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Portland makes it easier to site and design granny flats

Property tax snafu causing people to hold off on construction


TRIBUNE PHOTO: JONATHAN HOUSE - Chris Robbins and Jody Peppler were hoping to convert their garage into an ADU, until Multnomah County significantly raised property taxes for those building new detached units. Portlanders who are pondering whether to build a “granny flat” on their lot will now have more flexibility in the design and siting of the new units, though a flap over property taxes is causing a lull in new development.

The Portland City Council voted 4 to 1 Wednesday to adopt a package of code changes designed to make it easier to build accessory dwelling units, the formal term for what many call granny flats or mother-in-law apartments. In the future, accessory dwelling units, or ADUs, may be built on side or rear property lines — as allowed for garages — instead of having to be set back at least five feet. To protect neighbors’ privacy, no windows will be allowed on walls facing adjoining homes.

The changes also loosen design restrictions that required homeowners to make the ADU resemble the main house. That opens the way for “super-modern ADUs,” such as those being built in Eugene and Seattle, said Kol Peterson, a local ADU consultant. The code changes also could open the door to “pre-fab” ADUs constructed offsite in a warehouse, he said, which could cut construction costs in half.

Commissioner Amanda Fritz cast the lone ‘no’ vote on the package, after complaining about the eased setback rule. She held two public meetings on the issue, and “it was quite stunning how many people were against this,” Fritz said. She predicted Portlanders will be mad once they learn the city is allowing ADUs to hug side and rear property lines, especially if they are used as Airbnb rentals.

“I think there’s such demand for this type of housing in the city,” Mayor Charlie Hales countered, “we should make it work well.”

City planners reasoned that Portlanders could already build garages and other structures on the side or rear boundaries, and those can be more disruptive than ADUs.

ADUs will continue to be relatively small: No more than 800 square feet or three-fourths the size of the main house, whichever is smaller.

The code changes are part of a series of city efforts to promote ADUs, which are now allowed on nearly every single-family lot in Portland. Until next July, the city is waiving System Development Charges, shaving several thousand dollars in construction costs.

The city is promoting ADUs because they provide more affordable housing, boost density, and reduce resource use because the homes are smaller.

So far this year, about one new ADU has been built a day in Portland, plus others by people who don’t seek permits.

Tax dispute flares

But while the rest of Portland’s housing market continues to sizzle, a flap over Multnomah County’s recent property tax increases for ADUs has caused a chill in the market.

“Many clients have delayed or completely dropped their ADU projects after hearing about the unfair new tax assessments being handed out,” Lucas Gray wrote in a recent letter to Gary Humphrey, administrator of the state Department of Revenue. Gray works at Propel Studio, a Northeast Portland design firm specializing in ADU projects.

“Nobody’s going to want to build them until they have assurances around the tax issues,” Peterson said.

Portlanders who built ADUs on their lots this year were shocked when they received annual property tax bills from Multnomah County in October and their taxes doubled, tripled or even quadrupled.

In prior years, the county assessor raised people’s taxable property values by adding the value of the new ADU. But this year, Multnomah County Assessor Randy Walruff argued that city moves to loosen zoning restrictions obligated the county to reassess people’s main homes as well. In 2015-16 tax bills, the taxable values of the main homes were boosted as if they were new construction as well, on top of the new value from the ADUs.

That sparked a public outcry, and complaints from County Commissioner Loretta Smith and others.

Before the tax statements were mailed out, Peterson and the Portland Tribune had asked the state Department of Revenue for its view on the proper level of taxation. After consulting with attorneys from the Department of Justice, the revenue agency issued nonbinding “guidance” to Multnomah County suggesting — but not mandating — a third way of taxing people with new ADUs. The state agency suggested assessors should not reassess the main house, but they could raise the taxable value of the underlying land, reasoning that the lot now allows two homes instead of one.

County makes concessions

Walruff initially resisted that idea, but then reversed his position under mounting political pressure.

By the end of November, Peterson’s ADU clients received revised county tax bills in the mail, using the Department of Revenue’s suggested method.

From the tax bills Peterson has seen, that roughly shaved in half what he views as the unwarranted tax increases. That’s because the county is still reassessing the value of peoples’ land, as well as adding value from the new ADUs.

“It’s a huge hike from what the people were promised their taxes would be,” Peterson said.

He and other ADU advocates are pressing the Department of Revenue to back away and ask that new ADUs be treated for tax purposes as in prior years.

However, in a Nov. 20 letter to Walruff, revenue department Administrator Gary Humphrey stated that the agency thinks city actions to allow detached ADUs on most residential lots constituted a “rezoning” under state law.

ADU advocates disagree that any rezoning has occurred.

The Department of Revenue may seek new state administrative rules that would spell out proper taxation practices that counties must practice. But that process takes several months.

While the dispute roils, Peterson said, people are so nervous about building their ADUs they may lose out on the remaining six-months that city development fees are waived.

Find out more

Portlanders thinking about building a new ADU with questions about property taxes may contact the Multnomah County assessor’s customer service line at 503-988-3326.

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