Let's Get Our Portland ADU Knowledge On!

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Have you heard/seen the acronym “ADU” and wondered what it meant, but were just too laz… I mean, busy… to pull out your mobile long enough to Google it?

Then here’s the definition you’ve been waiting for:

ADU = Accessory Dwelling Unit
This is a secondary housing unit on a single family residential lot (technically you can have one on a commercial lot but they still have to be subservient to a residential unit).

End of blog, what more do you need to know, right?

Well, if you have any interest whatsoever in building an attached/detached ADU, or converting existing space (like a basement, attic, or garage) into an ADU, or buying/selling a home with something on it that seems like an ADU… then there is A LOT more to know.

The City of Portland is not exactly a freewheeling town when it comes to the permit process. Which is assuming they’ll allow the ADU at all… and just to make it fun, Portland changes their building code and permit process All. The. Damn. Time.

So, I’m going to kick this article off with a disclaimer… please take ALL of the following as just a starting guide. If you are considering purchasing a property and think you might want to build/convert space for an ADU at some point, or if you currently own a home and thinking about this, have the City of Portland Bureau of Development Services on speed-dial. Find an ADU expert (see suggestions below). Maybe have an attorney at hand in case they’re needed. DEFINITELY get a Realtor if buying or selling a property is part of the process.

Even with ALL of this, just be aware that like with any construction/remodeling, the city can sometimes throw a wrench in your way at any time.

There are additional resources at the end of this article that you might want to bookmark.

Why would anyone want an adu?

They have a lot of potential for aging in place. The infographic here shows one plan: purchase a home and live in it, use the ADU as a rental for supplementary income that could potentially pay for your mortgage.

At some point along the way other family members (such as a child or parent) could live in the ADU.

Upon nearing retirement, the owners could choose to move into the ADU (especially if it’s designed from the beginning for aging in place), and rent out the primary residence to family, friends, or others.

Keeping the same home, rather than selling/buying different homes as your family needs change, allows you to build more equity and wealth.

I’m a Realtor, and I’m happy to help you buy or sell a home every year if you’d like! But, financially, it usually makes more sense to buy a home and stay there long term, so having both your immediate and long term needs in mind when we house hunt is important.

You could also build an ADU primarily as a short-term rental. But, be aware that this comes at a cost: SDCs (system development charges). More about that later.

What does an adu look like?

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ADUs can be detached, attached, garage-conversion, basement-conversion, attic-conversion, bump out, etc.

In Portland, 25% of ADUs are basement conversions, 25% are garage conversions, and close to 50% are detached.

There is an 800 square foot size limit in Portland for an ADU or 75% of the size of the primary house, whichever is smaller. This varies in different jurisdictions (cities). There are other requirements based on lot size, whether or not you have a detached garage, where the home is on the lot (setbacks), etc.

To be habitable living space, there must be 6’8” of headspace.

An ADU must have its own controls for the heating system and have a separate water heater. Controls must be accessed without a requirement to walk into the primary home. This can make a big difference on whether or not a basement conversion to an ADU is worth it financially because running separate heating, etc. can be cost prohibitive. Which is why you’ll see in wall Cadet heaters or mini split ductless heaters in a lot of ADUs.

These are just a few general rules but there are A LOT more. Contact me if you’d like to delve into specifics.

Of course, there can be exceptions to the rules.

Here’s some background… ADUs became a concept in 1981. There could be accessory units on properties built/converted before that time period that don’t meet current rules. You can apply to the city of Portland for an adjustment/variance if you have a rational reason to do so.

For example: If you have a 1000 square foot house with a 900 square foot basement ADU done in 1970, the city of Portland will almost always approve that, as long as it’s smaller than the primary dwelling (according to a local ADU expert).

So, an ADU is a secondary home located on the same lot as another home. Isn’t that like a tiny home?

Nopety nope nope nope

NOT an ADU.

NOT an ADU.

The terms ADU and Tiny Home get conflated all the time, especially in the media, which I kind of understand, since they’re both small places people live in.

Tiny homes are pretty much all built to be mobile structures, usually on wheels, and definitely not affixed to a foundation. They are, by and large, not legal to live in within the United States.

However, the city of Portland is entering a new phase and there is movement in other jurisdictions, too. In October of 2017 Commissioner Eudaly declared she would no longer enforce Title 29 of the maintenance code (which basically states that you can’t live in un-permitted dwellings in residential zones, can’t live in cardboard boxes, etc.) due to the housing crisis. For the time being, you can live in and rent out a tiny house or RV in the city of Portland.

(Insert joke about renting out a cardboard box in Portland for $5000/month <here>)

This is clearly not a permitted nor permanent solution and we have no idea when this internal policy will be lifted.

Also, because of the 2018 Reach Code, the state of Oregon has a regulatory building code pathway for tiny houses on wheels. But, it is very convoluted and no one really understands it and the City of Portland has no idea what to do with this code.

For instance, there is no planning/zoning code about where tiny homes are allowed to be placed… So, they could be built… but not put anywhere???

Lots of questions and no answers. However, there’s a lot of interesting movement going on, so maybe one day there will be a clear pathway for tiny homes to become ADUs, or at least legal.

For right now, it’s still not legal to live in a tiny house on wheels in a residential zone (tiny house hotels on RV parks can be legal as they are not in residential zones).

FYI, parts of California consider certain tiny houses on wheels as ADUs, but they have code problems and questions and confusion down there, too.

I’ve got a backyard shed and was thinking about throwing up some sheetrock and making it into a whiskey shed/crash pad. Do I need to go through a crazy permitting process for this?

A shed is not often a candidate to become an ADU. (But they can be super-cute and useful!)

A shed is not often a candidate to become an ADU. (But they can be super-cute and useful!)

My friend, it sounds like what you have is a Detached Accessory Structure, not an ADU. Sound the same? Well, you’re in luck, cuz they’re not!

An ADU, which is a secondary housing unit, includes an independent sleeping, cooking, and sanitary space.

A Detached Accessory Structure can be an office, bedroom, whiskey shed, wo-man-cave, etc. It can even have a bathroom. But, as soon as you add a sink and a stove, it’s now entering ADU-land and, to be code-compliant and legal, should be permitted as an ADU.

But, what if I want to rent out my crash pad-whiskey shed. Since it doesn’t have a kitchen, and can’t be an ADU, does that mean I can’t rent it out???

Nope! You’re just fine. You can have a completely code compliant additional habitable living space that’s not an ADU. It’s perfectly legal to rent out a bedroom space that doesn’t have its own kitchen, or has shared facilities, or is detached from the home, etc. (But, please consult an experienced property manager and your insurance company for more information.)

Well… ummm, I’m “asking for a friend” who found a house he wants to buy with a bathroom and full kitchenette in the basement. it’s not permitted. What should “he” do?

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Your “friend” might get in trouble during the home purchase process with the appraiser for the un-permitted ADU. But, your “friend” could make sure that the stove or sink is pulled out and then the space will officially be additional living space instead of an un-permitted ADU. Your friend should then rent the space out as additional living space and not an ADU and should never market it as an ADU.

Your friend also might want to talk to a property manager and maybe a real estate attorney to understand the full ramifications if he is thinking about putting that stove back in and renting the space out. (Insurance/liability is the big one.) He might also consider retroactively permitting the space so that he can market it as an ADU.

Realistically, this happens all the time. There’s probably more un-permitted ADUs being rented out in Portland than there are legal ones. A local ADU expert who literally wrote the book on this subject (see Resources at end of article) estimates that as many as 75% of structures/attics/basements/additions that look and act like ADUs are not permitted. (2010 portlandmaps.com data was used to establish this estimate.)

Due to the lack of affordable housing, the City of Portland is trying to make the pathway to permitting easier and less costly, so it’s getting better. Also, properties with permitted ADUs have more value than un-permitted ones!

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Just to throw a big warning in here - if you are thinking about building a detached or attached ADU on your property, and think you want to avoid the whole permitting process… the City of Portland is paying very close attention to un-permitted additions and levying some steep fines along with forcing people to update work already done, obtain permits, and pay back taxes. All this can be a pain and costly, but even worse, the city might require the structure to be torn down.

I highly recommend doing these projects the right way. Hire experienced contractors, communicate with the city, and follow their process (even when it feels onerous). It would be a LOT better than throwing all your money down the drain.

I’d like to convert my basement to an adu and also build one behind my house. Anything wrong with that?

Thank you for asking such a complicated question!

The quick answer is - No.

Why? Because the City of Portland currently only allows one ADU on a residential lot.

Proposed acceptable multi-family ideas under the RIP

Here’s a big HOWEVER: The current proposed RIP (Residential Infill Project), which should apply to almost all residential zones if it is adopted, may allow for 2 or 3 ADUs on a residential lot.

There will be a lot of requirements, but ADU experts say that by and large the proposed changes will be highly beneficial to permitted ADU development.

Another proposed change is House Bill 2001, from Rep. Tina Kotek. This bill would essentially eliminate single family zoning in cities with populations over 10,000, allowing up to 4 homes to built in zones that previously allowed only single family houses.

It also proposes to drop owner occupancy and off-street parking requirements. Because off-street parking requirements are effectively an ADU-killer (many Portland single-family homes have no off-street parking at all, let alone extra spaces for ADU residents), this would be a big step towards making permitted ADUs a much more attainable goal.

Eliminating single family zoning is a big deal, not just for ADUs, but to ease housing pressures in Portland for everyone. This should really be a separate blog article… but just for a quick look at what I mean (and to give you an idea of why we’re having a housing crisis), here’s a few illuminating maps:

1927 Zoning Map

2016 Zoning Map

Notice anything? Nearly a hundred years ago, the zoning in Portland included huge areas zoned for multifamily housing. Now, the vast majority of multifamily zoning is along major avenues, with everything else zoned for single-family.

Family size has shrunk while the average home size has almost tripled. Source: Accessory Dwelling Strategies LLC

Add that together with our urban growth boundary, and is ANYONE surprised that we’re in a housing crisis? We just can’t have our cake and eat it, too. A city with a growing population either needs to spread out or become more dense (often both).

Compounding this issue is that our homes are getting bigger while the average number of people in a household is getting smaller. (See graphic)

So, no, you can’t have more than one ADU, but hopefully that will change pretty soon!

That was a little more of an answer than i was looking for, but thanks.

Hey, buddy, you’re welcome!

Let’s talk brass tacks. How much does it cost to build an adu (the legal way)

Here’s some real numbers for you based on real data:

This info is slightly out of date. For 2018, the median cost per square foot is closer to $300 and the average total cost is around 200K. Source: Accessory Dwelling Strategies LLC

This info is slightly out of date. For 2018, the median cost per square foot is closer to $300 and the average total cost is around 200K. Source: Accessory Dwelling Strategies LLC

The figures above are from a homeowners point of view and TOTAL COST OF CONSTRUCTION. This means it includes everything: permits, materials, labor, etc.

Realistically, the bottom cost is still around 100K for a smaller, detached ADU.

Do you notice how the cost goes up the larger the ADU is, but not by very much? The thing about ADUs is that whether it’s a 400 square foot structure or an 800 square foot structure, much of the same costs apply. Many expenses are the same or similar regardless of size, so usually the best course of action is to build the largest ADU legally allowed.

Now, all of that applies to detached new construction ADUs. If you are converting an existing structure, particularly a basement or attic, then you don’t have to deal with planning/zoning rules, since they’re within the existing building envelope. Costs for conversions are generally going to be a lot lower, depending on what work needs to be done to make the basement compliant.

Garage conversions, however, can be almost as expensive as new construction, depending on the engineering involved in the conversion.

What about those system development charges?

The decision to waive the SDCs has made a big difference in the number of ADU permits! Source: Accessory Dwelling Strategies LLC

Systems Development Charges (SDCs) are fees assessed to new development, additions, and changes of use. These fees are collected to help offset the impact your project will have on the City's infrastructure of storm and sanitary sewer systems, parks and recreation facilities, water, and street systems.

But, lucky for everyone, in 2010 the city of Portland realized that promoting more density would be a good thing, and they decided to waive SDCs for ADUs indefinitely.

UNLESS the owners of the ADU want to use it for short-term rentals (rent periods of 30 days or less). If you want to AirBNB your ADU, then you would need to pay the SDCs, which can range from $14,000-$19,000 on most ADUs (I’ve heard second-source anecdotes of people paying a lot less than that in the the City of Portland, so talk to the Bureau of Development Services for more info).

Currently, the short-term rental market is pretty oversaturated in Portland. But, there are exceptions, usually if you have a unique home in a unique location, where it’s worth it to pay the SDCs in order to build the ADU and rent it out short-term.

What are the tax implications of building an adu?

Source: Accessory Dwelling Strategies LLC

Ugh, you ask all the hard questions. ADUs get taxed like any other property improvement. When you pull an ADU permit, this can trigger the county to calculate the structural improvement value, which feeds into how much taxation increase you’ll see.

A general rule of thumb, but don’t hold me to this, is that for every 100K of contributed value, your tax goes up about $1400/yr in Multnomah County.

But, with conversions, they would take out the value lost by eliminating the garage, basement, etc., then calculate the value added and put those figures together. So, less of a tax increase is likely for a conversion versus construction.

What else should I know?

Financing is one big consideration. Obtaining funds for the construction of an ADU can be tricky. There are several options, though. Here are a few:

  • Liquid assets (cash, sale of stocks, 401K loans, etc.)

  • Home equity account or cash-out refi

  • Sweat equity (do some/all of the work yourself could potentially cut costs in half)

  • Family loans or other unsecured line of credit

  • Homestyle/203K/Construction loans (less common)

Then there’s the whole process to plan, permit, and build it. There are just a ton of rules for setbacks, parking spaces, height requirements, where windows/doors can be placed, aesthetic requirements, etc.

I highly recommend procuring the help of a general contractor experienced in the construction of ADUs. There are several out there, so please contact me for some suggestions. If purchasing a property is part of the process, some GCs will assist you while we look for properties to make sure you purchase a home that is a good candidate for an ADU.

When it comes to the planning process, there’s a graphic below with some good info, but here’s a piece of insider information that will save you some time…

The best time to go to the Bureau of Development Services to ask questions is 7:30AM before they open on Monday or Tuesday, otherwise you’re in for a huge wait.

Source: Accessory Dwelling Strategies LLC

Additional Resources

In addition to Portland BDS, here are a few other good resources:

Ready to look for a home with ADU potential? Throw me a line here or contact me!

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