as it does. And another one that I added was just flipping the plan. So this project and another project, this is, this is an ADU where the bedroom is downstairs.
And then the common area is actually up on the second floor and there's reasons pro and con for this, but what it does. Where you will be hanging out with people and spending time gets tons of daylight, it feels like Treehouse. You can see much further. Most of the [00:23:00] time in backyards, if you're on stuck on the ground floor, you're looking into the setback or you're looking 15 feet over to the back of the house.
You can get up 12 feet off the ground. You can actually see out into the neighborhood in a way that's a lot more interesting.
Kol Peterson: I I'll refer to that as a reverse floor plan. I don't know if that's the right term for it. Flip flopping the floor plan. I'm going to do my next project like that. There's a lot of rational reasons to do it for the reasons you mentioned a lot more natural light, but it also feels incredibly not normal.
I'm not sure I'm gonna really like living in it, but I want to try it out. You know what I mean? It's like, you always want to walk into the great room and here, all of a sudden you're walking into the bedroom. You have to go upstairs with your groceries, It seems kind of clunky.
Willie Dean: Yeah. That's the downside is that you walk into like a front hall and then it's a front hall with stairs and you have to always go up the stairs or just walk into a bedroom,
This is one that's not done that way. I really like using stairs in a dynamic way to accentuate people moving [00:24:00] through the space. It's one of the only places in the building where you are moving in the Z axis, if you will, so calling that out and making it a fun thing.
So this project is exactly what we were just talking about, the plan is flipped. So the upper right side of the second floor is the kitchen, living, dining.   So that allows us to have the common area it's up in the vault in space, which makes it feel really neat. This project is built on an alley and it looks out over like a great big intersection. So if you're in the backyard, it's really very heavily planted and wooded and fenced, but once you're up on that second floor, you can actually see out and see over to a big intersection in the city and give some like nice dynamic stuff to look at and connections to the bigger area.
Again, we've got built in storage and the bench by the window, sort of a real interesting vaulted ceiling that has a dormer in it. The long view, this one actually is built [00:25:00] on the Willamette Bl uff so this looks out over the trains switching yard and then out to the river and forest park on the other side.
So when you combine a few of those ideas into one space. It really starts to make the space punch above its weight class, I guess .
Kol Peterson: All right, so one core question I have for you is, if you're working with a homeowner, what information are you seeking from a homeowner to help inform the design for a detached ADU ?
Willie Dean: Usually I just say, what are your goals? A lot of times, people that are ready to hire a designer have a pretty solid idea of what they want and often, just asking one question is enough to get 80% of the information that you're going to need.
Is it going to be owner occupied or rented? Is a good one to start with. Although I find that even when people design them to be a rental, they usually design it around themselves mentally, just cause that first person design ideas is the way most people are going to do things. How big do they want it to be?
Do they [00:26:00] understand the zoning and sizing regulations? In Portland in particular, there's sort of two paths you can go, you can 800 square foot. There's still regulations and limits, but, do you want to do a big almost house size ADU or there's you can do these 24 by 24 single story ADUs that you're allowed to build in the setbacks How important is privacy? Because that sort of gets to some of those ideas with the flipping the plan.
In general, these are often really, really close to the existing house and the neighbors. How you orient windows, where the views, even though the views and the daylighting is super important, you do need to be sensitive about where windows are looking. Are you looking straight into your next door neighbors bathroom? Things like that. So both how you feel about privacy and then how does the privacy impact the place that you're putting the building? Do you need extra storage? Getting rid of a shed or garage and replacing it with an ADU, so do you need to accommodate that storage? Do you need a garage? You need just some external storage or even be okay [00:27:00] without it? That's sort of a topic, I've had people that have a full garage and they hadn't thought about that.
Do you have a particular style in mind?
Cause I can do lots of different styles , I'm pretty flexible. Also the code, it limits you into a certain level of traditional design, but there's a lot of wiggle room within that now. Again, speaking about Portland in particular.
Do you want it to look just like your house? Do you want it to look like the craftsman across the street, or do you want it to look kind of modern? What are your interests?
Then budget conversation.
Kol Peterson: Thanks Willie. I have a couple more questions, but I'm going to hold them because I want to see what audience questions there are.
Kelcy King: That wraps up the interview portion of this episode of the ADU hour. As a reminder, these episodes are the edited audio version of interviews that we conducted via a webinar series. Good news. You can access the full video series via Kol's website, BuildinganADU.com. Now for the second half of the show I curate [00:28:00] questions from the audience that gives our guests the opportunity to dive deeper into a topic or address new ideas and questions.
   We've had some good ones . First, municipalities are hoping to address ADA and the accessibility of ADUs.
I'm wondering if you can address the costs and how those change when you are trying to accommodate the ADA requirements.
Willie Dean: It's not hugely more expensive to build that way. It's just, it takes more space in general is my experience, and so I guess in so far as space costs money it can be more expensive, but in an ADU, the idea of the cost per square foot metrics don't really work anyways.
I like the idea of giving some sort of square footage premium if you're going to build an accessible unit or maybe allowing a little bit bigger footprint, because so in Portland you're allowed to do an 800 square foot ADU, but most lots can only accommodate a 650 square foot footprint.
[00:29:00] So it means to do a full 800 square foot ADU, you have to do a two story building. And obviously that means you can't have an 800 square foot ADA unit on most normal lots. So, doing something to accommodate for the extra space on a single floor and maybe even allowing a little bit of extra square footage beyond the 800. I would think that those things are more important.
It's a little bit more expensive to build a curbless shower because it's custom, you can't just buy a fiberglass insert and it's a little bit more expensive to build the cabinetry and the storage and the kitchen in a way that allows for, accessible. So you can't have really high stuff above the counters. Some of the storage, you can't put stuff as high.
And so therefore you need more space down low. I think allowing for more space would be a good solution. Then you got to have good access. In a lot of ADUS, you're in a backyard and you have to go upstairs. So, there are hurdles, I guess, almost literal hurdles to [00:30:00] getting into certain places that can make it more expensive.
If you have to build an ADA ramp from the street all the way to the backyard, that could add some fee to the project.
Building costs are really high right now. So do you need design tips that can lower the prices and to kind of address that cost?
One story versus two story is a big one because building the second floor and all of the structure that it takes, That's a big, additional cost.
I would say a big one is trusses. If you can come up with a design that you can do with trusses and you can still do vaulted ceilings with trusses. That's a little bit of a pretty fab solution it's just a prefab roof. In a custom build that can save a lot of money both from the material standpoint and from the labor to put it together.
You know, I like sort of wacky structural tricks where stuff is hanging off in a certain direction, but keeping the loads all coming through the walls. A nice, neat rectangle with a triangle on top, [00:31:00] that's gonna be less expensive and easier to build and less big engineered pieces to go into it. Not putting windows right in the corners. Simplifying the structural design. And then window and door packages are usually pretty expensive. And so using affordable windows and doors is a big one. Siding can be expensive.
If you have to run a big trench because you're putting the unit really far away from the existing house or the existing sewer lines. So some of that infrastructural stuff that needs to be considered early so that you don't end up having to do weird plumbing gymnastics, or building a sewage ejector pump room . So making sure that you have that worked out at the beginning, is important. And then simple finishes and you can do simple finishes and still have really beautiful product.
Keeping affordable materials solutions on the table and not creating design that's predicated on material. So I try to design so whatever material. As often, the stuff changes when the clients and contractors get involved and I don't really have a way [00:32:00] to hold their feet to the fire about the material solutions.
The affordable thing gets picked very often. And so trying to make designs that look good, no matter kind of what the material you pick is a important thing. Yeah.
Kelcy King: Thank you. Can you give us an idea of design costs per Oregon and your California experience for 650 square foot.
Willie Dean: Yeah, it's, it's every project's different, so just painting design costs is always tricky.   So design costs, it's going to vary, like, I mean, I'm sure any designers watching this right now are going to say, like, don't say.
I don't say it. I won't say any specific numbers, but it's like you know, I'm, I'm a one man shop. My overhead's low, I'm able to keep things affordable for certain reasons. There's other company and it's, that's not to say that you should use a one man shop versus design firm, design firms [00:33:00] have a lot more resources that they can pull from than I do and maybe they can get things done faster or meet higher quality control.
Kol Peterson: Yeah. I've seen ranges the in the Portland market from like for detached new construction $1,250 to like $20,000. And I'd say the average that I see out there is $8000 to $12,000 for a detached new construction.
But you know, I would imagine it's a little bit more expensive in California maybe, but we'll see.
Willie Dean: My experience in California was a little bit different because most of the work that I did was through a single design build company, so that was all for the whole project. So we didn't break out what the design fees were. I think Kol's range is pretty accurate.
That low range is definitely if your little brother's doing the design for you and that higher range, I mean, that could be totally normal. It just depends on how many bells and whistles you're looking for in your project.
Kelcy King: I have one more. What municipal regulations do you find to be the most prohibitive?
Willie Dean: Parking's pretty rough. Adding another car plus a [00:34:00] house is really hard to any single family lot.
Owner occupancy. It's just gonna limit the amount of people that can do it. Obviously landlords are gonna want to build rental units and I don't think there's anything wrong with that. Those are two big ones.
Kelcy King: Do you, do you run into any like exterior feature design regulations that you find prohibitive?
Willie Dean: Yeah. I mean, I think they're all prohibitive. I'd way rather not have my hands tied, but they're not prohibitive in the respect , it doesn't stop you from getting projects done. So we're able to do really awesome, beautiful work, even within the constraints of the subjective ADU design code that exists.
Those constraints aren't as bad as like the real poison pill ones.
Kol Peterson: I've got a couple. Willy, I guess I was curious, I, you have done projects other than just detached you construction ,correct?.
You've done garage conversions and you've done basement conversions.
Willie Dean: Yup.
Kol Peterson: Okay. From purely from a design perspective and I want a subjective answer. Are you just as happy doing a garage or basement conversion or do you [00:35:00] prefer detached new construction ?
Willie Dean: I prefer detached new construction because I like designing buildings. You know, a single building from the ground up. But I'm very happy to work on garages and basements and additions and anything else. I guess it's sort of egocentric, but I think a lot of architects would feel that way, that it's more fun to design a whole building.
Kol Peterson: As a policy matter, I think you're right. I think architects probably prefer it and I think builders probably prefer it. And that's why I encourage professionals to focus on the conversions because I think there's so much good work that can be done from a housing perspective.
That's where we can bring costs down, at least in the Portland market, you know, LA there's a lot of garage conversion specialists, but in the Portland market, there is not. And and I think that's a great niche for more people to consider because a lot of builders don't want to work on conversions and designers don't want to work on conversions either.
So, but thanks, thanks for your answer.
Willie Dean: I would say that I'm very focused on conversion projects. I know a lot about how to do them. I've [00:36:00] done a bunch of them. It's just there's a lot more technical weeds that you get into with them. So it's more complicated and sometimes you don't get to stretch your design chops as much, but I totally agree that that from a housing stock perspective, we really need to be doing.
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The ADU Hour w/guest Ashley Salvador
6 jul 2021· The ADU Hour
Ashley is the founder and president of YEGarden Suites and Calgary Backyard Suites - Alberta’s only education and advocacy-based non-profits dedicated to informing citizens on the benefits, challenges, and regulations surrounding backyard housing. She is also the CEO of Municipaction Inc., a consulting firm that supports Edmontonians in their city-building endeavours. She has experience working across sectors on projects related to affordable housing, climate change, social isolation and inclusion, infill policy, seniors housing, and demographic change. Born and raised in Edmonton, Ashley holds a BA Honours in Sustainability and Sociology from Dalhousie University, and an MA Planning degree from the University of Waterloo.
[00:00:00] Kol Peterson: Good morning.
Ashley Salvador: Morning, Kol..
Kol Peterson: Thanks so much for coming on today.
Ashley Salvador: Thanks for having me.
Kol Peterson: And I'm super excited to talk with you about the work that you've done. I've been a fan of your research for a number of years and never had a chance to really talk with you directly.
I've read your work because you put some of that content on AccessoryDwellings.Org initially, and that's kind of how I first learned about it. So let's dive right in. So tell us about yourself and where Edmonton is for those who aren't familiar with Edmonton.
Ashley Salvador: Sure. So first of all, I've been tended in Alberta. Some of you may notice the Texas of the north. It's not necessarily that I would say, Hmm. Conservative. We, we actually have a lot of progressive policies here, a lot of really young folks who are looking to push the policies in a really good direction.
On the, on the ADU front, things have moved quite quickly over the last couple of years to allow for, the diversity of sizes, sizes of ADUs basically across the entire [00:01:00] city at this point as a permitted use. Yeah. And. Just for a bit of context, we're looking at getting rid of our parking minimums entirely.
So if that gives you a sense of kind of where we sit as a city and where our city councilors are at that's that's Edmonton.
Kol Peterson: Yeah. Cool. So how did you get involved in doing ADU research and work?
Ashley Salvador: Yeah. So it actually started in my undergrad. I have a degree in sustainability and sociology from Dalhousie University.
And I started to get really interested in basically cities as human habitats and the ways that our cities are helping us thrive, but also the ways that they're kind of detrimental to So from a sustainability lens, I was always interested in the ways that we can help our cities grow, grow inward as opposed to outwards forever endlessly.
And at some point along the way, I came across ADUs as a way for everyday homeowners to participate [00:02:00] in kind of the remaking and rebuilding of their cities. So that's, that's where it started.
Kol Peterson: And can you tell us about some of the key findings of your undergrad and master's degree research in of garden suites and secondary suites, and actually, maybe take a second to define garden suites for people since that's a different term.
Ashley Salvador: Absolutely. So garden suites would be a detached accessory dwelling unit. Most folks will know them as that. Also known as laneway homes, granny flats. The list goes on in Edmonton attached, ADUs. So ones that are typically located in a basement, those are considered secondary suites.
So most of my research focuses on detached accessory dwelling units, so independent from the main house. And I've done two studies at this point. One was in 2016 to 2017 and one I'm currently doing right now. So I, in terms of key findings just reflecting back on the study done in 2016, one of the big findings coming out of [00:03:00] that and Kol, you know all about this is voluntary, affordable.
There was a really good study actually out in Portland that did a full sample or a full survey of owners at that time. And similar findings were, were discovered there around the affordability benefits.
Kol Peterson: Let's just dive into voluntary affordability and then we'll go back to other findings.
Ashley Salvador: Yeah. So basically what I wanted to look at from my research was whether or not it user functioning as a form of affordable housing and what the relationship between the owner and attending.
Has to do with that affordability conversation. So in Edmonton, it was found that close to half of the people who are building these gardens suites are doing so for family or friends to live in. The other half are doing it for a traditional rental income. And when you bring affordability into that conversation it was found that the folks who are renting to family and friends are charging ultra low, sometimes zero rent. [00:04:00] And I mean, it, it seems pretty intuitive. You're not going to charge grandma a bunch of money, the same way you would just a, an unknown tenant. But being able to put that, that finding on paper and actually have similar findings popping up in other cities like Portland, it shows that there is a trend and it shows that ADUs in some capacity are functioning differently in a traditional rental property.
And part of that has to do with the fact that these are homeowner developers, right? They're not, these big wig professional developers who are just trying to do it for a money-making opportunity. There's social reasons in there as well.
Kol Peterson: Let's go back to the original research. Aside from the, just generally speaking that voluntary affordability is one of the things that happens with ADUs, what are some other key findings from your original research?
Ashley Salvador: Yeah. So from the original study I also looked at barriers to development. And one of the biggest [00:05:00] barriers at that time was cost and financing. So it turns out that around 70% of the folks who were building ADUs had a household income of over a hundred thousand dollars annually. So that also brings into question who is able to even benefit from ADUs.. And it was looking like at that time it was really reserved for folks who are in that higher income bracket..
So that was, that was a big finding. One that I like is folks who are building and living in ADUs don't own as many cars. So it is just that they are trying to. Either by choice or just by the location they live in, in the city live a more sustainable, less auto dependence lifestyle.
Kol Peterson: So regarding voluntary affordability, I think you've found some interesting things. Can you go into a little bit more depth about some of the data that you were able to derive from your research?
Ashley Salvador: Yeah, absolutely. And I'll, I'll bring in the current research as well. Cause there was also some findings around [00:06:00] voluntary affordability there. And so if we break down the numbers if you're looking at kind of a typical rent or comparable unit in Edmonton, you'd be looking at around, $1,100, maybe $1,200.
Whereas an ADU who is rented to not a family member---the owner does not know the tenants. It would be comparable, sometimes slightly higher. Whereas if you renting to a family member you're looking between that $500, maybe $700 range. So there's a pretty significant gap between those two and that's not accounting for the people who are discharging zero rent at all.
And I think one of the interesting things is on top of that affordability benefit, there's also some, some sharing of services. So in exchange for, living rent-free in an ADU, maybe your friends or your grandma is helping with childcare, maybe really helping with yard maintenance, things like that.
So there's some kind of informal economies [00:07:00] that are happening around ADUs as well.
Kol Peterson: Can you tell us briefly about the objectives and the model of the Cornerstone Grant Program and what your findings were about that incentive program to induce more deliberately affordable ADUs?
Ashley Salvador: Sure. So. First of all the two, the two main objectives of the study were to look at affordability from both the renter's perspective and the owners and the city of Edmonton has a program that is meant to incentivize the development of ADUs. It's called Cornerstones and the Cornerstones Grant basically we'll give up to $20,000 towards the development of an ADU in exchange for renting that ADU for five years, to someone who is within a defined lower income bracket and the city sets that. When Cornerstones first came out, everyone was really excited because they're like, oh my gosh, $20,000. That's awesome. Like, that's a big chunk of change towards a project.
And throughout my study, I actually found [00:08:00] that not a lot of people are using Cornerstones. They had the opportunity to apply and 75% of people chose not to. And, reflecting on that. And crunching the numbers, I think is what makes it seem like a pretty logical choice to step away from Cornerstones.
So ADUs in Edmonton due to function as a bit of a luxury rental, so you can pull in a pretty penny on a monthly basis. So if you are locked into a Cornerstones Program for five years, where you are forced to rent for a lower rate, It doesn't actually equal out. So you're actually, you could potentially be losing money in exchange for that about opportunity costs to not rent at typical rates for the five-year period.
So we were seeing the cost benefit analysis that people were doing in their heads play out in that research. So Cornerstones isn't that attractive for detached accessory dwelling units. For secondary [00:09:00] suites however, it does make a lot of sense so that it also comes into play the cost of being at your building.
So in Edmonton, a detached accessory dwelling unit averages around $180,000 to $200,000. Whereas the secondary suite, typically $60,000 to $80,000 to have a functional secondary suite. So as you can see, even from the sheer cost perspective, $20,000 towards a secondary suite can make a lot of sense. And they don't function as that luxury rent as well.
Kol Peterson: Another fascinating tidbit that you uncovered are that costs and financing are a perceived barrier, but not, maybe not an actual barrier. So what led you to that conclusion? Tell us some, some of the data behind that.
Ashley Salvador: Sure. So one of the big questions I wanted to go into my current research with was really attacking the question around, for homeowners is, is cost and financing a barrier.
And one of the things coming out of this was, it might just be a perceived [00:10:00] barrier. The people who are reporting the cost and financing is a barrier, have, the same household incomes sometimes higher assessed property values than people who have already built. So that was a little confounding.
Digging a little bit deeper into that, the lack of mADUre financing product from banks seems to be a barrier. So people are kind of getting sticker shock. They hear the price of a typical detached ADU. And they're just like, "Okay, that's clear. I clearly can't afford that." They just assume that they can't afford it. And the people who are saying that ADUs are too expensive, I can't afford it.
Only 10% of them actually spoke with a financial institution. So getting people in the door of a financial institution. That's a bit of a gap right now because people are getting scared upfront and not actually making it in the door. And once, once you get in the door, there are a number of options.
I mean, in [00:11:00] Canada, in Alberta, in particular, the most common way of financing an ADU is you can get up to 80% of the equity of your home. And then up to 80% of the pre appraised value of your ADU. And in most cases, you can piece together a project using that mechanism. But again, when people don't have a financial product that they see as built for ADUs it scares them.
And there's really only one financial institution in Canada and that's Van City that offers that type of product.
Kol Peterson: Let's dive right into that set of questions right now. Cause I think that's worth investigating more. So I've seen that. So the CMHC, which stands for--- Ashley help me out. .
Ashley Salvador: Canadian Mortgage and Housing Association
Kol Peterson: Corporation, maybe?
Ashley Salvador: Corporation yeah.
Kol Peterson: It seems on paper that the CMHC so this is the equivalent to the [00:12:00] GSEs, which are Fannie Mae and Freddie Mac and FHA in the U S so it seems as though the underwriting standards for CMHC for ADU construction loan financing are very good.
For example, at least. On the document that I've seen, they allow for up to a hundred percent of rental earnings to be added to income, and they explicitly endorse secondary suites. And they, so they allow for, if I understand correctly, future rental income to be class, not for detached ADUs. For internal ADUs, you can classify a future rental income potential towards your debt to income?
So secondary suites have been around for a lot longer than detached ADUs. So the regulations are a lot more mature. There's still a ton of confusion around how to handle detached ADUs. And I mean, even, even things in our tax code, like there's still uncertainty around how to deal with them.
Ashley Salvador: So at this point All the [00:13:00] suites that we've seen built, there is no consideration of the future rental potential of that detached unit
Kol Peterson: For secondary suites also?
Ashley Salvador: For secondary suites, I believe. So we've seen up to 50% of the rental income counted towards it, but not, I, I haven't yet to see a hundred percent.
Kol Peterson: So if these underwriting standards are fairly good why is it that there's only one bank, Van City Credit Union, that's doing this type of loan product?
Ashley Salvador: Yeah. So I'm sure as everyone knows, Vancouver is a leader in the ADU space. And I think, honestly, it's just a matter of recognizing that there's a market there.
Obviously it's happened in Vancouver. Van City was pretty quick to jump on it. I mean, we're trying to push institutions here. Local credit unions, ATB is a big one that we're trying to work with to, to get a product together that is specifically for ADUs. And even if it's a branding exercise that would go [00:14:00] a long ways in helping people see that there, there is a specific product, there's a niche for them and this bank can help fill that..
Kol Peterson: Okay. So shifting back to your organization helped me pronounce it, but Y E Garden Suites, is that correct?
Ashley Salvador: Yeah. So YEG is the flight code for Edmonton. So it's YEG gardens suites, or YEGgarden suites, whatever you like.
Kol Peterson: Okay. So tell us about YEG garden suites mission and work?
Sure. So, YEG Gardens Suites was founded about three and a half years ago now. Actually just at the tail end of my first study. So it was funny. I did that study and I spoke with around 150 suite owners at that time. And then, AccessoryDwellings.org published a little article with the media, picked up on my, my research and then people started coming to us. Because building an ADU is confusing and they're, they're looking for anyone who can help them through that process. And they're like, you [00:15:00] seem to know, can you help us? And at that time we're like, okay, we'll hold a little workshop or something. Didn't think that it would go really anywhere beyond that.
So yeah, we, we founded this little organization started pulling small workshops. I started collaborating with the City of Edmonton, local builders, designers, financial institutions, other industry members, and started holding tours and things just kind of grew from there. We, we now regularly have usually around 200 people out to our workshops.
Ashley Salvador: They're day long sessions. We do a lot of advocacy as well. So on the policy side of things, working closely with city planners, to both identify barriers, but also opportunities to improve the regulatory landscape so that more people can build ADUs. But we're also involved in just the infill space in general and are big proponents of courtyard housing. Any form of densification that's gonna help build better neighborhoods.
Kol Peterson: Specifically in Edmonton or throughout [00:16:00] the whole province. So we started out in Edmonton. We actually recently expanded to Calgary as well about a year ago. It's interesting to see the contrast between the two cities as well. And we do have intentions of spreading for now across Western Canada, yeah and we're in conversations with a couple of cities right now about that.
Great. So like, give us an example of the type of regulatory changes that you organizationally are advocating for in other jurisdictions, like Calgary or elsewhere.
Ashley Salvador: Sure. So the biggest one is moving ADUs from a discretionary to a permitted use. So that has been a game changer in Edmonton. And we want to see that in Calgary.
We want to see that in a bunch of municipalities, so that move essentially gives more power and control to homeowners who want to build ADUs. So right now in Calgary, for example, where ADUs are a discretionary use, you can put out a couple thousand [00:17:00] dollars to get your drawings done. Submit your permit.
And then everything gets circulated to your neighbors and to your community. And they have a chance to appeal and say, "Hey, I don't want this put up next to me, or you're going to invade my privacy, or there's gonna be parking issues or X, Y, Z." And what that does. It creates a lot of uncertainty and adds an additional layer of risk for people who want to build ADUs, because they don't know if neighbor two doors down is going to shut down their project.
So being able to remove that risk factor and just make ADUs straight up a permitted use that's where we need to get to in cities like Calgary. And that's, that's where we've gotten to an Edmonton as of a year and a half ago. So we've seen a quite large uptick since then. I actually made a list of some of the regulations that we've had a hand in changing because I forget them all. But yeah, beyond the move from discretionary to permitted, one of the big ones here was size increases.
[00:18:00] So at this point, detached ADUs can be up to 1400 square feet. And you can have a full basement. So it's, it's really a house. Some sort of small little cute unit in the back, it can be, you can actually have a tiny home in Edmonton as long as it's on a permanent foundation. But there's a really broad spectrum of sizes to meet different people's needs.
So that was a really good change as well. And one of the most exciting ones that happened about six months ago, you're now allowed to have both a secondary suite and a detached ADU on the same lot. And that's, I believe Vancouver is the only other municipality in Canada that's allowing that at this point, but that just opens up a lot of doors for people who maybe they couldn't afford to build their detached ADU. But now that they have that additional passive income from that secondary suite, it's possible.
Kol Peterson: I want to talk about the tactics that you use to get that code changed. And then I also want [00:19:00] to go back to that thing that you mentioned briefly. So first of all, it's going to the advocacy approaches that you guys used specifically for allowing for that second unit on a single family lot. How did that go about that? What tactics did you use? Was it successful? In general, what approaches are you guys finding to be successful in terms of making changes to the code?

Ashley Salvador: We take a very, I would say very positive and collaborative approach to our advocacy. If anyone's ever, shown up to city hall or a public hearing and spoken, oftentimes it's a lot of people who are just yelling at counselors and they don't want change to happen and it's very kind of antagonistic.
So we have tried really hard over the last three years to to show up as a, as a partner to the city. As an organization that can tap into community members, tap into industry and operate in that space between city, community, and industry kind of bringing all of those different groups together and finding alignment and shared visions.
We've had a lot of [00:20:00] success with that. So for the basement suites and garden suite, change, it was funny. The city actually already allowed people to have a secondary suites in a duplex or semi detached house. Okay. So if you count that, you'd have the duplex and then so that's two units and then you have two units in the basement.
That's four units, right? So we came in saying, we're just asking for three, we just want a single family home, a secondary suite, and then a detach one in the back. You already allow four, like, this is just three. So being able to help them see the sense in some of these changes. That's that's what we like to do. We like to make it very, very plain and simple.
We're not asking for a lot and then having people show up. They get tired of hearing us speak. So we have a really big Rolodex of homeowners -- they don't show up at city hall typically. They just want to be able to build a house for the grandma in the back and having them share their direct [00:21:00] stories, it can be really, really powerful when you're up in front of legislators.
Kol Peterson: Awesome. We've had similar approaches and similar successes using that same approach. So that's great. So going, going back to the point you made about this provision that allows for detached ADUs to be up to 1400 square feet.
This is this is a novel thing. Usually ADUs are limited to less than that, even in California where it's very aggressive with this, they allow you to use to be up to 1200 square feet. And that is shocking for those of us who are limited to 800 square feet. And I guess this is more of a observational point than anything. But as we start to see regulations that allow for units that are bigger than the primary house as a secondary, or is it accessory dwelling unit. It really, it starts to open up our conception of [00:22:00] the fundamental goals here are. And in some ways I think you and I are in alignment on this, that ADUs are kind of just a way to bust open the door for allowing for creative infill housing typologies, ADUs is one way to do it. And then ultimately we're talking about middle housing in general and different allowances on those properties. Do you have any thoughts about that?
Ashley Salvador: Absolutely. We like to joke that ADUs are like the gateway drug for sort of the medium density, medium scale type developments that we ultimately need to see in a lot of these neighborhoods.
ADUs are very palatable. I don't know if you have a narrow lot homes down in Portland, but in Edmonton, most of our lots around 50 feet wide. And. Probably about 10 years ago at this point, the city allowed subdivision down the middle and everyone was just up in arms about these narrow lot skinny lot homes.
And there was a big rally against them. So when, when garden suites, and ADUs started to come on the scene and become a [00:23:00] bit more popular, they were seen as like this awesome alternative and, "oh, I'd much rather have that next to me". We've worked really hard to humanize ADUs as well. And make it not just about a building, but it's about the story behind it.
It's, it's about grandma. It's about allowing your university age children to, to age next to you, whatever. Right. And once people are okay with that, you can start to broach the conversation of, okay, well, what if that 1400 square foot, ADUs. What if it was a duplex? What if there was like a duplex in your backyard instead of one unit? Maybe there's two, maybe cause a basement suite in it ? Does it really matter?
And Edmonton's getting there actually. So we, we have a new use class that's just classified as multiunit housing and it allows for any configuration you like of units on a lot, as long as you're within the unit count. So you could have a duplex in the back, a duplex in the front you could have courtyard housing, so it's, it's getting really [00:24:00] creative here and that's ultimately what we love to see..
Kol Peterson: Yeah. Awesome. So secondary suites, for whatever reason, I've had more broad adoption in some, at least a handful of Canadian cities then internal ADUs have in the US. Can you give a understanding of why that has been the case in Canada?
Ashley Salvador: Yeah. I was, I was thinking about this one. I don't have a great answer other than we have allowed secondary suites since 2001 here.
So it's been almost 20 years. And right now in Edmonton, we have around the last time. I think around 5,500 internal ADUs. So it could just be a function of we've allowed them for a longer period of time. And I know like all homes here have basements. It's very unusual to see a house that's just built kind of on slab.
So that could be another factor people just trying to make use of that additional space. Yeah. What are your thoughts on that? Do you [00:25:00] have any ideas?
Kol Peterson: Yeah, I think, I think there your last point, there is probably the most relevant point, which has all the homes there have basements. And I think, like in DC, for example, All the row housing there has basements too. So while their ADU codes aren't necessarily very permissive, there's a lot of informal ADUs in, in basements. And so I think that, and I think it has to, it's a combination of the economy or the, the market demand for housing and the structural forms that are there. And then if the regulations allow for it, then yes, there'll be more legal permitted units.
So that's one theory. Okay. So in Canada, outside of your province in general what are some other like of the most common, and significant regulatory barriers that you're seeing that still needs to be addressed in, in Canadian cities for ADUs?
Ashley Salvador: Yeah. So beyond again, beyond the [00:26:00] discretion of your two permitted. I think any, any regulation that ties the built form of the ADU to the primary house, that has to go. So we used to have regulations that ties the height of the ADU to the main house. So you're ADU couldn't be higher than your principal dwelling. And there's a lot of bungalows here, so that would limit all the ADUs to bungalows and I mean, it, it kind of, it overlooks the fact that our cities are constantly evolving and being remade. So if you have like, like a 1950s bungalow on the front, that's half falling down and you're going to redevelop it in five years, then why should this new development be tied to the 1950s, right? So that that's problematic in a lot of jurisdictions.
Same thing goes for size. I don't think it's necessary to say that you're you're ADU needs to be smaller than your principal dwelling. Again, just ties things to the past. Parking [00:27:00] regulations are a big one. So in, in Calgary right now, you have to have two parking stalls for the main house. If you build an ADU, you need another, so that's three stalls on a lot, and that really limits what you're able to build.
So a lot of the ADUs that we see here in Alberta and in Canada, really, other than Vancouver are above a garage. So it's a box on box style, two car garage, and then your ADU or your living spaces above. So if we were to eliminate parking requirements or even reduce them and we're starting to see that like a number of municipalities will have TOD, transit oriented development zones, where if you're next to an LRT or high-frequency bus line, you don't have as as high parking requirements.
So you can actually get more livable space into these homes. It starts to make more financial sense because you're renting a two bedroom versus a studio. And it just feels more functional. One, [00:28:00] one of the findings I forgot to mention from my first study was that there were zero children living in ADUs.
Like it was, it was all single individuals or couples without kids. And if we're looking to integrate more family-friendly units into these neighborhoods, They can't be so small and they can't be kind of subsidiary to parking space. So that's, that's a big one. And I'm super excited that Edmonton next month is very, very likely going to be just a wiping all parking requirements.
Kol Peterson: Yeah. Yeah. Portland is doing that same thing too. I don't know how many other cities are doing that in either Canada or the US, but I'm pretty excited.
Ashley Salvador: There's only like eight or nine that have completely done it. Yeah.
Kol Peterson: So given your research on this topic, do you have any insights to share about who will actually build two ADUs views on their property?
Ashley Salvador: Yeah. So one group that we see as kind of the. I guess the front runners in wanting to do those two [00:29:00] units would be the investor types. So a lot of people who were, savvy real estate folks when secondary suites came out, they jumped on it. They're like absolutely passive rental income in my basement.
Let's go. And for the longest time they've been locked out of having the, the detached ADU as well. So there's like when this regulation came, came up, there was a long lineup of people just like waiting to build that. So they were definitely the early adopters. I mean, it could, it could also make sense for for young families who are looking to buy into a neighborhood that, maybe they can't can't afford it without those additional passive incomes.
So it, it helps people build or move into neighborhoods that, are pretty nice, pretty central, lots of amenities and desirable.
Kol Peterson: Lastly, I think people are going to be curious about your research. Can you tell people how they can go about finding it when it's going to be available?
Ashley Salvador: Yeah. So this is like the worst question to [00:30:00] ask a student, a master's student. When is it going to be done? It should be done August, September is what we're aiming for. It'll it'll be published on my university's website, but I'll be sharing it all over social media, I'm sure. And yeah, if, if we can do another AccessoryDwellings.org article, that would be great.
Kol Peterson: Yeah, so, so AccessoryDwellings.org, for those who want to see this research, and I think it'll be great. And you can find Ashley's previous research on AccessoryDwellings.org too, which I would encourage people to read through. It's really, insightful and a lot of good numbers and data, even though it's a small sample set. So that's what we have to work with. There's only been a few studies anywhere in the world of permitted ADUs. And so this is one of them.
Kelcy King: That wraps up the interview portion of this episode of the ADU hour. As a reminder, these episodes are the edited audio version of interviews that we conducted via a webinar series. Good news. You can access the full [00:31:00] video series via Kol's website, BuildinganADU.com. Now for the second half of the show I curate questions from the audience that gives our guests the opportunity to dive deeper into a topic or address new ideas and questions.

So we're gonna start with David Wade. David mentioned that the prices that you mentioned for building an ADU in Canada is quite a bit less than what we're working with here in the USand Portland and Bellingham and in California.
So he's wondering What evidence have you seen the construction costs less in Canada than US? What kind of cost figures can you give to compare those? Why Canada might be less cost less than the US?
Ashley Salvador: Yeah, that's a good question. So it's interesting. Cause we, we talk with folks in Vancouver quite a bit.
And if you're looking to build an ADU in Vancouver, It's like $300,000 which is almost double what the starting cost of an ADU here in Edmonton is for kind of a similar sized unit. So [00:32:00] I don't necessarily think it's Canada on the whole, that is just, more affordable. I think it really depends on what market you're in.
So Vancouver is obviously a very hot market. Edmonton, not so much so that that definitely could play into it. And I'm sure that things vary city by city in the U S as well.
Kol Peterson: Yeah. And the numbers aren't, I would say not are not dramatically less. Right. So the average, can you give some of those average figures again for the all-in cost for like an 800 square foot ADU?
Ashley Salvador: Yeah. For, for like a, 800 square foot detach ADU in Edmonton between like $190,000 and $200,000 is pretty typical. And that's, basic finishing nothing crazy.
Kol Peterson: Yeah. And that that's actually, it's a pretty comparable, Portland's like to $210,000 for 800 square foot ADU, according to my last year's data. So not that far off. Yeah.
Kelcy King: Moving on to another one to [00:33:00] David's question. So a few developer and families have successfully used the condominium ownership model in the U S to finance and build ADUs. Have you heard of anything similar occurring in Canada?
Ashley Salvador: Yeah. That's a great question. So we're actually looking at doing something like that here in Edmonton. There was a pilot project a couple of years ago that looked at actually subdividing the detached ADU from the main house.
It actually came out of an infill design competition. Someone suggested, Hey, there's a lot of seniors who would like to build an ADU, but they don't necessarily have the financial backing to do so without being able to sell part of their lot.. So that's where the idea came from. The pilot went through a couple of properties participated in that pilot.
And we're just in the phase now where we're kind of figuring out whether or not they're going to apply at citywide. Now that's one option. The other option is the condo or strata title route. And we think that the condo route is [00:34:00] probably the best option it has yet to be done in any cities in Canada that I know of.
But I think that there's just a ton of interest there. Like we meet, we do individual consultations as well, and we meet good people on a weekly basis who are like, I really, really, really want to do it, but it only makes sense if I can either separate via condo subdivision, strata, and that's kind of a deal breaker for a lot of folks. So I think that's the next step for, for a lot of cities and ADUs.
Kelcy King: Great. Thanks. Mary would like to know, does the city of Edmonton charge impact fees for ADUs and if so, what are the costs of those?
Ashley Salvador: Yeah. So, I mean, it really varies for the utility side of things on the development and building permit side around, $2,500 is pretty typical for utility connections. So we have a lot of lanes here. I'm not sure what the built form is like in everyone's city, but we have kind of a secondary street running behind everyone's house.
And that's where our [00:35:00] utilities are in most cases. So it's really easy. It's a short distance to connect utilities to a detached ADU. In those cases, it's $6,000 maybe $7,000 to, to get you hooked up to servicing. Sometimes utilities are in the front though. And in those cases, you either have to have our very, very long trench going all the way to the back.
Sometimes you can connect into the main house and then come up. If that's not an option, you have to directionally drill under and then push the utility lines up. And that can be, anywhere from $10,000 to $20,000.
Kelcy King: The only other one I had, and I'm not sure if you necessarily know. The, the difference between the rental rates of a detached and a secondary suite.
Yep. So detached units typically will run between, I mean, it really depends on your neighborhood and your location and this quality of the suite, but 30 to 50% higher for a detached unit.
You're not sharing a wall. It's basically a detached house, right? [00:36:00] Like it's, it's its own unit. It's the second best thing to owning in a neighborhood. Some people even prefer renting. So you get all the, all the same amenities, all the same benefits of living in the neighborhood. Just a, a rental option versus ownership.
Kol Peterson: And as you just for clarification since, since the Canadian dollar is. Different than what, it's a different amount than the U S are we talking to U S dollars or Canadian dollars when you've all been Canadian dollars? Okay. So $2,500 Canadian dollars is how much US, like $2,000 US or something?
Ashley Salvador: I believe so. I'd have to check- I should've said that off the bat -- yeah, all Canadian dollars.
Kol Peterson: Of course. Why wouldn't you be thinking that way? So that does mean that it is, less expensive there than here for building an ADU and for permitting any ADU.
But I think, I think it kind of more or less going to correlate with the cost of land there. I mean, that's more or less in the US too. Yeah?
[00:37:00] Ashley Salvador: Absolutely.
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The ADU Hour w/guest Susan Brown
29 jun 2021· The ADU Hour
[00:02:33] Kol Peterson: [00:02:33] Susan, come on out. Good morning.
[00:02:37] Susan Brown: [00:02:37] Good morning. Good morning, Kelsey. Thank you.
[00:02:40]Kol Peterson: [00:02:40] Thanks so much for joining us today. Susan, I'm really excited for this conversation. There's so much good stuff to talk about and I know that there's going to be a lot of good questions from attendees.
[00:02:51]I've known Susan for a few years and have collaborated she's also attended the ADU academy. She's very knowledgeable about a lot of things in the [00:03:00] financing world, but, especially knowledgeable about ADU financing. She and I are both in this coalition called the Build Small Coalition here in the Portland Metro area.
[00:03:09]I'm just going to ask you to introduce yourself a little bit more.
[00:03:13] Susan Brown: [00:03:13] Sure. Thanks, Kol. Appreciate it, and welcome everybody, this has been a great resource for the last couple of weeks. Good way to spend some time and learn as much as we can from our colleagues and peers in this space.
[00:03:24]I'm Susan Brown, Senior Vice President for Umpqua Bank. I run our construction and renovation loan production for residential lending. I've been in the banking space for quite some time. I don't even want to admit how long, but a long time and got an interest in the ADU space before it was a thing.
[00:03:47] I was just talking with Kol a little earlier about this little home where my husband and I live is the garage space of what was going to be a 5,000 square foot chalet. And we ended up just building the [00:04:00] garage and that's where we live. That was kind of my introduction to simplified life, less expensive living, and it's manifested now into bringing financing to Umpqua Bank and a little bit bigger way. So I kind of walk the talk, I guess you'd say, and have a deep passion for this kind of building.
[00:04:23] Great.
[00:04:24] Kol Peterson: [00:04:24] Thanks, Susan. And I keep on forgetting to mention this just program note. There's roughly 150 people on right now, just so people know, because I think only we can see that I just wanted to let you guys know how many people were on the webinar.
[00:04:35] Okay. So Susan, let's start by talking about the common ways that ADUs are financed to get that topic out of the way, because that's not the focus of today's conversation. So can you tell us a little bit about that ?
[00:04:46]Susan Brown: [00:04:46] Sure. I think it kind of starts with cash. A lot of people just dip into their own bank account and pay for the project as they go. Absent them, having [00:05:00] cash, a lot of people dip into the bank of mom and dad or other relatives who may be able to pitch into the project. Parent is going to be living in the ADU or another part of the house. It's not uncommon for that parent to contribute to the project as well. Some customers use a home equity line of credit where they can tap into the existing equity in their home and hopefully that provides enough cash to get to the finish line on building the new addition to their property. Moving into a brand new loan if it's a purchase transaction or a refinance loan, if they're trying to re-engineer their financing to use that project for financing.
[00:05:45]And we'll talk a little bit more about that in the construction space and how that all works, but there's a broad range of options available depending on the customer circumstances.
[00:05:56] Kol Peterson: [00:05:56] So let's talk in broad strokes about construction and [00:06:00] renovation loans. Most homeowners haven't used them before, so what are they and how do they work?
[00:06:07]Susan Brown: [00:06:07] A construction loan is a very different kind of an animal and what a lot of people don't recognize. It's a, there are specialty products available for doing renovations in particular, those renovations potentially including adding an ADU to the property.
[00:06:25] So the loan part of it, a lot of people are already really familiar with. You apply for a loan, the lender looks at your credit, your income, the collateral that you're offering for the project, and they get approved and get their loan. What's added in a construction element is that we also look at the project and the builder to make sure a couple of things are happening. We want to make sure we've got a builder who is familiar with and has great experience doing the [00:07:00] kind of project where we're being asked to finance. And we also want to make sure that there's somebody who has managed their credit responsibly, paid their trades, their suppliers so that there doesn't end up being any liens against that property.
[00:07:16] And then we also take a look at the full project and I'll add this is where there's the impression that it's difficult to work with a bank because we do look at a lot of those details up front and get the project very solidified before we ever start. And, and so that can be a little bit of a frustration where we're collecting plans and specifications and description of materials.
[00:07:41] But all of that documentation is used for a couple of reasons. One, we want to make sure that we have a fully funded project when we get the loan in place. Is there enough money to build what you're trying to build? We also want to make sure that we have all of the materials accounted for. If you leave off [00:08:00] the cost of a foundation that can leave you a little frustrated without enough money.
[00:08:04]And then we use those documents when we order the appraisal, because that appraisal is going to be based on an as complete value of the project. That's where, if there's not quite enough equity before the project, we're going to take into account the value that's added. And Abdur talked about some of those issues a couple of days ago.
[00:08:26]But we do get to add whatever value that ADU brings, which allows us in some cases, to loan more money to get the project done. So all of those things we assume are going to be in place. Who've got credit, we've got a project, we've got a builder, an appraisal that comes in, we fund the loan and then the construction begins.
[00:08:46] Over time we're going to do inspections and draws to pay the builder and trades for the work that they've done. That'll go through until the project is complete. And for our particular products that loan rolls [00:09:00] over to permanent financing without a new loan and the customer enjoys their home and lives happily ever after.
[00:09:07]Kol Peterson: [00:09:07] The thing that I want to focus on today are the as completed value types of construction loans, as opposed to just being able to tap into what you currently have. I might have a disproportionate interest in that particular topic relative to the number of loans that are actually done that way. Is that nomenclature for as completed value loans that rely upon the competed value of the ADU, is that called something different than using current value than relying upon what your current market value of the real of the house is?
[00:09:40]Susan Brown: [00:09:40] So I think what you're asking is what's that called in our world. We call it "As Complete Value". Some people would say finished value. The point for folks to take away. Is that we're going to ask an appraiser to look at that project as if it was already [00:10:00] complete. So when they're looking at the plans that may include that new ADU, we're asking them to compare that to other properties that also have an ADU. Hopefully we're going to get those comparables included in that report. So whatever contributory value from a market perspective is added to the property, we're going to be able to add that to the value to loan against. As Abdur talked about a couple of days ago, We coined it as cost does not always equal value.
[00:10:33] So if an ADU costs $200,000, it may only contribute let's just say a $100,000 to the as complete value. But we would be able to then use that additional hundred thousand as we're calculating the maximum amount of loan that's available to the customer.
[00:10:54] Kol Peterson: [00:10:54] So the next question was going to be how many ADU construction loans has Umpqua done, [00:11:00] but I want to be clear if you could at least try your best to tease apart what percentage of loans or how many loans have been resting upon that as complete value, if it's possible to do that, versus just, you know, HELOCS or other kind of conventional financing options that Umpqua might do for ADU construction.
[00:11:17] Susan Brown: [00:11:17] Got it in my world. I only deal with the as complete product. Our division doesn't work with the HELOCs, so I don't have any data on that.
[00:11:29] Kol Peterson: [00:11:29] That's great.
[00:11:29]Susan Brown: [00:11:29] I wish that I did, because I think I know that there's a lot of customers who really do go out and get from a HELOC, but that's not, that's not my space.
[00:11:38]My best estimate Kol is that we've done somewhere around a hundred, 125 of these loans in the last couple of years. And they're done as an as complete appraisal, always. We've done them from brand new projects where there are subdivisions being built, where those [00:12:00] subdivisions include an ADU with the property.
[00:12:03] We do renovation loans where customers are adding either an internal, an attached, or a detached ADU we've financed all of those. Additionally we've done some projects where the ADU is a modular ADU, not just site-built. Those are a little trickier because they have to be craned into the property as opposed to going through the setbacks or whatever access there might be. But all of those projects that we've done, all of them are on an as complete basis.
[00:12:37] Kol Peterson: [00:12:37] I should get this one out of the way too, though, it was in my list of questions, which is what jurisdictions does Umpqua serve?
[00:12:44] Great
[00:12:44] Susan Brown: [00:12:44] question. We're very fortunate. We are in the market all the way from Bellingham, Washington, to San Diego, California, and all of Idaho and Nevada.
[00:12:54] So we've got the five states that we lend in. We particularly see the ADU [00:13:00] construction in the more populated areas, but not always, there are some more suburban kind of areas and a little bit more outlying too, but we've had an opportunity to finance ADUs in all of those places.
[00:13:15]Kol Peterson: [00:13:15] For Umpqua, ADUs fall squarely within the realm of viable construction loan, financing options.
[00:13:22] Is that true for all banks and all credit unions? If not, why not?
[00:13:28]Susan Brown: [00:13:28] Yes. ADUs fall squarely in our wheelhouse. We have a high comfort level. We work with whatever is defined as
[00:13:38] an DU in a jurisdiction. That's our definition of an ADU there long ago, we got out of trying to dictate what an ADU was, you know, a number of years ago when it was in commonplace, we had these artificial definitions, but now we've got jurisdictions that permit specifically for an ADU.
[00:13:58] So if it's an ADU by their [00:14:00] definition, it is by ours in almost every case. I think when you talk about construction financing for ADUs, it gets to be a little bit of a broader issue where lenders have to decide if they want to be involved in construction first, and then if they want to be involved in something that is not as widespread yet as ADU financing.
[00:14:25] Construction is challenging and I think we're going to talk about that a little bit more in a bit. So not every bank or credit union will be able to offer construction financing and more specifically ADU financing. The things that tend to keep them away from that, probably the biggest thing, is access to capital. During this COVID time, there's been a suspension of availability of credit to some types of lenders.
[00:14:55] If you're a broker who sends your loan to [00:15:00] another lender, they underwrite it and close it for you. Many of those brokers have lost access to construction lending. And also if you're what's called an independent mortgage banker, they operate off of a warehouse lines of credit. They're giant credit lines that fund their loan production until those loans are purchased by the investor.
[00:15:24] A lot of the lines of credit, the companies that offer those lines of credit have suspended the use of their lines of credit for construction lending. So it comes down to financial institutions of whatever type that have access either to their own portfolio or are direct sellers to Fannie Mae, Freddie Mac, Ginnie Mae, et cetera.
[00:15:47]So it it's kind of shrunk the world of possibilities for who's offering construction loans more broadly.
[00:15:56]Kol Peterson: [00:15:56] Thanks. That's really helpful. I've noticed that a lot of the banks that are willing to do construction [00:16:00] loan financing for ADUs, tend to be local banks and credit unions, not as many national banks.
[00:16:04] For example, Bank of America would not be a bank I'd recommend for somebody to even pursue asking about whether doing an ADU construction. Can you talk about that a little bit?
[00:16:14] Susan Brown: [00:16:14] Yes. I think I, I see it the same way that you do the big national lenders tend to be a little less agile.
[00:16:23] They're trying to do things that are probably a little more mainstream because they need consistent processes from location to location, for lots of reasons, policy reasons, process reasons, fair lending reasons. There's all kinds of reasons that larger companies might have flexibility to offer kind of niche.
[00:16:46] I'll call it niche. I don't really like to consider it that way, but based on the fact that it's a smaller percent, we'll call it niche. So when you get down to more regional or local lenders, they have a familiarity [00:17:00] with those marketplaces and they feel very comfortable and confident about how trends are developing, what market acceptance is of new types of products.
[00:17:11] And so I think those types of lending institutions lend themselves to a little bit more agility, flexibility, and. Not really more risk-taking because we certainly need to make sure that it's very sound, you know, we're in the loan making business, but we're also in the getting paid back business.
[00:17:29] Both of those things are equally important. So a more local lender would be a more probable place to find financing for an ADU.
[00:17:38] Kol Peterson: [00:17:38] Does Umpqua do portfolio lending for ADU construction loans or only loans that are securitized by government sponsored entities? And that's kind of an advanced question. I'll just let you clarify what does portfolio lending and what are government sponsored entities.
[00:17:56] Susan Brown: [00:17:56] Very good. So first some definitions. [00:18:00] Portfolio is when a bank is using it own deposits to lend. So if you have it checking account or a savings account, an IRA, any deposit that are at a bank, those deposits are then used to loan to people in the community, kind of getting back to the basics of how banks work.
[00:18:22] And so not all banks use their portfolio to lend, some invest in securities with those deposits. There might be a variety of ways that those deposits are deployed or assets are deployed, but Umpqua does have a robust portfolio. And I'm very happy to say that we have access to that for our ADU lending.
[00:18:43] And we'll talk a little bit about jumbo loans and that kind of thing, and just a little. The GFCs or government sponsored enterprise government sponsored entities. That's Fannie Mae and Freddie Mac. We have access to Ginnie Mae funds as well. [00:19:00] And we are fortunate that we're able to do ADU financing with all of those products as well.
[00:19:05]We have a broad suite available to us, which is pretty unusual. We've been able to bring our underwriters along and bring, create a pretty high level of understanding and the expertise of the folks in our organization. Everybody's specially trained. They go through a year worth of certification, underwriters, our specialty.
[00:19:27] So we're really lucky that we have folks with long experience and that experience is part of what makes construction lending possible. It is not for the faint of heart or inexperienced. You can get yourself in a lot of trouble pretty quickly. So we use all of those products to finance ADUs.
[00:19:46]Kol Peterson: [00:19:46] What are some of the remaining internal and external policy barriers that still stymie clause or any other lenders ability to do ADU construction loans?
[00:19:58] Susan Brown: [00:19:58] Right. [00:20:00] You know, Kol, I think the one that's talked about most often is rental income that's derived from an ADU. All of us practitioners know that ADUs have a wide range of use from my mom and dad are going to live there. My teenage kids will live there. It'll be my art studio to a short-term rental to a long-term rental and anything in between. When customers are looking at the business feasibility of making that ADU in to a rental, obviously they're considering their cash flows from that property. They're considering expenses.
[00:20:39]All of that. As a lender, there are regulations in place and this can get pretty wonky, so I won't go into too much detail, but if people want to ask more, they can certainly do so in the chat, but there are some regulations related to Dodd-Frank called qualified mortgage and the ability to [00:21:00] repay and those pieces of the regulation prevent banks from being able to recognize rental income when we're calculating the income that will be used to repay the loan, and that has been probably the biggest hurdle in all of this.
[00:21:22]Whether somebody is going to take out a loan and not do a construction loan. Or be able to use the as complete value. In any case, the income that we can consider doesn't include that rental income. That's the number one biggest challenge. And there are lots of conversations happening everywhere, including at the GSEs.
[00:21:48]In fact, I just had a phone call yesterday afternoon with some folks at Fannie Mae about ADUs and the broader accommodations that us lenders would like to [00:22:00] see. So that's the top one.
[00:22:01]I think. For Umpqua, because we have such a comfort level with the ADU that's all good for us. But I think for other lenders who are trying to get this incorporated into their offerings, really getting people who are engaged in the conversations nationwide and in their communities, at the planning departments to really understand what is it, how is it contributing to the communities?
[00:22:27] What's the market acceptance in your community that would make it not the risky endeavor that some underwriters and credit folks might think that it is.
[00:22:38] Kol Peterson: [00:22:38] So since you brought up Fannie and Freddie, I'm going to jump ahead to that question. So can you talk about, to the extent that you're able to share some policy or regulatory matters related to ADU financing on the horizon with Fannie and Freddie?
[00:22:53] Susan Brown: [00:22:53] Yes. Both of those organizations [00:23:00] have a high interest in ADUs, they recognize that it's an up and coming product type property type. Where the GSEs have a responsibility they're government sponsored enterprises, which means that they're backed by the government, the bonds that they issue from all of these mortgages, us taxpayers are on the hook, so to speak, if something happens with those bonds. And so they're charged with looking at payment history, payment likelihood from any type of loan that they're allowing. Without data about how likely it is that a loan will be repaid with an ADU. It's difficult for them to just open up broadly financing for something that they have no idea what the performance [00:24:00] of that loan will be.
[00:24:02] So they work with lenders who know what they're doing to allow, for example, construction with ADUs. Umpqua shares a very good relationship with those. So they trust the way that we do our business. And they are continually looking at broadening their offering recently on Fannie Mae's homestyle product.
[00:24:23] They opened up very broadly, the ability to finance ADUs. So that's a mainstream product that really any lender who offers the homestyle loan, is able to do ADU financing. They may or may not be construction lenders also, but if they do the renovation product with the homestyle renovation, they would be able to use that for ADU financing, the other piece on the regulatory side, the CFPB, the Consumer Financial Protection Bureau is [00:25:00] reviewing the rules as it relates to income.
[00:25:04] And there continues to be discussions about what's allowed and what's not allowed, and what might change over time. And we're right in the middle of that five-year period where they're taking a hard look at rules. So a lot of us are submitting comments related to that new regulatory look, to see if we can help persuade regulators that we would be able to include that type of income. I'll add one more thing to that, if I may. The agencies Fannie and Freddie are somewhat reluctant to offer construction financing for rental properties, investment properties. I think that might actually be a question you have teed up. So, so let me hold off on that until you tee that question up, but, but I want to make sure that we address that too.
[00:25:55] Kol Peterson: [00:25:55] Thanks. So to clarify, one thing, you mentioned. Every bank that [00:26:00] can do a homestyle renovation loans can theoretically also, based on the underwriting standards, that Fannie has, finance ADUS. That's a big deal, but will banks actually have their own internal policies that will preclude them from doing that?
[00:26:16] Susan Brown: [00:26:16] That's a great point. That is a very high probability. There's, what's called overlays where banks can put in rules that are outside of what Fannie Mae or Freddie Mac would require. Overlays are done all the time, depending on that bank or that lending institutions risk appetite. So while they have homestyle and it offers the option to finance an ADU, not all lenders may agree to do that.
[00:26:46]Kol Peterson: [00:26:46] How are you has Umpqua handling pre loan issuance construction and renovation appraisals currently? That's obviously a hot topic in terms of the future value of a property. How does Umpqua do that?
[00:27:00] [00:27:00] Susan Brown: [00:27:00] So our appraisal process includes collecting all of the documentation that's going to go into that project. We get a contract from the builder that explains exactly their scope of work. We get a detailed description of materials, a line item budget, that really helps us understand the quality of the materials going into that particular project, site plans the drawings for the project, everything that's going into make that project.
[00:27:31] Then when we order the appraisal, we send all of those exhibits to the appraiser and we ask for an as completed value.
[00:27:41] We work through what's called an appraisal management company. So they're responsible for making the actual assignment to the appraiser. We ask our appraisal management companies to assign appraisers who have those high level of certifications, who understand [00:28:00] construction and if they understand construction, that means that they're sophisticated and probably more knowledgeable and hold higher certifications than let's say an entry-level appraiser. We try very hard to engage highly skilled appraisers who understand the market contribution of that ADU.
[00:28:22]They go through and find comparable properties, some with ADUs perhaps some without, and they're able to make adjustments based on those criteria. And then they bring a report back to us. That gives the total project's as complete value. And that's what we use for the value to determine our loan to value amount.
[00:28:49] Kol Peterson: [00:28:49] Thanks. I would imagine that markets that are outside of Portland, say, California, that Umpqua serves, it's more challenging for appraisers there to find sales comps.
[00:28:59][00:29:00] Do you have any comments about that?
[00:29:01] Susan Brown: [00:29:01] Yes. You're right. In communities where ADUs have not been widely adopted, it is more challenging. When Fannie and Freddie are looking at appraisals, they want to see an appraisal that has at least one comp for an ADU. So if there aren't any sold recently, That can be a very big challenge.
[00:29:26] It can be a very big hurdle. A good appraiser though, can support their opinion of value. They can support what they feel is contributed by that ADU. So it's possible that alone could get done where there are no comparable sales, but it is much easier and much less complicated if we've got an appraisal report with an ADU comp. It's pretty much a requirement, but depending on [00:30:00] what your loan to value is, there might be certain circumstances where a loan could be done without a comp, but I would say that those would be pretty limited.
[00:30:12] Kol Peterson: [00:30:12] There's certain loan products out there, namely home ready loans that allow for for rental income to be classified towards an individual's debt to income ratio, but homestyle renovation loans, I'm not sure that they would allow for that. Just to be clear, can 75% of a future rental income potential be counted towards an individual's debt to income ratio with homestyle renovation loans?
[00:30:33]Susan Brown: [00:30:33] In our world? No, just to be really clear. There's a couple of reasons for that first off the home ready that you mentioned that is a product that can be attached to the homestyle loan and that home ready, the intent of that program is to address borrowers with low to moderate income. There's an income limitation. I won't quote it cause I'll probably be wrong. And so it gets to be a very narrow [00:31:00] scope of borrowers who would qualify to use that loan. And it's difficult to make the criteria for that loan fit with financing a property with an ADU. It's there and there's a very narrow scope of customers that definitely could benefit by using the combination of those two products. On a broader topic of including that 75% of rental income, because we're not allowed to use rental income. We don't take that 75% calculation. On other investment properties that we finance, if a borrower has a long history of being a landlord, there's a possibility that on a new property they're acquiring, we could use that 75% of income, but in our world, all of ourADUs are for owner occupied only and don't ever take into consideration what rental income would be derived from a property.
[00:31:59]Kol Peterson: [00:31:59] Next [00:32:00] question is going to key right into that, which is, does a property that has loaned on have to be owner occupied, or can it be for an investment property or rental property?
[00:32:09]Susan Brown: [00:32:09] Homestyle is a product that can be used for investment properties and we use that loan for investment properties. However, we have a requirement on the homestyle loan that that's owner occupied. I can't tell you if that's our overlay or if it's Fannie Mae's. I think Fannie Mae has directed that that has to be owner occupied. I'm curious to see what will happen over time now that the ADU regulations really everywhere are broadening so that the property doesn't have to be owner occupied anymore.
[00:32:42] That's a fairly new development in most communities. And so as there is more market acceptance for that. I'm hopeful that Fannie and Freddie will both look at that and become more comfortable with us using that for an investment [00:33:00] property for an ADU as well.
[00:33:04] Kol Peterson: [00:33:04] Susan, I saw a little question. I just wanted to briefly mention, because we're talking a lot about the west coast here and my default answer to people who are like, there's no ADU financing, I'm like, yes, there is, just talk to Umpqua. That that's the bank that says that was great. Right? You don't serve Minnesota, you don't serve New Hampshire. So I want to make a couple comments on that note, which is generally speaking, national banks do not do renovation loan financing for ADUs, but there is two that I'm aware of that are national banks that do it.
[00:33:30] So I'll mention those now because it's relevant for everybody on this call. At least if you're in the U S which are, I think Guaranteed Rate is one and another one that I'm familiar with is Eagle Home Mortgage. Can you give any comments on that?
[00:33:42] Susan Brown: [00:33:42] I do. No, I don't. I'm going to rescind what I was going to say on that, depending on the circumstances. And again, it, it right now is a very unusual particular time and this time will pass. So I would say that yes, in normal circumstances, I think that's [00:34:00] exactly right. Kol, that's great. Great advice.
[00:34:03] Okay, great.
[00:34:03]Kol Peterson: [00:34:03] So if someone wanted to find renovation, construction loan, financing options for non-owner occupied housing, what types of banks and credit unions would they want to look for?
[00:34:16]Susan Brown: [00:34:16] Kol to your point. My knowledge is really rich on the west coast and not so much in other parts, but I think the model here would be similar.
[00:34:24]There are certain lenders that have deep knowledge and understanding of construction. And when they have personnel like that at their bank, all the way from originators, all the way up to the credit administrators who are making the rules, they have a broader tolerance. The more you understand risk, the more you can price for it and offer that product. In our community here on the west coast, there are a couple of lenders that do in investment lending. [00:35:00] That tends to be getting into what's called spec lending because there's never a real assurance whether or not that property is going to be held truly for a rental or when it's complete, if it will be sold like a spec property.
[00:35:15] So there's a narrow group of banks that have an interest and offer that type of financing, but they are out there. They're generally going to be regional, I would say the particular bank that I'm thinking of is regional. That shares just about the same footprint that we do. And I would be happy on an individual basis if people want to contact me, I'd be happy to share some contacts that I have for folks who do that.
[00:35:38]Kol Peterson: [00:35:38] Is the conforming loan limit a barrier in terms of loaning for central city neighborhoods that wish to build an ADU and maybe you could do us all a favor and just tell us in brief terms what a conforming loan limit is.
[00:35:51] Susan Brown: [00:35:51] Absolutely. Yeah. And I, in fact, I took a couple notes here to make sure I get that just right. So a conforming loan limit is [00:36:00] prescribed by the federal housing finance administration. That's an oversight bureau that oversees Fannie Mae and Freddie Mac. They are allowed to do maximum loan amounts that are determined by lots of formulas and every year that maximum loan amount changes.
[00:36:19] In nearly all of the United States, there's a maximum loan amount of $510,400. There are limited number of parts in the United States that that maximum loan amount goes up to about 760,000. Los Angeles would be an example, New York City would be an example.
[00:36:41]Kol Peterson: [00:36:41] Wouldn't San Francisco and Seattle also be examples?
[00:36:46]Susan Brown: [00:36:46] Probably. If you look up Fannie Mae conforming loan limit, there's an interactive map where you can see every single county in the country. It's a very easy to use interactive map that would tell you specifically for your [00:37:00] geography.
[00:37:00] In most of the United States, that $510,400 is the maximum loan amount. So if we were trying to finance a loan with an 80% loan to value, that would be an as complete value of $638,000.
[00:37:17] So the question becomes, in your community, is $638,000 a reasonable value, or is it much higher than that? If you're San Francisco, that's probably not going to get you very far. However, San Francisco is probably about $700,000 range, which would then get up to about probably an $850,000 finished value. So it really does modulate with that community's values.
[00:37:44]In Portland $638,000 is doable. I think, there are probably people more familiar with the, with the home values in this space. But from my thinking, that gets you pretty close, not for a mansion, of course. [00:38:00] And then you know, $500,000 ADU, but the type of projects that most of our folks are talking about.
[00:38:06] Kol Peterson: [00:38:06] So just to be clear, you haven't seen the conforming loan limits being a barrier, a policy barrier. In other words, in neighborhoods like inner Portland to ADU construction loan financing?
[00:38:18] Susan Brown: [00:38:18] Well, I guess what I would say from our perspective, because we have access to our portfolio. If we need a larger loan amount, we use that portfolio.
[00:38:27] So we don't bump up against that. We just use the product that will accommodate the loan that we need.
[00:38:33] Kol Peterson: [00:38:33] Okay. So you roll over from a default position of using the Fannie Mae securitized homestyle renovation loans to using the portfolio lending options, if, and when you need to.
[00:38:43] Susan Brown: [00:38:43] Right. And then on brand new construction, we also use the Fannie and Freddie construction to perm financing, which starts from a project from the ground up.
[00:38:52] So just depending on which one works the best for the customer scenario. But I think on the broader topic [00:39:00] of that, Kol, when you're thinking about places like Seattle, and you've got properties that are selling for, or the value is going to be somewhere around $2 million, it's very clear that a Fannie or Freddie loan is not going to be sufficient for financing that project.
[00:39:15] Unless the borrower has a lot of equity in the property and they're taking out a loan just as a convenience instead of a necessity. But in those very dense marketplaces, it can get more challenging to use a conventional loan for ADU construction.
[00:39:31] Kol Peterson: [00:39:31] Okay, cool. I'm going to have Kelcy actually share a slide with that graphic here.
[00:39:38] It gives a sense of where there's some exceptions to the default $510,000 limit, which changes on an annual basis. Correct, Susan?
[00:39:47] Susan Brown: [00:39:47] That's right. That's right. And what's nice about this map that Kelcy is showing when you hover over it, it will show you four counties all across the country, what the maximum loan amount is for that [00:40:00] particular county. Now keeping in mind, those are for single family homes. Fannie and Freddie both finance one to four units. So when you're looking at financing for four units, that's going to be a much higher number than it will be for the single unit.
[00:40:20] Kol Peterson: [00:40:20] Well, that's an immaculately good segue to my next question, which is about middle housing, meaning triplexes and fourplexes. So you know, th that that point becomes extremely relevant in that conversation. So what is Umpqua been doing or how has it been positioning its services look construction on the services in terms of middle housing, middle housing is already something that can happen.
[00:40:44] Presumably Umpqua has already done loans for this, but now it's just going to become a more expansive option in a lot of jurisdictions like Oregon.
[00:40:51]Susan Brown: [00:40:51] Correct, yes. So how are we positioning ourselves? I think one of the first things, Kol, and this is a little bit of a shout out for your ADU Academy. [00:41:00] Many of us at Umpqua have attended your academy and we were successful in passing the test.
[00:41:05] So we're now certified ADU Specialists. So, just a plug. If you haven't had a chance to attend that Academy, it is worth the time the connections, the information have been incredible. So shout out for that time spent. Really great resource. So that's given us connections to real estate agents who also specialize in the ADU space.
[00:41:29] That's been a very, very important connection for us. We spend a lot of time talking with real estate agents about what's possible in our world. Fannie and Freddie already allow for financing of one to four unit properties. The gap right now is going to be finding financing for constructing those units.
[00:41:53] That is not yet widely available. As we were talking about for our construction [00:42:00] program that I oversee, it's for single units only, and because an ADU is an accessory use, that's just considered part of the house and it's still done as single family, but we don't have financing options available for multifamily rentals.
[00:42:18] They have to be owner occupied in one of those for construction is what I mean to say for construction, our program right now is limited to single family only.
[00:42:29] Kol Peterson: [00:42:29] Final question here for you, Susan, what are some general aspirations that you have as far as financing innovation goes in this general space?
[00:42:37]Susan Brown: [00:42:37] I dream all the time about what if, what if we could do this? What if we could do that? For me, a particular place of interest is how ADUs would be able to contribute to the wealth building of low and moderate income families. That's a topic that has gripped [00:43:00] anybody in this space, all across the country.
[00:43:03]And there's a lot of risk associated with lending in that way. It's a, it's a complicated topic. We talked about the fact that we can't use rental income. We've generally got customers who need that income to qualify. So discussions are happening around credit enhancements or credit guarantees or grants for homeowners who would add an ADU who are either low or moderate income homeowners, or would agree to rent their unit to either a homeless or a lower moderate income tenant.
[00:43:43] And there's lots of discussions happening across the country about how we get property managers involved to help occupy the unit. How do we fill that gap? If they've had rental income for two years? Would [00:44:00] we maybe be able to calculate it, that income after it's what we call seasoned income? And so some kind of credit enhancements that might fill that gap.
[00:44:10] So I would say in this space, that's been of particular interest to me. I'm also working on some initiatives with some of the manufactured home companies that are the factories that are across the country. They're beginning to develop lines of ADUs, which again are different and special because they have to be craned into whatever location they're going to or brought on a truck.
[00:44:35] So a five foot setback, it's difficult to get a fully constructed unit there. But I have a really special interest in financing for those type of projects. And then just really more broadly, how do we continue to serve everybody who wants to, and is capable of owning a home? And just continuing to do our work in space to help as many customers [00:45:00] as we can.
[00:45:01] Kol Peterson: [00:45:01] Great. Thanks, Susan.
[00:45:03] Kelcy King: [00:45:03] That wraps up the interview portion of this episode of the ADU hour. As a reminder, these episodes are the edited audio version of interviews that we conducted via a webinar series. Good news. You can access the full video series via Kol's website, BuildinganADU.com. Now for the second half of the show I curate questions from the audience that gives our guests the opportunity to dive deeper into a topic or address new ideas and questions.
[00:45:31] All right, so Susan, we have 30 questions.
[00:45:35] Susan Brown: [00:45:35] Oh boy.
[00:45:37] Kelcy King: [00:45:37] I'm going to rapid fire.
[00:45:38] Susan Brown: [00:45:38] Okay.
[00:45:39]Kelcy King: [00:45:39] Have you seen any construction loans for multifamily, duplex or triplex looking to add an ADU?
[00:45:48] Susan Brown: [00:45:48] I personally have not. That is a great question, multifamily. So are, I wonder if the writer is asking about like a [00:46:00] fourplex, that's adding an ADU.
[00:46:05] Kol Peterson: [00:46:05] And let me intervene and say that's an extremely rare new thing that is only a law. I mean, as far as I know, maybe I'm wrong, but that's only just recently been allowed in California the first time in the last, like since 2020. So unlikely that you would have seen that yet.
[00:46:19]Susan Brown: [00:46:19] I personally haven't. However, I know in some jurisdictions they have what they call ADUs and junior ADUs, which is getting into several units in the same property. Because those are very new financing is going to be a challenge in any of these brand new property types. Like we talked about earlier in the show when there's no performance data and we don't know how they're going to pay, it's going to be probably a little while before those financing mechanisms catch up with those new types of properties.
[00:46:58]Kelcy King: [00:46:58] Is the loan process [00:47:00] smoother than a HELOC or other construction loan process?
[00:47:04] Susan Brown: [00:47:04] Let's see, construction loans are more complicated because there's more moving parts. You've got the credit piece, the project piece, and the builder piece. What I can say from our experience at our bank, we have a very short processing time, an average of 70 days from the day we take the application to when we fund the loan.
[00:47:27]Some other lenders it might be a lot longer than that. When you're working with people who really know what they're doing, it doesn't have to take that long. You know, this six or eight month period, I will say that we funded our fastest one in 14 days. So if we have a complete package and the borrower's ready to go, we're ready.
[00:47:48] Kelcy King: [00:47:48] Wonderful. Thank you. During the construction phase, are the payments interest only.
[00:47:54] Susan Brown: [00:47:54] That's a great question. That's going to depend on the lender offering the product. For [00:48:00] our products, it is an interest only payment and that's based on the amount of the loans that had been borrowed at any period of time. Some lenders and in fact, one of our programs that we have is a full P I T I, principal, interest, taxes, and insurance during construction, but most construction loans are going to be interest only, but the individual lender would be able to give those specifics.
[00:48:27] Kelcy King: [00:48:27] Great. Have you ever underwritten the ADU loan as a multifamily based on cap rates?
[00:48:35] Susan Brown: [00:48:35] We have not. That one is getting into a commercial type of financing, as opposed to a residential type of financing. When you get into cap rates for determining value, that's going to be more in the commercial realm.
[00:48:48]Kelcy King: [00:48:48] Could you say more about your experience with financing modular units and if those projects were cheaper than site-built.
[00:48:54] Susan Brown: [00:48:54] Great question, we have lots of experience with modulars and again, my [00:49:00] contact information will be up if people have specific questions. For us, factory built housing is really an up and coming property type. And we've been doing modular construction on both full main houses and ADUs for quite some time. So we have a high comfort level with that. For the listeners, modular construction and manufactured home construction seem the same, but modular construction is based on state building code and manufactured homes are built on a federal HUD code.
[00:49:38] So it's a different in the code that you need to use. Modular is estimated to be about 20 to 30% more expensive than manufactured. And right now, in our experience with our projects, we're seeing modular construction being somewhat expensive because people are using [00:50:00] those in a very custom construction way and having them individually designed and very specialty architectural features.
[00:50:09] However, the plants that manufacture manufactured homes, many of them also do modular construction. And those are just state building codes. Those are somewhat more expensive than a manufactured home, but not as expensive as a custom modular. That's kind of a broad answer to that, but we do modular all the time.
[00:50:36] Kelcy King: [00:50:36] Thank you. Can you talk about the difference between loans just for construction of the new ADU? Do they consider the value of the existing property and the first mortgage cash out refinance loans that look at the future value of the entire property, what is the loan to value ratio for each.
[00:50:54] Susan Brown: [00:50:54] Okay. So if a customer is doing a cash out refinance, [00:51:00] that's going to be based on the current value of the property, we call that "as is" valuation. On a cash out in my experience that doesn't ever include the improvements that will be added. When we're doing a refinance, we take the value of the existing property, or I would say the improvements that are already there, plus the value that the ADU brings. So our loan is based on the entire project when it's finished and we establish our loan to value based on that entire value, not just the value of the added ADU.
[00:51:37]Kelcy King: [00:51:37] Do you offer home equity conversion mortgages?
[00:51:42] Susan Brown: [00:51:42] Ah, HECMS also known as a reverse mortgage at Umpqua, we do not, but there are specialty lenders who offer HECM loans or reverse mortgages. If you just Google reverse mortgage in your area, there are a number of lenders who do offer.
[00:51:57] Kelcy King: [00:51:57] Can you comment on requirements to become an [00:52:00] approved contractor with Umpqua or what that process might look like for any other bank?
[00:52:07] Susan Brown: [00:52:07] Yes, I can give broad strokes, and then I'm happy again to talk with anybody in particular. So when we are financing a project at Umpqua I should clarify our program doesn't accommodate owner builders. So all of the projects we use have a general contractor.
[00:52:24] We're looking for contractors who have had their general contractors license for a minimum of three years and have been doing work in that geography for some period of time so that we know they have access to trades and subs and suppliers for that particular job.
[00:52:43]We're also gonna do a quick credit check to make sure that they've been paying their substance suppliers timely. We do a quick review of their CCB to make sure that that's all current and, and in good standing. And then we verify that they've got the proper insurance in place [00:53:00] for any kind of liability that may occur at the job site.
[00:53:03] Kelcy King: [00:53:03] Great. Can you go over offering the construction loans or the renovation loans, renovation FHA, or 203K Renovation Loans?.
[00:53:16] Yes, we
[00:53:17] Susan Brown: [00:53:17] offer both of the 2 0 3 K products. There's a limited and a full 203 K. The limited will allow for improvements, I believe it's up to $35,000 that may have changed, but I know in the recent past it was $35,000. And then the full 2 0 3 K, we joke and say that you can really tear down an entire house and rebuild as long as it's on the existing foundation. And those will allow changing properties from a one unit to a four unit, a four unit back down to a one unit, all kinds of interesting allowances with that FHA program.
[00:53:56]There's a few extra requirements with some of the two. [00:54:00] Because they also require a plan consultant in addition to the general contractor. But we do those loans as well.
[00:54:09] Kelcy King: [00:54:09] Okay. Is there a VA loan in that space? Like a VA renovation?
[00:54:14]Susan Brown: [00:54:14] I've heard that there is I have not yet identified a full actual VA loan.
[00:54:23] What I've seen more regularly is a two time close construction loan where somebody will do temporary construction financing and refinance into a VA loan. I have yet, personally, to encounter a true VA construction loan. That's a loan to a customer.
[00:54:45]Kelcy King: [00:54:45] Does Umpqua finance ADUs everywhere that you do business? For instance, will you finance an ADU in a rural California market where not very many ADUs have been built?
[00:54:55] Susan Brown: [00:54:55] Yes, we can do APU financing in our entire footprint. As we talked about [00:55:00] a little bit earlier in the show, part of the challenge is going to be getting comparable properties that also have an ADU. So it would be good to look at the particular project.
[00:55:10] We can give a little bit of counsel and advice on what we think the outcome of that appraisal will be based on what we know about the area.
[00:55:18] Kelcy King: [00:55:18] Can you go back just a tiny bit and explain the difference between a renovation loan like homestyle loan and a construction loan?
[00:55:27] Susan Brown: [00:55:27] Yes. Renovation loan. That true sense of a renovation loan is you're changing something that already exists changing, renovating a kitchen, adding a story to the house, any kind of a change to an existing property.
[00:55:44] Construction is generally categorized as something brand new. That there's never been a certificate of occupancy, there isn't a, a home at that location. The terms can be used interchangeably and [00:56:00] often are, but I would say by definition, renovation is changing something that already exists. New construction is for a brand new project.
[00:56:10] Kol Peterson: [00:56:10] Dig into that a little bit more Susan. So that, that that's actually something that was a stumbling block for my understanding of this whole field for a long time, because so many different banks use different terminology for these types of things. So like with the explanation, the definition that you just provided, one could easily interpret what you just said to say, well, if it's a basement conversion, it's going to be a quote-unquote renovation loan.
[00:56:31] Whereas if it's detached construction of we'll called a construction. Can you comment on that?
[00:56:36] Susan Brown: [00:56:36] Yeah. Yes, you are correct. We would call the basement or renovation. We would also call the addition of the ADU or renovation because that's changing an existing property. New construction for us in our world would it be if we have bare dirt and we're building from the ground up.
[00:56:56]Kol Peterson: [00:56:56] But other banks would call their ADU portfolio [00:57:00] loans, ADU construction loans?
[00:57:02]Susan Brown: [00:57:02] Right in the terms are interchanged a lot. And for example, our portfolio product is good for new construction and renovation. So we just kind of call it construction and reno.
[00:57:15] Everything is construction or reno, and it's either new or existing, but you're right, the language is interchanged synonymous. People use both words to describe both.
[00:57:27] Kol Peterson: [00:57:27] Got it.
[00:57:29] Susan Brown: [00:57:29] Yep.
[00:57:31]Kelcy King: [00:57:31] So this is maybe going to vary a little bit, and I feel like you kind of touched on this, but with the robust appraisal process, what are the typical origination costs and time?
[00:57:41] Susan Brown: [00:57:41] I'm going to stay away from costs, that completely depends on the project, that's such a variable thing.
[00:57:48] From a timeframe to process from application to when we fund and we're ready for construction to start I'm proud and happy to say we've done that as quickly as 14 [00:58:00] days. Our average time is about 70 days. And a lot of that has to do with kind of finishing up contracts before we can order the appraisal. So I would say our loan officers who do this work the most often have a turn time of about 40 days from application to funding.
[00:58:18]There's some regulatory requirements for quoting costs and rates. So I, I can't comment personally, but we certainly can with the right disclosures.
[00:58:25]Kelcy King: [00:58:25] While rental income can't be calculated into income for financing, could retirement income of a parent, if occupant, and not, co-owner be part of that calculation or would the parents' income necessarily necessitate a part ownership?
[00:58:41] Susan Brown: [00:58:41] That is a great question. Some of this is slightly beyond my area of expertise, but I can comment generally. Some construction loan products, including some that we offer, allow for a non occupant co-borrower.
[00:58:59] So that would be [00:59:00] somebody who's not going to be living in the house, generally family, whose income could contribute. Generally, if a person's income is used, they also are an owner on the property for lots of securitization reasons with the note and trust deed. If somebody's paying, we want them to have an ownership in the property, so that there's that vested interest to keep paying.
[00:59:25]But that is a thing that is done quite frequently, where parents will co-sign with children, for example, to gain access, to financing, to build.
[00:59:36] Kelcy King: [00:59:36] Can you clarify for all loans, including your portfolio loan? Umpqua will lend only up to 80% loan to value on owner occupied or does, is there more variety in that?
[00:59:49] Susan Brown: [00:59:49] That was just an example when we were talking about the conforming loan limits and the way that I would answer that would be to say it will depend on the transaction [01:00:00] and what is allowed. Currently, we have capability to loan above 80%, depending on the project. And again, that's very individual, but we could talk about specific for sure.
[01:00:12]Kelcy King: [01:00:12] Thank you. I have a decent amount of repeat questions.
[01:00:14]Kol Peterson: [01:00:14] I'll kill a little bit of time, kelsey maybe we'll do one or two more questions, but asking Susan, whether you're going to be running for presidency, isn't it.
[01:00:23] That's maybe not useful information.,
[01:00:27] Susan Brown: [01:00:27] You know, right now I'm very focused on my work and construction lending and that's not on my radar at this time.
[01:00:33]Kol Peterson: [01:00:33] Yeah. So I thank you so much for your expertise. It's incredibly helpful for the movement to have somebody like you, who is able to articulate and speak to the many, many questions that people have on this topic.
[01:00:47] Kelcy King: [01:00:47] Just really quick from Nancy. She just typed it in. Are construction loans a similar rate as conventional loan rates?
[01:00:55] Susan Brown: [01:00:55] Generally, yes, they're similar. They do [01:01:00] run slightly higher because it's a riskier type of loan. Generally when we make a home loan, we have collateral, which is a house when we do a construction loan in its raw form, all we have is land and there's no collateral yet.
[01:01:16] So loans are priced for risk. And when there's no collateral, when you start, that's a riskier loan. And so generally the construction rate is going to be somewhat higher, but not a lot. You would be surprised. And, and then depending on the, oh, I'm just, I'm going to get myself in trouble here between a quarter and a half a percent in interest rate higher on a construction loan, but not always. I know that sounds a little bit vague, but again, it depends on the scenario, the borrower, the project, all of that. There is a slight increase in the price, but not significant.
[01:01:58] Kelcy King: [01:01:58] Thank you. [01:02:00] There are just enough repeat of this question. I know that you did touch on a little bit earlier, but why can't Freddie and Fannie back a loan on future rental income?
[01:02:11]Susan Brown: [01:02:11] And that's such a great question and it is the question of the day. So the fact that it's being asked is not a surprise, and in fact, many voices can change things. So maybe you can write to your representatives and so on to help adjust this. Again, a bit of a history lesson, the Dodd-Frank Act was put into place after the financial crisis in 2008, there had been Very wide ranging criteria used to qualify people's incomes for loans. And in fact, in some cases, no income was ever verified at all. And so following that in about 2010, rules were put into place that allowed for a bank to have what's called a qualified mortgage. If we would [01:03:00] underwrite the loans a certain way, then we could enjoy what's called safe Harbor that we had made a loan responsibly that a customer could repay.
[01:03:11] Part of that requirement is an assessment of the borrower's ability to repay, meaning that they have adequate income to pay back a loan. We're looking at their income and it will support the loan that they're requesting, what that regulation prohibits is the use of future undocumented income.
[01:03:38] So if there's never been income derived from the property, we don't have a way to demonstrate the two year track record of it happening, so that we're able to incorporate it into our calculations.
[01:03:50] It's as simple as that, it's called appendix Q of the ability to repay rule. Call me and we can have a wonky technical [01:04:00] conversation about all of that.
[01:04:01] Kol Peterson: [01:04:02] I just wanted to thank Susan for being such a wonderful guests, very informative for everybody here.
[01:04:07] So thanks for joining in the ADU hour.
[01:04:09] Susan Brown: [01:04:10] Thanks everybody.
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The ADU Hour w/guest Joe Robertson
22 jun 2021· The ADU Hour
Kol:
Joe Robertson and I have known each other for about a decade or so. And I learned about Joe because he was, you know, pretty involved with some ADU related conversations with the SDC waiver, which we'll talk about in a little bit more detail later. But he's also just notably the, one of the more prolific builders in the U.S. and definitely the most, or the most prolific builder in Portland. So, and the most experienced builder in Portland in terms of ADU development he corrected my marketing literature, which said he'd been building an ADU for a decade he's been building an ADU for two decades, which is very impressive given that it is, we're not really a phenomena two decades ago, at least in, in Portland. So so thank you for that correction. And it just goes to show how much Joe brings to the table. So we'll be fielding a number of questions from you guys that are just kind of all over the map in terms of design and build questions at the end today. So, and [00:03:00] Joe can answer any of these things jointly. All right. So Joe, please introduce yourself a little bit for the audience.
Joe Robertson: Hi everybody. I'm Joe Robertson, owner of shelter solutions been a builder residential construction for about 42 years and Portland for 29 years and building ADUs for about 22 years.
So I'm experienced in all different types of residential construction from custom homes to production, and then of course, ADUs and other accessory structures for other reasons. So now the ADUs are pretty much all we do.
Kol: How many ADUs have you built roughly in how many jurisdictions?
Joe Robertson: We have someone ask us this question about well a month or two ago.
And so we went back and counted. So we're finishing one next week and it'll be number one sixty nine, a hundred sixty nine ADUs . And primarily building the City of Portland but built some in [00:04:00] Clackamas county, Washington County, Tigard, and Tualitin, but 98% in City of Portland.
Kol: Yeah. Yeah. And and there's some, you know, I've mentioned that there's some really specific reasons why that's been the case that most people who are building ADUs are primarily building in Portland, but we're going to see that change probably with House Bill 2001, we'll see more market adoption in neighboring jurisdictions.
But it's hard to find builders who have built in other jurisdictions around Portland at this point.
Joe Robertson: Yeah. We're open to it, but we, we also need to gauge it by travel time and we don't want to get further than about 30 minutes away in between projects and have to spend too much time on the road with the traffic situation here in Portland.

Kol: I know when I think of the work that I've seen, that you do, I've seen detached new construction and I've seen bump out addition ADUs. Do you also do internal ADUs [00:05:00] or other, you know, other forms of ADUs?
Joe Robertson: Yeah. Yeah, we have we've completed a few basement conversions to ADUs and several attached ADUs, like you mentioned. The, you don't see the basement conversion so much, cause they're kind of harder to take pictures of.
So I haven't posted any of those. Well, I think I do have one on my website, but we prefer to build detached standalone new construction but also garage conversions. We do quite a bit of those and we like, we like garage conversions, but we're not opposed to basement conversions, but there's there's just a select few that are set up to where it can be done properly. So it's kind of limited.
Kol: So prior to your decades of ADU construction experience, you did production home building. Can you talk about some of the lessons that you have brought to bear in the ADU development, ADU building space that came from your previous [00:06:00] experiences?
Joe Robertson: Yeah, so years ago I was a, for many years in a custom home construction and in Ashland, North Carolina, and I noticed the other day you had somebody on your your listeners from Asheville, North Carolina.
And I built primarily a timber frame homes, exposed, exposed, being construction and mortise and tenon, and post and beam construction but all types of residential custom home construction, each one designed individually. And then when I moved to Portland 29 years ago, I started working for a small builder developer that developed his own subdivisions.
And we grew quite substantially over the 10 or 12 years that I worked for him. And Joel, you're one of the major builders in the area that wasn't a national builder and production. Hall's mostly mid price production homes. And that's where I kind of honed organizational techniques and scheduling and estimating and so forth.
And so I've [00:07:00] applied both aspects to, to building ADUs. I, I, I like to say, ADUs are like building a little custom home in somebody's backyard which it is to me, but we also use a lot of the principles that I use in production housing for organization estimating, scheduling, and so forth.
Kol: Yeah. And I'll be prodding you about that process. Actually, let's just go into that. Can you tell us a little bit about the design build process that you use? And tips you'd have for other builders who are trying to adjust into this space.
Joe Robertson: Yeah. So we, I started this system quite a few years ago.
Well, actually when I started building ADUs, so we'll go out and do a site analysis with the customer and just look it over, have kind of an informal meeting with the customer and give them our opinion, answer their questions. Then the next step after that with us is we do what we call a feasibility study.
And in that we start with the [00:08:00] designs, whereas the design build part, and we, we also welcome projects from architects or customers that already had an architect and we've done numerous ones of those, but for the design build aspect we do a feasibility study and we start with the site draw site plan, determine the footprint and then work the floor plan off of that, and then develop it into exterior elevations.
And there's a lot of back and forth with the customer during that stage, obviously, till we get to a point to where I say, are we close enough to where I can bid this out to all my subcontractors and suppliers, you can still move a window or change your cabinet plan and I do that a bit. I have a system where I can send a bid package out plans and specs and do a real detailed cost estimate.
And also during that time, we meet with the city over the counter in an informal review mostly with planning sometimes with structural and let them see what we're proposing to do and see if there's any issues so that we had them off before we actually apply for a building permit. [00:09:00] And we present that to the customer in a booklet form and also electronically.
We charge a fee for that and when they sign up. So we try to answer all the major questions in that. And we also in designing try to design to meet their budget. And then the next step is up to them when they sign a building contract, we credit that fee against the price that we'd given them for the for the feasibility study.
Kol: I think your, your feasibility study process is a good hook for getting new leads. For getting clients in your funnel, so to speak. Can you talk a little bit more about that? You know, roughly how much we're talking. How in depth are these feasibility studies? As a point of reference, I do consultations for homeowners who are at the very beginning of the process before they've talked to a builder designer, I charge $200. No, you know, I don't do referrals. I just kind of give my own opinion of what their situation calls [00:10:00] for, what kind of builder they should look for, what should, and it's not really a feasibility study, but it's more or less my, my professional opinion of what they should anticipate the process looking like, but you're doing a much more in depth feasibility study.
So let's, can you. Pull that out for us a little bit.
Joe Robertson: So my first site, I call it analysis. First consultation is very much like your. It's an informational thing, where you are answering questions basically, and sharing what's required by the code and so forth. And then the step further into the feasibility study, it gets pretty detailed and we spend a lot of time with the customer.
And I don't mind saying it's on it's on my website. We charge $1,950 to do a feasibility study, which if a customer doesn't go through the building contract we've if I counted everything out, we've lost money, but. It's to cover us, hopefully part of the time, if it doesn't go through, but it's also, you know, to get a little commitment out of [00:11:00] the customer that we're going to do all this work for you.
And, and if you decide you want us to build your ADU we'll, we'll give you that money back. It's built into the cost of, of the project. So it's worked out really well. And the conversion rate to that is, is pretty high. It varies a lot, but I'd say in the 70, 75% range converts to an actual build,
Kol: The remaining 25%, you suspect they're going to other builders or they just not going forward with their ADU.
Joe Robertson: I don't think I try to check up and I don't think I've lost too many to other builders. Like over the years, maybe. Two or three or four. Sometimes financing is the big holdup. Or they just changed their mind or it's, it's a little too overwhelming, it's a big deal. So, and it's a long process. So some people just aren't totally cut out for it once they find out everything about it.
But that's one of the beauties of the feasibility study. They definitely get their [00:12:00] money's worth out of it.
Kol: We should clarify that when I've seen your feasibility studies they actually include preliminary drawings of the ADU that you're talking about building.
Joe Robertson: Correct. So we do floor plans. They're they're detail. I mean, everything's on the floor plans, except for all of the notes and stuff that you need to put on for permits and exterior elevations. And we'll usually do we do it in Revvit. So we usually do a couple of 3d renderings either outside or inside or both. So when we go to final plans, we're just adding engineering and all the, the details that the city is going to want to see on the application plans and any changes the customer makes along the way.
Kelcy: You're saying the word rendering reminded me that can you tell us where you're sitting right now? Where we, where we think you're sitting?
Joe Robertson: Oh, well this is one of my ADUs I'm sitting on the floor. No, I'm, I'm actually in my office with a backdrop of a picture of one that we built.
Kol: We're going to go into [00:13:00] costs here. Joe, talk about cost and I can put myself on mute.
Joe Robertson: I hope my my dog doesn't hear. Cause it'll start to o. As far as costs, I noticed, I heard you say that we're one of the least costly ADU builders and I, I don't, I can't say that for sure.
And we don't want to be the cheapest, but we want to be as competitive as possible. And I think we were told that we are .I don't think I can say I've lost a whole lot because of costs I've lost. Maybe some that was more than the budget that the customer could stand, but not because I was competing against somebody else.
But we'd like to compete against other builders on a cost standpoint, because I think. We're not the cheapest, but I think we come out good. And I think we give the customer good value for the dollars they spend. But we are competitive for maybe three, three different things. One is, is volume because of the systems that we we have in place and our organizational systems [00:14:00] and skills we can build more ADUs.
We, we one year we built 20. I can't say that was comfortable, but it turned out well, all of the customers were happy with their product and we built them on time and budget. But 15 to 17 in that range, depending on size and complexity, is a more comfortable volume for us. But when you build in that volume, you can keep your cost, I think, a little bit more competitive and then 2, Our subcontractors and suppliers have been with me. Lots of them have been with me 20 years or more. Many of them 10 years or more. I think the newest one we have is three years . And so it, it develops a loyalty and it helps to control costs when you're not jumping around from subcontractor to subcontractor, especially in the market that we had before this little, a big crisis hit us.
And then, like I mentioned before in the feasibility study we designed, we were very upfront with the customer to get a budget up front. And then we [00:15:00] design to that budget when we're doing a design build. And we were pretty successful with that.
Kol: So let's talk a little bit about your business. How many, like how many full-time staff are there and what portions of the construction do you sub out and what portions do you do in house?
Joe Robertson: We're a small company and happy to be that way, especially when things turn down. It's myself, my wife does the bookkeeping here in the office. I have a project manager I believe you've met.
And then he has an assistant that he's basically training to to do more and more of his job. And I'm training my project manager to do more and more of my jobs. So we're, we're kind of building within at this point. And I mentioned near future. I don't want to grow any more than we are. I'm very happy with the size that we are and I don't really want to do anymore volume that I just explained -that works quite well for us. And we keep [00:16:00] it all the customers happy that way. So we're a pretty tight knit company. Our designer works for us on a contract basis, so per job basis, but he like all my other subcontractors. That's done all my work for many, many years. So it's more than just a, "Hey, go to this guy and get a plan drawn."
We've got a real good relationship. And then I also have a designer, like a selections coordinator, who is an independent contractor. She's also a designer for Nike who works with our customers. When they go in for permits, she starts working with them and helps them kind of hold their hand and help assist them all the way through making all their finished selections.
So that's the size of our business.
Kol: So what are some elements of ADU construction that make it more challenging than conventional single family home building?
Joe Robertson: So I've said this a lot -that building an ADU, like I said earlier, it's like building a custom home in [00:17:00] somebody's backyard- is more difficult to me - and I've got experience in building hundreds and hundreds of houses.
And building an ADU is more difficult than going out and building a 2,500 square foot house on a vacant lot, by far. As far as challenges, the access is the obvious one. And we built some that I look back and I can't, I can't even see how we did it, but where there's five feet between the house and the property line.
And we got everything through there, the concrete and the lumber and all the equipment and so forth, the grading. So access is always a consideration. We love, love, corner, lots, or alley, lots too love those. And then utilities, that's one of the first things when I go out on one of those site analysis to meet a customer, it's not fun or sexy to them, but the first thing I'm looking for is the sewer stack and where's the sewer and how to connect up the utilities and the electricity and the water. How many fixtures do they have in their house and so forth because the utilities [00:18:00] are, are, and particularly the sewer is, is one of the biggest challenges we have.
We gotta really gotta be creative sometimes to get that connected up. And then you're just, we're in urban neighborhoods. So parking is limited as far as getting deliveries and subcontractors have to park close to, to get the equipment out and load it into the job and so forth. That's always a challenge and... almost always a challenge... and neighbors not, that's not really a challenge, but it's something we could go out of our way to introduce ourselves to the neighbors.
Explain what we're doing to hopefully set their expectations and to take the fear out out of, away from them and have them contact us anytime they, they feel the need to. So that's something you don't normally do when you're building in a, in a subdivision somewhere. Those are a few of them. There's more.
Kol: Now last week we had on Ezra Hammer with Portland Home Builders Association, and I asked him about what [00:19:00] type of advocacy builders could do.
And I, I know that you and I have both worked on some system development charge advocacy and you actually were involved I believe with 2010 SDC waiver before I was. So can you talk about your role in political advocacy for lack of a better term for ADUs over time?
Joe Robertson: Yeah. I've been involved with the home builders for, for many, many years on different levels.
And when I was building ADUs probably know the year better than I do, but I think, I think back around 2009 head of head planner at the time who has since retired contacted me and, and I know him from just regular residential construction for years, and he knew I was building ADUs and asked me if I would help support them.
The planning department was going to go before the city council and ask for waivers on SDCs. This was during the recession. So they were trying to promote building, which was nice of them. And also [00:20:00] trying to promote ADUs, and so I did, I worked, I worked with him first and the preliminary stuff. You'd get a little presentation and have some other people there from the planning department.
I was the only builder at the time who had built more than one ADU. So I, I justified then they did waive the SDCs and that's where the whole thing got started. And then since that time, as you know, I've, I think has been three more times, I've testified to the city, every time it cause they, they waived them for three years and then another three years and another two years and so forth.
And so I've, and the last time, last two times, I think I've worked with you lobbying and, and testifying there. I also worked on a committee that worked with the planning department on access revising the code for accessory structures which includes accessory dwellings, but other things like garages and other detached buildings.
So I've had quite a bit of experience on that end of it over the years.
[00:21:00] Kol: Can you tell us about, I mean, you said you were building ADUs prior to the 2010 SDC waiver, which is when they kind of took off. Can you talk about how the 2010, SDC waiver impacted your business directly?
Joe Robertson: Yeah, it was kind of like the perfect storm.
And I, at that point, I even had a customer come in and testify to, to the city council at that time and tell what a big difference that, that it would have made for them. But yeah, it was like the perfect storm in that they did the waiver more and more people learn what ADUs were. I used to have to explain them to everybody that I talked to you and more and more people learned what they were love, the concept.
And then I was really shocked by how many people learned of this waiver as fast as they learned it. And so it was a real shot in the arm. And then we started coming out of the recession. So it was like kind of a perfect storm, everything coming to a peak with a demand for building ADUs. But it was [00:22:00] definitely spurred by the SDC waivers.
Kol: And I want to tie that into what we're going through these days. So let's talk about the impact of COVID. Could you talk about whether you've seen an increase or decrease in new inquiries since COVID?
Joe Robertson: Yeah, it's weird. It's a surprise, you know, what's up is down and down is up and it's, nobody knows what's going on, but it's it's been crazy.
So last fall we were three years straight. We were everything we could handle that keep, keep going with demand. And then last, late summer, early fall, it just kind of started dying down. And then I've seen your report since then and seeing it was not just us, it was industry-wide and, and ADU industry-wide.
But it really died down in fall and winter. And usually our, our interests level and leads stay pretty consistent throughout the [00:23:00] year. There's not a whole lot of peaks and valleys, excuse me. So I was concerned and then, and so we stepped up a little bit on our marketing and then in March late February, early March, things started picking up up significantly and then the COVID crisis now.
And, oh God, that's just going to pull the rug out from under us. Well, it hasn't, it's, it's been. surprisingly, and I'm glad, we've had more inquiries since, since the shelter in place than we had before. And it kind of makes sense and that people have more time on their hands. They're at home. They ...building an ADU may have been on the back of their mind, and now they have time to look --more time to look into it.
I don't know, but since shelter in place, we've signed four feasibility studies and two contracts. So it's as good as the good times, the best of times, just in this little short period of [00:24:00] time. So we'll see who knows in the future, all bets are
Kol: Well, that doesn't help me with my next question, which was what you hypothesize the next two years will look like for the ADU market. Let's just assume worst case scenario COVID is still in effect for. You know, a year or so, and we go into a recession. What do you hypothesize this would, how do you think this would impact the ADU market?
Joe Robertson: I think well, first of all, nobody knows, but here's what I think of that. I think the ADU market will stay healthier than other aspects of residential construction remodeling, probably not because you're in somebody's house. If this COVID crisis is still right up front people, aren't going to want you in their houses, obviously. Building an ADU especially a detached ADU, we're [00:25:00] out away from their house, a reasonable distance. And because of the size of an ADU, I built, like you said, a reduction housing for years, and we would just run people through there, like crazy to, to build them in 90 days and so forth.
We don't have that tight of a schedule on ADUs. Although we do schedule them really efficiently, but because of the size, you can only put one subcontractor at a time in there. So you can, social distance, or working distance pretty easily with a, with an ADU, as far as the marketing part of it.
I just don't know. If interest rates stay low, that'll help a lot. But if people are worried about their jobs or they're worried about the stock market, that's going to affect all of us. So it's, it's. Really a guess, but I think ADU construction will fare better than most other aspects of construction.
Kol: Yeah, I think that is true. And I think you, your experience in 2010 [00:26:00] and my experience with this market in general indicates that ADUs will fare, just fine, relative to other things in the face of a recession. So that's all, that's the only data point we have to go on. Really. So any significant changes to your business model in the last few years that you'd like to share?
Joe Robertson: Yeah. As far as the way we do things, it's pretty, pretty much the same, but we'd done that feasibility study program for 20 years. But we use a cloud-based construction management software now it's taken, it's a big, big program. It's taken us. Almost four years to get really up to speed, to all, to effectively use all the modules of it, but it's wonderful.
It it handles all aspects of our business from new leads for feasibility study process, all the documents scheduling owner selections, change orders, bidding estimating subcontractor control and all the communications between [00:27:00] subcontractors and us and us and the customer are all in that job for the customer.
And the customer has their own partner portal, excuse me, where they can pull it up on their phone or their tablet or their desktop. And see their schedule their plans, any documents and any of the emails back and forth, or our communications back and forth. And it's just been fantastic. Art. I mean, you used to drive around with a whole pile of blueprints in the back seat and a box of files and everything's in our phone right now.
And it's just been one of those things that now that we're used to using, it's been a big learning curve, but now that we're used to using it, it's like, how did we ever do without it kind of a thing? What customers love it.
Kol: What's the software called ?
Joe Robertson: Builder Trend. There's several of them out there. But we really, we shopped and looked into it and we just really liked this one.
Kol: One of the conversations, the recurring threads, that I've been having with several of the guests is about predesigned ADUs. And you [00:28:00] have some direct personal experience with this now, really interested for your take on these questions in a number of different ways. But let me just hand it over to you. Tell us about your experience with predesigned ADUs. How is that doing? What's the response been? What have, you know... and I'll ask you more about that in a second.
Joe Robertson: Okay. So yeah, so I mentioned working with the planning department and when they revise the code for accessory buildings and includes accessory dwelling units part of the changes where they allow we have in Portland generally speaking side yard and rear yard setback of five feet.
And so that's where you have to place an ADU that the closest you can place it to to a property line, but they one of the amendments to the code was they will allow small structures, one level that are no longer than 24 feet in either direction, and one level to be closer to the property line.
Technically you can build it right up to the property line, but we'd never recommend that. But but-- three feet, [00:29:00] two feet-- makes a big difference on a 5,000 square foot lot. So, and they, they relaxed, if that's the right word, the restrictions on the aesthetics of it, how that has to look, they, they made a little prescription that if you follow this prescription, so that meant you could design a building that a little ADU that could fit on anybody's or that could work.
On theoretically on anybody's lot throughout the city, that's encompassed in that code. So we, we came up with three or four of them, a one levels and developed pricing for them and put them on our, our website. And it's been pretty successful. They've all been modified somewhat because you have to, to make them work on the site with flipping them or window locations and things like that.
But they're basically the same plan built, built. None of them look identical, which is good. But they've been pretty successful. I think we've, we're up to seven of them now that we've built. So now we've just come out with a two-story model that does [00:30:00] have to be set back in five feet, but it meets the criteria.
So it could be built on other areas throughout the city. And we're gonna do a little smaller two-story one coming up.
Kol: All right. So, so let's, let's give a little bit of insight about. Well, first of all, what's the value proposition to a homeowner for a pre designed unit? And then what are some considerations that new builders to this space should consider if their business model is contingent upon a predesigned ADU?
Joe Robertson: Hmm. Okay. Well, if you, if you look at ours on our website, it says there are no changes are allowed. Well, that's, that's in a perfect world and we can't really do that. You have to be flexible to make it work for the individual on their site. So we do changes but [00:31:00] what the advantage is- is the price has predetermined. You know what it is right up front. We, with that price, we show them what's included and we have allowances for like quartz countertops, lVT flooring, a plumbing fixture package. And then we say, this is, what's included in this price for this ADU. You don't have to go with that, but this is what's allowed for.
And a lot of people will stick with it. Other people want to just pick new stuff, but they know for that price, with these materials that they can. So it takes a lot of the uncertainty out of it. I would like to say that it goes through the permit process faster and it should but I can do a whole, whole hour long on the permit process, so I won't go there, but it does go through quicker, but not as efficiently as it should.
And maybe that'll change one of these days. I don't know, but that was the intention. Was that okay, you guys have reviewed this over and over [00:32:00] again. But so far they keep coming up with new stuff for us to deal with, but that was the intention to begin with is that we go through the permit process a lot faster too.,
Kol: And advice for other builders in that particular regard?
Joe Robertson: Just to be, yeah, it's a fine line to try to be predesign and sell up package if you will, and being flexible. You pretty much have to mix the two together. I see a lot of pre built ADUs, which I think is a great thing to market, but you're really limited on where those can go for a variety of reasons. So I wouldn't make it just a cookie cutter thing. I don't like myself to build two of the same thing.
I liked the fact that every one of ours looks different, but I think maintaining some standards that gives the customer certainty on [00:33:00] price and design and combining it with a little bit of flexibility to allow them to tweak it to their, their liking and what works on their sites, the key to make it work.

Kelcy: I love this one from Kevin. What are some of the mistakes you've made that you've learned from the most?
Joe Robertson: Oh boy lots over time. And that's true too. Just construction in general.
One of the big things with building ADUs of people's backyards are I mentioned the utility connections being a challenge, but also when you're connecting-this maybe boring to some, but when you're connecting sewers and waterlines to existing basements, what you create, but when you fill it back up is a weak spot in the soil to where a groundwater will go to and run down the path of least resistance, which is the pipe and direct it right to the customer's basement, where you're [00:34:00] going into to tie into the sewer.
So we've learned all kinds of new techniques to stop that water and to waterproof the basement. So we don't get a call on a Sunday night with somebody having water in their basement that we have supposedly caused. So that's, that's one big one that, that did wake me up in the middle of the night.
Kelcy: Great. Thank you. Does the feasibility study include a survey per test or soil test?
Joe Robertson: We, we do a, a perk test ourselves when we are going to use a stormwater system like a dry, well we'll just dig in and do the perk test ourselves, which is a requirement of the city. When you apply for the building permit, we don't do it in the feasibility study.
I know, excuse me, from experience that properties on the east side of the river here in Portland, drain pretty well and will accept dry wells and properties on the west side of the river won't. And so [00:35:00] there's things like that, that we know whether to do it or not to do it. We get the survey done. The survey is required almost in every case.
While it's going through the permit process, if we're reasonably sure where the property lines are within, say a foot, which you usually are in the city, lots but it is required that you have a survey and, and build that into the estimate and soils only if you're on a, what the city considers a sloping lot.
Do you have to have a geo tech survey done? We have one right now that had enough slope to where we had to have a geo-tech and then he comes out. Once we dug our footings before report concrete and inspected and write up, write a report, but not very often.

Kelcy: Speaking of the utility, can you say, what percentage of ADUs you hook up to the existing property versus directly to the city?
Joe Robertson: Almost always the sewers hooked up to the existing property. We've had a few that were like, went from- it had a front edge on two streets to where [00:36:00] we could tap the sewer separately for the ADU, but that's really pretty unusual. So you usually share the sewer with the water. That depends on how many baths are in the existing house and how many you're building in the, in the ADU.
Whether you can share the water with the house, you can always share it, excuse me with the house, but you have to upgrade the meter so big that it kinda makes sense sometimes just to put a separate meter in for the ADU. But if you can share it, you're much better off from a cost standpoint. But I'd say maybe 70% of them we share directly with the house.
music: Okay. Thank you.
Kelcy: Do you know what percentage of the ADUs you built are going to be given and inhabited by family members and friends versus those are going to be directed rented out for a long term rental or short term rental?
Joe Robertson: Yeah, that's a great question. And when I first started this way back, I thought, oh, rental property, everybody's going to [00:37:00] want to investment and have rental property. It makes so much sense. And it does, but almost half of them aren't strictly rental. We do a lot of houses for aging parents where the aging parent actually pays for the ADU on their adult children's property.
They live in it for. However long. And I love it because it's a, win-win win for everybody. The adult children get all the value increase on their property in a future rental. And I think that whole aging in place thing is growing and growing. And I think it's going to become more of a factor, but that's, that's my favorite use for ADUs, but all kinds of other uses and the beauty of an ADU is it can change on a dime.
You could change the use of it from year to year. You can't easily in Portland change from short-term rental, to long-term rental, but you can go long-term rental to studio, to office, to grandmother's staying in it, to a kid getting out of [00:38:00] college and in-between careers or whatever. So there's a lot of flexibility there, but it's not strictly rentals. I would say 60 to 70% maybe rentals and the others are family and other uses.
Kol: Let me jump in with a little bit of commentary on this. So in the, there was a couple surveys that have been conducted in the city of permit data ADUs. And, and from those surveys, we know that there's really just two main motivations of why people build ADUs is that's passive rental income potential, and multi-generational household flexibility.
It's oftentimes like Joe is articulating a combination of those two things. It's sometimes like I have a parent who's going to be moving to down eventually, but I want a I want to have it as a rental in the interim or, or, you know, some kind of combination like that. So, but it's usually those two motivations coupled together.

Kelcy: This one, how are most of your customers financing their ADUs and for those that are [00:39:00] financing, can you offer any insight on what has flowed the best without hiccups?
Joe Robertson: Yeah. And I think Kol can probably speak to this better than me too, but from my experience if it's, if it's for a elderly parent, then that's probably cash because they probably sold their big house that they've lived in forever and they have a bundle of cash that they're sitting on and, and this doesn't use it all up and they can still have a house paid for essentially.
And money left over for the average individual. That's going to rent it out or for other purposes. If they have it, the home equity loan is by far the best way to go least restrictive. They control the money. But if they can't, if they don't have the equity, then the next step would be an actual construction loan, our refinance of the whole property.
The construction loan part works just like a builder works with the construction loan where. They borrow the money just to build it. And a bank comes out and makes inspections and then releases money to the builder on a monthly basis. And that's okay. [00:40:00] It's just a lot of paperwork and red tape and they put the customer through a lot more of a ringer than, than any other types.
So I'm sure you've got more on that Kol.
Well, I, I I've actually liked to die to go into that last topic a little bit without calling out any particular banks. I, my impression is that renovation loans, construction loans are great that they're there, but that they're a pain in the butt. And I don't know that there's anything that can be done about that.
But I usually put it out there as like the, you know, if you can do a, HELOC or a cash out refi, go with that. But I'm really glad that banks are doing renovation loans, construction loans. Can you talk a little bit about some of the. Like, would you turn away a job because it was using that kind of construction loan financing, and it was that much of a hassle or like, tell us a little bit more about your experience as a builder with that?
Honestly I felt like it, but I was already too far into it to turn around [00:41:00] and I would have left the customer, holding the bag, so to speak because it's not so bad for me. Once it's set, then I have to go off of their draw schedule and fill out their forms and they check me out financially and all that and check the CCB and all that, which is fine.
I've got those forms already prefilled out to send in when they ask for them. But what they put the customer through. We had one that was attached ADU in Southwest Portland and these people were financially sound, but I bet it took six months for them to process that loan. And they just kept asking for more and more and more, and the people were just frantic over it.
And I wouldn't have ditched them at that point, but I felt like was just get out of this thing, but it worked out in the end and they're glad they did it now, but it was painful. And I think that's going to get more competitive and I'd like to think that it would get more [00:42:00] streamlined. It's way, way too cumbersome. It, it just doesn't need to be that way.
Kol: So, so from the homeowners vantage, it's definitely, you're validating that it is a pain in the butt. And that's every, every time I've talked to somebody who's gone through it, it's a pain in the butt. And from a builder's perspective, you think it's worked okay, but you've gotten paid after each phase of construction, which is not typical. Is that correct?
Joe Robertson: Yeah, we, we, we have a regular draw schedule in our contract that is X percentage at a real defined stage of completion, like 20% when the foundation's in and all the utilities are hooked up and 25%, when it's framed up to reef, sheathing and stuff like that, we have to find out all the customer can understand it. It's fair. But with. With a construction loan through a bank, they've got that, you've got to convert to their forms and they have to check their forms off in a certain way. And it's just more cumbersome and it slows the process down a little bit, but I [00:43:00] can live with that if they would process the loans better for the customers.
Kol: Yeah. And I, I just want to be clear that while I think it's this form of financing I think is just objectively, has been historically a pain in the butt. I still am so thankful that it's there. I think it's a great mechanism and I don't necessarily know what banks could do differently. I just know that that's what I've heard from people about.
Joe Robertson: Yeah, unfortunately that hasn't changed much so far.

Kelcy: What other costs can a homeowner expect to pay, even with the turnkey price of the predesign unit, such as site work, utility hookups, permits.
Joe Robertson: Good question. So when I did develop those pre designed ones and did a cost estimate on them, I went back through historical data as far as costs, and I figured an average site development costs for grading utility connections and so forth backfilling, anything to [00:44:00] do with the site.
It's, the rest is pretty easy to estimate, so I just average it too. So in that cost is average site work for us. Average 5,000 square foot, lot of a house in Portland with reasonably good access. Access can cost a lot more if you have to do special gymnastics to get in the backyard. So so that will fit most situations in Portland.
So as far as additional costs, if you're over and above that, of course the water line. If you have two and a half baths in the house and you want to build an ADU, then you're looking at a $7,000 meter upgrade or a new meter costs. So that's not in there, but most older Portland homes don't have two and a half baths.
So then we are turnkey. We typically include what we have to put in. As far as appliances we put in a dishwasher, if they want it oven [00:45:00] freestanding range, oven, and a hood or micro hood above that. We don't typically, and they're not included in the predesigned cost, the washer and dryer or the refrigerator.
Cause those go in after we're done and they're not required for any inspections. So to be move-in ready on the predesign ones that we have, you'd have to add the refrigerator washer, dryer, and any window coverings blinds that you're going to put on the windows. Then it's a hundred percent ready to move into.
Kelcy: All right. Thank you. I know you kind of talked about your side of the business in that you're still seeing contracts being signed. You've signed a couple of contracts. I'm just curious about the supply chain or labor. How has that been affected? And do you think that that is going to continue? How does that look?
Joe Robertson: Boy, this is just such a new and different situation. What I don't hope doesn't happen is what happened after the last recession to where there was so much demand and the subcontractors [00:46:00] and suppliers were had way more business than they could handle and, and were understaffed and couldn't get help.
I hope this is more of a gradual recovery, so to speak to where we don't have it. Cause we had awful lot of. Pretty drastic price increases during that period of time too. I couldn't keep up with it. When people would ask me, what do you think this is going to cost? I really hesitated because it changed so fast.
And if I set a number out, I'd be the bad guy a month later when it when the cost change. So I hope that doesn't happen. I hope it's a gradual thing. And I think it, maybe it will be a gradual thing by the way. The talk is about gradually opening things up as we go. So

but hopefully we won't see the kind of price increases that we did before after the recession.
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The ADU Hour w/guest Katherine Einstein
15 jun 2021· The ADU Hour
Kol Peterson: Hey everybody. Thanks for joining us on the ADU Hour. I am super excited for today's guest, Katherine Levine- Einstein.
This topic is fascinating background about the way that land use decisions are made at the local level across the country and that has some important impacts in terms of understanding what advocates [00:03:00] for infill housing should consider doing strategically in terms of improving regulations for middle housing, ADUs, et cetera.
Thanks so much for coming to join us today, Katherine, I stumbled upon your work through another podcast that I listened to. I want to confess right up front, I haven't read the book, but I wanted to take this opportunity to take some of the things that you've written about and researched and frame it in the context of some of the issues that come up time and time again with ADUs.
Before I launch more into my questions, let me just give you a minute to introduce yourself.
Katherine Levine-Einstein: Sure. So I'm an associate professor of Political Science at Boston University and I study Urban Politics and Housing Politics, and I'm one of the authors of the book "Neighborhood Defenders, Participatory Politics in America's Housing Crisis".
Kol Peterson: Have you considered doing an audio book?
Katherine Levine-Einstein: It's definitely a great idea. I don't frankly know if the University Press has that kind of bandwidth. But yeah, I'm with you. Audio books are the way to go.
Kol Peterson: Yeah, for me, it's just like how I [00:04:00] consume. So anyway, and this, this series will eventually become an audio podcast for what that's worth for people who are listening.
So there's 19,495 incorporated cities, towns, and villages in the US, 310 cities with a population of a hundred thousand or more. Neighborhood level politics, that is, city councils, associations. Play an outsized role in how land is developed in the United States. Americans like local democratic processes. So, why is this a problem?
Katherine Levine-Einstein: Yeah. So democratic processes, I mean, you say that word, that sounds really good. Right? Like having land use be democratic? I think most people hear that, they say, "yeah, that's how it should be "people who live in a community should have a say over what goes on. And indeed, that's why we have these regulations in the first place. That when we sort of had a developer dominated system back during the Urban Renewal Days, a lot of bad things happened in neighborhoods.
So there are sort of good reasons to have urban planning practices be really oriented towards neighborhood level [00:05:00] input. But in practice it can be deeply problematic because we may not be empowering a representative democratic subset of the neighborhood, right? What we show in our research is that the people who show up to these neighborhood level meetings are deeply unrepresentative of their communities in a way that actually depresses the supply of housing in the United States and the supply of affordable housing in particular. The people who show up to these meetings are privileged. They're homeowners, they're older, they're whiter, and they're overwhelmingly opposed to the construction of new housing.
Kol Peterson: Let's frame your research a little bit, so that we'll know what you did. And then tell us a little bit more about the numbers behind those findings of the demographics of people who actually show up to these meetings.
Katherine Levine-Einstein: Yeah, so our book is about these participatory processes. You know, when we told people we're going to go out and study neighborhood meetings at planning and zoning boards. Really is that so interesting and important? But, I suspect I don't have to convince the audience here.
These are incredibly important, these meetings are what dictate whether or not housing gets built in most [00:06:00] communities in the United States. So we really wanted to understand what happened in this sort of hyper-local politics. And so what we wanted to do is go out and document who shows up to these meetings and what do they say? And Massachusetts turns out, because of unique open meeting laws in the state, to provide an incredible opportunity to do so.
So what we did is we went out and we collected meeting minutes for three years worth of meetings across 97 cities and towns in Massachusetts. And what made the data for Massachusetts really unusual is that in addition to including a list of public comments that happened at these meetings, we were able to learn the names and addresses of the people who participated in these public forums.
And when you have someone's name and address, you can link them with a lot of other administrative data and learn really interesting and important demographic information. So from those meeting minutes, we were able to learn how demographically and attitudinally representative the people are who show up to these public meetings.
The first k ey finding that we had is that these [00:07:00] folks were privileged. They were about 25 percentage points more likely to be homeowners than the general population in their community. They were over 20 percentage points more likely to be over the age of 50. They were about 10 percentage points, more likely to be white, right?
So these are folks who occupy positions of privilege in their communities. They also overwhelmingly do not like the construction of new housing. So we looked at public meetings that involved the construction of one or more units of housing. So we looked at everything involving meetings had accessory dwelling units up to like big apartment complexes.
And we found that only 14% of people showed up to these meetings in support of the construction of new housing. So, overwhelmingly the voices that planning and zoning board officials hear and that city councils hear, are people who are opposed to new housing developments.
Kol Peterson: So 14% showed up in support of the projects and all the rests showed up as opposing the projects?
Katherine Levine-Einstein: Most of them, I think at [00:08:00] 65% showed up opposed, and the rest showed up as neutral. There were a lot of those neutral folks were in fact opposed, but they were sort of asking clarifying questions about whether the developer had complied with parking studies or something like that.
Kol Peterson: And then you took that data in your study and you contrasted it to legislative support for affordable housing so that kind of gives you a baseline of theoretically , this demographic should have one feeling towards affordable housing, but in practice when it comes to development in their own backyard this is what we see. So can you talk about the differences?
Katherine Levine-Einstein: Absolutely. So another great thing about studying Massachusetts was in 2010, we actually had a ballot referendum about public support for affordable housing, so there's a piece of statewide legislation here in Massachusetts called Chapter 40 B, which allows housing developments that have a certain percentage of affordable housing to bypass local zoning regulations.
And so this was up for a ballot referendum in 2010. And so it gives us a [00:09:00] rough sense in each city and town, the extent to which individuals support the production of affordable housing and the ability to bypass local zoning to accomplish that goal. So the ballot referendum passed. So this law is still in place in Massachusetts.
And what we found is in every single city and town that we studied, support for housing was higher as measured in this ballot referendum than it was when we actually went and looked on the ground at support from new housing at these planning and zoning board meetings. I think liberal Cambridge, Massachusetts is the best illustration of this.
So 80% of Cambridge, Massachusetts voters in 2010 came out in support of chapter 40 B. But only 40% of commenters at Cambridge planning and zoning board meetings show up in support of the construction of new housing. So when it comes to developments in their own backyard, the people who show up to these meetings are considerably more opposed to new housing.
Kol Peterson: So what does this tell you about the disparity of those who are empowered to participate in local [00:10:00] zoning processes and the general ideological sentiment towards infill housing in general?
Katherine Levine-Einstein: Yeah. I mean, what it tells me is that the people who show up to these meetings are not representative of their broader communities. And they're not representative in ways that are gonna depress the supply of housing. And it, this is really problematic, right? Because one, it's depressing the supply of housing relative to what the general public wants, right? Like if we sort of look at general public opinions, especially in these high costs, communities like Boston, San Francisco, Seattle, we see high levels of support for new housing, but when it comes to the housing actually being built in specific neighborhoods, when we empower neighborhoods to have a say over whether or not they want housing there, the evidence suggests that those neighborhoods overwhelmingly saying, "No thanks, we don't want housing".
I sorta think the second important point timbers from our data, when we think about this broader housing politics is this is not just a story of people showing up in opposition to big apartment complexes, right? This is a story about people coming out in opposition for a townhouse or [00:11:00] accessory dwelling unit being built in their community.
And so these neighborhood meetings get really contentious, not just when it's a big development, but sometimes when it's like a pretty modest one.
Kol Peterson: Can you explain the theory of Cost for Political P articipation in the process and let's cover both the expertise element of it, the time required element, then this theory of concentrated costs and diffuse benefits.
Katherine Levine-Einstein: Yeah. Two big reasons that the folks who show up to these meetings are deeply unrepresentative of their broader communities. The first is that it's incredibly costly to participate in these forums. And the second is that the people who are sort of weakly supportive of new housing may not be especially interested in showing up to these developments.
So when we look at canonical political science research, we know that the biggest drivers of whether or not you participate in politics, are whether you have the resources to participate, and whether you're interested to participate. And we believe that both of those factors are really critical to explaining why the people who show up to these planning and zoning board meetings are really unrepresentative of their broader communities, right.
So starting with these [00:12:00] sort of resource-based costs, going to the planning and zoning board meeting is like a big outlay of time, right? So you have to have two to three hours of your life that you're willing to give up, you have to have the childcare. There's a lot of just like basic costs to showing up to one of these meetings, you also have to develop the expertise.
These meetings often devolve really quickly into the minutia of whether or not a setback is big enough or whether or not a parking study or a traffic study is required. If you're not someone who is intimately familiar with the lingo of variances and special permits, these meetings are not going to feel really accessible to you, right?
So another cost is developing that expertise. So there's really big cost barriers. There's also, again, the second big factor there, these big interest barriers to showing up. So new housing developments have concentrated costs and diffuse benefits. So let's just imagine, you know, a townhouse development, right?
Like not, not sort of a major apartment building, but just sort of a small housing development. The benefits of that housing development, if I'm measuring across the whole city in it, [00:13:00] City that has a shortage of housing, that the benefits of that they're like pretty diffused. You know, we're not going to really measure a significant decrease in housing costs from the construction of those two new units.
But the cost of that building of two new units is really concentrated. If I live next door to that townhouse development, I'm going to have to listen to construction noise for like a year maybe, or I'm going to have to have my view changed in a way that I don't like, or maybe there's going to be more cars parked in front of my house.
There are all these things that are going to be very motivating to me, as the next door neighbor, to show up in a way that even if I'm the most ardent pro housing supporter in the world, I'm probably not going to show up to a planning or zoning board meeting about a townhouse across town. That's just not a useful outlay of my time given the diffuse benefits.
Kol Peterson: Yeah. And it, it really begs the question, " Who would actually show up for a meeting for a proposed project near them in general?" It totally makes sense that [00:14:00] everybody has NIMBY predispositions, even myself.
We don't want change near us. We don't want more parking near us, we don't want more housing near us. We all kind of feel this way and it's almost a natural thing yet our democratic process at the local level is set up to empower that predisposition that we have.
Katherine Levine-Einstein: Yeah. So there's really good psychological research out there that shows that we, as humans are just innately sensitive to changes in our neighborhood. Like we respond really strongly to changes in our community. And so it totally makes sense. A development definitionally is a rapid change to your community, even if it's one of a pretty modest scope. Having a new townhouse go in next door is a really big change to your view. It's a big and rapid change to the environment into which you bought into.
Those kinds of rapid changes, we know have a strong impact on people's attitudes and they're motivating, they get you sort of interested in politics and eager to show up to these forums. And as you said, these forums are therefore designed [00:15:00] to capture that exact set of preferences. The people who are intensely motivated to show up and have the resources to do so.
Kol Peterson: For those of us who haven't been through this type of local land use process at the local level, can you help set up for us what a local meeting dynamic that occurs for a proposed housing development project would look like?
Katherine Levine-Einstein: Yeah, sure. So there's obviously a lot different ways this can go and some of them are a lot more contentious than others. But I can provide sort of a pretty standard example of a multi-family housing development that happened in Cambridge.
So this particular developer I think it was in 2015, he showed up and it was this like terrible abandoned warehouse near a mass transit stop in Cambridge. And so he shows up and says, "I would like to convert this abandoned warehouse into four condominium units. Each with one parking space."
Because he was proposing converting a she'll use into a residential one he needed to get a special permit. And so he found himself before the [00:16:00] Cambridge planning board in order to get a special permit. So the way that this typically goes, he comes to the meeting, he presents his plan, then the Cambridge planning board asks them like pretty technocratic questions. And at that moment it's turned over, to public comment.
In most places in the United States, Cambridge is not unique by any means, when you need to get a variance or a special permit. Given the way that land use is set up in the United States, most of the time, if you want to build more than one unit of housing, that's going to be your situation. You have to present your plans in front of a public body. And as part of open meeting laws that members of the public then have the opportunity to comment on that housing development. They can sort of say anything that's pertinent to the proceedings at hand.
And so at this particular meeting in 2015, after the developer presents his plans, there were a few neighbors who showed up. Every single one of them deeply opposed to the project. Some of them talked about like foundation issues at their houses that had, one person showed up, she was a lawyer, with handouts [00:17:00] indicating that the developer was violating zoning proceedings.Other people were worried about parking issues. And so after hearing from the neighborhood, the planning board, which had initially been like pretty supportive of the project, was considerably more concerned. And they said to the developer, look, you need to go talk to the neighbors and you need to get us a parking study and an engineering study, each of which can cost the developer, you know, $10,000 so these are not cheap.
It also meant that the developer had to come back three months later after the carrying costs and the other costs associated with holding onto a project and delaying and development by three months. So he comes back three months later and says, okay, I've talked to the neighbors, I've done my studies.
And now instead of developing four units, each with one parking space, I'm going to do three units each with two parking spaces. And so at one level, that's maybe not such a big deal, it's only one year lost and a few extra parking spaces. But when we start to think about that process, getting repeated thousands of times over in [00:18:00] cities, across the country, it's not hard to see how these neighborhood politics are reducing our supply of housing and creating a housing crunch in so many places.
Kol Peterson: You explicitly moved away from using the term "NIMBY", which is a little bit contentious, and instead using a different term "Neighborhood Defenders" in your book, is that a term that's intended to be synonymous? Or can you explain what that terms about?
Katherine Levine-Einstein: Yeah. So we talk about the people who show up at these public meetings as being "Neighborhood Defenders" and we very deliberately wanted to move away from this term NIMBY, which refers to people who are "not in my backyard, I don't want new housing here". We think NIMBY connotes, inherently sort of selfish attitudes about, you know, one's own property values, one zone house. And what we observed with me read through thousands of pages of meeting minutes is that's not actually the attitude of most of the people who show up to these meetings.
Most of the people who show up to these public meetings, invokes sort of community concerns. "I'm worried about my neighborhood. I'm worried about my neighborhood character. [00:19:00] I love my community and I want to protect it". That is sort of the impetus behind people who are worried about parking, who are worried about wildlife, who are worried about wetlands. It's these broader community concerns. And so we think one that this term "Neighborhood Defender" better captures these individuals self conceptualization, but we also think it better captures why these individuals are so persuasive. The Cambridge planning board could've just ignored the neighbors, right? They had that power. This wasn't a situation where the neighbors get to vote on a development. So the Cambridge planning board could have said. "We hear your concerns, neighbors, but we're just going to go ahead and approve this project because we think this neighborhood of Cambridge desperately needs more housing". And they didn't do that.
And I think part of why these folks are persuasive is because they don't seem selfish. They seem community oriented and like representatives of their community.
Kol Peterson: Let's go into the history of nimbyism a little bit. I had come across information that there was a connection to the environmental movement, which I think is fascinating and that back in 1970s, the Cuyahoga river [00:20:00] in Ohio was burning and neighborhood conservationist and environmentalist were coming out and trying to fight the pollution that was associated with that. And I think that had some connection with the origin of the kind of environmental movement slash modern environmental movement slash nimbyism.
Now nimbyism has taken on a new understanding as of late, but then there's also conflation or connection to urban renewal and environmental regulations that are occurring that make development more challenging. Can you just help tease apart these different topics for us?
Katherine Levine-Einstein: Absolutely. So I actually want to route this a little bit thinking about again this Cambridge housing development. The reason that that Cambridge housing development had to go before a planning board was because there was a land use regulation in place that said, "anything that converts a commercial use to a residential use has to go before a public meeting."
If there hadn't been that land use regulation, then this housing development could have happened what is called "By Right". And if a development can [00:21:00] happen by right, it doesn't have to go through this lengthy process.   If we're really interested in understanding, okay, so why do things show up in front of these meetings?
We need to understand the origins of these land use regulations. Why do cities and towns have them? When did these land use regulations that are coming to being?
The answer is it's sort of a confluence of a bunch of different movements and different zoning codes emerged at different times. So some set of land use regulations actually date back as early as the 1920s.
That's when we start to see zoning ordinances really come into vogue. And a lot of the impetus there is really explicitly rooted in segregating communities by race and by class. There's been really good books written on this by Richard Rothstein and Jessica Trounstine, about the racial origins of zoning and land use regulations.
These ordinances came into being to keep people of color and poor people from moving into communities. So a lot of places where folks live, you've probably all heard about conversations about single family zoning, a lot of regulations that [00:22:00] ban multi family housing very much came into being with this sort of race and class-based origins.
But then there's a sort of separate set of land use regulations that start emerging in the 1970s. So we start to see this big proliferation of land use regulations oriented around environmental uses and around neighborhood meetings that emerged during that time period. I already talked a little bit about urban renewal. So one thing that went on is during the 1950s and 1960s we essentially had developers bulldozing communities of color and low-income communities. We were building highways and downtown shopping malls and all of these uses that weren't really serving those communities. After that happened a lot of urban planners said, my God, we, we actually need to like talk to neighborhoods.
And not just bulldoze them, we may not know what's best for communities. From urban renewal emerges, in a lot of cities, this really noble impulse to actually listen to communities that are being affected by development. At the same time, you talk about the Cuyahoga River, there's lots of different examples of this, there also [00:23:00] this whole series of terrible environmental outcomes happening and we have suburban sprawl, like ruining wetlands. There's a lot of recognition among environmentalist that the way we were doing development was deeply harmful to a lot of vulnerable, natural resources.
At the same time, we also see a lot of communities start to create wetland regulations or Vernal pool regulations, or Vernal pool, buffer zones. Things that essentially make it really hard to develop anywhere near a Vernal pool or a wetland and require you to get like lots of extra permitting. And again, that sounds probably good to most people where you're like, yeah, we probably should be protecting some of our wetlands and our Vernal pools and these other very important natural resources.
But when you sort of layer them on to all these other land use regulations, what happens is in practice, each of these additional regulations makes it harder to build a new housing, especially in high opportunity communities that seem to love to add these land use regulations.
Kol Peterson: I have a an [00:24:00] observation which is some of the most politically liberal cities in this country seem to have some of the strongest NIMBY strands I've observed. Berkeley, California, Eugene, Boulder, and Cambridge, perhaps, I don't know if Cambridge would really stand out or not, but is there any correlation there or am I just projecting that?
Katherine Levine-Einstein: Yeah. So it actually turns out, if you look within those liberal places, it's the most conservative people who are more opposed to housing. In our data in Massachusetts, it's obviously a pretty liberal place if you look at like what predicts whether someone's supposed to the construction of new housing, things like being a homeowner, if you own your home, your more opposed the construction of new housing. Also being a Republican predicts being opposed to the construction of new housing.
And there's other folks like Mike Hankinson, who's done more survey work that showed that conservatism is actually more associated with being opposed to new housing. But all that said, you're right to note that some of the most contentious battles that we have over new housing development seem to be happening in places like Berkeley, California Cambridge, [00:25:00] Massachusetts.
Those are the places that are facing the most acute pressures for new housing. Those have been places that have experienced incredible economic growth over the last few decades. They haven't been able to match that demand for new housing. In some ways that's why we're seeing more of the housing crisis emerged there is because there's been so much economic growth, it's created demand that we're not necessarily seeing in more conservative cities. But I actually do want to stress that this phenomenon is not just limited to these really expensive cities.
I'm from Milwaukee, Wisconsin and as a Wisconsin native, I was interested in understanding how these processes play out in my hometown, which is not a place that is having the kinds of housing crunches that are experienced in Berkeley, California, Cambridge, Massachusetts. And even in these kinds of places like Milwaukee, we do see similar kinds of dynamics playing out at neighborhood meetings. And the place where you see it is in the most privileged part of town. So you look at both the privileged suburbs and the [00:26:00] privileged neighborhoods within the city of Milwaukee, you see folks there fighting the construction of new housing. Even in these less crazy housing markets, we do see advantaged towns and advantaged neighborhoods still activate to protect their boundaries and stop the development of housing.
Kol Peterson: So for some context my opinion as a subject matter expert is that Massachusetts has very restrictive ADU regulations, relatively speaking, along with most of the country, that's just a general observation.
Part of what makes it restrictive in Massachusetts is so many towns require a special permit, which is also known as a conditional land use permit. Can you share with us any statistics you have about the impacts that a special permit requirement or a conditional land use permit requirement has on the likelihood that an average homeowner would pursue a home improvement project?
Katherine Levine-Einstein: Yeah. So I haven't looked at this for eighties specifically. But those are research and that of many economists has essentially shown that every time you add a new [00:27:00] regulation onto the housing development process, you make it more expensive to build and you reduce the supply of housing. Applying that research to the world of ADUs, I would say, anytime you add a requirement in a special permit is a very onerous requirement, you are going to reduce the likelihood that someone's going to pursue that because it's going to be a lot more expensive. It's going to take longer, you're going to have to presumably hire more experts to get yourself through the public hearing process, you have to pull more permits. All those things cost money and time.
We know from just more general research and land use regulations, that's going to make it harder to do and reduce the overall supply.
Kol Peterson: What's the difference between a special permit and a variance?
Katherine Levine-Einstein: So variance from existing zoning is essentially, you're saying " I know that I'm in a commercial zone, but I want to build something residential."
So then you're getting a variance from existing zoning. You're essentially asking for an exception to the existing zoning code. A special permit is different because a special permit essentially says, you have to get this permission to build [00:28:00] multi-family housing anywhere in this city. Right? So in a lot of places that's sort of the context in which I think about this, the most you to build an accessory dwelling unit, or a townhouse, or three family housing, have to pull a special permit.
It doesn't matter where you build it, there's no zone where we let you build this without asking for this extra permission.
Kol Peterson: As a general matter, based on your professional research on this topic, et cetera. Do you believe, or is it your your opinion that neighbors should be given authority in the decision making process that their neighbor has over property improvements?
Katherine Levine-Einstein: No, so I think this neighborhood meeting process is sort of it's undemocratic. When I've talked about this work before, I've had people at public meetings come upto me and say, "you're being undemocratic for advocating for getting rid of these meetings". And I would say we spent years looking at this evidence and the evidence tells us that what is happening at these meetings is deeply undemocratic.
And it's, it's [00:29:00] undemocratic in a way that it's really hurting urban areas. It's depressing the supply of housing, especially in high opportunity neighborhoods. It's making it harder for low-income people to move into sort of the most privileged parts of our cities. So, no, I don't think that these processes are working as they should.
I, like many others, advocate for making more development by right, that allow members of the public to have a say over what land use regulations look like. So we should absolutely be incorporating public input. And I would argue members of the public certainly have a right to vote out officials who pass these policies that they don't like.
But once the land use regulations are set, we should be allowing property owners to be developing to what those land use regulations specify without having to go through an ad hoc and unpredictable neighborhood permit process.
Kol Peterson: What's your take on the most frequent objections that we're hearing in general, in the U S about, around proposed residentially zoned Don conforming housing development project?
A lot of jurisdictions, [00:30:00] not just in Massachusetts, but elsewhere. There's a conditional land use process and you have to go through a public process and, and the frequent objections, among other ones, are, " This is going to change the character of our single family, residential neighborhood". Whether it's a city-wide process or a local project that can be a complaint that would be issued by a neighborhood defender.
How often does this neighborhood character concept arise as a rationale for obstructing new proposed developments.
Katherine Levine-Einstein: Oh, all the time neighborhood character is a really frequent objection. And a lot of people sort of wonder, like, is this a code word for like race or class-based bias?
And that's, that turns out to be really hard to prove, but it's, it's hard not to see it there at least some of the time that people raise it. Some of the other concerns that we hear a lot about traffic parking, the environment. And I will stress that those traffic and parking concerns, and this sort of blew our minds as we read through the meeting minutes, like it doesn't just happen with big apartment buildings where maybe you could say, okay, there are 200 new apartment units, maybe that's going to change traffic loads, but people will [00:31:00] raise that with like a five unit building. They'll say, it's going to change traffic. And you sort of are like, how can that be? There's only going to be five or 10 new cars tops, but people really worry a lot about those traffic and parking and environmental concerns.
Kol Peterson: Something else you've alluded to is this traffic study or parking study. Say I want to build an ADU, I want to convert my garage to an ADU. Can't provide an off-street parking spot, can't replace it. The driveway leading up to the garage doesn't classify as an off street parking spot, according to the zoning code. Is it a reasonable thing to ask me to do a traffic study or a parking study.
Katherine Levine-Einstein: They're really expensive, right. So when we require those things we make it much more expensive to build.
I think my take on that would be that clearly, there are some projects where we want to see parking studies and traffic studies. And I think we should have planners who are experts in those areas work with engineers and other people in city staff to come up with a really clear set of requirements about here are the kinds of projects that absolutely need to [00:32:00] provide us with a parking study and a traffic study.
And here's what we need to see from that parking and traffic study to view it as conforming with city requirements. Because one of the things that is sort of especially problematic about these neighborhood processes, it's actually not just that neighborhoods can demand, like you need to give me a parking study.
It's if they don't like the results of the first study, they can ask for a new one.
As part of our book, we interviewed a lot of developers across the country. And a story we heard from multiple ones was that we had to do like two, three, four in one case five traffic studies for the same project, because the neighbors kept raising objections to the one that the developer had provided.
I totally buy that they're unscrupulous developers who cut corners and provide terrible traffic studies. And I think that is something that local governments can set clear requirements around to avoid. They can say here's what comprises a good traffic study. And if you meet those requirements, you don't have to provide four more, just because the neighbors didn't like the results.
Kol Peterson: Given this entrenched [00:33:00] dynamic that is more or less a truism that people don't like change and that   they're going to object at a local level to proposed projects. What are some practical approaches that ADU advocates, infill housing advocates in general should consider in the face of this type of dynamic?
Katherine Levine-Einstein: At a sort of more policy level, as much as possible advocate for policies that allow for ADUs by right. Any time you can get around this sort of ad hoc and neighborhood process, it's going to make it easier for folks to build. I think at a sort of policy level, avoid the special permits as much as you can, but obviously that's easier said than done.
And sometimes getting these policies passed in communities is incredibly contentious in the special permit is like the compromise that lets you get it done. So thinking more micro, if you're that property owner is trying to get an ADU through a neighborhood process, I think clearly the most important thing is making sure you have supporters in the room.
Ideally make sure if you don't have opponents in the room. We did read through [00:34:00] meeting minutes where essentially the meeting around an ADU work extremely uncontentious, you know, someone brought like two neighbors with them who are like, yeah, Joe's a nice guy. You should let him build this ADU.
And then no one showed up in opposition. And so the thing went through really easily and it was presumably a reasonably low stress process for the homeowners. So I think making sure that you line up some form of support at these hearings. And if you do hear wind of opposition, really thinking about ways to frame the opposition as being unreasonable or NIMBY in some ways.
Right. I think it's really important.
Kol Peterson: I think we've started to see some you know YIMBY yes. In my backyard movements to kind of coalesce in support of local projects. Any observations to share about that, that you've heard about.
Katherine Levine-Einstein: Yeah, no. So, I mean, I wish and so many people people have asked me about this a lot in regards to our Massachusetts data, because Cambridge has a very active YIMBY movement now.
And unfortunately our data collection stopped in 2017. And I would say the movement there, it really picked up in 2018, 2019. And so thinking about [00:35:00] sort of where a YIMBY movement can be most effective and looking at Cambridge. In some ways, the place where they've been most effective is actually organizing around pro-housing city council candidates, right?
That at the end of the day, to get good housing legislation passed, you need to have politicians in place who are willing to sort of put into, put into place policies. Like in Cambridge, the affordable housing overlay, we look at Minneapolis, something like abolishing single family zoning, right?
Like that requires the actions of politicians who are pro-housing. And so if I were advising YIMBYs, I would say, go out and organize and get those candidates elected so we can pass the citywide legislation that allows for more housing to be built by right. More recently we've seen
Kol Peterson: states like California and Oregon step in with pretty aggressive or assertive statewide ADU legislation superseding local control over ADUs ordinances.
While this may be seen as a bit heavy handed to some city officials and planning staff in the sense that [00:36:00] historically zoning controls is at the local level. I'm now, personally, becoming convinced that this is the only reasonable pathway forward, to enacting     best practices for ADU zoning regulations.
For the most contentious things like Austria parking, owner occupancy requirements. The only reasonable pathway forward in the sense that I am impatient. I'm not willing to do this through 190,000 jurisdictions in the United States. I want to do it through 50 or, you know, however many handful of states are willing to take this on where there's actually promise of our potential for ADUs to play a role in addressing housing shortfalls.
So what's your take on statewide legislation that preempts local zoning? And what do you suspect are some variables that would indicate whether this would be a viable approach in your state?
Katherine Levine-Einstein: I'm really into state level preemption in part, because I think it makes the development pressure it's more evenly spread, right.
And more spread to exclusionary places. And so we can think about places like Minneapolis, they went out on their own and they abolished [00:37:00] single family zoning and that's awesome. But their surrounding suburban communities haven't done that. Right. And so that essentially does, is it concentrates a lot of development in the city.
And it means that some of the places that have, you know, the highly ranked school districts get to stay exclusionary. And so I think we don't want to rely solely on a process that involves the most progressive places saying, sure, we'll let more housing get built here, while exclusionary places get to stay exclusionary.
And I say this for two reasons, one it's unjust because it makes it harder to access the really high quality public goods, the top rated schools in many places. Right. And so that's, that's I think a deep problem. I think the second issue though, with having that kind of uneven development pressure is it can lead to gentrification and displacement, right.
That, you know, here in the Boston Metro area, an overwhelmingly amount of our development has been concentrated in the city of Boston because they haven't made it super easy to develop, but relative to the surrounding suburbs they've made it much easier to develop. And so what that means is they get all of the building.
And a lot of [00:38:00] people of color have been pushed out of their neighborhoods. And in contrast are like inner core streetcar suburbs with all that top ranked schools are just not doing their share and they're not going to voluntarily do their share. And so I think that's why we need the state to step in because otherwise a lot of places where that should be shouldering their development burdens just aren't going to do it.
Okay. So where can it happen? Right. Like. Oregon sort of a unicorn, right? Like California, I think has been the counterpoint to show us a place where everyone agrees that housing is a huge issue, but no one can seem to agree on what the preemption legislative package should look like. Right.
Like we've seen many packages go through. And I think finally, now there's been a little bit more attraction. But that's been a really contentious issue in one that it's been really hard to get support from a bunch of different state legislators. So so I guess, yeah, my answer to how to get it done is we haven't really been able to get it done in a lot of places, right.
That Oregon is the most recent example where there's been real success. But in a [00:39:00] lot of other places like Massachusetts or California that has really pressing housing crises and very liberal state governments it's been really hard to do.
Kol Peterson: Ironically though. I'd say it's, it was. Weirdly easier to pass a statewide legislative bill for, for what, just for the elements that occurred within the ADU portion of the bill for Oregon, which said no owner occupancy, no off street parking. Easier to pass at the statewide level than to try to do it in a given local jurisdiction.
So I think depending on how the bill is targeted and framed and how explicit or how minor it might seem, it actually might be easier to pass at the state level than at the local level because of this dynamic that you've articulated so well, which empowers neighbors to have more voice than people who dedicate their profession to studying this issue who are more empowered at the state level. In other words, more [00:40:00] academics, more institutional voices that understand the statewide dynamics between supply and demand. I wish I knew which states would be most ripe for that type of suggestion at this point.
Katherine Levine-Einstein: I think the packaging really matters, that's a really important point. I think again about this Minneapolis example where they've gotten tons of attention for ending single family zoning at the same time that they did that they also abolished parking minimums, which like no one was really talking about because they were also distracted with the single family zoning, which is as much bigger, more contentious issue.
And I imagine in a lot of places, if you tried to abolish parking minimums, without having a broader conversation, it would seem like a huge deal. And so, as you say, I think a lot of it is in the packaging. And whether you can make it seem like a minor little tweak to land use regulations or whether it sounds like the, a big deal that will get rid of all of our beautiful single family neighborhoods. I think that's an important political point.
Kol Peterson: Awesome. Thanks, Katherine.
So Kelsey let's I'll have you take it away.
Kelcy King: That wraps up the interview portion of this [00:41:00] episode of the ADU hour. As a reminder, these episodes are the edited audio version of interviews that we conducted via a webinar series. Good news. You can access the full video series via Kol's website, BuildinganADU.com. Now for the second half of the show I curate questions from the audience that gives our guests the opportunity to dive deeper into a topic or address new ideas and questions.
First we want to know what the podcast was that you heard, Kol.
Kol Peterson: Oh is maybe Catherine can speak better than me to this .
Katherine Levine-Einstein: It was with the it was The Weeds with Matt Yglesias, and I think it was in January, which feels like a lifetime ago that wasn't so long ago.
Kelcy King: Thank you. This one's from Neil, are contemporary neighborhood defenders being honest in their community concerns, or could they be euphemisms in order to not say the more insidious intentions out loud?
Katherine Levine-Einstein: Oh, totally. Yeah. And the problem is right. Obviously we can't know that for [00:42:00] sure. I can't mind read and see sort of what's inside someone's head and certainly not when I'm reading the meeting minutes. But sometimes, people say that the quiet part, right? So there are times where you read through these meeting minutes and people say things that are, that are more explicit.
So one that really comes to mind for me, was one public meeting where someone talked about their lovely north shore town that's right on the ocean, say we don't want it to become another Chelsea, which is a town that is like six towns over majority Latino. And so it was very clear that the concern was that if you built this housing development, you would have Latino people moving in.
We also heard from someone who worked in the planning department in another privileged community in the Boston area that sometimes the meeting minutes actually gets scrubbed when someone says something that's incredibly racist. And so I can't speak to that, I haven't seen it personally.
That's all to say, I think those sentiments are very much out there and there's also a really strong incentive on the part of both individuals who are trying to be persuasive and also governments to not [00:43:00] have those be in official documents. So yeah, very much still there.
Kelcy King: Melissa wants to know, with your research, is it better to ask for more units, say 10 versus four, so that after it's all said and done going from 10 to four, rather going from four to three.
Katherine Levine-Einstein: You know, I can't say that for sure. I would love to partner with a developer where we experiment and try a few different developments to see how this plays out. But in interviews with developers, a lot of them will say that they shoot high in their initial ask, so that then when they're like, oh yeah, we're going from 10 to four that were so reasonable.
We're cooperating. Right. And I think, again, this is another cost of these land use regulations is if you're a property owner or developer, you have to guess, right. You have to sort of say, okay, what's the too high number to shoot for us that I can eventually end up with the optimal number of units for me.
Yeah.
Kelcy King: Great. Thank you. Is it possible for local jurisdictions to take the state to court on state level preemptions?
Katherine Levine-Einstein: That's a great question. I don't know about whether they can take them to [00:44:00] court. I know they can do lots of appeals and fight it. And I know that individuals have taken the state to court over preemption. More generally, one of the critiques of preemption laws has been that in practice, they don't produce more housing because they lead to more litigation. That has absolutely been the experience with Massachusetts' preemption law, chapter 40 B, which has been around since the 1990's. And it's unclear what the longterm effects have been on housing supply.
There's been sort of mixed studies on this, but there have absolutely been a lot of lawsuits about it. So I think it is definitely something that folks have to be prepared for when you pass these kinds of laws, that there is litigation around it.
Kelcy King: Once land regulations are set development should be by right, but how do you deal with design and design compatibility with an existing historic neighborhoods?.
Katherine Levine-Einstein: Historic neighborhoods are really interesting ones. Because it's funny when you read sort of be an economist who studied land use regulations, they hate historic preservation. I think if you were to sort of say, like, what is the thing that they would most love to get rid of?
They sort of look at these historic districts and say that the, when [00:45:00] we have those regulations, we make it harder to build. And yeah, I think those are that would sort of be the hard party line. I think it's challenging though, because when we look at what we love about many of our Americans cities, we love some of the pretty old preserve neighborhoods.
So yeah, I think you've highlighted a really tricky trade-off when we have regulations that preserve our communities, we make it harder to build and we make it more expensive to build. And in some cases that may be worth doing but not always . Like I think we have to sit or yeah, balance the need for more housing, with the need to preserve some of our some of our treasured neighborhoods.
I think the second place I want to flag that with historic preservation is again, this equity concern in a lot of American cities, the old neighborhoods that are historic preservation areas are also the rich areas. And so they provide this tool for affluent areas to say, oh, you can't develop here look at all these pretty Victorian houses. Why don't you go develop over there? And the other part of the city, which happens to be where poor people and people of color live. And so I think that's one of the tools that has led to incredible [00:46:00] inequities in where development happens.
Kol Peterson: I want to make comments last question, which is what if as a general operating principle, the higher priced land value areas were required to have the most liberal regulations for housing development.
Katherine Levine-Einstein: I think it would solve a lot of the gentrification displacement concerns. And again, if you look at California, one of the big issues has been that in Los Angeles a lot of local low-income communities of color have borne the brunt of development pressures there and it turns out that those are also the areas that have been upzoned more frequently . And so I do think something that, that rectified that inequity would certainly be something I support. I think it would be very politically difficult to pass because the most powerful areas are the ones that are protected by these regulations.
Kol Peterson: But its precisely where we, we need development, right. I mean, those areas, in general, going to be the areas where the most transit oriented, most desirable places and [00:47:00] where these kinds of projects could pencil out, it would make sense for the community if they were allowed.
Kelcy King: In addition to building smaller footprint ADU's, how can we also get people to build smaller main homes versus mega mansions?
Katherine Levine-Einstein: This is again, one of the issues that people raised in the town that I live in, when you try to sort of reform zoning and land for more multi-family housing.
One of the issues that gets conflated is people say, well, you know, there's been so many tear downs as small houses to build these mega mansions. And so when we loosened zoning, how do we prevent all the housing from becoming less affordable? You know, I don't know that I have a good answer because I always worry when you add in more regulations, we're just going to make it more expensive to build.
But I definitely share the questioner's concern about about replacing a small single family home with a big single family home, I guess I would say we should replace that small single family home with like a couple of homes or a townhouse, if we can, if the lot's big enough in supports that use.
Kelcy King: Great. Thank you. Are you aware of any research that shows the relationship between increased housing price and decreased [00:48:00] quality of living?
Katherine Levine-Einstein: Hmm, interesting. So yes, I think there's a lot of research that shows when your housing gets more expensive, life becomes more terrible at a variety of dimensions.
And so when we have higher costs of living, I think if you want the most direct measure of quality of living health, right, your health, your stress, we know that if you're in a more expensive housing market, and if your housing itself is more expensive, you experience more stress, you experience all these negative physical outcomes .
You're more likely to be faced with a crazy long commute which is terrible for a whole host of reasons. So I think there's a lot of ways in which being stuck in an expensive housing market makes your life worse.
Kol Peterson:
Thanks for being our guest today, Katherine, it's been a lot of fun ! .
And thanks everybody, we'll see you around the bend.

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The ADU Hour w/guest Kurt Lane
8 jun 2021· The ADU Hour
Kol : This is [00:02:00] kind of a interesting topic that is, on its surface kind of a dry topic, but one that I think is really important for some big picture policy reasons. Just to set a little bit of a framework for why this topic is relevant.
There's a direct correlation with where ADUs are likely to take off and an affordable housing crisis. So in areas where there's an affordable housing crisis, we're likely to see ADUs. In areas where there's an affordable housing crisis, we're also likely to have stricter than normal rental regulations and therefore owner occupied properties, where people are prone to build ADUs, all of a sudden they may, may maybe in statistically speaking, more likely to be subject to onerous rental regulation standards.
So I wanted to have Kurt Lane on today to kind of go over some of these issues and how some of these rental regulations apply in Portland. So in any [00:03:00] event Kurt, why don't I have you just give a brief introduction of yourself?
Kurt: Yeah, sure. So my name's Kurt Lane, I've been a rental property owner here in Portland and in Detroit, Michigan for the better part of a decade.
I started Chroma property management at, towards the end of last year after, spending a lot of time, self managing properties that I own and really just, I saw a need in the Portland market for really a more modern approach to property management. And also I saw a need or, property management services for ADU and owner-occupied people because obviously that makes up a significant portion of our market here.
, Portland, I think is arguably the most heavily regulated rental market in the country. So property management then becomes, pretty crucial here in order to help people navigate all of that regulation because, penalties for being in non-compliance can run into , easily into the thousands.
So, it's a full service property management company, but we do have a suite of services specific to ADU owners.
Kol : [00:04:00] So let's talk in broad strokes about the trends in terms of landlord tenant laws in West coast cities that are facing an affordable housing crisis. Can you talk about some of the big picture trends that we're seeing in those regards?
Kurt: Yeah, so I think, really this started in Portland and really in other major cities over the last decade there was a really significant increase in the total dollar amount of money spent on rents and also on, the percentage of rent increases. So in Portland, in particular, 2010 to 2015 they saw , over 20% increase in rents and significantly, there was a spike in 2015. Overall Portland saw a lot of economic gains in, in the last 10 years. So it was a fast, fourth, fastest growing city , looking at income specifically, and it was only behind Seattle, San Francisco, and I think San Jose . So Portland saw a lot of economic gains, but also saw , people feeling really [00:05:00] squeezed out of the rental market, especially with redevelopment and sort of, inner Northeast and inner Southeast, which is, sort of close in to our city here.
That gave rise to the city, declaring a housing emergency in the fall of 2015 and the housing emergency . I'll just read the language really quick because this language really then dictates the policies we're going to be talking about today. So the Portland city policy as of 2015, is that all Portlanders regardless of income level, family composition, race, ethnicity, or physical ability have reasonable certainty in their housing, whether publicly assisted or on the private market.
And so this concept of reasonable certainty becomes very important. In defining how the city is going to implement a bunch of regulations. So primarily that's taken the form of rent control. So we have citywide rent control here in Portland. The state decided to then follow suit with the first statewide rent control legislation in the country.
So that passed [00:06:00] last year. So at the state level, rents are capped at 7% plus the consumer price index annually. So this year it was 9.9%. Those rates are set every September. Portland also just incidentally has 9.9% increase year to year. So that was very fundamental shifts. Another big change was that there's this idea now of when a relocation assistance.
So all of the things we're going to be talking about today, are expansions of tenant protections in the market to try and guarantee some reasonable certainty. So rental relocation assistance, what that really means is now there's direct form of cash payments from landlords to tenants in the event of, excuse me, in the event of a no cause eviction or a rent increase over 9.9%.
And then most recently as of March 1st, there's now these ordinances that are called the fair ordinances. One of those deals with screening criteria. So how you can evaluate tenants and the second deals with security deposits. So [00:07:00] what you can charge for security deposit upfront, and then also how the landlord and the tenant have to document the condition of the property throughout tenancy.
And so what you're seeing these that's Portland specifically, but you've seen that replicated in Seattle. Obviously you're seeing that in California and LA and San Francisco and other communities there Seattle, this winter, the city council passed a resolution that you could not evict tenants during winter months.
The mayor refused to sign that, but that's going to come back around. And I think obviously with everything going on now with COVID-19 and major economic disruptions, you're going to see cities, make attempts essentially to guarantee housing for people. And so that's taking the form now in Oregon of there's a moratorium on evictions through the entire emergency and the state and city sort of, big dictate when emergency period ends.
Kol : It use are largely developed by amateur homeowner developers. And many of these homeowners are becoming landlords for the first time when they finish your ADU and [00:08:00] rent out the primary house or the ADU. So what are some best practices that you would like to convey to first time landlords?
Kurt: I think, really important to start thinking about the property, number one is an investment property. And, but number two also, as , you are providing , housing to people and there's a, there's a great deal of responsibility that comes with that. And so that means that, you need to have a legally binding lease. You need to have an application process that's equitable.
You need to make sure that your screening criteria is documented. You need to make sure that how you go through the entire application processes is really well-documented. That basically you're you really in compliance with all these things. I mean, that's sort of legally, that's what you want to make sure of.
I would also really advocate people , making sure you have the right insurance in place, so it's going to be a different type of insurance than you have for your home, for example . I'm a big advocate of people setting up LLCs for rental properties. I think there's a lot of protections that provides.
[00:09:00] For a lot of people, it's the first time doing this. And with ADUs, it is unique because, typically the owner is, intimately involved in the development of the construction of it, as well as opposed to somebody who goes and buys a duplex or a fourplex to get started.
So I think you have to separate yourself from the process a little bit and start thinking about what are the steps I would, I would be taking if I had, a standalone duplex or a standalone single family rental, and just really making sure you have everything in order to, to be going about it legally and to really, be taking on having tenants full-time.
Kol : Do does having renters living on the same property, of owner occupied properties, meaning an owner occupied property with an ADU or duplex or triplex provide any separate legal protections for landlords or for tenants that are not afforded to non-owner occupied investment properties and can you describe what these protections are?
Kurt: Yeah, definitely. So in, in [00:10:00] Oregon, and I think you're seeing this , in other places where ADUs becoming, an owner occupied, is becoming more and more prominent part of the mix of rental housing is, there's this trend towards creating a separate class of rental property.
So a lot of times, obviously ADUs and owner occupied, they're, they're treated the same as, an apartment complex with a hundred units or 500 units. But in other key areas, the city and state are differentiating those types of properties. So the key things to think about when you're talking about ADU and owner occupied is the idea of the owner actually living on the property.
So that means the owners that they're living in the house, which would be considered the primary dwelling or living in the ADU. It doesn't really matter, which just as long as you're living on both, if you're living on neither, then your property is just a rental property in the same way , again, a hundred unit apartment complex would be. It's treated the same legally. But if you are living onsite, which is obviously really common in the ADU world and [00:11:00] an owner occupied, in Portland and in Oregon, you are granted certain exemptions. So rental relocation assistance, which I talked about earlier that the direct cash payments and the, a bit of a no cause eviction or rental increase button 9.9%, that doesn't apply to ADU owners who live on site. They also are exempted from the screening criteria of the FAIR ordinance that passed. And what the screening criteria really was, was an attempt to standardize how tenants are screened and then also lower the bar economically to make, a wider pool of housing available to people.
So it used to be that. Tenants would have to show three times , gross income relative to the rent. And now that's been dropped to two times. Credit scores have been dropped. So I think it's 500 now criminal history, they backed off on what you can look at in terms of criminal history.
So before it used to be well now, for example, it's , seven years is as far back as you can look. So that doesn't apply to [00:12:00] ADU owners.
Kol : Wait, none of those, none of those screening laws apply to ADU owners?
Kurt: No. So in none of the FAIR ordinance screening criteria, none of that applies to ADU or owner occupied.
So the other thing that's really important for ADU owners, especially if you're dealing with new development is, so there's the statewide rent control law that I discussed earlier that caps rent at 7% plus consumer price index annually. That doesn't apply if the certificate of occupancy was granted anytime within the last 15 years.
So those properties are grandfathered in and exempt from state rent control. So, basically the key things to really know, in Oregon, in terms of the mix of how this works with ADU , you can have an exemption for state and rent control law if your ADU is less than 15 years old, rental relocation assistance, since doesn't apply to you. And also this, the screening criteria, the FAIR ordinance, doesn't apply. The second ordinance there, which is security deposit, [00:13:00] and that applies to everyone. And that's really that that's a fairly like it's a significant ordinance. So people should be really aware of that going into the process. But yeah, those are, those are some of the things that have been done to really differentiate ADUs.
The important thing to know about all of this is that, especially with the rental relocation assistance, you have to file an exemption with the City of Portland. And that has to be granted by the housing bureau. So there is a process for that exemption, but it does exist.
Kol : Yeah. Well, I'd like to talk more about those things in a minute. I will mention that roughly 10% per year rental price increase seems pretty high to me. Like if I'm charging say, a thousand dollars a month, right now it's just really inexpensive, the least expensive ADU probably would go for a that I can bump it up by 10%, how 1100 bucks. And it like to, that's a pretty big bump. So that doesn't seem [00:14:00] like it's a problem from our landlord's perspective to me. Does it seem like one to you?
Kurt: Well, I think what was happening is that, we touched on it a little bit earlier, but over the decade, last decade , 2010 to 2019 there was rents in Portland, went up a lot. So it also, and there was also a lot of redevelopment of existing rental stock. So what was happening is, a person buys a fourplex and, does an extensive renovation and then suddenly their market rent went from, and this is a, pretty accurate example probably about like went from 650 to 850 for a one bedroom.
And suddenly their market rate was 1200, right. So that represents a significant increase in rent. But it was in line with the market. So I think you don't have a problem with this if your rents are already at market rates. But if you have situations, which is also really common, where especially if somebody owned, owned a property for 15 years and they've had the same tenant and maybe they've raised [00:15:00] rents, 5%, every five years or something like that, which isn't unusual, suddenly you're way behind in terms of what the market rent actually is.
And so if you're in that position, then 10% , doesn't seem like that great of an increase, but I agree. I mean, if you're, all the, all the landlords, all the owners that I work with everybody is, and the rents are at market rates already. So they're not really going to be worried about, 9.9, 10%.
What happens though, and what people are worried about is that landlords were automatically increase rents to that level every year, just to make sure that they don't fall behind. Because if you miss a year, then , you can't make it back up. And also the other thing to important, important to realize about that is you can't raise rents above the allowable level between tenants.
So there's, there's this idea that the rent level sort of , it is dependent on the property. So if somebody moves out and they've lived there for 10 years and let's say, do use the ADU example, let's say they were paying $800, right. And , now you can get 1200, you [00:16:00] can't automatically raise it to 1200.
At the most you can raise. It is the 9.9% is the allowable rate. So even though someone moved out, it's a new tenant, all of that stuff, you still have to only increase at 9.9% in the city of Portland.
Obviously there's a lot of people here listening who aren't in Portland. But I think the idea here is that you see a lot of times, West coast and major cities leading the trends and some of these things. So I think as you start to see , this become an issue in more cities and also, ADUs becoming more common in places that aren't like Portland or aren't like Seattle, you'll see a lot of these, a lot of these regulations type, trickle down. And it really, it is like in Portland, it is an experiment. I mean, it's, it's really an attempt to see, like, does this work, does this, not, not depress, but does this sort of just suppress the rapid growth we were seeing in rent?
Obviously , you can't now sort of get a good baseline because it's all been [00:17:00] thrown into chaos essentially with, what's going on, with COVID-19 and economic destruction from that. But that was really what the city was attempting to do is seem like, is, do, does this work essentially.
Kol : So I'm generally concerned about restrictive rental regulations and their potential to adversely impact housing production in the ADU space in Oregon, Portland, but even more so in California. And I'm not going to pretend to be a subject matter expert on the rental regulations of California, but I have heard they're quite onerous.
So I, I do think that's going to dissuade people's interest in general in becoming a landlord cause they're freaked out about becoming a landlord. So as a general policy matter, I'm interested in seeing some carve out legal exemptions for screening criteria and lease duration, flexibility for owner occupied properties.
So that owners [00:18:00] have a bit more control about who they're living with. And it sounds like Portland's kind of doing this. So I guess I'm curious for your thoughts about this idea as applies to ADUs and middle housing in general. And so can you talk about that and does do these regulations also applied to middle housing, triplexes, fourplexes owner occupied?
Kurt: They only apply to duplex. So anything over a duplex is considered, falls into the other category of the other types of your rental properties. So it only applies to owner occupied duplexes and ADUs where there's, the primary residence and the ADU on-site and the owner is living there.
So that's, that's really the way that the city and state have been distinguishing these. Yeah, I think in general, yeah, as I discussed there, there is this, do you have, setting it, bringing a separate sort of class of, of rental property. And I think you're going to see that more and more, especially as people, advocate for that.
So especially as people who are ADU owners and are an owner occupied [00:19:00] situations, or are agitating for that. The other thing to keep in mind is that certain fair housing act regulations don't apply to owner occupied or to ADU. So. I'll just say an owner occupied, but I mean, both obviously. And so the fair housing act and I'm not an expert on, on actual the implementation of this, but basically they've tried to make allowances for, the type of situation you're describing, where people want more control over.
Who's going to live in there because they live on site. So you don't have to follow , protected class guidelines, the way you would, if you were, if you owned a larger rental complex, or even just a single family rental. So you're given exemptions for that. You're obviously in Portland, given exemptions for rental relocation assistance, you're given exemptions for just screening in general.
So there you do see an attempt to accommodate the fact that people want more control over who's going to be [00:20:00] living on the same property that they, that they own, that they live at. So that's something that definitely happens. I mean, I think in general, the attempt with the screening criteria that the city of Portland did was to remove all bias whether conscious or not on the part of the landlord.
So basically just remove all of that. And just say, you have to look at these specific criteria, so you can view regulation as, onerous and problematic, which it is in some ways, but you can also view it as setting a clear framework for how you can and can't act in the market. And so it's sort of like, from my perspective, as a, as a property manager, the screening criteria to me, it just says, tells me like what we can and can't look at, and that's, and that's all it is.
I mean, you can, you can make arguments about, 'Oh, you're going to get people in properties that aren't able to afford it', all these other types of things. But, in my mind, it's just the regulation is, what it is and you just have to follow it.
Kol : So despite the seemingly seemingly complicated set of rules for [00:21:00] being a landlord, my personal experience over about 20 years doing this is that it's been very easy.
I mean, there's a reason why passive income is called passive income. It's relatively simple way to make income. And only rarely in my, in my personal life have situations arisen where there has been a problem with tenants. Especially when I've been living on the property with tenants, whether it's been in the ADU and I was renting out the primary house or vice versa.
So with all that said you're a property manager and I'm curious what are some reasons that owner occupied ADU owner would want to consider voluntarily giving up 8 to 10% of their monthly income, which is what property managers typically charge to use a property manager, or do you just, would you generally say in a non self-serving way that's not really needed, you don't need a property manager at all? What, what are your thoughts [00:22:00] about that?
Kurt: Well, yeah, there's, there's, I mean, there's a couple of ways to think about it. I mean, I think, I hired an accountant for a reason and I've hire general contractors for a reason and it's not to say that I can't do my own taxes. Or that I can't take on a project, which I can't take on a project, but , that's not to say you can't learn how to do that, but a lot of people, it's not really an efficient use of their time and it's not really how they want to be spending their time.
So I think that sort of, how do I best use my time? How do I best allocate my resources is one reason people go with property managers, another is, market acumen. So, knowing what rents are knowing what does, and doesn't make sense to invest in. I was listening to the one yesterday, which was obviously dealing with appraisals and in a lot of that was resonating with me where, certain choices people make in terms of what they think will be, will drive, rents up.
If, if you were to consult with the property manager before that, they would say, no, you're not going to see a big, a corresponding bump in your rent to have that make sense. So I think [00:23:00] market acumen is part of it. Obviously in Portland, in Oregon, it's knowledge of state and local regulation is a huge, huge part of it.
I mean, if, and this is, this doesn't necessarily just apply to ADU owner occupied, but , the security deposit ordinance, if you run a foul of that and obviously the security deposits are some of the most litigious aspects of a lease. So any time you keep back part of the security deposit, the tenant's going to probably challenge that and sort of what's considered reasonable wear and tear.
There's a lot of gray area there, but if you run a foul of that in Portland the penalty is two times the security deposit, plus attorney fees and actual damages. And also even if the owner , wins the claim, they still can't recover their attorney fees. So in that situation, you can easily imagine, someone who's got an ADU that's $1,500 security deposit, top of 15, plus your attorney's fees.
That's easily, five, six, $7,000 penalty there before it's all said and done. So I [00:24:00] think working with somebody who has a really deep understanding of the regulation is a reason. And I mean, I just always come back to like the idea that has literally happened in my cases, when I did have my own rental property, which was, the water heater went out at 7:30 on Friday night and it's like, then we're over there doing that.
And I think for a lot of people , maintenance is what people come back to time and again. It's a reason they don't want to do it. They it's something they don't want to think about. I mean, when you thought about passive versus active income, there's certain times when being a landlord feels super active and then there's other times where yeah.
Months or weeks will go by where it does feel very passive. So I think for the people listening to it here is obviously a very motivated, like entrepreneurial group, who a lot of them will be self-managing. But I think, most of the people I talked to and the people that I work with you have ADUs, they just don't want to deal with that.
And especially the more regulation there is, they'd rather turn that over to somebody who specializes [00:25:00] in that and do they pay up, 8% is what might my fee is, but who pays that, on a monthly basis and just kind of takes care of everything for them.
Kol : I'm going to run a little spontaneous experiment here, there a question in the queue from Kevin about People who are maybe inclined to build an ADU, but they're a little bit freaked out about the idea of becoming a landlord because they've been hearing these nightmare types of legal changes that are occurring within their city.
So I would like for landlords who are in this call to put in their thoughts about what advice they would give to newbie potential ADU developer/landlords, to help them feel at peace with the idea, the prospect of building an ADU on their property. I think you would have some suggestions for that too, Kurt, but I'm going to see what responses come out of that.
And go on to my next question for you. So you have a unique service that [00:26:00] you provide for ADU owners that I haven't seen other property managers do. Could you talk about that business proposition?
Kurt: Yeah. So, what I really saw the need for was for lease services around ADUs.
So, a lot of where issues come into play is, the type of lease that you have with somebody, or the lack of lease, how that's all documented, the application process. We've obviously talked about screening criteria being important. And even though it doesn't some aspects that don't apply to ADU owners, you still have to follow, there still are at the state level, legally binding screening criteria.
So really, yeah. What we offer is It's a set of lease services that basically for ADU owners we handle the application process. We run the background and credit checks, so that involves obviously a credit check eviction history rental history, all of the sort of, background information that you would want to know.
So I work with, TransUnion who obviously is a big provider of background and credit checks. So we [00:27:00] provide that service and then we do the full lease for you essentially. So that is at this point, leases in the City of Portland and run 18 pages or so. And so yeah, the full lease , all of your, sort of carbon smoke detectors, all your molded addendum, is basically that entire package that makes your legally binding lease with the tenant. And the way it works for us is this is assuming that the ADU owner has already found the tenant. So we don't go out and market the property on that falls into, full service property management situation.
But if, if you have, a tenant or you're pretty far along with somebody, we can basically run that entire process for you and make sure you all at the end have all of your documents and your legally binding lease. And so for that we do $300 for that service and that's a, just a one-time flat fee.
And at the end of it, you're then in charge of rent collection and ongoing communication and maintenance and all of that. Yeah.
Kol : I liked that. I liked the concept. I don't know whether that's going to be like of a business line [00:28:00] that's going to generate tons of cashflow for you individually, Kurt. But I do really like that concept of having this kind of standalone piece that you offer for owners who are concerned about dealing with the most, potentially legally challenging portion of the process. And also, doesn't require that they have to give up 8 to 10% of their rental income each month. Which to me is where I balk at the idea of using a property manager at least locally now in my personal case, I own rental property in locally and I manage it all myself and then I own a property not locally. And I do use a property manager. So I experienced with both and it is awesome. Having a property manager makes it so easy. Oh my God. But , I'm giving up a couple hundred bucks a month and most of the time they're not doing much.
Kurt: Well, I don't know about that, but I know for me just to go back to your point of like the, the reason that I set that up in the first place is. [00:29:00] I do think it's a, it's a useful service and it has proven to be for people, but also from my perspective, people who have ADUs now or owner occupied, those are the people that, five years from now are going to be buying, a second. Maybe they buy a fourplex and maybe they buy a couple of single family homes that they want as rentals.
So those are the people that you'll see moving more into having investment properties and rental properties. And so I want to develop a relationship with those people early on, and, they see value in the service that we provide. Then maybe they'll work on me down the line. So yeah, it's definitely, the core of my business is full service, property management.
And I do that for people with ADUs. I do that for people, in multifamily, single family homes, all that. But yeah, I view this as sort of a nice introductory service for people and also for people who. They do want to have the experience of managing on their own. I mean, that's how I got into it as managed my own property.
And, that's a very invaluable experience to know how everything works and to know what the concerns are, know what, how a tenant is going to respond to something isn't [00:30:00] always how you think they will. And so having a really good understanding, understanding of what motivates people is super useful.
Kol : One motivation of why people are building is not just the income potential, but also the flexible housing arrangements that they offer for people. And so one immediate thing that a lot of people are interested in homeowners, or is like, 'Can I do a short-term rental?' And a lot of jurisdictions that are allowing you to use are saying, 'You can do an ADU now, but you can't do short-term rental anymore'.
And that's all of California and Portland is more or less has a policy in effect now where for new ADUs, you need to pay a lot more if you want to have be able to do a short term rental. So I want to talk about alternative lease structures that homeowners can consider for providing more flexibility within their ADU to use it for alternative uses such as an occasional family member who wants to come to stay in town.
So can you talk about like fixed term leases and [00:31:00] alternatively structures that are out there?
Kurt: Yeah. So leases typically fall into two categories. There's a fixed term lease, meaning it has a specific start date and end date, and you don't have to give notice for when that lease terminates. So historically that's a year- long lease or there's month-to-month leases and a month-to-month leases, obviously, rolling 30 days. And there is then a notice period to terminate leases.
So the way that. Again, historically is working as the people, when you move into a place you're on a fixed- term, lease for a year. And then after a year that rolls over month-to-month. Historically there is an argument to be made to reassign people, to fix term leases.
So, for another year, but basically what Oregon has done with SB 608, which is the state rent control law is they've been really clear about the advantage that goes into having a month to month lease after the first year of occupancy, because this first year of occupancy becomes very important and the state of Oregon, and [00:32:00] after the first year a tenant, if they're in the same property has a really great set of rights.
And basically it can dictate when they leave. So the only reasons they can be evicted after the first year. And again, this doesn't apply to like non-payment of rent or, destroying the place we're talking about. No, cause what are called, no cause evictions essentially. And after the first year, The only grounds for no cause eviction now in Oregon are, if you're going to be basically taking the property off the rental market.
So if you're going to be moving back into it or an immediate family member is going to be moving into it and they can't find similar housing on the property if the property is going to be demolished, that, that type of thing. So I, I will say though, in the ADU world, there, there is a lot more people do desire a lot more to have, a three month lease or a six month lease and to have that flexibility.
And so I would say, if you're going into that situation, then definitely you want to have a fixed term lease. And so yeah, if you think, Hey, I want to have a [00:33:00] person in place for three months. And that's it. Then three months is the way to go. The thing to keep in mind right now, though that's happening is Oregon.
Because of the, because of coronavirus has said they they've stopped basically renewal of external leases. They've said that you can't renew fixed releases. They can just go over to month to month. So what you don't want to do, or what you can't do is start with a three month lease and then try and resign that same person to a three month lease.
They would have to roll over in the month to month. So that's kind of getting into like, weeds there a little bit, but yeah, I would say, if it works for you and if it works for the tenant where they're going to be there three months or six months or whatever, definitely go with a shorter fixed
Kol : Aside from coronavirus, which changes everything, you're suggesting that it is possible to do a fixed term three monthly , for example, in Portland at that point after three months, I could have another person lined up or I could have another use in mind lined up for the ADU and the tenant [00:34:00] must leave after three months. Is that correct? Okay, cool.
Kurt: So you still would want to check to make sure that like, cause there's, there's more extensive termination notices now, which makes it an a, which are 90 days, which makes it kind of this convoluted situation. Like the second, the day they move in, assuming a three month lease, the day they moved in, you give them, but it's like if you have everything lined up that way yeah, that's, that is the way to go.
And I think, it's like in that situation, the other thing to keep in mind here is, this stuff only gets litigated or tested if the tenant feels that they've been wronged in the situation too. So if you both go into it, knowing what the situation is, having a lease that spells everything out, you're, you're going to be usually in good shape.
And I think you'll rarely find these problems.
Kol : Okay. And my final question here is about like other business innovations that could help make the landlording process better for owner occupied properties. And then also tying in like how you [00:35:00] believe COVID is going to impact the rental market for ADUs specifically, but just let's just say housing in general and residential zones or small housing generally in residential zones.
Kurt: Yeah. To start with, with innovations in some of these are tied to COVID and then some of them aren't, but one that is, is definitely a move towards contactless self showings. There's been a movement towards that in property management for a while now. Because one of the things that takes up most of everyone's time is like actually physically being there to do a showing of the property.
So if you can move away from that model and give potential applicants remote access, then that's something that's really beneficial for everyone. So my company, we we've moved entirely to contact with self showings now. So like how that works in actuality is we verify people's ID ahead of time.
We use lock boxes that are, remote access one-time code. So people get a code on their phone, open the [00:36:00] lockbox go in. We're looking more and more about in certain types of properties where it might be sort of having it, having some sort of camera system and there as well, but so far, we haven't run into any issues with that.
So I think contact with self showings is one. I think a movement away from security deposits is another thing. So what you're seeing more is a couple of models. One is property managers taking on that risk themselves and saying, we're not going to collect a security deposit. And , the first thousand dollars of damage we'll cover. So that's one model.
Another is the idea of basically paying a form of monthly insurance to a third party that guarantees the security deposit. So companies like Rhino is a really good example of that. What they do is, the tenant pays a monthly fee, like, $13, $15 no security deposit is collected, but that money goes away forever.
And then in the event that anything goes wrong or there's a claim against it, then the owner or the property [00:37:00] manager basically files a claim back to Rhino and settles that claim. So I think that that's something you're going to see more and more. I think there's going to be more motivation to collect less money upfront.
Especially as obviously, mass levels of unemployment people have less access to ready cash. Having all of that money tied up in a security deposit is going to, I think be more and more problematic for people. So that's definitely another way I see it. In terms of ADUs and COVID-19, I think there's some things because in the short term that are, that are not great.
It's something that I've definitely been noticing on rentals that I have, where there's an ADU attached is in an era of social distancing, people are really concerned about shared backyard spaces or any sort of shared space that say less than, a sort of city lot size. So I think that that's going to be problematic for people.
Obviously, Airbnb has been decimated by this. I talk to people every week now who built these like beautifully finished ADUs for Airbnb that just came online, that [00:38:00] now there's no market for, and want to turn them into long-term rentals. Those are a couple things that I'm definitely seen as, sort of Airbnb going away for the short term and people really wanting more space and having concerns about having shared space and shared access.
So those are things that I would keep in mind if you're an owner right . Again, in all the things I'm talking about and all this regulation, everything. I still think that, rental investments in ADUs and owner occupied is one of the best ways that you can, basically be investing your money and building up equity and doing all these things and also providing like a really valuable service in your community.
So I think that none of this is to dissuade people. I think it's just, if you're going to go into make this decision and sometimes be spending, hundreds of thousands of dollars on developing these properties, you should really know what to expect coming out of it. And I think a lot of this is about like really professionalizing your approach to how you're dealing with tenants and how you're dealing with all the regulation involved.
But it's still, I think, a great thing to be doing and , you're going to see more and more of it. [00:39:00]
Int
Kelcy: Kurt. I'm just going to go down the line here about some good questions.
What is the definition of living on property for owner occupied properties? This particular person rents the main house to travel for an extended period of time, but plans to move in when the, into the ADU between the extended trips, would that count as owner occupied?
Kurt: I think it depends on how long it is. I'm not sure the answer to that specifically, but yeah, if the idea is also that, like there's not anyone else living in the main property and say, you're gone for, I'm not going to say specific, but let's say you're gone for two months or something to move back in.
I think that still fits the criteria of occupying the primary dwelling . So yeah, as long as there's not anyone else that moves into the meantime, that's a, you're treating us rental , I think you would be okay there, but again, very specific ones like that. I would , I'm, I'm happy to answer a specific question like that afterwards by looking it up, or I would consult with the actual origins on that.
Kelcy: Thank you. What are your thoughts on how new construction rental market is looking in [00:40:00] terms and return on investment over the next year? I have clients who are timid about spending hundreds of thousands of dollars at this time to do new construction?
Kurt: I think it depends on a ton of factors that we don't really know the answer to yet.
Everybody was really concerned about people paying rents in April and that happened and it was fine, but I'm more concerned about what's August look like what's November look like. If you look back on other historic events, they're historic. And so you're able to view them with some remove and some, some distance and a lot more context, but we're in a very fluid situation right now. And it really remains to be seen how all this will play out. If there's, some sort of solution this fall, then that will be very different than if there's a solution, a year and a half from now or longer.
So I will say, I mean, interest rates are historically low and , they're not, I mean, they can't go, they can't go much lower. So that's great for anyone who is looking to make an investment. Now, I think, in general, it's a bad idea to try and time the market. I mean, I think that applies to real estate.
I think it applies to the [00:41:00] stock market. I think that applies to a whole range of investments. I think the individual just doesn't have enough information to really make decisions like that. So I think, not following through with plans now that you were planning on doing, I mean, I don't know that I I'd love the idea of, coming online with an Airbnb this summer.
Like, I, I probably would be delaying those plans, but in terms of, right now we're still seeing the rental market holding up. And I think the city and state have tried to put certain things into place to make sure that, there's not sort of, this massive evictions aren't happening, for example and , for properties that I manage and that type of property, and probably the type of property that a lot of people on this call will have is, most of those people are still by and large are going to be in decent shape.
In terms of the earning potential and things like that. So I don't want to speculate too much about it, but I, I wouldn't be changing your plans wildly right now, based on what's happening.
Kelcy: Okay. Do rentals of rooms or spaces within a single family home that is not an ADU, are those [00:42:00] exempt from the Portland regulations?
Kurt: They would be. So that, that gets treated as a owner occupied.
Kelcy: Do you specifically offer property management services for purely the tenant search contract lease up for a fixed fee or do you manage the whole tenant after that also?
Kurt: I do both. Yeah. So, I mean, there's sort of three models, there's the full service property management. And then there's, as I discussed the ADU sort of lease services light which is, basically you, who the tenant is and then my company provides the entire service to sort of vet them, do the application and do the lease for them. And then a third service I offer is, we do the marketing, we do the advertising do photos, kind of everything that we do positioning for the property and then all the way through the lease signing process and then turn it over to you.
And so that's, that's a third model of something I offered. I have actually, I have a property that's going to be coming on next week that falls into that category. And for that, that the fee is, [00:43:00] is one month's rent. And then, okay.
Kelcy: Do you offer your services in Portland only? Or do you do anything outside of Portland?
Kurt: Outside of Portland. Yeah. So the way that licensing works in Oregon is it's, it's a statewide license, so it's essentially a real estate license. So yeah, I work throughout, kind of the greater, greater Metro area and beyond, I mean, I don't say work down in Bend or Salem or things like that, but yeah, the greater Metro area I'm working.
Kelcy: Great. Thanks. Do you, or are you aware of the City of Portland still offering the landlord tenant 101 class? Is that something that you offer?
Kurt: Yeah, I think they, I think they have been offering that. I mean, One thing that is still really happening is, I mean, even more so than before are things like this.
So, I'm a member of Multifamily Northwest. I'm a member of NARPA, which is national association of rental property, residential property managers. And those people are doing, they're doing classes on a, on a daily basis, on a weekly basis. [00:44:00] So the city, I would think they're still doing some of their classes.
I also do, I teach a class for brokers in realtors that's through various title companies. So if anyone after that is interested on an information on that, just go ahead and email me and I'll connect you with basically how, how that happens. It's typically through, I work with title companies on that.
So they, and if you're able to get a continuing education credit towards your license. So yeah, that's something that I do also typically on a weekly basis.
Kelcy: And for those folks who are planning on doing leasing themselves, can you offer are there any boiler plate legal contracts that they can access?
Kurt: Yeah. You want to be using in Oregon, there's swell important and there's two there's multi-family Northwest. And then there's also Oregon rental housing, I believe is what it's called. I use in most people use Multifamily Northwest. So they have a couple of different services. One is you can buy, one time printout fees or I'm sorry, [00:45:00] one time, for fee one time applications and forms.
The second is a sort of on demand subscription-based model for it. So yeah, those are, those are basically the standard leases and standard notice forms , rent increases, security deposit forms. They had the whole suite of forms and that's actually, I use those forms, most property managers and landlords in the city use those forms because they've just been vetted.
I mean, my, the attorney that I work with he's on the committee that basically writes all those forms. So it's just a really it's a good thing to be using those. I wouldn't just, Google lease agreement because we live in a very, very unique market and you want to make sure you're using all of the up-to-date leases, but yeah, that's, I would highly recommend the Multifamily Northwest leases.
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The ADU Hour w/guest Abdur Abdul-Malik
1 jun 2021· The ADU Hour
Kol Peterson: We are jumping into the ADU Hour series with our guest, Abdul Abdur-Malik. Thanks for joining us today. It's going to be really good getting into some really technical, nitty gritty stuff that I think we're all learning about. There's no codified information about some of the things that we're covering next, we're going to be learning a lot together, so look forward to it. Alright, Abdur come on out.
Abdur Abdul-Malik: Good morning, Kol. How you doing?
Kol Peterson: Good man. Good to see you.
Abdur Abdul-Malik: Good to see you.
Kol Peterson: Thanks for thanks for being our guest today. I think a lot of people are going to be really interested in what you've been researching. Why don't we just start by having you introduce yourself to our group?
Abdur Abdul-Malik: Sure. So my name is Abdul Abdul-Malik. I'm a certified residential appraiser, that's licensed to appraise in Oregon and Washington. I'm a board member of the local Portland chapter of the American Society of Appraisers. I serve as their secretary. [00:03:00] I recently completed my candidacy for designation, and I'm now a designated member of the Appraisal Institute, NSRA, and I'm also very active in teaching appraisal concepts. I assist a nationally recognized instructor, George Dell, occasionally when he comes to teach appraisers. And recently I've been really delving deep into ADU valuations.
Kol Peterson: Thanks Abdur. So we're going to dive right in, tell us about a term that. I've learned from you "functional obsolescence" and its relative application to ADUs.
Abdur Abdul-Malik: Sure. So to explain that I'm going to use basically what's known as the Bible for real estate appraisers is called the Appraisal of Real Estate. And I'm going to read from the 13th edition, a couple of concepts that are very important to understand when it comes to the valuation of ADUs.
So depreciation is a word that many of us have heard. And the definition for that is "the difference between the contributory value of an [00:04:00] improvement and the costs at the time of the appraisal." So the costs may have been higher initially, but at the time of the appraisal, it may be less .
And there are many different sources of depreciation. And one of them, the one that's particularly relevant for Ady evaluations, is the term "functional obsolescence". And, bear with me here, I'm going to read this definition, but it's very important for the understanding of valuations of ADUs. So it's the functional obsolescence is caused by a flaw in the structure, materials, or design of the approvement when compared with the highest and best use and most cost-effective functional design requirements at the time of the appraisal. A building that was functionally adequate at the time of construction can become inadequate or less appealing as design standards, mechanical systems, and construction materials change over time. Functional obsolescence is attributable to defects within the property in contrast with external obsolescence, which deals with conditions outside the property.
And here's the key portion for ADUs' functional obsolescence, which [00:05:00] may be curable or incurable can be caused by deficiency, which means that some aspect of the property is below standard and respect to market norms. It is also caused by a super adequacy, which means that some aspect of the subject property exceeds market norms. So that last part is the most relevant for the valuations of ADUs. It's not that an ADU is a bad thing to construct. In fact, they're very useful and they serve many different needs in the marketplace, but because the general market expectation is that these structures would not be present in most single family, detached homes, it's considered a super adequacy. Now what's considered a super adequacy today may not be considered one tomorrow. And my suspicion is, is that as ADUs continue to gain a greater market penetration, and they become a much more important part of the housing solution, they may actually in some marketplaces, be considered a norm, and perhaps that functional obsolescence will go away.
[00:06:00] So it's not "once categorized a functional obsolescence, always an obsolescence". It's just that at the current time, the difference between what you'll pay for it and what the value return will be at the time an appraisal is done. Generally, is less than what you put into the home.
Kol Peterson: Now it's not just ADUs that have some degree of functional obsolescence using appraiser speak, but almost any home improvement would have some degree of functional obsolescence. What types of home additions add value for resale from an appraiser's perspective?
Abdur Abdul-Malik: Well a lot of times the easy ones are like a kitchen remodel, a bath remodel. Sometimes if the home is indeed very small for the consideration of the market, sometimes the person may add more physical space, a living area, to their home, and that may bring their home up to market expectation for the typical size of a house in their market. ADUs aren't the only additions that may sometimes have [00:07:00] less of a return in value. A great example here in Portland is a swimming pool. In some markets, a swimming pool will add value, but I have done a number of appraisals where a swimming pool contributed $0 to the return of investment. In fact agents will tell me some times that a home that had a pool when it's sold, the next owner would just backfill it and get rid of it. So definitely EDU's are doing a lot better than swimming pools in the Portland residential market.
Kol Peterson: I saw a new one last week Abdur that was pretty cool. A woman was buying a high-end house in the West Hills that had a pool in a pool house and she was gonna convert the pool to an ADU.
How's that for functional obsolecence? So how do ADU stack up relative to these other home improvements in terms of cost of construction versus resale value? So let's take kitchens, additions, garages.
Abdur Abdul-Malik: Appraisers like to always hedge their statements by, "It depends". And so it really does depend on a number of different factors how they [00:08:00] stack up. We've all been to some kitchen remodels, maybe a friend shows you their kitchen remodel and you're just blown away. And you could tell that the quality and the craftsmanship is of high value and you would certainly expect in that case for high return then you've maybe been to a kitchen remodel where, you know, to put it politely, maybe it's "lipstick on a pig", right? And it just doesn't really give you the return that it could have otherwise have, if it had been done at a higher quality. So with ADU s, my research is showing that pretty much. Any ADU is going to give you some incremental boost in value. I have yet to do a valuation of an ADU where it was a $0 return, so that's the good news. When it comes to returns, it just depends on what your needs are for an ADU. Some people convert their basements into accessory dwelling units, and that can be a very cost effective way to get that ADU built for an inexpensive price. Others maybe do a [00:09:00] garage conversion or maybe they'll do a stack on to a garage. And then of course the most expensive option would be a detached ADU perhaps in the backyard. Those can be very expensive to construct. And so the market return will be high on those, but not as high as the cost to construct.
Kol Peterson: We're going to have you give like a 10 minute summary in a minute here, but I want to take frame that by just raising the fact that you've mentioned in the past that this research may not necessarily be applicable in other markets. Before we provide this information for people's contexts, I want you to explain that a little bit for us.
Abdur Abdul-Malik: The general principles of valuation, they certainly apply nationwide, but I always caution people. The numbers that I present are for the Portland market and they may or may not be directly translatable to a different market. An example might be the Bay area in California where median home prices are like $1.5 million. So if I say this [00:10:00] type of ADU gives you a 10% bump. It may or may not correlate directly to that market just because the dynamics are so different. I do say that, but Hopefully especially in Metro markets that maybe their medium prices are very similar to Portland, maybe even the market dynamics are very similar.
Hopefully the numbers actually would provide some meaningful insight into what you could expect in your own local market.
Kol Peterson: Unlike other days where we've just done a straight up interview for the whole time, I'm going to have Abdur do a 10 minute version of a really rich study that he's been gracious enough to be working on for a while.
Really just for the benefit of everybody who's interested in this topic. So I'm going to hand it over to you Abdur, take it away.
Abdur Abdul-Malik: This is a, an adaptive presentation that I gave at a conference called the Build Small Live Large, and this is titled "Case Studies, Appraising ADUs".
We're just going to talk about how this project got started super quick. As you know, Kol Peterson is the national ADU expert and he made available to me a list of 1500 legal [00:11:00] ADU properties. And that was very useful because I took those properties and I went into the local MLS system, and I said, Hmm, which of these ADU properties have resold on the open market?
As you can see here in this slide, I painstakingly went through the entire list of properties, and I highlighted the ones that did sell. And the idea was, let's take a look at the city of Portland. Let's take a look at the properties that have resold and as you can see, quite a few of them have actually resold since the ADU was constructed. And then let's just do appraisals. On the ADU and the appraisal definition from the Appraisal of Real Estate, 13th Edition is "the act or process of developing an opinion of value". So a bunch of mini appraisals are being done and appraisal theory recognizes three approaches to value. You have the income approach, you have the cost approach, and you have the sales comparison approach.
The approach that we're using for this study is a sales comparison approach. The [00:12:00] other two have limitations when it comes to ADUs and the sales comparison approach, honestly, is the gold standard for valuation. It's going to be the the methodology that will give you the most likely return when you go to list and sell. The sales comparison approach it just involves comparing a property to similar sales in the open market.
So if you have apples, you want to compare it to apples. You definitely don't want to compare it to oranges or the valuation will be suspect, but in this case, appraisers have toolkits that go on and on, and we're using many of those tools for the valuation.
The main thing that we're doing with this valuation is we are staying in Portland for technical reasons. And the city of Portland is actually pretty nice because it has strongly defined neighborhoods. Everyone that's in the city of Portland is as part of a defined neighborhood. So we're, we're taking a property we're seeing which neighborhood is sold in, and then we're comparing [00:13:00] it to properties that are as similar as possible to that ADU property. With one exception, we are not using other properties with ADUs. Now, why would we do that? Because we're trying to isolate the contributory value of the ADU.
If the main structure is a 1500 square foot home with a one-car garage we want to look at all the other 1500 square foot homes with a one-car garage, lacking an ADU, because if we do that, the difference between the two sales prices will tell us what the market attributed to that ADU. So, as we mentioned, we're sticking with those defined neighborhoods. We are doing our best to bracket every single attribute of the property, except that ADU. So I just want to run through maybe just a few examples. Here's a property that has a detached garage conversion [00:14:00] ADU this particular home sold in, in 2018.
And so in this case, the ADU added 18% to the value. However, because the garage was converted, the homeowner lost the use of that garage, so that did result in some decrement in value. So when you shake out the gain for the ADU, the loss in the utility for the garage, the net gain for this property was 12%.
This one was a new construction property with a basement ADU. It actually sold twice once as a new construction and then 14 months later on the open market as a resale. So in 2016, when it was a brand new construction that ADU contributed 6.1% to the value. Interestingly enough, when it's sold in 2017 , a year or two months later, the ADU added more. It actually added 16% to the value at that time. My guess, and this is, and this is just a guess, is that the new construction property, typically a buyer is very intentional [00:15:00] about what they want when it comes to new construction.
And if they want something, they generally will seek out to have that constructed at the time that the home is being built. But once a home is resold, kind of like driving a car off a parking lot the dynamics of the market change, and in that case, the ADU actually gave a higher degree of contributory value because it was just a useful feature for people looking to purchase a home in the resale market. So again, another high-quality ADU conversion.
Here is an attached ADU. So it is a separate unit, but it's attached on one side to the home. So in this case, the ADU added 24.6% of the value and for a dollar figure amount that was slightly over $125,000. So as you can see, that's a pretty substantial bump in value, but anyone who's constructed an ADU knows that it probably costs upwards of $200,000 to construct that attached ADU. This is where that term [00:16:00] again comes in depreciation. The difference between the cost of construction and the value at the time of the appraisal, functional obsolescence.
Not that there's a flaw in having an ADU, but the definition encompasses the idea of a super adequacy. So maybe this is still a bit more than what the market would expect, but it's certainly contributed a substantial gain in value almost 25%.
This was a detached garage conversion ADU. And this is where I started to see trends because detached garage conversion ADUs, when you factor in the loss of value for the garage versus the net gain, usually the differentials between five to 10%. So again, I don't know if that would apply in every market throughout the United States, but here in Portland, that's what I'm seeing that if you convert your garage you will probably boost the value up to close to 20%, but then you're going to lose maybe five to 10% because you've got to factor out the loss of the garage utility. [00:17:00]
Size does play a role in how much an ADU will contribute to the resale value of a property. The smaller ones, the value can be quite small, still there, but smaller. And in the larger ones, of course, a bigger return.
So this is a, another garage conversion. This one added 28.3%. Then again, factoring in the loss of the garage you can see about that 10% loss. So the net gain was 17.2%, and this one was actually a two, two level ADU garage conversion, which was very nicely done.
Now this one, and this will be the final one, we take a look at. This one is essentially two homes. So this home was pretty small to begin with. And instead of maybe enlarging the existing home, the owner decided to just build a separate ADU structure. And as you can see, the main house was 866 square feet, the ADU 690 square feet. [00:18:00] So the parody between the two structures is extremely high.
Because of that, you can see that the value gain on this one was substantial. The ADU added 71.2% to the value, about $160,000. Probably the cost to construct was a little bit more, but in this case, the market rewarded the owner with a pretty substantial bump in value.
Essentially, an appraiser might look at this and say, well, is this an ADU or is this a duplex? And we might talk a little bit about that later. Terminology can matter because depending on the loan that someone is trying to get to finance the purchase of one of these things, the terminology can matter, but it's kind of like calling it six or half a dozen.
That is the end there, but hopefully that gives the listeners a little bit of an insight as to the value gains that some of these ADUs are contributing.
Kol Peterson: Thanks Abdur. That was a great expedited summary of your findings. What are some [00:19:00] other methods that could be used to determine a research-based method for determining the contributory value of an ADU?
Abdur Abdul-Malik: Well, as I mentioned before, I really do think that the Sales Comparison Approach is your gold standard. There are many different types of value. In fact, there are dozens of ways to define a value. Market value is the typical way that most people are asked to define it. And that's just basically, what would someone else in the market pay for the structure?
Now, investors might have completely different motivations. People who go out and buy like apartment complexes, or even like quadplexes, triplexes, duplexes, they're looking for rental income. So their valuation of the property would really be tied to the revenue stream. With ADU s I think the Income Approach is a little bit shaky right now because the market has other motivations besides income.
There's the Cost Approach, the cost to construct something, but then again, that term depreciation, functional obsolescence, you got to figure out [00:20:00] well, what's the hit that this is going to take. And so Income, Cost Approach, those are other methodologies, but again, sticking to the one that I think works the best, Sales Comparison Approach, is going out and finding other properties similar and seeing what they're selling for.
Kol Peterson: Let's say there's no sales comps, let's say we're in a market where there has been less than five ADUs built and none of them had been sold. In the absence of sales comps, do you think the income-based valuation method could be used to determine an opinion of value in that case?
Abdur Abdul-Malik: A study was actually done about seven to nine years ago here in the Portland market, looking at the income approach as a way of valuing ADUs. This gets a little technical, but the income approach has, at its core, an implicit valuation of land.
And so attributing the, the land value apart from the ADU gets extremely complicated and difficult. In fact, when you read the paper that these gentlemen wrote who did this study, the equation they came up with was pretty complicated. [00:21:00] I think the issue is that many people who build an ADU are looking for revenue stream, but many are not. In fact, as, you know, you put on an ADU Academy and you've also done ADU tours where people can come to Portland and actually see the homes that have had ADUs done and a wide variety of types.
It was very illuminating a trip to do. I got to talk to some of these homeowners and while some did acknowledge they were doing it for income. Some also said that they were doing it to have a family member live close by, to take care of maybe of an ailing parent, or if they were the ailing parent, to have their children be able to live close to them, to assist them in, in assisted living basically on the property.
What happens is the market becomes fuzzy. There isn't as direct a correlation between the revenue stream and the resale value of the property, because it's not just for that purpose.
The government programs are looking into different ways to use that revenue stream . I really do think, five years down the road, [00:22:00] that may be one of the primary ways to value an accessory dwelling unit, because it will become so important for underwriting and the market. Once the market sees that the underwriters are all in on the income stream, it will start to respond. And that might become the primary way for valuing these structures.
Kol Peterson: It's interesting idea that the evaluation methodology might actually shift over time. If other jurisdictions or regions are interested in studying this same question that you've studied how would you recommend that they start the research process?
Abdur Abdul-Malik: A really good way to start this would to be to clone Kol Peterson and have them operating in your market because he'll be a wonderful source of information. But in the absence of that, I would say the best thing to do would probably be to talk to the, city the municipality. Portland is actually really good because a lot of this data is freely available online, but if it's maybe not so readily available online in your market, go straight to the source. Say, "Can I get a list of legal ADU properties that have been [00:23:00] permitted in this municipality?" And then what appraisers could do is they can check to see if any of these properties have resold. Basically what you're doing is you're doing a benchmark study, so you don't have to necessarily value 200 properties in your local market, but maybe some local appraisers could value 10, 20, 30 properties and get a sense of what the market is rewarding that ADU at what level they're rewarding it at. Then other appraisers could point to that study and say, okay, a peer reviewed study was done, in this market we have X percentage bump up for this type of ADU X percentage for the other, and in the absence of any other data that would be probably perfectly acceptable to an underwriter as long as a legitimate study was done.
Kol Peterson: Anecdotally, I've spoken with several people in California who are just dumbfounded at the idea that an ADU construction costs wouldn't add as much value for resale as a [00:24:00] cost to construct. They insist that it's different and that somehow an ADU there is going to add far more value than it costs to construct. What are your feelings about that?
Abdur Abdul-Malik: That may be perfectly true and their market. Again I like to emphasize that real estate's local, we've all heard the expression now when it comes to real estate it's location, location, location.
So perhaps in the Bay area or in Southern California where the density is so high constructing an ADU would easily bring back the cost to construct. But that would only be supposition unless someone actually does a detailed examination of those values.
Kol Peterson: Yeah. And I think that's the, that's the linchpin, I think is like, it's easy to assume that, but I think the only way to really know that is to do what you're doing, which is takes an appraiser to put in some rigor.
Abdur Abdul-Malik: Yeah, a little bit of time and effort for sure. It's not an easy thing to do. But I do think that probably some benchmark [00:25:00] studies in most major metropolitan regions will be useful. I'm hoping to produce a paper sometime this year with the findings in Portland.
And if a certain municipality finds that their market tracks pretty closely to Portland, maybe plus, or minus a certain number of percentage points, they might be able to use that study in the absence of anything else. But I would also emphasize that in many markets, there is always some kind of data. It's very rare to come to a market where there's absolutely no data.
As you know, Kol, you're always on top of the latest legislative developments affecting ADU construction. The state of Oregon had a law pass called HB 2001. And that zoning change basically almost mandates for the entire state that multiunit properties are now admissible and areas that were formerly only single family residential and Oregon is not the only state to do that. Seattle has similar regulations, California passed some landmark ADU [00:26:00] legislation. And so I think that as the climate becomes more favorable, the data is only going to get richer and richer in every market.
Kol Peterson: Yeah, indeed.
Kelcy King: That wraps up the interview portion of this episode of the ADU hour. As a reminder, these episodes are the edited audio version of interviews that we conducted via a webinar series. Good news. You can access the full video series via Kol's website, BuildinganADU.com. Now for the second half of the show I curate questions from the audience that gives our guests the opportunity to dive deeper into a topic or address new ideas and questions.
How does price per square foot change between the ADU and the primary dwelling unit and are there diminishing returns for larger ADUs?
Abdur Abdul-Malik: So the answer to that is that price per square foot for ADUs is usually astronomically higher than the price per square foot for [00:27:00] the main house, just because there's so much smaller. The price per square foot, it always goes up as a unit gets smaller because there are fixed costs to constructing something that even if it was theoretically a zero square foot unit it would still have these fixed costs, like permitting fees, site development, et cetera.
As anything gets bigger, the price per square foot, unless it's like a super rich mansion where everything's gold-plated, the price per square foot is going to always drop as something gets bigger.
Kelcy King: Thank you. Next question. Is there a difference between appraisal method used for financing the building versus used for insurance replacement of the building?
Abdur Abdul-Malik: Yes. In fact many appraisers likes to include statements of limitations and cautionary disclosures. One of the things they always put in their reports is that this may, this is not really valid for insurance purposes because it's a different type of valuation. The two could be very similar, but they could be also very different depending on how that definition is applied.
Kelcy King: Can you appraise based on potential rental income rather than the [00:28:00] square foot value?
Abdur Abdul-Malik: That gets into the income approach and the income approach is used in residential appraising. We do what's known as a rent survey. It gets a little tricky with ADUs just because we have to, again, tease out what the land value contribution is and that's complex. To be quite blunt, many appraisers really aren't trained to deal with the complexity that comes with separation of the land value when you got two different revenue streams. Now, one of the ways this could be dealt with is you could kind of look at the home as a duplex. If you classify it as a duplex, it gets put on a very different type of appraisal form, the expectations of the underwriter also different. You could simply say, this is a duplex where one unit is not rented because perhaps one unit is owner occupied, which is the case quite often with ADUs. Again, if your lender would allow that, that's a question mark. They may say, well, "this really isn't a duplex". It gets very semantic, but that's one way to kind of sidestep the [00:29:00] issue, I think is to just classify it as a duplex and then proceed as you would as a regular duplex valuation.
Kelcy King: Thank you. Are you aware of any localities or programs that are addressing the barrier of super adequacy through policies like financing above appraised value?
Abdur Abdul-Malik: Actually I have had some very marginal contacts with people connected with Fannie Mae, which is kind of the 800 pound gorilla in the secondary mortgage market. They make the regulations that govern most appraisals. And so one person told me that Fannie Mae is really looking into this. So maybe not so much allowing the home to be valued above the appraised value, but maybe having a stronger program for the inclusion of that income that, that ADU might be able to bring in.
And if that becomes the norm, as I've mentioned before, I really do think that that's going to be reflected in the values for these properties.
Kelcy King: This one's pretty specific to Portland. Do you find that [00:30:00] different neighborhoods value ADUs differently example East side R5 neighborhoods versus R10s?
Abdur Abdul-Malik: That's a very good question. And I haven't yet started to break it out by neighborhoods on a granular scale. That is something I will be looking into, but so far I haven't really seen as big an impact to the contributory value of the ADU based on neighborhood as I have based on the size and the quality of the ADU.
So I think those factors are more important right now for location, because if a person really is looking for property with an ADU, they're probably not going to be fixated on just one neighborhood. They'd probably be willing to explore a different substitute areas to get that value. What we call "value in use". They might be specifically looking for an ADU and so the neighborhood may not be as much of an impact.
Kelcy King: Thank you. Are appraisers from other ADU friendly markets sharing information and techniques?
[00:31:00] Abdur Abdul-Malik: So I'm pretty dialed in with a lot of the appraiser forms. Right now I'm probably one of a handful of appraisers that's actually trying to systematically look at this. Bad news is not too many appraisers are really doing an in depth look. Good news is, is that I think that might be slowly changing, I do share information on the forms and I have been contacted by other colleagues. So perhaps that will blossom. And as I mentioned before, it might be maybe some people in local markets need to prod local appraisers and kind of fire 'em up to look into this issue.
Kelcy King: How does the value differ between a detached ADU and an attached ADU?
Abdur Abdul-Malik: I may not have enough data for statistically valid generalizations, but just from what I've seen so far, I think the detach 80 is will, we'll give you the biggest, like absolute dollar return.
And I think there could be as much as a 10 to 20% difference. Don't quote me on that or hold me to it forever, but from what I'm seeing tentatively the detached ADU would probably [00:32:00] maybe be 10 to 20% higher.
Kol Peterson: I'm going to interject a couple observations here. You referred to when you convert a garage, you indicate that you would have to remove the functional economic utility value that the garage provided. While at the same time, you can add on the value of this new housing in it makes total sense. In fact, that's precisely what a taxation assessor does as well. So if you were to convert a garage, the assessor would say, "Oh, well, that's great. You've added an ADU, but we're also going to subtract the amount of value that the garage was worth because you've gotten rid of the garage".
Similarly, from a homeowner's perspective, if you're converting a garage, presumably you're going to save some money because your structural shell is there. And so you don't have to put the money into building that structural shell. These are all intuitive alignments of these three different methodologies is looking at what that value would cost.
So yes, [00:33:00] garage conversions going to cost less to build in an ideal world, and it's going to add less value and it's going to increase your property taxation less than detached new construction would. Similarly a basement would have that same kind of economic impact, I suspect.
I think what we might find is over time, all these things really are in alignment with more or less what it costs to construct. So one of the questions that I saw come in if you're doing new construction with a basement ADU in it. That is the one and only way that a spec developer, at least in the Portland market right now with land values, what they are, it's the most common way that I've seen ADUs for spec development. It cost the builder, like $30,000 to $50,000 extra to put in that additional unit in that structural shell that they're already building. Whereas you do not see detached new construction ADUs being built with spec development as much, at least I haven't.
In the Portland market right now, some spec developers are starting to do that and they might realize $30,000 to $50,000 bump in the resale [00:34:00] value of that property.
Detached new construction you're not going to get a dollar for dollar valuation on that resale. Does all that mesh with your understanding of things Abdur?
Abdur Abdul-Malik: Right now I've yet to see a dollar for dollar return. I've seen the percentages get pretty up there, you know, all the way up to 70% bump in value. But I do think that, at least for right now, most people in the Portland Metro area who built an ADU should expect that there's going to be some sort of an economic hit in terms of the return. But, of course, if a person is building an ADU for the long-term and they're not looking to sell immediately. That could change dramatically. Many areas, including Portland have had housing issues. And I do think ADUs are a very important part of the solution to that.
And it could very well be that down the road, perhaps markets will not only give you the full dollar for dollar return, but maybe you'll get a profit. And that might spur on more building of these ADUs.
Kol Peterson: Another question, giving voice to the threads of conversations that have had with people in California, they seem to [00:35:00] think about these additions as additional square footage. I don't know whether they're basing this in any fact or not, but say, well, if you're adding, you know, 300 square feet of additional square footage and square footage costs $400 a square foot, you're going to get huge value out of that additional 300 square feet.
But that's not how I've heard that appraisals or resales are looked at. What do you think?
Abdur Abdul-Malik: So that's probably one of the biggest tropes to valuation that appraisers have to deal with. And it's one of the reasons why sometimes people can be disappointed when an appraisal comes in and the value is far off from what they want, if it was that easy, just take the square footage and multiply it by one number and boom, you've got your value. There would not be an appraisal profession. You would just need a calculator and you'd be done. But the fact that you could spend a certain amount of money and not get that full value back, shows that there's a greater degree of complexity with valuation than that.
Just as a technical note, there's a standard for calculating living space called [00:36:00] the ANSI standard. And it's the de facto national standard for how square footage is calculated and this guide, if you Google ANSI, you can find it, it's like a 16 page document. One of the things that it specifically says is that if something doesn't flow from the main living area, it cannot be considered gross living area. Gross living area is extremely important because if anyone in the audience has seen an appraisal, there's a line "GLA", that line, that one line is probably 60 to 70% of the value of any home . If you can't put something in that line, it's not going to have as much of an impact on the final valuation.
Kol Peterson: Thanks.
Kelcy King: Should I carry on? What effect are you seeing of adding an ADU on the property tax assessments?
Abdur Abdul-Malik: That's a good question. Since I'm really just focusing on the resale value, I haven't actually put those figures together, but it be pretty trivial for me to do because the nice thing is with the RMLS database they actually do supply the tax [00:37:00] figures with the resale.
So that's a great question. And I'm going to put that as a, to do project. You just gave me some homework.
Kol Peterson: All right. Abdur likes homework. I'll yeah, I'll give my take on that. Property taxation is done at the state level, so it varies from state to state. In Oregon, my rule of thumb, again, assessors would, would be so annoyed if they heard me say this, but here's the way that you can think about it, for every a hundred thousand dollars of contributory value that you add to a property in the eyes of an assessor, that will increase your property taxes by $1,400 per year.
An assessor undervalues the contributory value by roughly 25%. So If you add a $200,000 ADU, 800 square foot average price ADU in Portland market, that's going to add $150,000 in the eyes of the assessor, which translates to $1,400 plus $700 is a $2,100 tax bump per year.
That's my way of thinking about it. Conversely, if you did a garage [00:38:00] conversion, since you have shell and you're not adding on that additional value, then you're only adding on like say $50,000 of finished cost. And so that would bump up your taxes by roughly $700 a year, rule of thumb.
Abdur Abdul-Malik: That's actually not too bad.
Kelcy King: Is there an option on the appraisal report saying what type and size of the ADU? Attached? Detached?
Abdur Abdul-Malik: That's a very good question. So right now the standard appraisal form that most people in the audience have probably seen or interacted with is old. It's actually considered obsolete even by Fannie Mae, which is the originator of this form.
So it doesn't specifically have a detailed section for ADUs. It does have a little box on the first page where you can say single family or single family with an accessory unit, but then in the grid, if anyone's ever seen the sales grid that appraisers use to make adjustments. The appraiser typically would have to put an ADU in one of those free little lines at the bottom.
So what that tells you is, is that when that form was [00:39:00] designed, they really did not give much thought to accessory dwelling units. It was a non-factor in the development of that form. Fannie Mae is in the process of developing more comprehensive and detailed forms. And I suspect, in fact, they're supposed to be more web based where the form would dynamically change based on the information the appraiser supplies.
So if they were to check that accessory unit box, I imagine it would then start asking questions. How big is the ADU? What's the quality of the ADU? How many bedrooms, how many bathrooms, et cetera. So for right now, it's kind of an afterthought on the existing forms and appraisers kind of have to wedge it into place, but in the future, I expect there will be dedicated fields for ADUs.
Kelcy King: How did you calculate the loss in value for losing the garage on a garage conversion?
Abdur Abdul-Malik: So that's a great question, and that gets into valuation methodology. As I mentioned earlier, and I know I gave a very rapid fire presentation, I am looking at properties in a neighborhood. So typically I would pull [00:40:00] all the sales within that neighborhood over, perhaps a two year period of time, to get statistically valid amounts of data.
And what you can do, you can do different types of valuation methodologies. One of them is regression, where you can do a regression equation to see what the value of that feature is. Another one, and this is a little technical, is called aggregate difference methodology. That's when you pool properties by differences that are controlled by you, and maybe you adjust for differences in square footage and then presumably the difference remaining is for that feature that you're looking for. I use that quite often.
Using either regression or aggregate differences, I say, okay, a garage is worth $20,000 - $30,000 in this neighborhood. So we lost that, but here's what we gained with the ADU, and then I can subtract out the difference.
Kelcy King: Great. And then to kind of piggyback off of that, are there any benefits for having the ADU above an existing garage? So you don't lose that garage space?
Abdur Abdul-Malik: That is useful, but you know, what I've seen is that the ones that are above [00:41:00] the garage are generally the, one of the smaller ADU types. And one property I looked at, I think it only contributed about a 4% bump in value.
So it was actually quite surprising. It was a very small, it was measurable. It was there, but it was pretty small. There aren't that many that I've seen in my data set. So I maybe don't have statistically valid data to give a definitive answer on that, but just a rule of thumb, it seems like if they're going to be really small, that factor more than anything else weighs in on the value and it might be a more modest return.
Thank you. What is the most common factor used to find the five comps such as East side versus West side, schools, property types?
So again, this is the typical appraiser answer, it depends. The market dictates which attributes are the most important. In most parts of Portland, the single variable that's going to influence value is going to be gross living area.
Then you have lot size, you have [00:42:00] quality of construction, you have the overall condition of the property. Schools can matter, but generally appraisers are going to do their best to pull comparables that are nearby. So a lot of the locational variables kind of wash out because all the comparables polled share the same school district, or maybe share a similar locational influences.
So, as long as you're not going too far out of the boundaries for a neighborhood, like if you were in Ladd's Addition, I would not pull any comp outside of Ladd's Addition for those who are from the Portland market, Ladd's Addition, is a historic district, you got maybe 50, 60 homes that are on the historic registry.
You don't want to leave the boundaries for Ladd's Addition. Visually, if you Google Ladd's Addition, for those outside of Portland, you can see visually from an aerial view, it's a very distinctive looking neighborhood. So in that case, I'm going to stay in that neighborhood and that's going to wipe out a lot of the locational differences.
And then I'm going to be able to focus in on those key variables of gross living area, lot size quality. And of course, if it's Ladd's Addition, if it's on a historic registry, I'm going to want [00:43:00] to pull some comps also on a historic registry. So again, apples to apples, as I said earlier, you just want to be as similar as possible when you're pulling comps.
Kelcy King: What banks are currently lending most on ADUs? Meaning which ones have underwriters that understand this process?
Abdur Abdul-Malik: I don't know if I can give a generic answer to that. ADUs are common enough that no bank or institution should be completely befuddled by the existence of an ADU. So I think the main thing that most banks and credit unions and other lenders want. Is, if they're going to have a property with an ADU, they want the appraiser to clearly demonstrate, through the use of comparables and through their methodology, what the value that ADU is. I'll be the first to admit, there are some appraisers out there they'll just throw their hands up and they'll just say, plus $10,000 for an ADU and just phone it in and move on.
And that can be very infuriating for people who maybe drop a hundred, $200,000 on an [00:44:00] ADU to just get cursory treatment by the appraiser. The underwriters, if they're knowledgeable about ADUs, and that's very variable as to which underwriters are conversive with them, they can push back on that and say, "wait a second this is not adequately documented in this appraisal report." but unfortunately, if you get an appraiser who doesn't know what they're doing, coupled with an underwriter, who also is you know, kind of ignorant on the topic, you might just get a bad appraisal and it might be hard to challenge it.
Kol Peterson: I want to follow up on that.
We've got a couple of questions in the Q and A that I want to mesh together. For some historic context, appraisals of properties with ADUs has been a big problem in the sense that oftentimes they've been given zero value. Another case , as Sarah mentions , in Denver, there's been appraisals that have fluctuated as much as $80,000 on a property with an ADU.
What degree of this appraisal process is arbitrary for lack of a better word? What, what degree is attributable [00:45:00] to misinformation on the part of the appraisers about the legality of ADUs?
Abdur Abdul-Malik: Okay, so you really opened up a can of worms by throwing in the term legality.
So one of the things I want to stress is that the study that I'm doing is only legal ADUs, I'm not looking at ones that are illegal. Illegal, that creates problems because, depending on the municipality, something that's illegal could result in an exorbitant fine. And it could make a really big difference in how the valuation will proceed.
If it's illegal, a lot of lenders have a policy, you can't value it according to an illegal purpose, they may say the appraiser is to value it based on the legal purpose and what's known as a "cost to cure", meaning how much would it take to get this back to legal compliance?
But in some markets like any of you who are out there in Hawaii, you very well know that in Hawaii, getting a permit is almost a joke for certain additions and alterations for a property. And the municipality is very laid back about it. In that case, yeah, technically it's not allowed in the market, but the [00:46:00] market doesn't care about the illegality because no one enforces the code, so you can just proceed pulling any old comps you want. So again, it's local, it's all local, depends on your jurisdiction.
Kelcy King: Can you address the condoization model?
Abdur Abdul-Malik: That's an extremely good question. So I'm not studying condoization right now. And from what I can tell, just on pulling data from the market, it's extremely rare, at this point, for a property that's been condoized to then be resold on the open market where the units are sold independent.
So I have seen listings in my research where the realtor is saying that it's in the process of condoization, but I haven't seen too many sales. That's a project for future time, I think right now, if you have condoized your ADU, expect an extraordinarily difficult appraisal process. I'm just going to be very blunt about that because the data for that is pretty scarce. And you might say, well, why can't you just pull other condos ? We're trying to compare apples to apples. And if we have a [00:47:00] detached ADU that's a condo, which has its own little site around it, so to speak, and then you have apartment style condos, they're not quite apples to apples. And so then that's where as a brought out this fluctuation of $50,000- 480,000, it's all over the map because the data is all over the map. It's just not clear. .
Kol Peterson: I'll just comment that there has been roughly 25 condoized ADUs in the last year. It's definitely becoming a a little bit of a, a trend amongst spec developers, for whom ADU development doesn't make sense otherwise. And we've seen that in, in Seattle, we've seen that in Austin, Texas, California doesn't allow it.
So that's something that we can look for more comps of in the future, I believe.
Abdur Abdul-Malik: As I said before, I think the data across the board, it's just going to get richer and richer.
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The ADU Hour w/guest Ezra Hammer
25 mai 2021· The ADU Hour
Kol: Here we are! Ezra, what's up, buddy? All right.
Ezra: Cool. How are you?
Kol: Good man. Thanks for coming on [00:02:00] today to be our guest on the ADU hour. So Ezra, we've been just jumping right into stuff pretty quickly, but let me just like, first of all, let me have you introduce yourself a little bit. I just, you know, briefly said you're with the Portland Home Builders Association. Tell us, give us a, like a, a one minute intro of who you are and how you came to be in the position that you're in.
Ezra: Yeah, sure. And thanks for having me today. Really appreciate it. And so nice to see folks joining from all over the country and it looks like internationally too.
Very cool. So I am a land use attorney by training. I practiced in Southern California, primarily in the Los Angeles region. My wife and I fell in love with beautiful Portland Oregon, as so many folks have, and we recently moved up here about a year and a half ago. And since that time I've been leading the efforts advocacy, lobbying, and education here at the home builders association of metropolitan Portland.
We're a local HBA. There are chapters across the country and we engage with policymakers and decision-makers at the local and regional level [00:03:00] to help craft policies that are pro-housing, as we call them- kind of focused on allowing more housing, different types of housing, lower priced housing, housing that's accessible to all folks and you and I actually met because in my previous life, I was a big fan of yours down in Southern California.
I actually have my copy of Backdoor Revolution right here. Highly recommend that everyone get one or get two. They make wonderful Christmas gifts and, and great gifts even in springtime. You'll notice that I have my sign here tab, so I will be looking for a signature next time I get to see you in person. But your book was actually an inspiration for a number of us who were working on ADU policies in the City of Los Angeles and in California, more broadly back in 20 15, 16 and 17, I, I saw you speak before I believe a Senate committee in California working [00:04:00] with one of our senators down there who was very interested in allowing for more ADUs. And we actually took a lot of your ideas and copied and pasted them into conversations that were being had in Los Angeles at the time.
It was a pretty pitched battle in LA, as I'm sure practitioners who are joining us today from that area can attest to, and it actually came to a head at a point in time when the state kind of shrug their shoulders, said enough is enough and took away a local control for jurisdictions like Los Angeles that had really been recalcitrant in implementing a series of regulations that legalized ADUs. I think as many folks recognize that it's been a fantastic smashing success down there and throughout Southern California in all of California generally. And a big part of that is thanks to you and the work you've done advocating for and educating folks about accessory dwelling units.
Kol: Well, thanks for the I was more of a flattery than itself introduction, but I really appreciate it Ezra, [00:05:00] and yeah, I mean, that was kind of the goal of the book was to kind of lay out some statistically based evidence to back up some of the policy ideas that has been bantered around for a while and were just hard to kind of get enacted into local ordinances and then California in 2017, put forward this pretty aggressive legislation and then doubled down in 2018 or maybe I'm getting those wrong years wrong.
But and that kind of set the pathway in terms of showing that state legislative approaches are perhaps not only a good idea, but maybe even a best practice as far as getting these types of updates done. The way I think about it now is, I mean, and I'm having firsthand experience with this in Oregon.
Now I'm on rulemaking for HB 2001, but HB 2001, which we've talked about in a previous show. And we'll talk about more today and the California legislation. I would say [00:06:00] that it's not a unfair statement to say it was actually less work to pass the statewide ordinances than to pass the same kinds of ordinances at the local level. What do you think about that?
Ezra: Yeah, I think you're hitting the nail right on the head there, Kol. You know, it's interesting to see States like Oregon and California borrow practices from States in the South and Midwest where this has been standard practice for quite some time. The devolution of complete authority to local jurisdictions to manage land use is not something that's practiced nationwide. It's something that's unique to a lot of high priced urban markets where there's been an expectation of extensive community engagement and feedback for even the smallest projects, going back to the 1960s and seventies as a way to push back against some of the darker times of urban renewal.
But in other parts of the country statewide regulations around housing are [00:07:00] pretty common practices. I often speak with my counterparts in Texas or Indiana who work on pieces of legislation that are total no-brainers but would be extremely difficult to get implemented at the local level. And, and they deal with it all at the state level.
Just an example, Texas recently prohibited jurisdictions from putting in place material restrictions on houses that would kind of otherwise limit what sort of material builders could use in homes. Obviously they have building code standards there and they ensure material that they use is safe.
But what we've seen a number of jurisdictions do up and down the West coast has kind of arbitrarily set standards and what can be used on houses. As a way to drive up the cost of housing kind of control the type of housing that can get built. And the cumulative effect of these regulations year over year are higher housing costs.
So I think dealing with things at the statewide level makes a ton of sense. Although it's great to have community participation for many [00:08:00] things, when it comes to small scale housing, oftentimes we need to take a deep breath, step back, and really let policymakers shape a series of regulations that are going to open the door for housing. Because quite frankly, Kol, we've been failing doing that at the local level.
There was a great report that came out in 2018 from Smart Growth America and ecoNorthwest here in Portland that highlighted the fact that since the great recession we've under built in Oregon, 155,000 units of housing as a ratio of household formation. I know for folks in California, that sounds like a drop in the bucket, but that's really impactful here in Oregon.
And the same report showed that there's about a 6% increase in overall housing costs associated just with that scarcity. And so when we talk about tools to help craft housing that is more accessible to more Oregonians and more, more people, generally, we need to take [00:09:00] into account the fact that we have not been building enough housing and a big reason for the fact we haven't been building that housing is because local governments put impediments in place to inhibit folks from building.
Kol: So let's go back to HBA for a second to tell us a little bit about the organizational structure of HBA. You are in a local chapter. How are you connected to a national organization? Is there a national organization in DC and how do all those chapters play out nationally?
Ezra: Yeah, sure. So the home builders association of metropolitan Portland, we're a member-driven organization. Our membership is primarily builders, developers, remodelers who build small scale single family and multifamily housing. Our folks generally don't work with steel. That's kind of the rule of thumb. So anything over four stories, our folks aren't building anything under that, they probably are. As well as all the trade professionals and suppliers , the legal folks, the engineers, everybody that's kind of in that universe of smaller scale [00:10:00] residential developments.
Like you mentioned, we are a a chapter organization. So we work in partnership with the Oregon home builders association. They work down in Salem and we coordinate our efforts to advance kind of policy at the local regional and state level. And we're also members of the national association of home builders, which has a big honkin building in DC.
You know, they're working on things like home buyer, tax credits ensuring that Fannie Mae and Freddie Mac are, are, are up and running effectively. But we, we don't, you know, we, we don't work with them on policy at the local level just because each jurisdiction is different. And we need to be crafting policies that are right for Portland and more broadly, right for Oregon.
Kol: So tell us about the national structure of HBA in terms of the DC representation, national association of home builders. What's that? What do they do and how are you guys tied into them?
Ezra: Yeah. So all of the local chapters are kind of members [00:11:00] of the broader organization, the national association of home builders, and they they do education, advocacy and lobbying at the at the federal level. So they work closely with HUD and secretary Carson. They work with congressional leaders.
They've been actively engaged in conversations around the COVID-19 relief efforts and ensuring there's a appropriate number of dollars being dedicated to the triple P program to help our small businesses and ensure that they can remain viable during these difficult economic times. So they're doing grant work out of DC and, and we try to do good work here locally.
Kol: So I wanted to dive into HBA's role with regard to middle housing legislation. So are we just really lucky to have you and your colleagues here in Portland who are doing middle housing type of advocacy and education in local jurisdictions around the Portland Metro area, [00:12:00] or is that a national policy that, that the national association of home builders is doing you know, countrywide?
Ezra: Yeah. So, as I mentioned before we set we set policy, our organizational policy at the local level. It's just too difficult to coordinate with the hundreds of chapters that exist around the country. And quite frankly, I don't know what's right for Indiana. I don't know what's right for North Carolina and I certainly don't know what the right fit is for, for, for Boston.
But what we do know is that here locally, middle housing is a critical piece of the overall housing picture. And we have members that build it. They build it with great success. And we have seen middle housing kind of proliferate throughout. The Portland Metro region and have really positive impacts region wide.
We're starting to see great product getting built in communities like Tigard and Milwaukee, where they've really been at the forefront of progressive conversations around middle housing. We've seen the incredible [00:13:00] steps that the city of Portland has taken to advance conversations with the residential infill project, although they haven't passed it yet, there's been a ton of great conversation.
And we've been part of many of those many of those conversations for the past five years. So, you know, here locally, we really recognize that middle housing and by middle housing, you know, we think expansively. So it's everything from accessory dwelling units, townhomes, multiple units on a lot up to, up to four in whatever kind of form that they take.
But we found that when you liberalize the types of housing that can get built, not only do you kind of expand the marketplace of folks that can participate in building new housing, which is a real positive because you let homeowners kind of actively engage in that market and bring good housing to the marketplace for folks to to rent or to buy. But you also produce myriad types of housing. And I think that's the piece that's been the most exciting quite frankly Kol, because for so long, like, like the viewers know, and [00:14:00] like, you know you know, planners have relied on kind of monochromatic maps to say the light yellow goes here and the red goes here and the blue goes there and never shall they ever meets.
And this is how we show, advance our society. And for anybody that's traveled in Latin America or Europe or or, or many parts of the globe, they'll say that that's not how housing has to be. And I think over the years. And, and middle housing has really been a big piece of this. It's helped us chip away at those kind of outdated Euclidean models of zoning, and really allowed us to think more creatively about the types of housing that folks need.
I live in a multi-generational household, like many Portlanders do. We were thankful enough to have my mother come live with us right before the pandemic. And, you know, had we lived in a community let's say with restrictive covenants that had kind of prohibited that type of intergenerational, it would have been really hard on our family [00:15:00] and middle housing plays a role in giving people the type of flexibility that they need to get the type of housing that's most appropriate for
Kol: So you came to Portland by way of LA, as you mentioned, and LA has become a huge hotbed of ADU activity, I would say it's yeah, it's fair to say it's objectively the best well, the biggest market in the country for ADUs right now, 5,000 or so permits issued last year alone in 2019. So it's, it's been pretty phenomenal. Can you help explain why LA has since seen such a groundswell of ADU permits being issued and, and and say like we already, like, we've already kind of covered that there is some legislative changes at the state level, but why LA, why aren't we seeing tens of thousands being built in say San Jose instead of LA?
Ezra: Yeah, I know that's, that's a great question Kol. So Los Angeles, like any practitioners from there we'll know, or anybody that's lived down there and we'll know the entire Southern California region, but LA specifically is just starved for housing.
You know, it, it was a open secret [00:16:00] before the city took the appropriate steps to liberalize accessory dwelling units that there were likely tens of thousands of unpermitted units existing in the city. A couple of estimates that I've seen put that number upwards of 50,000 throughout the entire city.
And many of these were built to appropriate code standards. They just didn't have the appropriate paperwork and land use authorization to allow them to be quote- unquote legal. Many of them, unfortunately, weren't built to appropriate code, but that was due in large part to the fact that government had made it so onerous to build an accessory dwelling unit that any rational person would just shrug their shoulders and ignore the system altogether. Before LA took the steps that it did, again, driven in large part by the great great work of the California legislature, folks were asked to go through a year- long entitlement process that was entirely discretional. The costs generally were 40 to a hundred thousand dollars in permits, [00:17:00] legal fees, and land use planner fees.
And all it took was one disgruntled neighbor to show up and yell at a hearing officer about lack of parking or neighborhood character or disruption to the community or any sort of those kind of standard tropes that we hear from folks. And, and their application would be denied. Before I was a land use attorney, I had the pleasure of working for Councilman Mike Bond and in the city of Los Angeles.
For those of you that are familiar with LA, each council member represents a geographic area, and they're essentially the mayor of their geographic area for the purpose of discretionary land use entitlements. And I talked to literally dozens of, of heartbroken and frustrated homeowners who are attempting to go through the process of building an ADU for a loved one or for for some additional rental income.
And it had just been dragged through the most arduous process, not only from the city side of things through the regulatory environment, but then from [00:18:00] just terrible interactions with their neighbors that, that, that hurt the community that kind of caused more ill will between neighbors and at the end of the day, kind of resulted in in no benefit to anyone.
So when LA took the steps to kind of do away with that regulatory framework, they really opened the floodgates. And there was such a voracious appetite that the citizens of Los Angeles have for housing that we've seen these incredible numbers, like you mentioned 5,000, that's fantastic.
I hope next year it's 10,000. Let's build 15,000, let's build a hundred thousand ADUs. If we take those sorts of real steps than California, and hopefully Oregon too, we'll be able to address the incredible housing shortfall that we have.
Kol: So since you've come to the HBA, Portland HBA, you've taken a really active role in representing the Portland home builders, associations, interests, and local legislative issues. In the jurisdiction [00:19:00] surrounding Portland, there's roughly 28 jurisdictions in the Portland Metro area. And I, I'm not sure how many. Jurisdictions you represent, but, but you've been, you've taken an active role in, in participating in these meetings, as cities are going through code updates. Can you tell us a little bit about that?
Ezra: Yeah, absolutely. And, and, and listen, Kol. I couldn't be doing it without you. Anytime a jurisdiction looks at amending their middle housing regulations or ADU regulations. I come a calling. You've probably gotten emails from me at 11 o'clock at night, asking you to dig into something and see if there are any poison pills in there or if there are any concerns that you have.
Like I mentioned before, our members build accessory dwelling units throughout the greater Portland region. And therefore it's, it's my responsibility to ensure that our advocacy team is beating down the doors of elected leaders and citizens serving on planning commissions to to, to push them, to advance progressive ADU regulations.
You know, at the end of the day, it is so [00:20:00] difficult for many potential ADU developers to actively engage in advocacy. These are homeowners, as you know, that have busy lives. That may be thinking in the back of their mind about potentially building one, they have a single, or maybe even multiple conversations with the city about what the process will be.
But oftentimes when they find that it's going to be expensive time-consuming and difficult, they shrug their shoulders and go on their ways. And so those folks are, are really tough to kind of rally and, and get to these public meetings even to write letters to advocate because they might not know that they're an ADU developer yet because they've only thought about it.
So the role that we play along with you and with many other great community activists in the Portland Metro region is making sure that we go to these meetings, that we submit testimony into the record, that we demonstrate the value and the benefit of accessory dwelling units. So that jurisdictions will adopt regulations that are more favorable to building ADUs in whatever [00:21:00] form they might be.
Kol: So things are a little bit more advanced here with regard to the baseline context of the ADU conversation because of HB 2001. But for those who are not in Oregon or California, who are on this call, I want to just kind of pick your brain a little bit about the role that you specifically in the HBA with wearing your HBA hat has played . So what are some common themes that you've observed amongst planning, staff and elected officials who are grappling with how to loosen ADU regulations. And what, what advice would you offer to other HBA chapters or for members who are in other jurisdictions who want to talk to their HBA reps like you?
Ezra: Yeah, absolutely. And I would just say the biggest thing that we should be doing and that we should think about is is how we're going to be bold. I think it's, I think it's that simple Kol we're so used to operating in a paradigm where it's kind of the, the, the NIMBY, not in my backyard, folks coming out who expect to [00:22:00] play an oversized role in conversations around new housing.
And I think a number of planners out there have been through these battles time and time again, to the point where they're really war weary, where they feel like any time they take you know, a positive, progressive step forward and maybe ADUs, they're going to get beaten back. Their, their elected leaders are going to get nasty letters. And then they're going to have a really tough time defending their positions. And our message to you is, is be bold. Take that step. Just like Portland and just like Oregon. I know that many of the regions that folks on this video come from are dealing with intractable housing crises.
And we're not going to solve those crises. You know, using businesses as usual techniques, we need to be able to take steps forward that take away poison pills and make it easy and effective to build accessory dwelling units. When we do that, we will show our communities that ADUs aren't something to be feared, but are [00:23:00] rather something that fit beautifully and seamlessly into existing community frameworks and have a lot of positive knock on effects.
If we build enough ADUs, we'll see rents reduce, you know, a great report that came out here in Oregon and Kol, I'm sure you can remind me of the specifics, but I think it found that upwards of 12% of ADUs are actually rented for free to family members. That's incredible. There's no other type of affordable housing. And I, and I, I mean that affordable housing zero, it doesn't get any more affordable than zero. That the marketplace can build without significant government subsidy. And the ADU is something that by and large will help people support family members who might need access to housing at reduced costs.
Kol: Yeah. Yeah, you're totally right. The three studies that I've looked at on this issue related to ADUs and affordable housing are that in all three cases, [00:24:00] roughly 18 to 20% of ADUs are rented out vastly less than market rates. And those are probably, you know, people like me who owned an ADU and rented out to a friend or whatever.
And then roughly eight to 10%, five to 10%, or probably I think 8% is the aggregate figure rent at, at $0 per month to probably, you know, granny, grandpa, whatever, that kind of situation or brother who, you know, doesn't have a job or whatever it is. So whether or not it's a required, it seems as though ADUs are actually outperforming regulated, affordable housing,
Ezra: Wow.
Kol: And so so what, what role do you think builders specifically can play in terms of advocacy for liberalizing ADU regulations and missing middle housing regulations in general?
Ezra: Yeah. That's a great question. And Kol, you know, it's my job to be out there talking to folks since my job there to be out there advocating, but, but I'll tell you this it is so much more impactful for an elected leader to hear from somebody that is actually [00:25:00] engaged in the business that they do.
It's great to have lobbyists again, as I mentioned before, it's really tough for a lot of small developers and builders to spend time to interact with elected leaders and policymakers. But when you can take the time to write a letter or provide public testimony it goes miles further. And so I would say to folks, you know, think about advocacy and think about lobbying as something that you would do to support your own business.
You'd certainly take the time to hire an accountant to make sure your books are right. You'd certainly take the time most likely to to work with a professional on doing some advertising. Taking the time and the, and the resources associated with that to do a little bit of advocacy will go miles.
So highly recommend for people to share their own stories. You know, here in Oregon like many parts of the country, we have a part-time legislature. These are folks that have jobs like you and I, that aren't elected. And, and sit in some sort of [00:26:00] ivory tower, just thinking about policy day in and day out.
These are folks that live in the community and when they can hear their neighbors and their neighbors, friends share their stories about how they're building accessory, dwelling units, and, and housing more generally, they're going to be much more receptive to advancing policies that help you and then help all Oregonians and everybody by ensuring there's enough housing.

Kol: What are some differences that you've observed between legislative and local regulatory environmental in the regulatory environment in LA Angeles versus Portland markets for residential construction? I hope that this isn't just a question that serves people who live in Portland or people who live in LA.
But I think understanding from your vantage, how these two different jurisdictions operate legislatively and regulatory regulatory wise will help give some meaningful context for people who are doing it advocacy and understanding the culture of different building environments.
Ezra: Yeah, absolutely and I'm gonna, I'm going to take a step out if that's okay. And kind of [00:27:00] compare Oregon and California generally. And this is to all of you, Californians Oregon took a tremendous step with its ADU regulations here in Oregon. There's no prohibition for putting condo maps on a lot. That includes an ADU.
In California, that's explicitly prohibited. It's been in the law since day one. It's been carried over as this barrier strict of language that really has no solid basis in rationale. And so here in Oregon, we don't have that and the result has been something organic and really darn cool. And something that I'm, that I'm really thrilled about.
And that's essentially the condoization of either attached or detached ADUs. So small scale housing that then can get put on the marketplace and sold at a point at a price point that is highly attainable to folks. So here in the city of Portland, I'll just give you an anecdotal example. We have a program, the government will subsidize you selling a [00:28:00] home to a family that makes less than the area, medium income as long as you sell it at a prescribed price point. And currently that price point is $405,000. They basically found that for a two income household of folks making less than the area, medium income, they can spend 30% of their income and afford a $405,000 mortgage. For the ADUs that are being condoised and sold -detached products, so they look exactly the same as a single family home. They just tend to be a little bit smaller, those ADUs are selling for a little over $310,000. So a hundred thousand dollars less than the prescribed price point for affordable housing is what you can buy. One of these ADUs for here in Portland, that's mindblowing, and that's something that should be available all over the country.
California is missing out on a fantastic opportunity to allow [00:29:00] people to purchase ADUs as essentially starter homes and start building the equity and get the access to capital and tap into the tax code and all those benefits that are available for home ownership could be available to folks that purchase ADUs.
And so I highly encourage you to speak with your legislators about fixing that last poison pill in the ADU regulations that exist in California. Come join us. Let's do things the Oregon way and let's make ADUs available for sale.
Kol: So on the, on the flip side, what are some things that Oregon could learn from California? What are some lessons we should borrow ?
Ezra: Geez, Kol, that one's tough. I, I don't wanna, I don't want to hate on my mind old state, but you know, honestly, California is just decades behind where we are hear in Oregon. The housing crisis there that's gripping California is so bad that they've seen a year after year lower and middle income [00:30:00] residents flee the state, I think California, you know, is likely to lose a congressional seat this year for the first time in forever. Because in large part, they've done such a terrible job. With allowing for the construction of new housing and the primary reason for this, there are a lot of factors. And I think the LA times story that came out several weeks ago, highlighting the, I think it was $1.1 million affordable units that were built down in Southern California.
There, there, there are myriad reasons why building a so tough in California in any practitioner down there can attest to it. But the primary difference between California and Oregon is. Here, we're actually rational about our environmental regulations. We don't have secrets. What we've done in Oregon is essentially bake in the appropriate environmental regulations into our zoning codes by and large.
So it's easy. A practitioner can kind of pick up a zoning map. They can understand where they can and can't build. They can [00:31:00] understand what mitigation measures need to be taken in order to help preserve and enhance the environments. And they can go and get their approvals and start building without having this, this sword of CEQA hanging over their heads.
In California, you might go through that process. You might have dotted all of your T's and excuse me, dotted all of your I's and crossed all of your T's and then open yourself up to years and years of litigation based on some spurious argument that has zero rationale and is totally unrelated to your project in any way.
I mentioned, I previously practiced in Los Angeles. There are a number of firms down there primarily based in San Bernardino County. That would file blanket appeals on any projects built in Los Angeles, solely as a mechanism to blackmail folks into giving them cash handouts. It's it's called a greenmail practice in Venice, California, wonderful community just South of, of Santa Monica, there were several residents, [00:32:00] well-known there, who would appeal every single project that went through solely as a mechanism to extort tens of thousands of dollars from the project applicants. Okay, that there's, there is no rational basis for doing any of that. CEQA does not have a demonstrable impact on enhancing the environment.
I would welcome anybody to come here. Check out, see what Oregon is doing. See how well we preserve and enhance the environment there and put that up against CEQA or any other sorts of regulations like that, that leave open-ended litigation as a part of the land use process and cost, you know, hundreds of thousands of dollars for even smaller scale projects.
I'll give you one example, Kol, just to highlight how egregious this is my bread and butter. When I was a practicing attorney was medium-sized apartment buildings. Medium-sized for Los Angeles. I'm thinking a hundred to 200 units. Nothing. No, high-rises nothing insane like that. The attorney's fees on those [00:33:00] projects were unconscionable.
And, and not because we charge high fees, we were extremely low priced compared to any of the competition. But because of this, this, this ever existing threat of litigation, applicants were forced to pay hundreds of thousands of dollars to produce environmental reports that set essentially nothing. At the end of the day, our clients were building apartments buildings in places like Hollywood and downtown Los Angeles, where they were literally next to other apartment buildings.
And yet for some absurd rationale, they were forced to spend close to half a million dollars. Having their attorneys review a document that said, 'We're building an apartment building next to other apartment buildings'. So I I'm, I'm gonna T I'm going to go out. I'm going to have a hot take your call. I'm going to say we shouldn't borrow things from California, California should be borrowing from Oregon, should be borrowing from States that are, that are taking a more rational approach to how to build housing.
And if they do that, there'll be able to house some of the [00:34:00] millions of Californians that are having a very difficult time, even finding a home.
Kol: Thanks. Thanks for that, that screed.. That was excellent. I do have one really specific last question before we transition to Q and a, which is on a couple of days ago, Eli Spievak was on, and I was asking him about what insights he had regarding condoization defect legislation. And I don't know what you're able to share about that, if anything, but w where did, where does that legislative matter stand right now within Oregon?
Ezra: Yeah, that's a great question, Kol. You know, unfortunately the condo defect rules we have in place here are not industry standard. They're not best practices.
They produce serious litigation threats, and they're the reasons that here in Oregon, condos are generally the last product to enter the marketplace during a boom and the first to exit during a bust. We unsuccessfully, tried to pass a piece of legislation in 2018 that would have brought Oregon and [00:35:00] line with some of our surrounding States. Would have kind of made the liability much more rational, would have allowed builders to cure defects that would have existed. And, and quite frankly, we were beaten by the trial attorneys. They are formidable down in the legislature. Thankfully we have some real housing champions, including speaker Kotek who brought forward HB 2001 in 2003 that I know you've talked about.
And so she has been kind of very open, a very open door with us. We have been having a series of round table discussions with stakeholders, including the trial attorneys. I don't have any details at this time. We're hopeful that we'll be able to bring forward a reform package in the 2020 legislative session that will have broad based support across the political spectrum.
Because just, just as we're starting to see an uptick in middle housing, we want to make sure that, that middle housing is available in both rental and for sale form and condo defect, litigation reform is an integral piece in helping us [00:36:00] achieve that.
Kol: Thanks, Ezra.
Transition
Kelcy: Okay. So the first one I'm going to go with is Shanna Doherty's question. And this one's kind of up at the top here. How has LA and other cities dealing with infrastructure impacts as a result of new density from ADUs? Is this a true issue or more of a political issue? For example, I was told that the sewer and water capacity can not meet higher density density manifested from duplexes, triplexes, ADUs on a single family lot.
Ezra: Yeah, I mean, I'm going, gonna, I'm going to just stop here. This is by and large red herring. You know, to, to, to pretend as if the addition of housing is somehow going to overwhelm Los Angeles or any jurisdiction for that manner is just absolutely false.
And we know it's demonstrably false for two reasons. One, when you do large scale projects or even medium-sized projects in California, you have to engage in environmental analysis. And part of that analysis is determining kind of what the existing [00:37:00] capacities are. Even for smaller scale projects, you need to get a will serve letters from the appropriate service provider to ensure that they have the capacity.
And importantly, new homes are responsible for paying the fees to those providers, to ensure that they're able to upgrade their capacity in a way that will accommodate housing growth over time. So not only do we do the analysis on a case by case basis and when we have updated community plans, do it at a a neighborhood or regional basis.
But new housing pays its way. And the same goes for here in Oregon. People pay development, impact fees. We call them system development charges, but they're, they're the same thing as development impact fees. And those fees go to enhance infrastructure in a way that can accommodate your growth. I would also note that we're seeing things shift dramatically when it comes to transportation modes.
So not only do we see more and more folks working from home, and this was occurring long before COVID-19 kind of came [00:38:00] onto the scene. But we're seeing working from home, being a huge part of the transportation ride share. But we're also seeing more and more folks use alternative forms of transportation whether that's ride sharing whether that is electric scooters here in Portland bike infrastructure is getting built out in a way that makes it much more seamless to get around via bicycle.
These forums are changing all the time and they allow for us to have different expectations of what's what our infrastructure is going to provide for. I'll also note that in Los Angeles, in particular it folks oftentimes like to pretend that the impacts come from the housing. The impacts come from the people who live in the house, right?
So traffic is bad in LA because there are lots of people living there and driving their cars. The parks are full because there's lots of people playing in them. Not because housing was built and importantly, in Los Angeles, in many jurisdictions along the West [00:39:00] coast, people come regardless of whether or not the housing was available.
Kol in the 1990s, I had the pleasure of visiting Russia after the end of the cold war and in Russia they prohibit low-income residents or they did at the time from coming from the villages and living in Moscow. They didn't want a bunch of four people coming into the city and they would check people at train stations.
And if they didn't like what they saw on your ID they tell you to get back on the train. We don't do that here in America. And I'm really thankful for that. And what that means is the fact that folks are going to come to cities, whether or not the housing is available for them. And they'll find a way, and whether that's couch surfing or sleeping in their cars or doubling up in ways that are not optimal from a habitation standpoint, the people will be here.
The best thing that we can do is build the housing to accommodate those folks. And if we do that, we'll actually be able to collect the dollars necessary to build out and enhance the infrastructure that will make it better for everyone [00:40:00] doing the opposite is absolutely the wrong approach.
Kelcy: Thank you. This one I thought was interesting, cause I haven't heard of this before.
Maybe you or Kol can answer this. A city that created a guide for bringing existing outlaw or unpermitted ADUs into compliance. Is that, are you either of you familiar with anything like that?
Kol: I am. I'll speak to that. So this is a really kind of a long topic and a really interesting topic. And I can't go into all, all of my thoughts on it right now, but what I will say is there, there has been some limited degree of success in, I think Marin County in California for an amnesty program.
But I think more importantly if we look at the, the, the number of legalizations of properties in of ADUs in California . If we look at the number of properties in Los Angeles that have [00:41:00] become legal permitted ADUs in the last couple of years, What we see is that approach of just simply having pretty good ADU regulations at large has really been what's fostered a lot of legalizations, it's not an amnesty program per se.
So so I think the lesson that, that I would like to kind of put out there is not that it's, I don't personally, I'm not of the belief that an amnesty program is necessarily, it's not a bad idea, but I think it involves a lot of staff time to come up with the mechanisms to do that. And I think the lesson should be that rather than focusing on amnesty of preexisting unpermitted structures, that would have a hell of a time meeting, structural code, planning and zoning code and habitable current habitable building code.
It's better to just. Make it easier overall to build permitted ADUs and that will enable more people to, you know, legalize, you know, legalize our [00:42:00] ADU if it can do so. It's not, again, that it's a bad idea to do amnesty, but it involves a lot of staff effort. And and I think the reward that you get is ultimately a fairly nominal number of units becoming legal.
And when they become legal, all it means from my vantage as an ADU advocate is you've made them put some more money into bringing up this structure to meet current building code in some way, shape or form, which just takes a really affordable albeit unpermitted unit and putting it into a slightly more expensive permitted unit.
So it actually hasn't increased the housing stock at all. In fact, you've eliminated some really affordable housing stock now. A city, can't say that a city can't say, well, you should just continue to live in an unpermitted ADU. But I just question whether it's a fundamentally flawed approach to be focusing on amnesty when, when there's so much [00:43:00] opportunity for new ads to be brought to the fold by simply reducing the threshold of of making permitted ADUs at large.
Kelcy: Thank you.
Kol: Yeah. Yeah. I'd say two more, Kelsey. Okay, great.
Kelcy: There's a couple that are dealing that are curious about the construction defect laws. So Ezra have you been involved in lobbying for the construction defect laws? And are you familiar with those and can you address construction defects?
Ezra: Yeah. And I think that we touched on this a little bit before. But, but thanks for the question again. Yes again construction defects specifically related to, to condoization, but more broadly is something that the HBA is working on at the state level. We hope to have. As I mentioned before, a new bill brought forward in 2020 that is going to be able to pass muster.
The big [00:44:00] opponents here are the trial attorneys. So if you're a trial attorney, I'm wagging my finger at you stop standing in the way of construction, defect reform. But we hope to work collaboratively with them and get something advanced in, in the 2020 legislative session.
Kelcy: Great. Excuse me.
Thank you. So this one, I'm kind of piecing together a little bit. It's from Dan Curry, and he's interested to hear if you your take on the current environment of COVID-19 having any power to make a case at the state level, in many States that don't already have kind of the state level of legislation that favor ADUs and missing middle housing.
Can you speak to that?
Ezra: Sure. I mean, I think we're, we're all kind of thinking of channeling Rahm Emanuel here about not letting a good crisis go to waste. But I think it's, I think it's more fundamental than that. The value of a good set of ADU regulations exists far beyond the crisis that we're in right now.
So many [00:45:00] metropolitan areas in our country are unaffordable to the people that live there. And the processes that we have in place to allow for the building of new homes continues to fail, to meet the needs of our residents. Full-stop. ADUs should be legal across the country. The process should be by right.
They should be allowed to be of a size that can accommodate a growing family. They should be allowed in all areas. They should be allowed next to all types of housing and all of the old paradigm that we use to determine where housing should and shouldn't go. And what types of housing should be in those places.
Really, we need to start thinking about throwing that out the window completely. We need housing in this country. We desperately need housing in this country. And the only way that we're going to achieve that is if we start to rethink the kind of rules and processes that we have in place. To allow for new housing to get built full stop.
So yes, I think now is a perfect time to advance progressive [00:46:00] ADU legislation. I think once we're out of COVID 19 is a perfect time to advance progressive ADU legislation. I think when it's cold outside, it's a perfect time when it's warm outside, whether it's winter, whether it's summer, I don't care where you are in this country, we should all be working to advance progressive ADU legislation that allows for more housing to get built and more areas that will be accessible to more people.
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The ADU Hour w/guest Robert Liberty
29 abr 2021· The ADU Hour
Kol Peterson: [00:02:02] it's the man of the hour. I'm just going to quickly introduce Robert Liberty a colleague and friend and we've been working and strategizing on ADU stuff together for a long time. More closely in the last few years. Robert was the head of the Portland State University's Institute for Sustainable Solutions and he focused that Institute's efforts on ADU related activities, which we'll be talking about momentarily.
More recently Robert built an ADU in his house, so we're going to be talking about that, too. And also some of his previous experiences related to land use legislation or land use law in Oregon, which is a really fascinating topic in its own right. We'll be talking a little bit about the connection between the urban growth boundary policies.
He's also a former elected official with Metro. So welcome Robert any opening remarks before we launch into some questions?
Robert Liberty: [00:02:54] No, launch!.
Kol Peterson: [00:02:56] All right. So we're going to start off by talking about the history of the urban [00:03:00] growth boundary a little bit, which I just alluded to. It's referred to colloquially locally as the UGB. So we'll, that's what we'll call it.
A lot of people on the call might know what the UGB is, but in essence, every city in Oregon regardless of size has a urban growth boundary. And we're going to show off what that looks like in practice, but the regulation of housing is also part of the Oregon land use program. Can you tell us something about that, Robert?
Robert Liberty: [00:03:24] Yeah, I think people don't know about the program other than we have urban growth boundaries, limit growth, somehow think that was going to limit the amount of housing production, but from the very beginning, one of the problems that was tackled by these laws starting 40 years ago was the zoning that limited housing choice to single family homes on large lots and often big homes.
So right from the beginning, there was an understanding that if you're going to be more compact in your growth patterns you should also increase housing choices. And the supply of land was much less of a factor in the cost of housing than the regulations of [00:04:00] housing. So the same time urban growth boundaries were drawn starting at the state level, we went through every city and every urban part of every County and said look, "you've got a rezone land for apartments, for smaller lots, for duplexes, for townhomes, and that was accomplished largely in the 1980s. And it's made a huge difference.
Kol Peterson: [00:04:17] So given that no other state in the nation has an urban growth boundary, does this concept even matter in this conversation about infill housing? Or is it kind of pointless to even talk about it because no other state has anything like it.
Robert Liberty: [00:04:32] Well, actually, it's not true that no other state has anything like it. The state of Washington has urban growth areas and scattered across the country in places as varied as South Dakota and Kentucky, in Colorado, you find urban growth boundaries, even though a little town and township in Michigan called Frankenmuth. And Lexington, Kentucky, and they won't call it this, but Sioux Falls, South Dakota has virtually the same thing. Ventura County Northern California. So there's, I don't [00:05:00] know, maybe 15 million people living in communities with urban growth boundaries. What I've found is all of them end up having the same elements and one of them is to change the regulation and zoning to allow more housing to be produced.
Kol Peterson: [00:05:15] So it has some political relevance, at least in those areas.
Robert Liberty: [00:05:20] Well, it has political relevance and I think there's real concern now and understanding about what housing regulations done to limited people's housing choices.
And I think that can be a starting point for talking about, "well, how do we grow generally?" And how does this connect to climate change? And maybe we can talk about that later. So it's a different political world than it was in the 1980s. We all know that, it's a different world than it was 20 years ago, but there may be an opportunity for change accelerated by the pandemic actually.
Kol Peterson: [00:05:48] Yeah, actually, I'm going to do a quick thing here and share two slides that show and what an urban growth boundary looks like just as a really quick illustration of [00:06:00] what the urban growth boundary does. Robert can you just briefly talk about these two slides here.
Robert Liberty: [00:06:04] Yeah. These are what are called figure grounds which are actually the black is the structure.
And they were done by the New York times. They weren't done by anyone here in Oregon and this shows Portland metropolitan region. And the urban growth boundary is really obvious in this. It's not drawn in. It just shows how development has been made contiguous and more efficient.
If you go to the next slide, this is the same kind of map from Charlotte, North Carolina, which is virtually identical metropolitan population, and a very similar growth rate. So you can see there's a huge difference. And this makes a big difference to the economy, to society, and to greenhouse gases and yes, it does connect accessory dwelling units. And we'll talk about that.
Kol Peterson: [00:06:49] Great. Thanks. So one of the things that I've observed as a resident of Portland for roughly a decade is that my perception [00:07:00] is that there's kind of a cultural, I want to actually have you check me on this, but my perception is there's this cultural acceptance towards infill housing and density as a result in part of the influence of the UGB, which was established in '73, and that's kind of inculcated itself into the culture and the ethos of Portlanders at least.
Is that accurate? Do you think, do you think that's accurate in terms of understanding the mentality of acceptance towards infill housing?
Robert Liberty: [00:07:28] I think it is part of it because the arguments have been made for 40 years. We've had seven ballot measures at the state level dealing with the planning program, for and against, and by and large, the public has reinforced it.
And I want to clarify something because people get confused to hear about urban growth boundary for Portland. It's not an urban boundary for Portland is for the entire metropolitan region for 24 cities. And every city in Oregon has one. Antelope has a population of 50, it has an urban growth boundary. So this is widely understood as a basic strategy [00:08:00] of saving lands we need for farm and forest production and natural resources and being more efficient with taxpayer dollars as well. So yes, it has become, you know, I've back in the day when I took taxis home from the airport, I'm not making this up, taxi driver brought up urban growth boundary. So yes, it is part of the thinking, but I think the other part of that thinking is.
There's some benefits about growing efficiently and using the structures and land we have that have nothing to do with saving farm and forest land, that are good in themselves. If our landscape looked like the moon, there would still be good reasons to do what we've done and to make it easier for people to have housing choices and reduce regulations.
So, yes, I think there is a culture, but this is what I utterly reject, because I often do presentations and I show a picture of Oz and the characters from Oz and the background is Portland under these green towers. [00:09:00] So this is just wrong. We were so much like every other state in 1973. I mean, we were basically, Columbus, Ohio with fruit trees and bracket fungus or sagebrush, depending what part of the state.
And we became different by working on it. And it was very contentious, Kol, as you know, it's still very contentious in Portland. It wasn't easy and it's actually the fight over these things that helps people understand them. So other places say, "Oh, we couldn't do that it'd be too controversial." The answer is, "Yes, you can do it, yes it will be controversial and overcoming the controversy is part of the education process." So for those interested in ADU design so far, this. It was a bomb. So we get into the ADUs more, but you and I are both interested in the big policy setting for ADUs.
Kol Peterson: [00:09:50] That's largely what I wanted to talk about with you is these policy aspects. You bring a lot to the table with these policy discussions. You have a rarefied set of skills and experience, [00:10:00] so we're going to focus on that. For several years you orchestrated a Sustainability Institute housed within PSU and focusing the institutes efforts on ADU production.
Can you tell us about the initial goals of that program and whether it was successful?
Robert Liberty: [00:10:13] Yeah. The Institute for Sustainable Solutions work on a variety of topics, but this was one and we picked it because it had a high profile. Thanks, in large part, to the work of you and colleagues of yours, like Eli Spevak and making this a big issue, even though ADUs had been authorized in Portland for 30 years, actually, and regionally for 30 years, not much production.
So the idea was, can we look at all the barriers to production other than regulation and what can we do about cost financing, permit processing, site suitability designs and so on. So we commissioned some work and one set of projects were five standard designs for ADUs to serve different markets from smaller to larger.
In fact, the center for Public Interest Design at Portland [00:11:00] State had a studio on that. And one of the designs is likely to be built now. That was one project, another was a survey of hundreds of ADU owners and tenants, and all the prior surveys that we were aware of interviewed only the owners and not the tenants.
Another was some research into site suitability in the city of Portland, and then we convened people in finance to talk about how to increase access to financing for people that didn't have a lot of equity and savings. We talked about a wide variety of topics.
How successful? Well, this is part of a conversation you and I have been here having for while, which is people want this to go to scale, but so far, except in a few places, scale has been pretty modest. And why is that? And can you do this at scale and what is the role of government? But I would say that we don't know yet. It's a little too soon to tell what the results might be. Some of the work is clearly helpful. Some of it has not been helpful.
[00:12:00] Kol Peterson: [00:12:00] Yeah. I have a general mentality of urgency around ADU production. I'm tired of dilly dallying, and I want to see success. I want to highlight programs that have worked as opposed to spending political capital and money and effort on things that might work, but haven't proven to work. And so that's kind of the underlying skepticism I have around some of these really good sounding programs that I see a lot of municipalities and institutions trying to promote.
And I'll give an example of this, standardized plans. Obviously that sounds like an easy win. It sounds like a good idea. A lot of jurisdictions are putting effort into design contests, have standardized plans, but we've seen a standardized set of plans in Santa Cruz in 2003 and those were not used even once, ever. And now we see that same thing happening in Seattle and San Diego, and a lot of other jurisdictions are trying to [00:13:00] standardize plans. And that doesn't have any impact, or at least hasn't, now it could potentially, but I don't want to have, I don't want to see governments spinning their wheels on things that haven't proven to be successful.
I'd rather have them focus on things that we know can actually help.
Robert Liberty: [00:13:16] Well, I think that this particular topic is an interesting one because when we started our work, you were very polite in our big collaborative meetings. By the way, I do recommend those, bringing all these different people together to talk about it generated a lot of activity and interest. But you were very skeptical, and so was Eli. I remember going up to Vancouver and talking to Jake, who you had on your program, I think on Wednesday and on his wall, he had a series of very beautiful renderings of different designs, and I think he mentioned them briefly. I said, how many of those have you built? And he said, "none".
So, that's very important but one of the things that I have questions about is, is it because we're talking a very early [00:14:00] pioneering market in the limited place.
So the house I'm in is a 1945 house. It's 1100 square feet, including the attic. And it was one of about 40 built in our neighborhood all at once. So those were standardized designs and those were middle-class homes. So it may be that the people who build ADU is now tend to be more affluent, have disposable income care, more about design, and maybe people who earn $60,000 dollars a year and have a big backyard say, "Well, fine, Model B with the brown countertops is fine."
So I don't know, yet, but this is part of the bigger question, too. The idea of standardized designs was to reduce the time required to do it, and maybe the cost. I think the cost issue is a big one and the design part is not necessarily a big part of the cost.
You know, it might be 10%. So I would say, if we want to have large scale production, then we ought to be looking at settings where this might work and markets where [00:15:00] that might work and you have to have the financing and the outreach, and then standardized designs.
The percentage of Americans who live in single-family homes designed by architects must be a fraction of a percent. Most of them are some variation of standardized design.
So as I recall, and I'm going to send this question back to you. One of the issues though, that's for detached units is the backyards have too many variations in them. And that's one reason, but how do you feel about why standardized designs don't work?
Kol Peterson: [00:15:31] I'm asked this question a lot by every pre-fab company in the world that wants to start doing standardized designs. And I always like to caveat my response with it could work. In fact, there's three companies in the whole United States where it is working, but there's a hundred companies for whom it's not working and they go out of business.
So I don't want to say it can't work, but I will say that the only companies that for whom it has worked are coming in at really inexpensive price points, that seems to be the common theme [00:16:00] amongst them, and they are standardized plans. So it can theoretically work based on those few examples, but for most companies it doesn't seem to be working.
And there's a whole bunch of reasons why not the least of which is, "Hey, I'm spending at least a $100,000, if not $200,000 on this unit. I want to have some say over some architectural aspects of how it's gonna look and how it's gonna lay out on my property and what the orientation of the doors and windows and electrical and utility connections from the primary house will be in my particular property."
So I think that's a reasonable thing for any homeowner to anticipate being able to have some control over.
PrefabADU.Com is the most successful in terms of market rate adoption they've built several hundred ADUs in the U S, most of which are prefab, predesigned, standardized plans.
Robert Liberty: [00:16:43] And obviously in an expensive market. So even compared to the regular homes here are quite affordable.
The other thing I would say is that the idea that you can have a design that fits all the backyards for detached units, that isn't the point. The point is that [00:17:00] maybe out of a hundred thousand sites or 200,000 sites, maybe there's 5% that would fit one of the designs. That's what I think is the opportunity. A flat site without a bunch of trees , maybe an alley, or on a corner, or something. If we could map those and say, "Look, your site actually has a low cost potential."
I made a reference to an internal standardized unit, that was something that the Center for Public Interest Design did. You can see some of these components already exist, the kitchen and bathroom and the wall, and have that so that you can slide in and connect up, and that might save a chunk of money. So that's a standalone possibility it could be used in new houses too.
Kol Peterson: [00:17:39] I want to talk a little bit about the Institute for Sustainable Solutions survey that was done, and just share some of the highlights from that survey.
Robert Liberty: [00:17:44] So this was a survey done in 2017, 18, I think, and it was a good database, there were hundreds of people interviewed. We paid $10 for every response, and we got a good response. The numbers don't look very [00:18:00] impressive here, but high quality.
The main point of this is that things really took off in 2013. These are all Portland city only.
I think the waiver, the $15,000 benefit of not paying system development charges had a lot to do with it, but this also was ,concurrent with Portland, becoming a tourist destination we had never been before, around food.
And a lot of the ADUs are built to the neighborhoods where food tourism is pretty prominent and it also coincides with a massive run-up in home costs and rental costs. So the returns on building an ADU, or renting out part of your existing house as a short-term rental, changed dramatically right as we came out of the recession, as well as regulatory reforms and the SDC waiver.
So I think, Kol, maybe you can comment on what you see nationally, but I think this distribution had changed a little bit from the prior case. But you can see it's detached new structure is 40%, [00:19:00] but garage and basement renovations together are 43%.
And my impression is that's continuing 'cause I can see a lot of them being built. There is a big difference, potentially, I should say there's a big difference in cost, especially in the basement renovation. What's not in there, by the way, and you've comment on this, is attic renovations.
Kol Peterson: [00:19:23] Yeah, attic renovations represent I think 2% of all permitted ADUs in Portland, so it's really marginal. Another weird thing, Robert, this is kind of a fascinating side point here, but if you look at the actual data of real life permits that have been issued in Portland, there's not a lot of internal carved out ADUs aside from basement conversions, just in general, whether it's at a conversions or other portions of the primary level. The reason that's important is because California has a state law now that's like junior ADUs and it's for internal carve-outs of existing structures, which is another one of these things that sounds obvious. Of course, that's a great idea, we have all these oversized [00:20:00] homes, but the data doesn't actually bear out that a lot of people are doing that aside from taking a basement and converting that, which maybe has some architectural rationale that other internal carved out ADUs do not.
Robert Liberty: [00:20:12] I think it's interesting question. One of the things I have observed, if you look at the map or accessory dwelling and it's been built in the region, not just important, but in the region, they're overwhelmingly clustered at inner neighborhoods in Portland.
Those are areas where your market return is really high, but there are also areas that have older homes and small lots. And this is why I think the opportunity in mid-century suburbs is so great because these are places which have mature trees, small often awkward home designs from 50 or a hundred years ago to adapt.
So that's one of my questions is, would we see something different if we were looking at a blossoming of ADUs in a mid century ranch home suburbs?
Kol Peterson: [00:20:55] Well, I think the the form of ADUs does follow regulations, and I'll [00:21:00] speak to that in a second, but to your point, I think over time, we might see that there's different forms of ADUs that happen as a result of the year that the housing stock was developed in a given area. For example, snout house suburb subdivisions that were built in the fifties to seventies in cul-de-sacs. If, and when in California, ADUs take off in those areas, we're going to see a lot of snout house conversions.
Whereas right now that's not a really prominent form of ADU, but it's, it's obvious. It's really easy low-hanging fruit for a lot of areas within California, I would say.
Robert Liberty: [00:21:35] Projects that we didn't get done, that I'm still interested in getting done, is to look at mid century homes and which ones would be most easily, cheaply, but effectively converted to include an ADU.
So my parents moved in 1962 from inner neighborhood of Portland to what was then an outer suburb, it's not anymore, and they bought a ranch style home, with their three kids. And [00:22:00] it's got a complete daylight basement with what was a wet bar, a bathroom and separate entrance.
I look at that, I think, you know, pretty nice apartment, pretty large, basically a rec room, so it's big, and that would be a very easy conversion, I think. That home design, even though that actually was designed by an architect, it looks like a lot of other homes. And so that's kind of thing that's interesting. Plus a lot is big. So, I think there are a lot of potentials. Pioneers tend to be in the inner neighborhoods for a variety of reasons. Now we look at neighborhoods about 50 years ago for opprortunities.

Kol Peterson: [00:22:38] Let's go through a couple more of these findings from the survey.
Robert Liberty: [00:22:41] Some of this was a big change, short-term housing less than one month, 26%. This had gone up dramatically from the survey that was done several years before. And I think that's a reflection of what I mentioned before, which is a big spike in rent and tourism coming to Portland.
You can also see that [00:23:00] 16%, interestingly, it's the owner's primary residence and the ADU is currently occupied, meaning the owner is living on the property. Now that's one of the things that Portland has done is it doesn't require the owner to live in the primary residence.
And on one of your tours, we visited one of those properties. The fears that people had are completely unjustified because you can rent your house out anyway. So it's hard for me to understand the fear is about what we don't want to have the ADU as a renter, unless the owner of the home lives in the primary residence, you can already rent out the home..
Kol Peterson: [00:23:34] Robert, since you've teed up this short-term housing thing, we don't want to dwell on this. This is a big topic. I have some really strong talking points about this, but what's your talking point about the conflation of, or the concept of short-term rental opportunities, options within ADUs?
Robert Liberty: [00:23:53] Well, it's a mixed bag and I have some new information as a result of work in the Columbia [00:24:00] Gorge, is that in small markets, you can have a lot of the housing stock converted short term if you're in a resort area, that's not us, in a city is very different. And as you and others have said, a lot of the short-term rentals are in their primary residence.
So confusing an ADU with a short-term rental, it's kind of a mistake. Short-term rentals could be anything. I think the other thing is that the short-term rentals, the rapid return, is often the trigger that allows people to go ahead and build an ADU. And the survey results show that people often plan to get out of the short term rental business 'cause it's pretty taxing and go to a long-term rental after they'd paid down their debt. Also, there's an equity component during the testimony before the city council on whether to continue the waiver of system development charges, the city said, okay, we'll do it, but you have to agree not to use the accessory dwelling unit as a short-term rental, one of the people testified said, "That was going to be my retirement the only way you [00:25:00] can stay in my home." So. I wouldn't say that unlimited short-term rentals is good, particularly if you're in a resort area that you're actually changing your housing market way, that's bad for people, but I think it's a lot more nuanced and complicated and conflating ADUs with short-term rentals it's a mistake just factually. That that income stream may be essential trigger.
Kol Peterson: [00:25:24] Yeah. Well, this is really big topic and we could have a whole show on this at some point.
Robert Liberty: [00:25:29] The people were not receiving any rent are often using it themselves, living in the primary residence, or it's a relative or a friend.
And actually it's significant that the percentage of people, who it's a friend, it's not a relative, it's not a child, it's a friend who needs it. Also, below market value, I think people said, "well, how would they know?" But the answer is in fact, people are pretty careful. They do check, there's lots of information online about what other people are getting for their rents. In fact, when there was a cost increase in our ADU, I said, well, I'm [00:26:00] not too concerned, but what kind of rent can I get from this relative to what this extra cost. I was so horrified, it was so high. So I certainly knew what the market rents were. And people were choosing to do this. They're choosing not to charge market rents. They're not trying to maximize their income, so they're more flexible. So I think this is pretty important.
Kol Peterson: [00:26:24] I'm going to go rapid fire through four or five more questions, Robert. So you developed an ADU. Tell us about the development process and what you've learned about providing an affordable ADU rental from a homeowner's point of view?
Robert Liberty: [00:26:40] I started the process by saying I wanted to learn about the difficulties. By the time it was done, I realized that I was wrong. And it was because I found someone, architect and developer, Nicholas Papa efthimiou an expert. I'm a land use attorney, but after a while, he really knew the ropes.
So really my job [00:27:00] was to give some advice. We talked about the design and this is a 391 square foot converted tuck under garage. It has retaining walls into a private patio, it's South facing, which is very important Portland, and we had a budget of originally $60,000, turned out to be 75,000. So I learned, it actually wasn't that hard for me. I had to make some decisions. My sweat equity was pretty modest, mostly the exterior landscaping work. And I did learn about the challenges of different interpretations of the same code by different reviewers and building codes. Some of the stuff did drive me a little nuts, but fortunately Nicholas really was write checks, give us some advice. So that's what can happen elsewhere.
Kol Peterson: [00:27:48] Now that you've had some experience with this, what roles do you see ADUs playing in terms of affordability and equity?
Robert Liberty: [00:27:56] Well, what we know from the survey is that there's an overlap between the rents [00:28:00] charge for ADUs and people earning between 60 and 80% of median household income. So market provided, small housing can be affordable people at 60 to 80%, but, one of the questions is that people in those units maybe earning 120%. That's a question about, can we, I find that people really need these rents. So I think it could be pretty significant. The other thing we could have done, or can do, in Portland is we have a $15,000 value in the waiver system development charges, the city. And I know you're not a fan of this, but the city could say, we're going to turn that into a rent reduction.
And it doesn't have to be dramatic, but we'd like you to shave off $200 a month. So I'm charging significantly below market. But because I had savings I used, my return is, this is gross, 1% a month. There's nothing, especially now, there's nothing I can get in the market, as someone who doesn't have a lot of money, like that. So, [00:29:00] I think this combination of great opportunity and need and kind of minor Incentives could do a lot. It's not going to solve the problem. There's no silver bullet, but this is a piece of silver buckshot that I think can help with that housing market.
Kol Peterson: [00:29:13] Robert, this is an important point, can you just explain that in lay terms, when you say your return is 1% a month, explain what that means, dollar value?
Robert Liberty: [00:29:22] So the rent I'm charging is $760 a month. The cost of the ADU was about $75,000-$76,000. And the $76,000 is not construction costs, it's everything. Permits everything including I think I threw in and finally the money has been a building and planter boxes and the fence and stuff. So that means I'm getting 1% back on my money.
Now, if I had borrowed that money, I wouldn't get that kind of return. But if I'd put that money into some sort of investments, I'd be getting a negative return right now. So, [00:30:00] there were a couple of things that made that possible. One is I had help. Second thing is I had a home with a tuck on her garage and I didn't have to provide parking, if I'd had to provide parking, that would make a big difference.
So this combination of regulations, existing structure, and not getting too obsessed about fancy touches, made it , I mean, there's nothing like that I could get.
Kol Peterson: [00:30:23] Yeah. Let's dive into a different topic here. Let's talk about the greenhouse gas emission reduction potential of ADUs and middle housing for cities and states that have greenhouse gas emission reduction laws or policies in place. Can you talk about that a little bit?
Robert Liberty: [00:30:39] Yeah. So since we're changing topics so dramatically, I'm going to change my tie. Greenhouse gas production, about quarter, but typically, certainly in this state, 27% is from transportation, another big share is from the structures themselves. And by having ADUs as a strategy around infill and redevelopment, you [00:31:00] reduce driving. People are closer to things, especially if they're built in neighborhoods like the ones we live in, where there are stores nearby and walk to, and the conveniences of excellent transit, bike proximity. ADUs as strategy around infill and redevelopment makes a big difference in the amount of travel.
So that's one part. The other part is small houses just generally don't take as much energy to heat, dramatically different. I know this from personal experience, we had an energy audit and there was a threshold of savings they had to meet and then you'd get a benefit.
Well, we couldn't really meet it and our walls are not insulated. So why is that possible? It's because the house is a appropriate size, 800 square foot main floor. We shut the doors to the attic, it's just really efficient. And so those two things, the small unit and the infill together actually have a big impact.
And California has made compact growth, a major part of its effort [00:32:00] to address climate change. And I worked on that project for a couple of years as well.
Kol Peterson: [00:32:05] We're going to close out with one question here about your experience as an elected official in Metro many moons ago. What are some strategies that you'd recommend for advocates and elected officials that are confronting common concerns around the impact of off street parking or owner-occupancy or any of the other arguments that are put out there against infill housing and residential zones?
Robert Liberty: [00:32:29] Well I think the most important thing is organized education coming from the residents themselves. We've had, I want to repeat this with very important, all the stuff we've done in Oregon, around planning and changing how we grow and develop around housing has been contentious. It always has been, but there's always been a lot of grassroots advocacy coming from individuals and organizations.
I'm amazed at the level of distributed sophistication we have [00:33:00] here from these challenges. It's something universities can contribute to. But the most important thing is, and I serve on the Columbia Gorge commission now, is to have people coming in and say, I want this in my neighborhood.
And to do that it's best if there's an organization or YIMBY, "Yes In My Back Yard" organization, but it can come from designers, it can come from faculty members, can come from people in faith communities who say, "You know, if those people were good enough to take out our garbage or teach our kids, they are good enough to live here."
So this is, again, an experience that's many places have had, but I think that's what has to happen. And then the elected officials get more comfortable. The other thing you can do is, speaking bluntly is, make someone lose an election from being on the wrong side of an issue and that will get everyone's attention immediately.
Kol Peterson: [00:33:52] Good closing piece of wisdom, throw your electeds under the bus!
Kelcy King: [00:33:59] That wraps [00:34:00] up the interview portion of this episode of the ADU hour. As a reminder, these episodes are the edited audio version of interviews that we conducted via a webinar series. Good news. You can access the full video series via Kol's website, BuildinganADU.com. Now for the second half of the show I curate questions from the audience that gives our guests the opportunity to dive deeper into a topic or address new ideas and questions.
So Jeff Barber is asking , and I'm curious about this too, about comparing the urban growth boundaries from out West to the Compact Context Areas in the Midwest. Is that something that you can address?
Robert Liberty: [00:34:44] I'm not sure I know what that is but I can guess a little bit, one thing I'd say is Urban Growth Boundary is a tool that will help supply over a big area because of separates city and country.
And if you don't limit what happens outside the boundary, it's worthless. So in [00:35:00] Oregon, about 96% of the private land is zoned for farm or forest use. And you're not necessarily entitled even build a house. So you can't just densify and allow sprawl across the countryside, you have to have a system that covers a state or a whole region. And it is also not true that encouraging density and cities are allowing that some cities will save the countryside. It doesn't work that way, you have to have something that applies across the whole landscape. Thank you.
Kelcy King: [00:35:30] What could specifically, this questions asks California, but I think anywhere, learn from Oregon in regards to land use and zoning instead of purchasing open space.
Robert Liberty: [00:35:42] Several years ago, I did a study of what all 50 States were doing to curtail sprawl. And I looked at a bunch of regions. It's an 800 page report.
I'll send a signed copy to someone if they promise to read it all. But when I was done, I had a kind of, instead of "eureka moment", a "well duh" moment. So [00:36:00] one thing is you have to change your land, use regulations in a fundamental way. You have to have oversight, you have to have enforcement.
We have actually citizen forcement in Oregon, and you have to stick with it. So, it's not just a little bit of tinkering, you'd have to really think about your entire landscape. In California actually has huge amount of planning legislation. A lot of it's not enforced and a lot of it is advisory and that just doesn't work if you mean it, you have to require it.
So it's politically difficult, but I think it will be essential, both for equity and sustainability.
Kol Peterson: [00:36:35] Robert, there's a couple of questions I had for you that I didn't get to ask and I'm curious if you could get into it a little bit. So what, just in general, what roles do you think ads and missing middle housing play in terms of meeting a state's housing production goals? Oregon and California, I'm sure other states have goals that they're trying to meet. Can you give us some insight into how middle housing can help those goals?
Robert Liberty: [00:36:58] Well, I
think it could help [00:37:00] significantly, but just the ADU productions we had before the pandemic. I remember talking about this and whether it was regarded as a niche with a regional government, and one of the planners there said we were looking at, I think three or 4% of the housing production going on during that high growth period was taking the form of ADUs.
That is not a niche. Three or 4%. Right. So I think we don't know what it could play. If there was a requirement that new housing that was built, something discussed in Portland and the region, had to include an ADU, then we could really talk about a significant increase in production.
So, I think the potential, even if it's one or 2%, it's significant because ADUs are unlike apartments and they're unlike single family homes, they really are in different locations or different scales, they're in opportunity areas often. So I think they can play a very important role.
I think the trick is can we get that to go from hundreds to thousands? And how do you do that? So the answer [00:38:00] is yes, it can. But we'll have to see. Oh, one other thing I should add is that when, as part of the planning effort here in the region, we wanted to encourage growth along corridors and in centers and not sprawl.
We've had an explosion of mid rise apartments along transit quarters, simply by eliminating parking requirements because it's $15,000 to $40,000 per unit extra. And all of a sudden things now work. So that has been dramatic in last five years. I think there is big potential.
Kol Peterson: [00:38:34] I always give a lot of credence to people who put their money where their mouth is. And by that, I mean people who build an ADU for themself because I think there's so much to be gained in terms of understanding the market by going through the process yourself.
So can you just talk a little bit about now that you've been through the ADU development process yourself, how has that changed your understanding of the ADU market and policy interventions [00:39:00] that are out there?
Robert Liberty: [00:39:01] Well, it's sort of a emphasis in some points I made earlier. One is there are situations like mine where the cost of the ADU can be low and the return is high.
That's a combination of the home, and the site, and the regulation, and available capital. A lot of Americans have no savings, so this doesn't work for them, but they may have value in their property.
Finding the place where there's really a high return, I think I was kind of shocked at how important this has been for my financial future. Other people know that, there's nothing particularly unique about our situation. I think sharing that can make a big difference. On the other side, I looked at the possibility of building a detached unit talking about that with Nicholas again. And I looked at that return. I was going to have to borrow some of the money and it wasn't great. It was pretty weak.
So what that shows is you have to find the right situation, the regulations, the right setting for the remodel and so on. And then I think it has big [00:40:00] potential, big potential.
Kelcy King: [00:40:01] There was one more that I think can be adapted to any city or any municipality experiencing growth.
Danny asked, "I've been asked by my local real estate investor group. What types of development does Portland need most? What do you think the best answer to this question is?
Robert Liberty: [00:40:15] Housing development or development generally?
Kelcy King: [00:40:17] I would say housing.
Robert Liberty: [00:40:20] Lower costs, and I think that is going to be a mixture of apartments, but I also think we need innovations to test markets and the work that Kol and others did actually did that and demonstrated there was a market that's actually a role for government is to test markets.
So I think there are some things around design. So for example can we get the science where people have a small backyard and some privacy, but it's part of a multifamily development. Is that a big market? What can we do with adaptive reuse of existing structures, both homes and not. So I would say we need more housing, more variety of housing we don't need more trophy housing. You [00:41:00] know, we don't need to worry about the upper end of the market except in so far as it's using up the land and the taxpayer required financing required for other people.
Kol Peterson: [00:41:09] Thanks, Robert. I noticed how you slipped adaptive reuse that was pretty slick.
All right. So thanks so much for joining us today, Robert. And we are gonna wrap up today's show thanks again so much for being our guest today.
Robert Liberty: [00:41:23] My pleasure and thank you for doing this, Kol, it's very important.
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The ADU Hour w/guest Jake Fry
14 abr 2021· The ADU Hour
Kol Peterson: [00:01:38] It is Earth Day! That is exciting because for a lot of us the whole ADU movement is really around environmental issues or is precipitated by environmental issues. It is for me. I didn't even realize it was earth day till, Kelcy reminded me.
Kelcy King: [00:01:56] Happy earth day, everyone. Thanks for supporting this [00:02:00] content and supporting Kol and all of our guests.

Kol Peterson: [00:02:02] So let's bring out Jake.
Jake Fry: [00:02:03] I just want to, before we start to say, this is such a great idea. And I'm really honored to be asked to join in this discussion. I think it's really tremendous all the work you've done over the years.
Kol Peterson: [00:02:13] Thanks man.
Jake Fry: [00:02:14] Kudos to you.
Kol Peterson: [00:02:15] Yeah, this is great. And I am honored to be able to pull this kind of thing together with people your caliber, to be able to share the wealth of information that you have.
I've been just diving right into heavy material because that's what we're doing. Why don't I start by just having you do a one minute intro of you and your company and your relationship to ADUS?
Jake Fry: [00:02:40] Sure. I will say, , And, and the immediate front , I think I'm most known for the running of my company, which I started in 2005, in Vancouver, Canada,
I think on some level, it's a different country and we have different dynamics that are happening here. It's a fairly small city. It's only about a million people, when you look at the greater [00:03:00] city. We really had a number of pressures on our urban environment and I was always enamored with the ADU form. And it was something that I was just drawn to. My background had been as a carpenter.
Going back to that early two thousands, did this seem that something had to happen in our town that was going to be different. Land prices through speculation were just going through the roof. Housing, even at that point was an issue, it's even more so now. And there was issues of affordability and this urban growth and what the city was going to look like and how it was going to change.
And for me, although there's never a magic bullet to these urban matters, the ADU makes so much sense. And I just basically stuck a flag in the ground and said, we're going to make this happen. And I worked really hard, advocating for the built form. There had been some precedent from historical, little coach houses, that existed in the city and some precedent through heritage retention that, that wasn't completely without example, but we were able to really push it.
And by 2009 through [00:04:00] some pretty concerted effort around marketing and getting people on board, we actually got a citywide ordinance passed and opened up 70,000 building sites to ADUs. And since that time, , I think we've maintained sort of a leadership role. , certainly we're very, very active in advocacy as the built form is involved in the city.
Personally our company's put in a little over 300 ADUs , and citywide we've certainly capped over 5,000 across the city and it continues to be a very strong built form within this sort of spectrum of housing in Vancouver.
Kol Peterson: [00:04:35] Wow. There's so many different things I want to ask you about now that I didn't even think about writing initially. So I'm just going to go in that direction for a moment. You just said that, the city of Vancouver has roughly 5,000 ADUs. Now, I think we should just do a little bit of myth dispelling about some of the numbers that are coming out of Vancouver.
A lot of the documentation media coverage about the ADU scene in Vancouver says vast number [00:05:00] of homes have ADUs. So let's talk about the vernacular that's used in Vancouver and talk about the legal permitted secondary suites and the unpermitted secondary suites and just kind of help tease those different issues apart for us.
Jake Fry: [00:05:13] A hundred percent. And so, I think that's a great point you bring up, I mean, for us, a couple of things, what we immediately considered to be ADU is a standalone building in the rear of the property. And I know from our work that we're starting to do in California, the ADU also includes what we call a secondary suite.
So going back to the eighties, certainly in the nineties, land value starts going up in everybody. And his brother puts in an illegal suite in their basement. It's a very common built form. It took about 12 years for that to become a legalized citywide and so some of our numbers around ADUs include that. If you were to look at the city and to tease out those numbers, we have a city core , which is very urban and lots of towers and condominiums.
And that's an ongoing concern, but about 85 [00:06:00] percent our land mass is a traditional single-family home development where we have, you know, kind of a grid pattern. Although we're hemmed in by mountains and ocean, we have a bit of a grid pattern. Those that grid has lots of laneways.
Up and down those streets and varying sizes, we have single family homes. And so if you were to land here in 2000, I would say a large percentage of those homes, quite, quite big. We have a scenario where we have a basement suite. Some sort of rental unit within the home, that became legalized towards the late nineties, early two thousands.
Subsequent to that, moving up to 2009, is when we have this rear unit that could then be legalized. In both cases, they were few and far between, where you have an ownership model with that built form, it's all rental where it would be commonplace in a block. If you were to go to a typical street right now, I would say it wouldn't be uncommon to see half the homes having a basement suite , and maybe one or two of [00:07:00] those homes having a rear ADU.
And if we were to tease that out a bit more, I would say we roughly have about 1% housing stock that gets torn down per annum, and rebuilt. And I would say over 75% of those new builds, which is somebody who's come in and whether it's for development or speculation, or just because they're building their dream home. They're putting a new house in the property. But 75% of those people will install a secondary suite in the basement and an ADU in the backyard because it's square footage that otherwise wouldn't be there. There's no cost to it beyond construction. And about 25% of the ADUs that go in, maybe even a little less, tend to be someone just going, "Oh, I need to house my kids or, my Mom and I are going to consolidate our properties and she's going to live in the backyard or I'm going to live in the backyard."
So that's, that's kind of the preview. What small works does. We only do the infield part of that, that market .
Kol Peterson: [00:07:55] So when we talk about the secondary suites, [00:08:00] do you have solid numbers or a guess as to actual permitted numbers, there are versus unpermitted secondary suites that exist?
Jake Fry: [00:08:10] Well, there was an amnesty program. So if there's unpermitted, laneway, unpermitted secondary suites, I think they call them California they call them junior ADUs, they're going to be pretty modest. No, I don't have those numbers, but that amnesty program has been extinct for a long time. As an aside, if you build a single family home, you have to put provisions for a secondary suite in the basement, even if you're going to use it for family use, because rental is so rare here that they don't want to be in a position where they don't have that opportunity with future owners to have an ADU.
Kol Peterson: [00:08:43] Dive into that a little bit more for us, Jake. So you're saying it's a building code requirement or planning zoning requirement that you must create a secondary suite ready lower level?
Jake Fry: [00:08:53] A hundred percent. If you're doing a single family home, you have to have some accommodation that in the [00:09:00] future, that rear unit or some part of the home could accommodate a standalone living unit. Even if it's not going to be at the original point of usage. .
Kol Peterson: [00:09:11] And that's, that's a pretty, aggressive standard. I really like it. Do you know of any other places that are doing that?
Jake Fry: [00:09:20] No. You know, and I have to say Kol, , and not to toot Vancouver's horn, but, , I think there's, there's a couple of things that are really different.
And again, maybe I could use a comparison to California because we've been looking at the Bay area a lot, cause it's very similar. What we have here is a different tax structure than you do in the States. Canada has a longstanding relationship, because it's part of the Commonwealth, with Hong Kong.
I won't attribute it strictly to that, but there has been , in the last 25 years, quite a bit of, investment in property in Vancouver. And in the last 15 years, it's very speculative and because we have a different tax [00:10:00] structure than you do in the States, it's a really good place to legally shelter money with property. They don't look at their global wealth. They just look at what wealth they have in Canada. And there's any number of drivers that makes it a very attractive place to invest money in real estate. And it's a very large community, a diverse community in Vancouver. So it was also an established community of Chinese origin. And so there was any number of driving factors that really in the end basically just took the land value in this, blew it out of proportion for what local economy would support.
So by example , about 4% of the earners can actually afford a single family home. The top 4% of the earners can afford a single family home in Vancouver. So, you know, we have trouble attracting doctors because even at , a good rate of a surgeon, it's still pretty expensive to buy a house here. There's lots of home ownership that's people having homes through family and so forth.
But if you were to actually land in [00:11:00] Vancouver and trying to buy a home, not conceivable, to be able to do that with a normal income and certainly blue collar or middle-class income, it's almost impossible.
In comparison to California. Where there are local high earning people, right? So there are people in the tech industry and yes, that's kind of a real negative effect around land prices. And that kind of wage disparity that happens , is quite acute in that part of the world that has its own challenge. But. Going back to your key point. What's the driver behind this rental is so important for local people to live here. We haven't been able to crack the nut on affordability or their home homeownership attainability, which is something that I think, we've been really working on , along with others.

10 years ago, we have such an emergency. We have to enforce an ability to at least create rental stock. And that's really what was behind both the basement suite ADU or the junior ADU and the ADU develop.
Kol Peterson: [00:11:56] So Vancouver is prices are roughly akin [00:12:00] to the Bay area, I believe. So could you talk about the average price point for a single family house in Vancouver. And then talk about how you see laneway homes fit into economic sustainability for homeowners who are looking at buying a property or who are thinking about building one?
Jake Fry: [00:12:17] Yeah. So, this in two little pieces.
So first off, what is the average property value? If you were looking at the average stand-alone home. It's going to range from the East to the West side.   The further West, you get closer to the ocean, the higher the prices, but I'd say as an average, we're creeping up to $2 million for a single family home. And just to put that in context, our mean income is $80,000 per family , so there's a big disparity . Of course there are, there's always those properties that sort of skew the price at a $10 million property, $12 million property. And we do have quite a few of those. But I would say even if you were to scrub those outliers outside of the equation, you still dealing with homes that are well over $1.8 million on [00:13:00] average.
Kol Peterson: [00:13:00] Right, that, just for everybody's reference, I think that's almost the exact same price point as the Bay area, right?
Jake Fry: [00:13:09] Yeah.
And that's probably the only large jurisdictional area within the United States where that's a comparable price point for sales on the homes.
Yeah. And one of the questions is ,this popped up in the string and we weren't taking it, but someone's saying, "well, what's that how's that compared to a American dollar?" And yeah the Canadian dollar is much lower right now, but I mean, our earned dollars are the same, right? So a carpenter with a truck who's really skilled, he might have an annual income of $110k, or his family might have an annual income, $110,000, but it's for pretty skilled employee who's rarefied here.
Right. So, just to put it in context, I would think a Bay area carpenter of a similar quality would make the same in American money. So in some respects, I think it's a level playing field, right? We're, we're really judging this against income.
Kol Peterson: [00:13:58] The second part was how do you [00:14:00] think of secondary suites and laneway homes fitting into economic sustainability and, and sorry. And also just the homeowner mentality around the role that ADUs play.
Jake Fry: [00:14:11] Yeah, sure. I'm going to break it into two parts because I think it's important. I'm going to focus on what we tend to do, which is that we're a green builder. We believe in embedded energy, the importance of keeping that principal residence because that's probably the greenest thing anyone can do as opposed to ripping down a house and building new for new sakes. So in our context, how that fits into affordability's, it's twofold probably about 80% of our customers tend to have some sort of familial relationship with the current property owner. So really typical scenario is a young couple. maybe they're just married, but they've been living together. Maybe they lived in a condo, maybe they were renting. Maybe they owned a condo and they're going to start a family. And one of the parents of the couple is like, well, build in the backyard it's all yours, you pay for it. [00:15:00] And all of a sudden you're living really nice setting, close to schools and close to babysitters, being the grandparents and so forth. That's really typical for us. It's incredibly affordable.
A two bedroom condo downtown is getting close to $2,000 a month. If we were to build one of our nicer homes, we're probably just under $400,000. The cost of service that mortgage right now is probably around $1,800, something like that. And so all of a sudden we've moved from a rental scenario to a scenario where you're actually building up some equity. Now, on paper these lane homes are ADUs are for rental, but when you're dealing with a family member and they're putting equity in the property, whether it's a handshake or a formal legal document, people make arrangements so that equity's protected. And we've also found that, anecdotally, those people who've built an ADU and sold it generally make [00:16:00] about 20% off their investment on the property.
So it's kind of a win-win. So if the family, and we've had this before, a family buys a home, they do it together. They lived there for a while. They sell, they both make money off the investment and they can go on into a different strata of home ownership.
If we look at the lion share, the ADUs that are going in, someone will build up a property, even a speculator, will build a house and put an ADU in the back. As well, it's a basement suite. What happens here is a lot of people use the credit unions. The credit unions will take the income   that the rent will generate off those ADUs and consider that part of your recognized income.
And again, typically what we're finding in those rental ones is that your investment, if you were to rent that ADU, you're probably renting it $3,000. The one I just described , so you might very well be making 40% on your investment. So again becomes quite a lucrative investment. Although they're usually building for family just to compliment that [00:17:00] once in a while.
We'll have somebody who's moving from a little bungalow a slightly bigger house. And they'll talk to us about building laneway house because that will help them afford the mortgage to the more expensive properties. So that's another aspect of that.
Kol Peterson: [00:17:12] You tossed out a number, I realized it's not based in science, but you said, people get 20% return on their investment when they sell the property. Did you mean that if you had a $100 thousand dollar laneway home, the property would sell for $20,000 more?
Jake Fry: [00:17:26] No, $120,000 more. So if we had a property worth $2 million.
Kol Peterson: [00:17:31] Yep.
Jake Fry: [00:17:32] Didn't do much, but you put a laneway house in and that was worth $300,000. You would probably, sell that property for 1 million, $360,000 in the market. Right that investment it's $300 for come back as a three is, when you went to sell it, anecdotally, what we're finding is that property you probably made about $60,000 on that $300,000 investment.
Kol Peterson: [00:17:58] 60? [00:18:00] Six zero.
Jake Fry: [00:18:00] So on a $300,000 investment.
What we've been finding is people who build them and then go to sell them. They probably make $20,000 off the investment, the property's worth more to the buyers.
Kol Peterson: [00:18:11] Yeah. So it's fair to say that there's no way that the ADU is going to add a dollar for dollar value. It would not be a good short-term speculative addition to the property.

Jake Fry: [00:18:24] I mean, it caps out because it's, at one point it's only worth so much. Its value is only what it generates in income, if you're looking at it in that kind of very, ROI type of lens.
Kol Peterson: [00:18:37] This is a really interesting topic, Jake, because there's so little clarity around this contributory value question because there's lack of sales comps. I think Vancouver, like Portland is in a position to actually be able to analyze the question a little bit more. In California there's definitely people who are thinking that an ADU is going to add more than it costs to [00:19:00] build. And I'm, I've been like, no, it just doesn't. But I mean maybe, maybe it's a local market thing and maybe it will add more? But it doesn't seem like that's the case here. I would say in Portland as a general matter, it might add 50% of what it costs to actually construct, maybe.
Jake Fry: [00:19:17] I mean, yeah. We're also in a scenario, and California will be the same, where there's not a lot of contemplation about stratification or subdivision, I think you'd call it. And it's those rare projects that have an ADU in the back that can sell, they tend to be in our environment, I'd say almost a hundred percent.
They just can be something around, you know, a property's been bought and there's a deal made with the city around heritage preservation. And that's benefit that's been given to the person undertaking a project. If you're a builder, you were at our level, but you're sort of a builder investor, let's say, you're making a fee on your construction and you're maybe making 15 or 20% off the overall investment.
So, you know, it's not a $1 [00:20:00] in $2 venture by any stretch.
Kol Peterson: [00:20:03] All right. I haven't even started on my questions yet. I knew I knew this would go in different directions. All right.   I wanted to ask you about the duplex code provision. So we've been talking about missing middle housing with, Eli yesterday in Portland and Oregon.
And tell us a little bit about what's going on with Vancouver with the duplex code, when that went into effect and help explain the difference between a duplex and a house with a secondary suite.
Jake Fry: [00:20:29] Oh, it's pretty simple I think. One way to look at it is that our current provisions for duplex in Vancouver produces four living units on the whole property.
So what happens is you usually have a principal residence. In the basement area, you'll have a dwelling unit and then someone will elect to have a laneway house. With the new duplex incentive, which we can talk about how viable it is as an equation, but not withstanding their idea was that you'd have a [00:21:00] structure that would have be a side by side or back to front duplex. And in the basement of each one, you'd have a modest one bedroom or studio. We call them walk-off rental units. So you'd have sort of student rental, you know, typically, in that first scenario where you have a house with a basement suite, you might have a two bedroom like a small family dwelling, what the duplex contemplates is much more of a single person for young couple rental.
So it's really not a duplex. It's really a fourplex that's being built on that single family property.
Ostensibly, but just to clarify, those basement rental units are studio to one bedroom at most, but they're quite modest. I will say, in my experience, although that's been pursued, and there is some value to it , it doesn't create enough value in the increased practices that there was a big uptick in the duplex movement.
Yeah, there's, there's other things that could be done. And there's other things that have been done in the past that have been more successful [00:22:00] and part of it has to do with the challenges our land cost is so high and the construction costs it has an impact. Some of these initiatives tend to drive more expensive housing, right?
So you're taking something that's currently in the market as a built form for maybe a thousand dollars a square foot. You're creating something that, although it's a little smaller, the price point might be up to $1,400 . And so you're somewhat working against affordability, granted, all of a sudden you have a 1200 square foot living unit in prior to you didn't have something that modest, but that $1200 is so dear, that it falls out of the affordability spectrum. Right?
So it doesn't really get to the missing middle because you're not getting enough value out of the land, right? Cause you're not going to affect land costs too much. You not really gonna affect construction and have something that's nice.
What we're contemplating, what we've been pushing, is to sort of broach a bit more density to give us one more living unit. But what we're going to do is [00:23:00] drive all that extra land value and we're going to subsidize one unit. So it will be sold below market and it will have a covenant on it.
So it has to stay below market. So, you as a homeowner could go, "Well, if I do this, I'll make a little bit more money, than if I just sold my property to the land developer. I'll get a living unit for myself.   I'll put a bunch of cash in my pocket, and the benefit to the city is that they get this affordable unit in perpetuity." and that's some of the ideas that we've been working on for the next phase of where we hope our ADU program goes.
Kol Peterson: [00:23:33] I'd like to hear more about that, but I'm going to keep going through the list of questions that I had. So one of the trends that we're now witnessing here in Portland, in Oregon at large, in Seattle and now in California, is allowing for two ADUs.
Vancouver has a lot more experience, I was hoping you could share some insights with practitioners who are considering this type of change and what are some practical considerations?
Jake Fry: [00:23:57] Two things. One, we had a [00:24:00] big parking relaxation because parking is always a big issue in these discussions and we knocked our parking down to one car on the property.
And I have to say, there'll be a couple of people who will disagree with me and there are certain pockets of the city where this comment is not accurate, but it didn't have a big impact. Right. And that parking relaxation is the only reason we were able to get those three units, this moving to one, one exterior stall, nothing inside the ADU, because it's just going to get co-opted into living space.
Doing that made the program work. And went a long, long, long way to really secure rental tenure for people. I would say as a practitioner, if I could wave a magic wand and go, "this is the best way to do it". Getting that residential unit out of the basement and having that secondary ADU be more of a front back or side to side configuration is a much more humane way and creates [00:25:00] a lot more value for both the who's ever investing it and expecting to get a return from it. And also for somebody who wants to rent that as a living space. Which is the dream of the ADU.
So you have these smaller living spaces that meet your immediate needs, and don't have nature of any excessiveness, but your have contact with the ground, we live in such a temparate place. It really adds to our livability of our domestic existence, right?
Kol Peterson: [00:25:27] When there is a whole site redevelopment project, developers are compelled to build a secondary suite in the basement. Are they typically finishing that out? Or are they creating a secondary suite ready structure?
Jake Fry: [00:25:41] You know, I would have to say it's a little case by case and I can't really definitively answer that, but I can tell you , anecdotally being in the streets a lot, looking at our job sites, going around the city, I'd say over three quarters of those new projects generally have those units up and running.
The rear ADU that's is free square footage. [00:26:00] So I don't know a builder, who won't take advantage of that. You know, some of the really higher end places, they don't want something in the backyard. They may feel it's declasse, but, those are pretty rare individuals.
And the basement suite, again, because it's home owner's discretion, but most people do it. And the rental here is still below 1% vacancy. We're dying on it. You know? And obviously the last two months is becomes very acute because now a lot of those people who are in those units are the service workers who are trying to live locally. So that's presents another challenge.
Kol Peterson: [00:26:30] What additional changes would you like to see occur within the residential code in terms of middle housing in Vancouver? Given that the context here is Vancouver is already vastly in front of the curve. So what other changes would you like to see?
Jake Fry: [00:26:48] I think there's threefold,   in the context of our discussion I'd like to see the ADU's take on the realm of the starter home and the retirement home because it really preserves the neighborhoods. The other thing is, I'd like to see is [00:27:00] just starting to deal with things like getting three or four or sorry, four or five townhomes on corner lots. I think that's really important. We haven't gone there yet. I think it's something that's there and it's something we've seen in the past happen. We've had a lot development where we were taking our typical 33 foot wide lot and doing skinny homes, and that's something that might be interesting to revisit.
I think what I'd like to do though, is I'd really like us to make the conversations more sophisticated and less complicated. Right. Really looking at end outcomes more than prescriptive scenarios.
We should be dealing with general massing on the size of our ADUs and not getting into well that dormer is two inches, "like this." We've done a whole bunch of work to lower embedded energy costs while still maintaining a building code. But someone's got to look at, "Oh, wait a minute, if we can do a foundation system like this and it meets code, but it's not our common practice here or it doesn't have energy requirements, but [00:28:00] it has a net benefit ." I think those are the conversations we really need to have up and down through Cascadia.
We're often held to a standard that's not necessarily appropriate to our environment. They're more national standards. And I think we need to have something that focuses on outcomes and mitigates unintended consequences rather than getting too mired in a rule book that seems to be at odds with itself sometimes.
Kol Peterson: [00:28:23] What other cities in Canada are worth looking at in terms of making strides towards opening up their zoning code to allow for more housing types in residential zones..
Jake Fry: [00:28:34] The, I think every major cities had some stab at this in candor.
We've just been really successful for a number of reasons. So there's lessons learned from us. There is a publication just out of Ryerson university in Toronto, which contemplates the value of the type of modest density that we work in. It really does a very good look at what the impact of that full scale of tower through medium rise and the type [00:29:00] of housing form that I think we're focusing our efforts on. I mean, we really outweigh the other ones. A whole bunch spread out through a city in an urban area. And what that brings is depth, much more beneficial than a, say a tower that might have more affordable units in it per hectare. But the impact of that is this disproportionate to the value of the whole city when you look at something that's much more widespread.

Kol Peterson: [00:29:24] You mentioned that Small Works has built roughly 300 laneway homes. Could you describe, Small Works in terms of the process that you guys use for design build? Are you guys using mostly standardized models. And I just want to ask you to give a little bit of context about the standard lot sizes and alley loaded lots that you have in Vancouver.
Jake Fry: [00:29:49] I'll work that backwards. So generally Vancouver is an odd shape city, but a lot of the development was done when the railroads were coming in at the turn of the century. So it's very much a grid pattern. And we have an [00:30:00] extensive I think you call them alleys we call them lanes.
So most lots are serviced out the rear yard and the cars come into the property a rear access system. Hence the name laneway that we coined. And those lots pretty much are 50 feet or, or 33 feet or some derivative of that. Primarily because there was two survey companies and one had a 50 foot chain and one had a 33 foot chain and that's how the city got divided up.
So we're full service. We have a sales team, we have a design team. We used to have our own factory cause we build partially off site. We're now have a joint venture with another company. And then we have a construction team and a service team.
So we're the full compliment. We work on fixed prices. And so far we just find that that's the best way to work with the customer. They need to know from day one, generally, what's, it's going to cost them.
We had started with the idea of having six or seven fixed plans and people could personalize them. What we found was that the city wants to comment on every plan. Things changed. It was hard to [00:31:00] create a surety.
And then meanwhile, generally, the clients, because we were building for sort of homeowners, and they were living in the property, this was the retirement home. This was their starter home. So, you know, we started to get that kind of Dwell magazine creep of higher and higher finishes. You know, when I started it, I really intended to be beautiful, but modest cute little cottages, but they really became much more custom homes.
So our process is custom. Every home is different, so I've got 300 homes. Every one is significantly different. And, I mean, we can only go so different, our building envelope is quite regulated. We can build to about 24 feet in height. We have so much depth off the backyard. But , for us, every project is a little different.
Generally, we have three architects working or designers, I should say they're they're architect trained, but do not stamping our drawings in the office. And then we have a staff at nine in the office and then comparable staff in the fields. And then we work with sub-trades with annual contracts.
So. I'll talk to Keith and I go, "Keith, you know, what are we [00:32:00] going to talk about for plumbing for these houses per year. And I have 25 homes that have contracts for, so let's work at a price," and then we're able to bring that cost to surety and reflect that into our pricing to our customers.
Kol Peterson: [00:32:10] So Kelcy let's have you come on, and, if you could, show some of the images of some of the laneway homes, that would be great.
Jake Fry: [00:32:18] So these are really typical. You can see this quite a variety of styles.
And if anyone wants to go take a [email protected] . You can see there's quite a range of traditional modern, kind of a Cape Cod influenced. Our homes range roughly, I'd say around anywhere from 500 to 950 square feet.
That one right there called Petit Versailles because our clients showed up, a very charming woman, and she had a picture of Versailles. She goes, "get me as close as you can". So if you go inside. Here we have a herring tooth, Walnut floor fireplaces, lots of custom millwork, big vaulted spaces. I mean, this is very much client driven about what they wanted. [00:33:00] Re high-end millwork. MIllwork is king in our home speaks is that's where you really get your viability of creating that storage that you need to make these as livable as possible. So, maybe I could show you one in contrast, which is one of my favorite ones, called the quintessential laneway home. I really liked this one. It's very modest. It's about 580 square feet. Really has a nice feel to it, it's very livable. Was built for a current homeowner and really met her needs.
It's a small two bedroom . She later sold this and went on to house a family of four in this little house, but I think it really speaks to how much you can get out of a small space.
Kelcy King: [00:33:40] That wraps up the interview portion of this episode of the ADU hour. As a reminder, these episodes are the edited audio version of interviews that we conducted via a webinar series. Good news. You can access the full video series via Kol's website, BuildinganADU.com. Now for the second half of the show [00:34:00] I curate questions from the audience that gives our guests the opportunity to dive deeper into a topic or address new ideas and questions.
I see a lot of questions coming in that deal with the condoization strategy. So when you're saying that they use can really serve the first-time home buyer and retirees, people are selling the ADU's individually? Is it detached or they remain with the primary dwelling?
Jake Fry: [00:34:27] Yeah. So these are not currently on the market as something you can buy, you can only rent. But what we find at our firm is because we're getting people who tend to be related to the homeowner. They're treating it as if it's their first home or the retirement home. Right. And so what happens is that in a way it's, it's having a defacto kind of co-ownership model that's naturally progressing, but, in the context of the city and in the context of how there should be functioning there, the rental units. Right. But, I think [00:35:00] it's a positive unintended consequences. This is filled the niche in the market that allows people to do this under certain circumstances.
Kelcy King: [00:35:07] Can you dig into the co-ownership model a little bit more? Are you seeing that a lot?
Jake Fry: [00:35:13] Yeah, increasingly because again, we discussed how challenging it is to own. We're starting to see this naturally we're getting people coming together and going, "Okay. We've had this friendship for a long period of time, or maybe we're cousins. I can't afford a home. You can't afford a home. Let's go buy one together. And we'll just have a private agreement between us." And we do see that increasingly. There's been a big drive for co-ownership in, in multi-family. And so there's a couple of groups doing that in a much larger scale, but we're seeing a heck of a lot about it on this much more smaller scale.
Kol Peterson: [00:35:49] So one of the questions from the attendees was how are people financing these things, is there a renovation loan product where banks are learning [00:36:00] against the future value?
Jake Fry: [00:36:02] Yeah, you'll have somebody who's lived in a property over 20 years, they bought it for $200,000 or less, even though they're sitting at something it's 1.8, they own it outright. And to get a line of credit just because of that untapped capital tied up in the land. But, again, the banks really look at that income or it's certainly the credit unions look at the income that generated. So they consider it to be quite a safe investment.
A local credit union, we have a relationship for the longest time they would ask for floor plans and they go, oh, this is a Small Works floor plan, this is a two bedroom, this'll get this, and they would base the evaluation of the viabilities off the income that they talk to have some generate rent.
Kol Peterson: [00:36:43] Yeah. And you say that lightly, but I think that's a really important point that a lot of banks in the U S are not able to make that leap right now.
Jake Fry: [00:36:51] And we did it by fostering a relationship with a credit union and we helped them develop a product. But we were like, "Hey, look, you can do this, and this will lead to this." And they were amenable [00:37:00] to that.

Kelcy King: [00:37:00] Can you talk a little bit about your experience with the prefab components? How far do you take that and what kind of savings do you see?
Jake Fry: [00:37:09] It's a great question and I'm glad we get to talk about that. We went the full gamut. We never really went fully modular. Primarily we do our framing offsite. So right now, by the time we get to slab on grade, it takes us about five to six days to walk away from the building with the building erected, doors and windows on, and the roof on, and that'll be for a 900 square foot building.
In our facility we work with a truss factory, as I said, it's a joint venture with them. So we do all our wall panels, floor panels, roof cassettes in that environment. We have in the past, and it was really good,   process built kind of a cube that facilitated a kitchen, that would basically get bolted onto it, and it was a fully functioning bathroom and mechanical room. And we said, that's the sweet spot. You know, once you start to get into any modules that are bigger than that, it just becomes more of a hassle to deal [00:38:00] with. We are working right now in a modular foundation system, which I hope to bring to the market the next four months and I think that's going to be big game changer for us. So that's, that's probably going to be the biggest innovation.
Kelcy King: [00:38:11] Thank you. I think we're going to do one more. In the U S in Portland and here in Bellingham, we have a size limit. So 66% of the main dwelling or 800 square feet, whichever is more. Is that something that you see?
Jake Fry: [00:38:25] Yeah, the Vancouver equation is basically 16% of the lot. And then there's an area within the lot that you have to comply with size-wise a couple of feet off the alley. You need a minimum of 16 feet between the two residences. But we work on more of a percentage basis, but really where that takes you is in the standard lot of 33 feet, you have something just under 600 square feet. And then by the time you get to 40 or wider, you're out your maximum square footage, which is 950 square.
Kelcy King: [00:38:53] I just want a little clarification. It's based on the lot, not the main dwelling.
Jake Fry: [00:38:58] Yeah. It's a standalone [00:39:00] equation for the ADU. So your, your principal residence could be overbuilt or underbuilt. One of the things I will say that was really progressive of the local council at the time, was they said they wouldn't worry about any upgrades to the main house they would just like, "that's not there, that's not the house you're looking for." They would just focus on what was happening with the ADU and let any noncompliance things, unless it was egregious, be in situ and stay there.
Kol Peterson: [00:39:23] Awesome. Jake, thank you so much for participating today.
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The ADU Hour w/guest Eli Spevak
8 abr 2021· The ADU Hour
Full text of interview
Kol: [00:01:48] I'm just gonna quickly introduce who Eli is. But not a really formal introduction. I'll let him do that. But Eli and I have been co-conspirators in a number of different initiatives and [00:02:00] activities and educational programs over the last decade. And so he and I worked together in a symbiotic way on a number of different things and not the least of which is we run AccessoryDwellings.org together, which is a volunteer run website.
And Eli and I kind of started that and have been running it since for a long time. So there's a lot of things we could talk about. But first I'll just, have you just maybe briefly introduce yourself Eli to the group.
Eli: [00:02:27] All right. Well, thank you, Kol and thanks for hosting this series. It's a great idea. I am currently sequestered in the common house for our community keeping as far away from my two little kids as I can, who are trying to homeschool. I started doing affordable housing development in Portland, about 25 years ago, originally in the nonprofit sector with Habitat for Humanity and some community-based groups and came to love the small homes that we were building and the market wasn't building small homes at all.
And so for environmental reasons, and for affordability reasons, I got interested in accessory dwellings, which Portland allowed for a long time. But [00:03:00] weren't getting very many of them built. So I will jump forward to today where I am a developer and a general contractor. I built ADUs I worked with AARP to help launch them other parts of the country city and the state level, and done tours, the website. And I just, I geek out on them. I'd done condominiums where you solve them separately. I've tried to fuss around with them any way I can and just trying to get the new, more broadly available then they are today.
Kol: [00:03:24] Great. Thanks, Eli. All right. So we're just going to jump right into the heavy stuff.
Cause that's what I like to do here. So Eli, please, udpate us on what's happening now in Portland and in Oregon at large, with changes to residential zoning standards.
Eli: [00:03:38] Well, that's a short question. So I started one of the things I had, I also, where as I serve on the planning and sustainability commission of Portland that I chair and I led a group for a while before shifting roles to try and expand housing options in the neighborhoods of Portland.
So Portland is going back over seven years now, we've been trying to update our residential zones so that instead of seeing these huge single family homes, 2,500 square [00:04:00] foot, or larger get built on single family, lots, there'll be other options of what we get built. And the residential infill project is an outcome of that.
And also, pressure from neighbors to build smaller than because they're tired of the large homes getting built. This has been a very politically challenging process. And that means it's taken a long time. But the, the nugget of it is that Portland is now going to not let you build as large a structure on a lot, but there's going to be more flexibility about what happens inside that structure. And that would mean go up to two, three or four units on a lot, even six units. If there's some affordability component to them, it's gone through the planning commission. We monkeyed around with it quite a bit to staff's chagrin.
And now it's at city council. And it was about to be voted on literally. It was on the agenda for city council when city council shut down for COVID-19. So, for a project has gone on this long. It's still not done yet. They're hoping that it gets done by the end of this fiscal year or the end of June.
But in while this has been going through the State of Oregon passed a law, which requires every city in the state over a certain size to allow [00:05:00] duplexes on every lot and a single-family zone. And for largest cities, two three or four units or a cottage cluster allowed on any lot, somewhere in areas of the city.
And that's a groundbreaking state law. I mean, frankly, Oregon is kind of a leader in state land use planning to have a pretty large role of the state in what can be built in, in comprehensive planning and what can be done in parts of the city. But this really, in some ways makes you think again, what single family zoning really means.
It really says that if you're going to have large neighborhoods where historically you could just go to one house on a lot. That's just not going to be true anymore. You can still regulate the scale of the structures to make sure things are compatible, of the right sort of size and height and setbacks.
Those all can be regulated locally. But you're not going to be able to let single family zoning become an exclusive way of keeping smaller households or lower income households out of a neighborhood. And I think that's a great leadership role the state's done. And because of that, actually residential infill project, called RIP, a terrible name for it, in Portland now [00:06:00] has a "RIP 2". Because it's the RIP that thing going through the political process thus far only adjusted the zoning in the closest neighbors of the city that are zoned for relatively high density, residential. You have other parts of the city that was zoned for one house for 10,000 square foot, lot or one house for 20,000 square foot, lot, which under new state law, we're going to have to be updated also to allow additional housing choices.
And that process is just getting queued up starting this summer.
Kol: [00:06:24] All right. So, in summary, for those who want the summary version, Portland is going to be allowing for up to four units on every residential lot. Meanwhile, Oregon at large is also going to be doing the same, at least in all large cities and Metro areas cities.
So that's awesome. That's great. I love it. But the big question for me is Eli. Like this is incredibly progressive. It's never happened anywhere as far as I know in United States and or maybe it has kind of historically [00:07:00] happened in cities, but in recent years, recent decades, it has not. But the question to me is, is there actually a market for this type of housing, so sure. We're going to allow it. That's great. But is anybody going to build these things? Who's going to buy this stuff? What needs to happen legally or with financial products for there to actually be a market for middle housing?
Eli: [00:07:24] Well, it's a good question. I think that it will get used. I don't think it's going to be a quick change in what gets built in neighborhoods.
We can go back to Portland and other cities before there was zoning. All kinds of residential areas of cities were up for grabs. You could build an apartment building, you'd go up single family house, a fourplex, any of those were options. And mostly people built single family homes. And I expect that even under these rules, mostly people build single family homes, but back in the day before zoning people also built duplexes, triplexes, fourplexes, courtyard plexes, and they mix them in and I think you'll see the same thing today. So, it means that in our [00:08:00] neighborhoods what are the housing types we're going to see? I'm guessing that you'll see people doing cute little cottage clusters.
People like, especially on the West coast, they like single family detached structures. They don't like sharing walls, at least not yet. I grew up in Washington, DC, so I'm used to it in so many other expatriates, but historic Oregonians, like their own four walls. So, you'll see that you'll see townhomes get built.
If you've got one close in lot in Portland, you'll probably see, instead of being one house, maybe you'll see three or four narrow townhomes sold, likely as condominiums. And that'll require a little bit of a climbing of a learning curve for the home builders. But they're already doing it, frankly.
And I think that that will, that will continue. And I think the affordable housing non-profits many of them own scattered sites, single family homes, all over the city. And they've been looking to do something a little bit more with their property, and this will give them an extra bonus density to be able to build smaller, affordable homes in some close, in really fancy neighborhoods.
Kol: [00:08:54] Although I don't think you mentioned this as what you thought a realistic or a common typology would [00:09:00] be, but let's talk about triplexes and fourplexes.
Eli: [00:09:02] I think the way that Portland's rolling out the residential infill project, it really does a great job for corner triplexes or fourplexes, especially because you have lots of street frontage. You can have a 50 by a 100-foot lot. You can have four townhomes all facing a hundred-foot side of it with narrow backyards. It's a great housing type. And we already see some corner duplexes both this way, but under current rules, but this will expand the options. And I think it's, I think it's incredible. that Portland has come this long without having much townhouse development. It's not just good for smaller homes, but attached to homes of energy savings. And frankly, if you're trying to buy a house in Portland you're stuck. You want to buy a new house let's say, you're already priced out of anywhere within biking, distance of downtown by and large.
So, people are going further and further afield. This will allow some of those folks to be able to land closer into the neighborhoods that they really want to be in. And they're sharing a lot with a couple other people, but people will definitely make that compromise. So, I think that there is a market for some attached townhomes for sale in Portland. And also, people will take their existing [00:10:00] houses, maybe then, you know, an 80-year-old house. And they will not only do a detached ADU in the back, but they'll do a basement in ADU as well. And they'll get a little, a supplemental rental income and provide some rental options in the close in neighborhoods too.
Kol: [00:10:14] I think actually one of the sleeper elements of the code that I do see happening in a big way is going to be the provision that it will allow for two ADUs within a single detached accessory structure. I think from a homeowner's point of view that's going to be a really kind of profitable good housing typology to add that doesn't require that they tear down the primary house. And it'll probably add, you know, 50% to 75%, more than a single detached accessory dwelling cost, but you'd be able to effectively double the rent.
Eli: [00:10:47] Yeah, no, I think that having a shared structured wall decreases the skin to volume of a house which decreases the operating costs.
And I think that rentals--- If you're trying to rent out a triplex absentee, [00:11:00] it's kind of hard to manage because you have to deal with all the shared areas and yards, but for owner-occupied rentals, we rent out two units. It works really nicely because the person that lives on site and take care of the grounds without hiring a company to do it, it works pretty well.
Kol: [00:11:14] So you alluded to one way in which this type of housing could be purchased, which is condoized units. And I'm wondering if you could talk a little bit about that more. So, condoization is something that you have experience with for ADUs in the past. And I want you to kind of, if you could articulate what some of the drawbacks of condoization are and what can be done about it in terms of legislation.
Eli: [00:11:40] Yeah. Well, maybe I should describe for a second how condos work for this. Condoization is really common in like a 40 unit building where you have, instead of having one person own the whole building and rent out the units, you divided it up into little volumes of air. So each person owns their own volume of air and they can get separate financing [00:12:00] for that volume of air through a mortgage secured by that condo unit.
That same model works in the single-family setting where you have a single-family house, and then maybe you build a detached ADU and maybe on the lot next to it. You have another house with a detached ADU and you can submit it to the condominium regime-- that's a jargon way of saying, but basically you divided it up.
So, the person who wants the house, owns that volume for the house. So, someone owns that ADU owns that volume. Someone owns the other ADU that volume and the other house, and then the common areas that the ground in between them was all on collectively or is divided into private yard areas. So that's what condominium means.
It makes no difference. The actual built structure is identical, whether it's owned as a house with an ADP behind it rented out, or it's set up as condominium. But the condominium provides the flexibility to finance it differently. It means that if you have a house and an ADU and a two-unit condo, the person who was the ADU can get their own independent financing.
There is mortgage not intertwined at all with the mortgage of the person who has the house. And that means that the [00:13:00] ADU behind it could be sold for a lot less money than any other house in the neighborhood. Cause it's probably a lot smaller than the other homes. I did one project where I had house and ADU. The ADU sold for a $120,000 and the house sold for about $360,000. This is 10 years ago. Now they resell for twice that, but in a neighborhood with $600,000 homes that ADU in the back is a third, the cost of a single-family home in that neighborhood. So, it provides a homeownership way of creating relative affordability and but it also gets some people antsy because what happens is someone buys a lot, scrapes the house off of it and builds four townhomes or three townhomes and sells them all as condos? People are going to be concerned about the house that got taken out to make that happen. And maybe condominium ownership increases the value too much.
My sense is that there are some places where that could be a concern. And I think that Vancouver, BC is a, is a city where they've already clamped down on condominium conversions because of that in the Bay area that's happened already. You can't just do a condominium association by, right. [00:14:00] There's a lottery process to make sure there's some rental housing preserved in the city. Most places aren't like that. So, I'm, I'm kind of a supportive of cities allowing. Condominium ownership in ADUs is not very common. I did it the first time in Portland, 10 years ago.
It's happened a few times since then. And actually, recently I saw 23 of them were being sold right now. And we're in the past six months. I know in Austin; Texas will be a market for that. Or a developer's been building houses and ADUs and selling them separately is still a pretty tiny piece of the market.
And I think it provides some flexibility to provide some first-time home buyer opportunities. I know that Habitat affiliates have looked at this for example, as one way to get more homes up than they otherwise would, but there's challenges. And this is where the home builders they're really squeamish about condominiums because when you do a condominium, you take on a 10-year liability period.
Whereas this is true in Oregon at least, it's not true everywhere this way. We could get sued by the homeowner association for construction defect. And if you build the exactly the same product, but sell it as a single-family home with the ADU rented in the back, then you've got one [00:15:00] year of warranty period.
So that liability exposure is something that really does get builders, antsy. Their subcontractors get worried about it because no one wants to get a phone call nine years after building a product that they've basically forgotten about that based on they have to write a big check to deal with an issue that arose later on.
So, there's some initiative in, in Oregon and in California to try and change those condo statutes. Because if you're ever going to see small condos get built in any scale there's going to need to make it a little bit closer to the way single family homes handled for liability reasons.

Kol: [00:15:32] And as a side note, I believe people in the chat box can correct me if I'm wrong, but in California, that condoizations not going to be allowed for ADUs at all, whereas it is allowed in Oregon.
Eli: [00:15:45] Yeah. I think that, I wish that California had given that latitude to the local jurisdiction rather than doing a state. And I think the state mandate does have an exception for affordable housing and some limited situations. But I kind of wished they'd left that as a local option.
Kol: [00:15:58] Yeah. And I’ve [00:16:00] expressed to you in the past, I have mixed feelings about condoization with ADUs, but in general, I think all the points that you've made are, are correct. And in the big picture, it's probably a good thing in terms of providing more affordable housing stock.
Eli: [00:16:13] And for anyone out there worried about condos happening, it only happens in very expensive housing markets. So, if you're in a housing market where you're not seeing condos at all. It's not going to happen with ADUs. It's something that only in expensive neighborhoods.
Kol: [00:16:24] So as we start to consider middle housing, what are some middle housing, meaning triplexes, fourplexes, primarily what are some tiered sizing policy considerations? So Just to frame this context, this whole middle housing phenomena is kind of starting now and we're seeing, you know, we're seeing this happen now in Portland and Oregon. And there's a lot of conversations about this in California. Nothing's really kind of passed into law there. And similar conversations are occurring in Washington and Vancouver, BC. And we'll be talking about those more this week in [00:17:00] Portland the city that's been working on this kind of initiative for quite a while now, few years, Portland has decided that the tradeoff is that as you build more additional units, your collective habitable square footage is ratcheted down. And I'll maybe let you clarify that a little bit Eli, so people understand what Portland has done, but also, I wanted to see whether it should apply in other jurisdictions that are considering middle housing.
Eli: [00:17:27] Well, Portland, this is part of the big deal Portland made. And the strategy Portland took is that if you have a 5,000 square foot, lot 50 by a 100, which is pretty typical here, then you can build a house that is 2,500 square feet. That's like a floor area, ratio of 0.5. That's geeking out, but that's basically regulated how much floor area you can have in that house.
If you go to a duplex or house, plus an ADU, you can get 3000 square feet to play with. So maybe it's two 1500 square foot units and a duplex or a house plus an ADU. If you go to three units, then [00:18:00] that pops up the threshold once again to 3,500 square feet. If you go to four units, you're still at 3,500 square feet, because at some point we decided you just can't go too big in the city on the, on a 5,000 square foot loft. And the exception is if you do affordable housing, then you get a density bonus above 3,500 square feet. So that's the way we're playing it out here. And the reason is because from a policy perspective, we want more people housed in these great neighborhoods and we wanted to incentivize putting more than one house on the lot.
If we just had the same size cap regardless of home size, then you probably would end up seeing just single-family homes, massing out the footprint. We wanted to give some incentive for someone to go build an ADU or duplex or triplex. In terms of the market, I think that four is going to be a sweet spot because financing from Fannie Mae, Freddie Mac, FHA, really is uniquely wonderful when you go one, two, three or four units, each one of those is considered a house. So, you've got this development model that you see probably more often on the East coast than out here where someone builds up a threeplex or a fourplex and moves into it. [00:19:00] Rents out the other units till it's stabilized. Then they go do it again, you know, to stay there for two years. And, and it works well for owner-occupied financing, great terms. Once you get the five units or more there's financing for apartments, but 5-20 units is kind of a weak spot. So, I think you'll see the existing financing works pretty well for fourplexes.
And I think that'll be a natural housing type. And if the city implements the policy well, they'll make sure that that fourplex fits in, they'll make sure that it's not, not gargantuan compared to every other house on the street. And I think Portland's done a pretty good job of that.
Kol: [00:19:31] Do you think other cities should consider a tiered size strategy when considering middle housing?
Eli: [00:19:40] I think that's ideal. The pushback that the cities will get is that plan reviewers aren't used to looking at floor area ratio for single family zones. So even though I think that's the best way to do it, that that relies on a pretty sophisticated building review department in your city and if you don't have that, then the other approach is just to say, well, whatever size you can build a [00:20:00] single family house, you can build the same. You can build two, three or four units in the same envelope, meaning the height, the setbacks, the yard setback and not try and measure the square footage.
But I think the ideal thing is to measure the square footage of the home, both for incentivizing small plexes and also down the road, tiering system development charges or impact fees based on how big the house is. So, there's some other reasons to measure house size.

Kol: [00:20:25] What other emerging trends in zoning or financing are intriguing you these days?

Eli: [00:20:31] Good question. You know, I'm excited seeing all the jurisdictions experimenting with loan products for ADUs. And I’m sure you're gonna talk about that with other folks who've been tracking it as well. But especially community nonprofits in CDFIs, which are community development, financial institutions, or like non-profit lenders are really getting creative to try and make the financing more available to owner builders.
Let's see, zoning trends, you know, what's interesting to me is seeing the we started off Kol, both of us really operating at the city level of Portland just looking at our zoning [00:21:00] reforms and then Metro our regional government with 18 jurisdictions or something like that. They got interested and through some advocacy we did, we gave technical assistance, to all these other jurisdictions. And suddenly you start seeing ADU codes pop up in other parts of the region. And now this whole State of Oregon, it's not statewide and state mandates are coming out, not just Oregon, but Washington and California, Vermont already had one. There's a few other States that are doing at the state level. And so, I'm seeing more action right now with a regional level. So, I've been out to Chicago, that region does a lot of activity there, the Denver region we're doing some work right now in Des Moines. We were in Nebraska last year. This is some of this with AARP, which has taken a big interest because it's perfect housing for their members.
And the Massachusetts around Boston, there's a cluster there. Magic CC. These regional, a lot of regions have planning associations. Their whole job is to help the local municipalities update their codes with smart best practices. And increasingly they're getting interested in expanding housing options to neighborhoods.
And so, you're seeing a lot of technical assistance percolate out [00:22:00] all over the country so that's a neat trend for me to see is how a zoning reform that pops up in a few little places in the country can start spreading all over.
Kol: [00:22:08] Indeed. So, since you mentioned the AARP work, let's talk about that for a second. So, tell us about the AARP technical assistance team and how people potentially on this call who are interested in bringing technical assistance from you or from me, or from a colleague Elizabeth can potentially apply for that subsidize technical assistance.
Eli: [00:22:29] Yeah. So, AARP is a, it's a massive organization. Many of the parts don't speak to each other that well. But within it, there's a group called the livable communities initiative led by Danielle Arigoni and they are really entrepreneurial and they've got, I think over 500 local chapters at this point, each focus on making their community more livable for people who were getting to be older in life.
And they really taken on ADUs with gusto. I mean, they worked with me to write [00:23:00] the ABCs of ADU, which is a free flyer. Anyone can get that for free. Just go to the AARP website. It's 15 pages, it's short readable and one page of it has a code guide in it, basically. They've also put out some other publications to support this.
And it's about to be in a national bulletin which of the big publication they do. And the other thing they had done is provide free technical assistance to communities around the country who apply to get help with things, to made their community more livable. So Better Block has worked on this Locus, Opticos, some of the national consultants that worked with this, but also one of the groups is Orange Splot, my company teaming up with Kol and Elizabeth. And so, we've provided assistance in Vermont, Nebraska, Chicago. We're working with Florida this year and cities through the AARP chapter can apply to the national group happens once a year and they can get an 8- or 24-hour assistance package, which means getting someone into a site visit or remote assistance to help them get over whatever hump they have to try and make this housing option more available.
And it's fun for us. We get to see what's happening around the country and we can share our [00:24:00] experience and help launch ADUs in places where we don't live. So, it's a great program and you can go to your local state office. They'll know about it.
Kol: [00:24:08] Thanks. So, you also touched on something that you and I have been heavily involved with for almost a decade now, which was the space efficient housing work group initially, which was hosted by Oregon DEQ, and then later that transitioned to something called the Build Small Coalition, the BSC for short, and that's hosted by Metro, which is the regional governmental body in Oregon that works with the 28 jurisdictions around the Portland Metro area. So, can you just kind of talk about this coalition for the benefit of attendees on this webinar, because I have, I now kind of classify a coalition of that sort as a best practice for jurisdictions who are trying to do work on increasing housing supply specifically with ADUs.
Can you just talk about the, the role that that group has played over the decade and what your thoughts are about that?
[00:25:00] Eli: [00:24:59] Yeah, I think you're absolutely right. It's the best practice. And it takes a hosting capacity. It started off really, I in my living room, tiny house society, informal working group out of green building folks who were frustrated by the LEED McMansions being built.
And we knew that is better environmentally built, small. But importantly, our Department of Environmental Quality picked up the facilitation, Jordan Palmeri and stewarded it for, I don't know, over five years, probably longer than longer than that. And it was really an informal collective of volunteers, who cared a lot about changing housing practices.
We're pretty connected designers, architects, planners we're involved, entrepreneurs. And so many of the changes are local to be made. So, either changing city level zoning rules or state level energy rules. And some things, not regulatory at all, like creating events, like it Built Small Live Large Summit that we've been throwing every couple of years came out of that group.
Also, guidelines for heating system selection for your ADUs, lots of little, just nuts and bolts thing, financing options, that are all quite local. And I can see this as [00:26:00] having a role in a lot of different parts of the country. Chicago has got a great group of folks who were already really doing this kind of work informally.
The convening organization can shift. In our case, DEQ started now our Metro regional government convenes it. In other jurisdictions, it might be something totally different. It could be a, a ULI chapter or a CNU chapter, or it could be a local government affordable housing working group. There's lots of ways it can be convened, but there's volunteers we find, I know, I'm sure you find this too Kol, everywhere you go. There's early adopters. There's people who are enthusiastic, who are willing to put in, you know, they figured out how to build an ADU on their property, or they're trying to do the homework and they're willing to volunteer some time to help make it easier for the next person. And those are the folks who you want to tap both to help plan and also to show up and testify when you do need to make the changes to the code to make it work better.
Kol: [00:26:44] Awesome. So, I'm going to transition to one final question for you before we move into kind of the questions from the audience. So, I think you are particularly prone towards investing or putting your money where your mouth is on projects that are [00:27:00] risky by conventional standards, meaning projects that aren't proven models.
And I, you know, it's very inspirational for a lot of people who are trying to do innovative housing developments, whether it's cottage clusters, or tiny house on wheels or other stuff. So, what's your mentality about undertaking these potentially financially risky property developments that you do?
Eli: [00:27:22] Well, I am a risk taker, I guess, I didn't expect I would be. I think it probably helps that I worked in the nonprofit sector for over 10 years first. So, I got used to a regular paycheck that wasn't very large. So now that's sort of my benchmark. So, although I did make a fine living as a developer, other developers with some of our skillsets could make a lot more than I do.
So, I don't have, I'm not I guess I have enough. And, and I'm okay going that way. Cause I like to do stuff I care about. And I found that as a developer, you really can you have to have some appetite for risk, but you also have to realize that if you just make not quite as much as somebody else on the same property, you can have much broader latitude to do something that expresses your values.
And [00:28:00] so I love doing co-housing communities, cottage, clusters, I like to experiment. And, and if I just knocked down my profit expectations, I can do that. And so, I think a lot of people would like to do that as well. It takes learning the skillset and I've got plenty of hard knocks this year from that.
I won't try and do that on this call. But I I'm a big supporter of getting small developers to try it out, start small. Don't be as insane as the way I do it, where every project is a different model. I somewhat like a developer with ADD, if I do it once and it works well and I'm happy for others to copy it, but I might not never do it again.
That's not really a smart business model. And then also being involved, at least it gives them a little more time to do the policy side. Cause I'm trying to figure out what kind of impact that you have. And part of it is doing nice projects that people say, Oh yeah, I'd like to see one of those in my neighborhood.
And the other part is changing the rules for everybody. And that's important too. So, I'm glad people are interested in changing the rules. Put your, put your time in for that too, because as much as I've done development, I built like 75 homes or something like that. That's a, no, some builders build that many in one year.
A lot of the impact we can have a change in the rules that everyone works by.
[00:29:00] Kol: [00:29:01] Good message. And so, what people should take away from that is if you don't care about making money, just do, what do what Eli does, it’s awesome. Now, but seriously.

You have to be willing to risk a lot of money,
Yeah exactly. Yeah. Not only do you get to spend a lot of money and potentially not make a lot. But it's also really risky, so what's there to lose?
Kelcy King: [00:29:51] What are your thoughts regarding the use of federal funds, such as the community development block grants to help homeowners finance construction of an ADU?
[00:30:00] Eli: [00:30:00] Okay, well, I'll try not to delve back to my affordable housing days too much, but there are federal programs. CDBG is community development block grant, and they're also home funds that are available throughout the country by local jurisdictions to support affordable housing goals in their communities. And those affordable housing money tends to go either towards multifamily projects, like 40 plus units, cash rate and stuff like that.
That's not the kind of products that are going to work for these infill types. However, most communities have some project down payment assistance or community land trusts, or other ways to subsidize first time home buyers to get into a house that they can afford. And those subsidy programs, including home and CDBG, and there's some others as well who work really well with some of these infill housing models.
So, they could let someone who maybe be couldn't afford to buy. Maybe you're building a four-plex on a lot. That would have been a single-family house. Each one of those homes, maybe you need $50,000 to cover the gap from the market value is what a low-income school teacher say could afford to purchase that $50,000 [00:31:00] might be able to come from home funds or CDBG to make that home affordable to someone, not just for the first buyer, but if it's with a land trust in perpetuity,
Kelcy: [00:31:08] How do you see this being possible in the federal funds being used in exchange to homeowners in exchange for affordable rent?
Eli: [00:31:16] There are definitely programs that help reduce people's rent. Let's see, boy, this, the city, this country so varied on this. If, if your single-family scale projects, whether it's one, two or three units, don't oftentimes work for long-term rental properties that the management costs can be high compared to having a property manager operate it. So except for pretty small communities usually rental housing funds go towards larger multi-family developments. There can be niche situations where you have single family rentals with public subsidy. But they're kind of going out it's less common than it was in the past.
So more often it's single-family home ownership, single family affordability is going to be home ownership style rather than the rental style.
Kelcy: [00:31:56] And then two into condoization. Isha asked, [00:32:00] "What do you need to think about for a condo conversion? Is that something that you initiate before the building process after it's built? When can that happen?"
Eli: [00:32:08] You can do it at any time. Really. And some people I know in Portland had built a house and have an ADU as a rental associated with the house. And they know that when they eventually want to sell the property, they're not sure whether they'll sell it as just the house or the Navy as a rental or the condominiumize it or as itself, sell it separately.
That's a decision you can do down the road. If some people would go into a project knowing specifically that they are going to sell them separately. And then you can do the condominium process in parallel with the construction process, because while you're building the buildings, once it's framed up and you can actually see it there and survey it, then you do a survey.
You literally make a map of the property and define a three-dimensional volume of air. This can be the condominium unit, then there's some, there's some work involved there. You have to work with an attorney, a surveyor --in Portland it used to be 20,000 bucks was sort of like the rough number to go through that process so that you could sell them separately.
So, it takes getting some local experts who've done it, [00:33:00] but it really can happen while you're physically building the structure so that when it's completed, you're all ready to sell them separately.
Kelcy: [00:33:08] Thank you. And can you speak a little bit to the shared space? Like the yard and the,
Eli: [00:33:16] Yeah. And for those interested in condos, I did a post a little while ago on AccessoryDwellings.org, which goes into pretty good detail on how to, how to think about condos as an ownership style.
But it's a really flexible style of ownership. In terms of common areas, you can say you've got a lot with two different structures on it. You can make it so that all the grass, all the landscaped area between the homes is all common areas, or you can make it so that you've got a fence between the two homes. And on one side of the fence, all the land goes with one home. The other side of the fence on land goes with the other home. So, there's no common space really at all, except for that shared fence. Or anything in between. I think the more common idea is to have a small, shared small private yard --maybe some common area for a Grove of trees or, or some common shared space, but it's really mutable.
It can [00:34:00] be designed as, as someone wants, whatever makes sense. One really quick item related to associations. That Kol didn't pin me on, but homeowner associations are common in new development areas and a lot of times they have rules saying you can't do accessory dwelling units in the HOA.
I'm not a big issue in the city, but in suburban areas, almost every home is within a HOA. And I should say Oregon and California have both said HOAs can’t do that, going forward-- is one way to allow these middle housing types to grow. So that wasn't a question I asked, but I wanted to toss it in there.
Kol: [00:34:31]. Eli, you had talked about the construction defect legislation. Is there any updates you could share that you know about that particular piece of legislation?
Eli: [00:34:41] I think that it was proposed for this past session and when our legislature got shut down, because one party left the building that got dropped on the floor.
So, I don't know whether it was likely to pass anyway, but there's for several legislative sessions, there've been attempts to try and decrease the liability period from 10 years down to something shorter. [00:35:00] And it hasn't succeeded yet.
Kelcy: [00:35:01] This question is from Christopher Seymour with condoization, how does it relate to the deed ownership? So, if one owner wants to sell, does the entire property convey at the same address or do you sale as two separate buildings?
Eli: [00:35:14] It's all separately. So, the separate deed for each property. Yep. I mean, there's an association, you have to maintain with some common expenses, but people can sell independently from one another. At the initiation of the condominium there is a time where you have to sell one home and then pay down whatever mortgage is on the property and with a partial lease and then sell the other home and pay off the rest of the mortgage.
So there is a little bit of a dance to do at the initial sale. So, I'm not going to get into that though on a little podcast.
Kelcy: [00:35:38] This question is from Brooks Gibbs and he is in Utah and ADUs are becoming a new building alternative there. So, he wants to know what suggestions do you have to build awareness in communities at the homeowner level?

Eli: [00:35:50] Well, I'll start with this, but Kol will definitely piggyback on. A lot of this is not regulation. It's not a regulatory thing we can do. I met Kol when I led a tiny house, [00:36:00] a tour of tiny homes in ADUs, and he jumped on it with a hundred people on their bicycles, just seeing them in Portland.
They're discreet by nature. So, people, if they don't see them, they don't know they exist and don't get inspired to make their own. So, doing a tour is great, whether they're legal or not, who cares, we just get people into them, gets people's gears turning. Also getting media stories about them. Not media stories about NIMBYs versus YIMBYs. Media stories about this is why I built the ADU and it works for my family and my mother-in-law can stay there and telling the story behind them is critical.
That's one of the reasons we started this website, AccessoryDwellings.org is to share the stories behind real built ADUs. And then part of it is communicating with real estate agents. They're the ones at the point of sale for homes, as people are trying to dream about what they might do with their property once they own it.
So, they're the ones who always need continuing education credits so they can get that done at the same time that they're learning about ADUs, and providing their clients with information about, "Hey, if you get this house in lot, you could actually build a granny flat behind your house. Pretty cool."
And if you're selling a house, [00:37:00] sell it as bragging rights. So, you could actually a separate unit if you want to. And then lastly, something I'll just hand it over to Kol is that having a local expert who makes a little cottage industry about coaching people through the process is, is incredibly important. Because ADU's are built as Kol pointed out many times by amateurs, but probably the only housing type in the United States built mostly by amateurs, who need people to help them along the way there's enthusiasm. But they need some coaching and being able to have short one-on-one sessions or weekend trainings gets people high up enough the learning curve so that they can take the rest of the project themselves.
Get that architect involved, get the contractor involved and actually make it happen. You want to piggyback on that, Kol?
Kol: [00:37:38] Yeah. You forgot the biggest, most important tip of all you, I would just buy this book. So, I'd say of all the things you just rattled off Eli, the one I think that is most applicable and most broadly useful, and I see the need for this everywhere really is what you said regarding local media stories that are just first-person narratives in [00:38:00] local outlets, whether it's radio, TV, or newspaper that cover the life-changing story of somebody having built near an ADU and how, why they did it. And those stories are really powerful. And you can read those kinds of stories on AccessoryDwellings.org. But if you want to get that message infiltrated into the broader market, that is the way that you start to turn ADUs into something that's threatening into something that, "Oh my God, I want one of those" because I also have a mom that's aging, or I also want to have retirement income that doesn't come solely from my job that I may or may not have right now. So, I think, I think those first-person narratives are really important and they also help kind of dispel that the myth that people have around ADUs being some kind of boogeyman developer housing type. That's going to increase parking problems in my neighborhood and cause the downfall of my pristine single family, residential zone setting. I'm not talking [00:39:00] New York times and talking like your local Tribune newspaper.
Get a reporter on the line and say, "Hey, I know somebody just built an ADU. Would you be interested in covering a story about it? They just build it from their parents." And if you can somehow tie it into a bigger story, that's great. From a reporter's point of view, but that, that kind of normalization is a really powerful mechanism to first-person help raise awareness and, and help kind of create a cool factor or a factor that would help inspire other people to build them. If they're not gonna actually get access to seeing an ADU itself, because there isn't enough ADUs to see, to merit an ADU tour.
Eli: [00:39:37] Yeah. And don't forget about TV. I'm not, I don't even have a TV, but whenever I've been on TV talking about ADU, I find out everyone I know who's seen that show.
You've already got the advantage. HGTV, tiny homes. People are already saturated with tiny home enthusiasm on TV. But if they see it happening in their local community, that'll be important. And the last thing I'll say on that is get the history. I mean, almost every city in this country has some [00:40:00] history of ADU.
They just call it by different names. So, coach housing in Chicago, casitas in some Southern cities bungalows, granny flats, you know, there's different names for them everywhere. And if you've got a history in your community of these already been there, just say, you're re legalizing, you know, you're bringing back something that's been there. you know, going back 80 years. That seems to get traction too.
Kol: [00:40:21] Kelsey let's take one more question. And then we'll wrap up today's show
Kelcy: [00:40:28] What innovations are you seeing in the market to lower costs to build ADUs as affordable housing solutions?
Eli: [00:40:35] Well, there's some great initiatives going on around the country to try and bring down the cost of ADUs, because one of the challenges is that right now, they're almost always built with cash or home equity lines of credit, which means you have to be pretty affluent to be able to build one.
And there's a lot of groups trying to bring that cost down. There's a few companies that are doing modular versions of ADUs. Wolf Industries is one, Dweller is another one. And, frankly, none of them have done that many of them. I think we're at a dozen or [00:41:00] less, I think for any group. So, people are working hard to get modular housing into the ADU world and it hasn't really launched too much yet probably because mostly the people who can afford to do them.
If you can write a check for a hundred thousand bucks for somebody to be in your backyard, you might have some pretty strong opinions about what that's going to look like. And people start tiptoeing towards more and more customization. Once they realize what it's going to cost. I think though that there's great opportunities there.
And especially as affordable housing nonprofits get into building ADUs, they'll start coming up some very simple designs. The person, the contractor in Portland has been more ADUs than anybody else build some pretty simple, absolutely decent good-looking designs of ADUs. And I think that you'll see that’s the future I see, I think they still might be stick-built, but they won't be like the, the fancy violins of ADUs that, that show up on the tours.
Interview Questions and conversation topics
What’s happening now in Portland and in Oregon at large with changes in residential zoning standards?
Who is going to buy this? What needs to happen next legally, or with financial products to allow for there to be a market for middle housing?
As we consider middle housing, what are some tiered size policy considerations?
What are some other emerging trends in zoning or financing?
Roles that a coalition can play in building a housing movement
Technical assistance for ADU policy
What’s your mentality for undertaking potentially financial risk?
ADU condoization
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The ADU Hour Teaser
6 abr 2021· The ADU Hour
Kol: Hello! I'm Kol Peterson based out of Portland, Oregon. I'm author of backdoor revolution and host of the ADU hour, a podcast where we probe deep into ADUs and other small alternative infill housing, expansive and deep thinking about small infill housing is our jam.
Kelcy: I'm Kelsey King and a credited ADU specialist in realtor, interested in creative solutions to home ownership. I specialize in supporting homeowners to purchase properties with ADUs or ADU potential for a variety of different lifestyles, including multi-generational living co purchasing as a strategy to enter the market for the first time and for rental income.
Kol interviews experts in the ADU space. And then we take some questions from our live audience. Guests include prolific ADU builders, policymakers, architects, lenders, researchers, academics, appraisers, property managers, and more. [00:01:00]
Kol: We get into the weeds on all of these topics and explore the edge of what is coming next with ADU trends, including middle housing policy and mobile dwellings. We cover topics from research that informs large-scale policies, valuation of ADU permitting and development costs to more obscure topics like ADU site planning software..
Kelcy: This podcast series consists of episodes that are 30 to 50 minutes long and will be released weekly. We hope that you'll join us for this limited series and that you'll be able to put some of the things we covered to practice in your own community.
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Episódios

The ADU Hour w/guest Ethan Stuckmayer

The ADU Hour w/guest Michael Andersen

The ADU Hour w/guest Tracy Morgan

The ADU Hour w/guest Alexis Stephens

The ADU Hour w/guest Kol Peterson

The ADU Hour w/guest Tim Cocaro

The ADU Hour w/guest Willie Dean

The ADU Hour w/guest Ashley Salvador

The ADU Hour w/guest Susan Brown

The ADU Hour w/guest Joe Robertson

The ADU Hour w/guest Katherine Einstein

The ADU Hour w/guest Kurt Lane

The ADU Hour w/guest Abdur Abdul-Malik

The ADU Hour w/guest Ezra Hammer

The ADU Hour w/guest Robert Liberty

The ADU Hour w/guest Jake Fry

The ADU Hour w/guest Eli Spevak

The ADU Hour Teaser