Document Type

Report

Publication Date

5-2019

Subjects

Neighborhood planning -- Oregon -- Portland, Community development -- Oregon -- Portland, City planning -- Oregon -- Portland, Infill housing -- Oregon -- Portland

Abstract

This report was researched and written by the Northwest Economic Research Center of Portland State University (PSU) in collaboration with the Institute for Sustainable Solutions (also at PSU) in order to explore the potential for accessory dwelling units (ADUs) to increase housing affordability in the Portland metropolitan region. Additionally, this report seeks to broadly assess the efficacy of the City’s SDC fee waiver for increasing affordability by increasing the rental housing supply.

In October and November of 2017, ISS conducted an online survey of ADU owners and occupants, the results of which constitute the most exhaustive collection of data regarding ADUs built within Portland city limits. This survey is the primary source of data for this report. (More information about the survey can be found in ADU Market Description, pg. 11.)

An accessory dwelling unit, or ADU, is a secondary living space constructed on a single-family lot, which may or may not be attached to the primary structure but which contains its own provisions for sleeping, cooking, and hygiene, and a separate entrance. Such units can take the famous “tiny house” form, or consist of converted basements or garages. In Portland, it is required that they be up to 800 square feet in size. Essentially, an ADU has all of the features of a studio apartment; the difference is that an ADU can be constructed in an area zoned for single-family residential use.

The first goal of this report is to determine whether or not ADUs are priced at or below the market rate (thus increasing housing affordability). To that end, NERC has aggregated rental price data for ADUs and compared it to market rents in Portland neighborhoods2 in order to show where ADUs are in fact increasing affordability.

This report finds that, on average, ADUs are less expensive per square foot than apartments in most Portland neighborhoods. Interestingly, the largest disparity between apartments and ADUs are in more expensive neighborhoods. The reasons for this, and whether this pattern would be true with more observations, would be a good focus for further research.

The second goal of this report is to establish a framework for assessing the efficacy of the SDC waiver to incentivize ADU construction for long term rental use (increasing housing supply and therefore affordability). To this end, NERC has constructed a set of proformas (outlines of projected costs and revenues) for ADUs constructed either with or without the SDC waiver, and used as either short-term or long-term rentals—that is, as places for visitors to stay for less than one month (as with Airbnb), or as standard rental properties that contribute to housing supply. Using assumptions gleaned from the best available data, these proformas show that when occupancy is above 50%, ADU owners will pay off construction costs more quickly if they forgo the waived fees and use their unit as a short term rental, but if occupancy is below 50%, long term rental is better option. While this estimate is based on assumptions rather than data, a subsidy policy akin to the SDC waiver must take into account this sort of tipping point, in order to ensure that the policy goal of increased affordability is adequately served.

While Portland has one of the most developed ADU markets in the U.S., it is still new enough to qualify as an “infant industry.” As such, there are many unknowns in predicting what may become of this nascent market. NERC anticipates that for ADUs construction to grow significantly and have more of an impact on Portland’s affordability problems, financing needs to become more tailored towards ADUs. This would create opportunities for a wider range of people to be able to afford construction. On this note, construction costs for detached ADUs may be too high to mass-produce affordable units: the recent ADU survey used in this report found a median price of $127,000 for detached units, in contrast to a median range of $65,000-$80,000 for garage, basement, and other ADU types. (Note: garage units can be either attached or detached.) If firms employ economies of scale and produce large numbers of similarly designed units, this should decrease the cost. Lastly, and least predictably, awareness of ADUs and the associated policies designed to incentivize them needs to increase for development to follow. Tracking the public’s awareness of ADUs is another opportunity for future research.

Rights

© 2019 Northwest Economic Research Center

Description

This report was researched and produced by the Northwest Economic Research Center (NERC) with support from the Institute for Sustainable Solutions (ISS).

Persistent Identifier

https://archives.pdx.edu/ds/psu/34999

Download

Share

COinS