Also over the past 5 years, there has been quiet growth in the numbers of ADUs permitted.  But ADUs are hard to see from the street, so it’s an easy trend to miss.

The Projects and Stories section of this website and annual bike tours offer glimpses of completed ADUs and provide inspiration to would-be ADU builders.  But they might also create the impression that ADUs are rare, novelty homes.  That’s no longer the case, as documented by the series of maps to the left that Kol Peterson generated using ADU permit data from the City of Portland.  Each map shows the ADUs permitted in a particular year, from 2008 through 2012.  Every colored dot represents a newly permitted little home, likely one that neighbors 200’ or more away don’t even know exists.  The big jump in ADU activity in 2010 corresponds to Portland’s decision early that year to waive System Development Charges (SDCs) on ADUs and increase the maximum ADU size from 33% to 75% of the primary house (up to 800sf).

What strikes me – in an encouraging way – is that growth in the number of ADUs seems to be finding acceptance as a relatively palatable form of in-fill density at a time when other forms of in-fill are not.  Why?  One reason is that zoning regulations on the height, size, and placement on the lot force detached ADUs to be discrete from the street, while entry door requirements on ‘carve-out’ (ie. internal) ADUs render them practically invisible.  In addition, I suspect that most people can relate to a time or place in life when an ADU would be the ideal form of housing for them or a loved one, whereas for many folks it feels inconceivable to live in a parking-free apartment building, skinny house, or bulky new home (even though, clearly, plenty of Portlanders appreciate each of these housing forms).

My hope is that Portland will go a little further in easing restrictions on ADUs and encourage (ie. make legal) other forms of in-fill development that would be similarly discrete.  For specific ideas on this, check out Alan Durning’s Legalizing Inexpensive Housing series on the Sightline Institute blog.  Or just cruise through Ladd’s Addition and count mailboxes on some grand old homes (It was legal in Portland after WWII to internally divide large homes into multiple smaller units, but you can’t do that anymore).

In a city where there’s been vocal push-back against several forms of in-fill development, it seems that ADUs offer a rare, politically viable way to house more people within traditional residential neighborhoods while retaining the single family character that makes these neighborhoods so compelling.  I’m not sure Portland will ever liberalize ADU rules to the extent of Whistler, BC, where 75% of new homes are now built with ADUs (read more).  But I hope we take a few more steps in that direction so that the growth trend illustrated above continues.

Where ADUs are permitted, they provide a viable mechanism to allow for this kind of smaller, flexible housing arrangement.

A homeowner building an ADU for rental income. From ‘Bend homeowners add rentals’ http://www.columbian.com/news/2013/mar/30/more-bend-homeowners-add-rentals/

While some cities promote ADUs, most don’t. And many cities may claim to allow ADUs, but only under prohibitive zoning preconditions. Here are the common preconditions:

• Municipalities may require construction of an additional parking space on the lot if you build an ADU; this is an impractical or impossible requirement for many urban lots.
• Others will allow ADUs, but will require homeowner occupancy in one of the two units.
• Other cities may allow ADU construction only if neighbors approve of the concept, instead of having a predictable “by-right” path of development.

And once a homeowner overcomes the labyrinth of their municipal zoning codes, they must address building codes, which are more onerous in smaller, secondary dwellings than they are for larger primary residences. These regulatory factors all slow the rate of permitted ADU construction that would otherwise exist in their absence.

Meanwhile, there are many examples of non-permitted, smaller, secondary housing options in cities all over the country. This ‘gray market’ is a testament to the demand for these smaller, flexible housing options. Unfortunately, the non-permitted ADU housing stock can also stain communities’ notions of whether ADUs are ‘good for their neighborhood’. Their idea of an ADU may be run down, unmaintained, sub-par non-permitted housing forms that they’ve seen with their own eyes. They haven’t actually seen permitted ADUs before because, well, there aren’t any to see.

This false perception of ADUs as poor, run-down construction is particularly ironic because permitted ADUs are typically constructed to a higher standard since they must adhere to newer and stricter building codes than their respective (older) main houses.

Over the last six months, Sightline’s Alan Durning has been authoring a wonderful series about the inanity of various forms of overregulated housing forms. Three of the last posts deal explicitly with ADUs: the hidden density that they can provide, how relatively rare permitted ADUs are, and the planning and zoning regulations that prevent more rapid ADU construction. We encourage readers to read these articles:

• In-law—and Out-law—Apartments: How to double neighborhood housing without anyone noticing.
• Nothing ADU-ing: In-law units and cottages are rare in most places.
• ADUs and Don’ts: The gauntlet of rules that in-law and cottage units must run.

These articles expand upon the onerous zoning regulations that often apply to ADUs and help explain why permitted ADUs are so rare.

The disparity of U.S. household types and home construction types.
More at http://www.pasteinplace.com/How-We-Live-vs-How-We-Build

Current housing options aren’t meeting the demgraphic housing demand for smaller detached units. http://www.pasteinplace.com/How-We-Live-vs-How-We-Build

We know there is an unsatiated demand for smaller dwellings, a demand that correlates with our changing home demographics as shown above. I look forward to seeing how this gray market will turn into a more viable market as more and more forward-thinking cities start to adopt permitted ADU construction as an explicit policy goal.

ADU Zoning Matrix

A few of the cities stand out as having permissive codes that eliminate common barriers to ADUs.  Vancouver, BC may have the most permissive ADU codes of the 55 cities examined.  Vancouver, BC allows a single family property to have 1 attached ADU and 1 detached ADU on each property.  That’s right – you can have a basement unit AND a detached backyard ADU.  The detached ADUs, however, have a 500 sqft size limit, which is lower than the 800 sq ft limit common in most other cities.  They also don’t have any requirements for parking, owner occupancy or design, which are all seen as a barriers to development in most cities that allow ADUs.  Also, check out Richmond and Victoria BC.

Portland, Oregon does not require owner occupancy or parking and has fairly generous size limits.  These rules, combined with a $12,000 system development charge waiver has helped support a rapid increase in the number of ADUs in Portland.  Prior to the 2010 waiver, Portland permitted an average of 25 ADU per year.  In 2012, the permit activity rose to 140 permitted ADUs.

Another Oregon city to highlight is Ashland.  They don’t have owner occupancy or design requirements and also allow ADU up to 1,000 sqft.  That’s huge!

Something to consider – should cities follow the BC pathway to curb the size of detached ADUs to 500 sqft and allow properties to have BOTH a detached ADU and an attached ADU on one property?

In contrast, when purchasing a new home, you may need as little as a 3.5% down payment using a conventional FHA loan. This means that you would need only $10K cash in hand to purchase a $300K home.

Here’s some reasons why it’s historically been so difficult to get a loan for constructing an ADU:

1. National banks can’t determine the value of ADUs as a product, and they typically won’t lend against a product whose value they don’t understand.
2. Banks can’t establish the value of a prospective ADU because it’s difficult to appraise the value of ADU’s.
3. It’s difficult to appraise the value of ADUs in part because there are so few permitted ADUs in the market place; there aren’t many comparables for the appraiser to use to establish an opinion of market value for the ADU and the main house together.
4. There’s so few ADUs in the market place because most cities/counties make it difficult or impossible to build them.

This domino-like set of circumstances amounts to this: If you want to build a permitted ADU, it’s nearly impossible to access capital from banks.

…well, at least that’s been the case up till now.

This is why I am happy to shine a spotlight on one local credit union in Portland that offers a loan product that DOES help individuals who wish to construct an ADU. The new flier below spells out how their rehab mortgage loan product can be used to build an ADU.

Advantis Rehab Mortgage can be used to finance the purchase of a home and the
addition of an Accessory Dwelling Unit. Click image for full PDF.

Advantis Credit Union, which serves residents of Oregon and Washington, offers this loan product as a pathway for those who wish add an ADU to their existing property, or to purchase a property AND construct an ADU.

As with any bank product, there are some strings attached. For example, you must construct the ADU within six months of receiving loan approval. But, on the whole, this is a fantastic loan product for homeowners who need help overcoming the daunting capital hurdle that ADU construction presents. And at roughly a half point higher than their 30 year loan rates, the current rehab loan interest rates are very competitive (~4.15%, as of January 26th, 2013).In cities that allow ADUs, local banks and credit unions are more likely than national banks to understand the market value of ADUs, and thus, they are more likely to have loan products that help homeowners build an ADU on their property.

Since financing ADUs has been historically difficult, it’s wonderful to see local banks like Advantis Credit Union recognizing this gap and filling it for their local clientele. You can read more about Advantis Rehab Loan product on their website.

This afternoon, Portland’s City Council voted unanimously to extend the waiver of Systems Development Charges on Accessory Dwelling Units for an additional 3 years. The waiver covers all new ADUs (conversions or new construction) that are permitted before July 31, 2016 and obtain a final inspection and certification of occupancy no later than June 30, 2017.

Critical to this decision was the overwhelming evidence of the waiver’s impact over the past 2+ years. Before the original waiver was adopted in early 2010, Portland was permitting 2.6 ADUs per month. That rate jumped to 8.7 ADUs per month in 2011 and is now on track for 12.8 ADUs/month in 2012, a nearly five-fold increase in ADU activity from before the waiver went into effect. There were undoubtedly other factors involved in this jump, including the available of Energy Trust of Oregon incentives for ADUs, zoning code changes to allow ADUs to be larger in comparison to the primary dwelling (but still capped at 800sf), and a general lifting up of the housing market this year. But there’s no question that the SDC waiver has been critical in helping many builders and homeowners take the leap from “Maybe…” to “Yes, let’s go for it!” for their ADU schemes & dreams.

We also used the opportunity of some public testimony to nudge the city to consider adopting scalable SDC fees on residential homes – so that 1,000 square foot homes wouldn’t pay the same SDC fees as 5,000 square foot ones (as they do today). Based on feedback from City Council member Nick Fish, there might be some follow-up on this idea.

All the neighborhood, design community, builder, resident, and public agency support for accessory dwellings made this an enthusiastic and non-contentious “Yes” vote by Council. Here’s a big “Thank You” to everyone who’s been supportive of rule changes, like this one, that make it easier to build smaller homes. And a special “Thank you” to the City of Portland for taking the lead on this issue. Let’s keep the changes coming – locally and in other jurisdictions around the region.

- Eli Spevak

PS – For other city councils… during the ~3 hours in council chambers waiting for this resolution to come up, this bill stood out as their most fun vote amidst a lot of pretty dry, bureaucratic stuff to wade through. So lighten up your next meeting with an ordinance to support tiny homes!

PPS – Here’s a video of the city council session today, thanks to Kol Peterson.

That’s the conclusion I draw from a piece by Penelope Green in the New York Times.
Here’s a sales video from Lennar, a builder she profiles.

Lennar’s “Next Gen” is clearly a house with an ADU, but they don’t call it that.  It’s a “home within a home,” and the video is careful not to bring up the bugaboo of renters or strangers living in the extra unit.  It’s for a grandparent, a college age student, or “any family member.”

The keyword that people from “preppers” to investment advisers  are coalescing around is “multigenerational.”  The pictures on the Lennar NextGen web site make a rosy case for it.

Unsurprisingly for such an intuitive concept, the sales work is going well.  “In Arizona alone, over 100 have been sold,” says the article, and next year, the company will be rolling out Next Gen houses in all their markets.

Other builders have come up with the same concept but their own names, like the “Grand Retreat,” adding to the interminable list of synonyms for the microdevelopment that shall not speak its name.

Digging deeper, the NYT article describes how the ADUs are made more stealthy, so that the illusion of nuclear-family living can be maintained.

To circumvent zoning that is leery of duplexes, Lennar’s Next Gen houses run on a single electric meter, have only microwave convection ovens in the apartment, and from the outside look like other houses.

“One address, one hookup, one electric meter,” said Alan Jones, Lennar’s Arizona division president. It was Mr. Jones who took a Las Vegas architect’s concept and ran with it.

The electric meter thing shows how ridiculous institutional systems of zoning and lending can be.  The number of electric meters is often used as a proxy by the lending industry or zoning/permitting departments to determine the number of units in a house.  People refinancing their properties may receive frantic calls from their lending agents, saying things like “They’re ready to approve your loan, but they have one more crucial question–how many electric meters are there?”  Answering “one” will probably cause less trouble because it’s more likely to match expectations for a single-family property.

Following this logic, a 100-unit prewar apartment building in Manhattan is also a single family house.  Right.

In my opinion, the stealth concept may end up defeating itself when it comes to quality of life, for residents of both the main dwelling and the ADU.  Recasting houses with ADUs as multigenerational homes, at least in Lennar’s case, seems to be removing some of the New Urbanist-type advantages of these dwellings.  They seem to be very car-centric, meaning that aging in place could be more difficult than it looks, and sustainability may not be a big priority.  The ADU in the Lennar video even has its own distinct garage!

Moreover, privacy is a crucial aspect of quality of life.  The space and quiet of one’s own dwelling provides a certain amount of dignity that many people treasure.  Hiding the ADU within a single family frame (often called a “carve-out” ADU) exposes the denizens of each dwelling to the sights, sounds, smells, etc of the other.  It sacrifices the palpable privacy provided by detached (but utterly unstealthy) ADU forms like backyard cottages.  While attached ADUs can be made to feel very separate, careful thought and special construction techniques are required (many detailed in Michael Litchfield’s book), and I’m not sure the big builders are really up to that level of craft and design.

The false contrast of “multigenerational good, accessory dwelling bad” is a curious case of conflicting emotions.  People clearly desire properties that have ADU functionality, but they don’t want to give up the precious illusion that they are living a nuclear family lifestyle.

photo by flickr user theopie (Creative Commons)

I’d say it’s time for the stealth ADUs to come out of the closet.  They will eventually, anyway — because experience shows that properties built with multiple units will eventually be used as multiple units, no matter what their stated purpose.  It may be grandma sleeping in the in-law unit now, but eventually it’ll be a stranger.  No need to fret — new bylaws will specify they dress up as grandma to keep the illusion going.

an old-skool ADU, dawg: a carriage house in Simsbury Center Historical District, photo by Sphilbrick (Creative Commons)

Today the Appraisal Journal publishes a research paper about residential properties with accessory dwelling units (ADUs).  The paper describes an income-based method for appraising properties with ADUs, and concludes that using an income-based approach can give appraisers a valuable counterpoint to results from the frequently used, but often problematic, sales comparison approach. In the case of 14 Portland properties sold from 2006-2011, valuations by income were significantly higher, on average, than actual sales prices, by 7 or 10 percent, depending on the exact formula used.  Here’s the press release, which includes (at least for now) a link to the full report.

These findings aren’t a big surprise to me, since together with Taylor Watkins, I wrote the report.   But I do have big hopes the paper can contribute to a more rational discussion of ADUs.  So many of the claims surrounding ADUs, both pro and con, are actually assumptions and preconceptions that have been batted around and recycled for nearly three decades.  For example, you can find “current” ideas like ADUs will help aging people stay on their properties, or ADUs will create crowding and decrease property values in papers as old as 1988′s Small Solutions: second units as affordable housing by the San Francisco Development Fund (a fine read if you can find it).

But in all that time the actual evidence assembled has been little more than scattered anecdotes.

Taylor and I decided to approach the issue of appraisal partly because we saw such  assumptions at play in valuations for refinancing.  It wasn’t uncommon — and still isn’t, according to conversations I had at the Build Small | Live Large summit –  for an appraiser to give an ADU a somewhat arbitrary contributory value of, say, $10,000, even when that ADU is generating >$500 or >$1000/month in legitimate rent.  That’s quite a return! Perhaps that means the ADU homeowner/developer is the Wile E. Coyote (Super-Genius!) of real estate investors.

But more likely it means that something is wrong with the appraisal process — perhaps unfamiliarity with the form of housing, or (more likely these days) the demands of institutional partners who seem to assume that every ADU is illegal, or just too complicated to think about.

So we created a rational approach to appraising properties with legal ADUs.  There was no guarantee our method would produce results ADU advocates would like, though in this case they did.  Our work supports the proposition that ADUs create value (in the long term, though perhaps not the short) for the homeowner.  In a boom market for sales but a depressed market for rent, it might have been different.

Now I’m excited about applying the objective approach to other aspects of ADUs and small, environmentally sensitive housing.   You can read my agenda going forward here.  My gut feeling is that a lot of the pro-ADU claims will turn out to be right — but whether they are or not, please, let’s talk about the evidence rather than rehashing the hash.

Just my $0.02!  – Martin John Brown

Detached ADUs are in short supply, and huge demand.

The fact that they are in short supply and high demand should serve as a strong indicator to homeowners and crafty real estate entrepreneurs that there is a real market gap to tap here.

Until the supply has caught up with the demand, expect to pay a little bit of a premium for renting out a detached ADU. Detached ADUs (permitted or not) in the inner Portland market may rent for $800-$1500/month, around $1K/month on average.

Meanwhile, ADU seeker, you’ll just have to do some intensive searching to find this kind of dwelling for rent. Craigslist is probably the best place to search for them. Try using a boolean search like the one below that would show you results that match one of many commonly used terms for ADUs.

http://portland.craigslist.org/search/apa?query=%28ADU|%22accessory+dwelling+unit%22|In-law|%22granny+flat%22|%22backyard+cottage%22%29&srchType=A&minAsk=&maxAsk=&bedrooms=

(as of 11/15/12, there are a few hits that look like intriguing and relevant options)

Boolean searches are very useful tools for Craigslist, so it’s worth learning how to set one up like the one above, but you’ll need to customize it to match your specific needs.

I then use Yahoo! Alerts to be notified of new listings that appear in the RSS feed for that search as they are advertised since they are likely to be rarely posted and quickly rented.

Another possibility is to use a site like Airbnb to find cool places to stay on a monthly basis. Here’s an advanced search that shows you some of these places in the Portland area.

Out of frustration at seeing how few of these options there are for you to rent, perhaps you’ll consider eventually building one for yourself. Believe it or not, that’s not an uncommon story of how some ADUs come to be.

The quality of the video recordings isn’t great, but the quality of the content presented is.

So, kick back with a bowl of popcorn for a few hours on a rainy fall day and get some free education about building smaller and living larger.

The Keynote Presentations

Financing the ADU

Beyond the Boomer Housing Boom

The summit felt like the beginning of movement that doesn’t yet have a name, but one that clearly has a future. The best part of the summit was the participants, who were simultaneously visionary, entrepreneurial, edgy, and pragmatic.

Participants filled the Portland State University hall for the morning keynote presentation

Jordan Palmieri of the Oregon Department of Environmental Quality, and contributor to this blog, opened the day by providing a succinct overview of the reason behind the summit, first clearly laying out the housing ‘problem statement’, and then hinting at some of the many creative policy and design solutions we have started to explore to address them.

Infographic representing the compelling environmental case for compact housing

Ross Chapin then delivered a sweeping overview of the social and environmental challenges facing our epoch, poetically winding his way into some of the solutions he and others have pioneered with elegant pocket neighborhood design.

Ross Chapin, FAIA, delivered the keynote address

In the coming weeks, we’ll be posting content from the summit, including video recordings of some of the sessions, web versions of presentations that were given, and synthesized findings that were identified during the summit.