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County, city at odds over accessory dwelling units

Assessor policy could slam market for granny flats


PORTLAND TRIBUNE: JONATHAN HOUSE  - Northeast Portland resident James Peterson's property taxes will nearly double after adding this accessory dwelling unit atop his garage, because Multnomah County will reassess his main home as if it were new construction. As the city giveth, the county taketh away.

James Peterson found out the hard way.

Last year, he added a 522-square-foot, one-bedroom apartment above the detached garage at his Northeast Portland home. The city of Portland actively encourages such accessory dwelling units, or ADUs, allowing them on most lots and waiving several thousand dollars in development fees.

This year, a Multnomah County assessor came by to figure out what Peterson’s new apartment was worth, to add it to his property bill. It was then that Peterson learned the county also would reassess his main house, valuing it for tax purposes as if it also were brand-new construction. As a result, his annual property taxes will double, to about $8,000 a year.

“Because of new construction on one part of the property, now the entire property is treated as new construction, which is nonsense — it’s a 1926 house,” says Peterson, a real estate broker for Living Room Realty.

The city prizes ADUs because they add density to existing neighborhoods and often provide more affordable dwellings with less environmental impact. They also allow more flexibility for families, enabling aging grandparents or relatives with special needs to live on site.

Advocates say the county’s actions could have a chilling effect on ADUs and run counter to the city's goals.

“It doesn’t seem right to me,” says Kol Peterson, an ADU consultant and blogger (no relation to James Peterson). “I think it could kill roughly half the ADU market here.”

He says it's a new policy that takes effect on next year’s property tax bills, but Sally Brown, Multnomah County’s chief appraiser, says the policy has been around since 1997, as required by Oregon law and administrative rules.

“What’s new,” Brown says, “is the push by the city and the developers to promote the construction of ADUs.”

Under Measure 47, written by anti-tax activist Bill Sizemore and passed by voters in 1996, taxable property values can only rise 3 percent a year. As a result, Oregonians’ taxable or assessed values often are much lower than the real market value, which has risen much faster than 3 percent a year lately.

For multiple reasons, homeowners in gentrified inner North and Northeast Portland are getting the sweetest deals, sometimes paying property taxes on only 20 percent of their home's real value. East Portland residents, whose home prices haven’t risen much faster than 3 percent a year, are paying taxes on assessed values much closer to their real property values.

The resulting mess amounts to a class disparity: affluent homeowners in gentrified inner North, Northeast and Southeast Portland are reaping huge property tax breaks while working-class homeowners in East Portland are not.

Under Measure 47, and Measure 50, which passed the following year to fix glitches in Sizemore’s measure, new construction goes on the market at an assessed value set by the county each year to approximate the average countywide benefit of the two measures.

Next year, that's 59 percent, or 0.5941 of the average market value.

“So if you built a new house that’s worth $400,000, we would multiple that by 0.5941 and that would establish your maximum assessed value,” Brown says.

The county's tax treatment of ADUs might cause someone in Northeast Portland to pay higher taxes, and someone in East Portland to pay lower taxes. “It could go both ways and likely does,” Brown says.

But why consider Peterson’s 1924 house new construction?

Brown says the county is obliged to update the assessed value when there’s a new use of the property made possible, such as via a zone change. Detached ADUs like Peterson’s weren’t allowed when Measure 47 was passed, though similar “granny flats” were permitted then in basements or attics.

So the county policy appears to mainly affect ADUs in detached buildings.

ADU advocates say the county is using a loophole to try to rectify some of the injustice in differential property tax treatment, since most ADUs are being built in closer-in Portland neighborhoods.

“The question is what does change of use mean?” says Eli Spevak, a developer of cohousing and other nontraditional homes, who promotes ADUs. “They may be looking at places to rectify where they can.”

Brown denies that, and says the county assessor’s work must stand up to scrutiny of state regulators.

James Peterson predicts the policy will backfire. One of the city’s goals in simplifying ADU rules was to prod homeowners to seek the proper permits and building inspections, to make sure their units are safe. ADU advocates estimate there are far more illegal ADUs, where owners didn’t go through official hoops before adding new units.

“This is actually disincentivizing people to do it in a legitimate way,” Peterson says. “What it's going to do is cause people to go underground.”

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