ADUs often more affordable, except when short-term rentals
Portland's growing inventory of accessory dwelling units generally rent for about the same or lower than apartments, with one major exception: About a quarter of the units are set aside for more lucrative Airbnb-style nightly rentals.
Those are some of the takeaways from a newly released survey by Portland State University's Institute for Sustainable Solutions. The institute is spearheading a multiyear initiative to make accessory dwelling units, sometimes called "granny flats" or "mother-in-law apartments," easier and less costly to design, finance and build.
The survey of 515 ADU owners, tenants and others who want to build them found the average rent for the units in the city, including utilities, is $1,218. That compares to the average rent for a studio apartment now of $1,170, and $1,368 for a two-bedroom, according to Rent Cafe website. However, those apartment rents do not include utilities.
"The rents are about the same or lower than apartment rents but they're located in places where there aren't apartments," said Robert Liberty, director of the Institute of Sustainable Solutions. "A lot of them are cheaper."
Surveyors found 44 percent of the ADUs on the rental market are rented for below the market rate.
Secondary dwelling units can be added to nearly every single-family lot in Portland, either as a detached backyard cottage or a converted garage, attic or basement. They are largely being built in closer-in neighborhoods that enable tenants to be closer to jobs and desirable restaurants and bars.
Interestingly, the survey found that those building ADUs have very high education levels, and that extends to the people who rent them. Four of every five ADU tenants have four years of college or more, researchers found.
"I think these people are early adopters," Liberty said.
The initial wave of ADU builders and tenants tends to be clustered in more desirable closer-in neighborhoods, he said, that are also more popular for short-term rentals. "If we can make it easier for people and we can address the financing challenges, we can move beyond this limited geography and group of people."
PSU's ADU project is developing cheaper modular designs, teaming with others to create a "concierge service" to help people with building projects, and with a nonprofit lender to create new loan products.
The city of Portland has enacted a series of measures to promote ADUs, and until recently was seeing more of them built than any other city in the country. In 2016, 615 permits for new ADUs were issued by the city.
The state of California has taken steps to promote ADUs across the state, and that propelled Los Angeles to leapfrog past Portland, especially as LA legalized some of its estimated 50,000 unpermitted ADUs in converted garages.
Because of the dearth of financing, it's hard to get a bank loan to build an ADU, which has limited those building them to homeowners with deep savings or enough equity in their home to take out a sizable home equity line of credit.
Many of those building them are affluent but not rich, Liberty said. "Rich people don't need to build them."
PSU sent surveys to those who obtained or sought permits to build ADUs, or who live in them, so the survey does not cover units whose owners never got city permits. By some estimates, those outnumber the legal ones.
The major new findings since a 2013 ADU survey by the Oregon Department of Environmental Quality was the rise of Portlanders building them with the intent to rent them as nightly rentals, Liberty said. Those can easily fetch more than $100 a night.
Liberty said it's important to note that ADU owners account for a small share of the more than 4,000 short-term rentals operated in the city.
"Short-term rentals is an issue just of use of the housing stock; it's not specific to ADUs," he said.
The city of Portland recently moved to end a major subsidy for ADU development unless the owners agree not to rent them out for short-term rentals for the first 10 years. (See separate story this page.)
About one-third of those surveyed said they intend to use their units as short-term rentals at some time. Owners said they were drawn to short-term rentals because of the lucrative returns, and the flexibility to use their units as guest houses parts of the year for visiting family and friends.
However, a greater number said they built their units to rent out long-term.
Other survey results:
• 45 percent of the owners said they built detached units, 21 percent converted their basements and 21 percent converted their garages.
• The median size of the ADUs was between 500 and 600 square feet.
• Only one-sixth of the units are designed to easily accommodate people using wheelchairs, such as by having wide doorways and restrooms on the ground floor.
• Relatively few of the owners or tenants are people of color.
• Three-fifths of the tenants say they downsized their living quarters when moving into the ADUs.
• The biggest appeals of living in ADUs were, in order: cost of living, the neighborhood, distance from work, a relationship with the owner, to get detached housing, sustainability, a desire to downsize and access to transit.
• Only one in 10 of the ADU households have children.
• Seven in 10 said they were influenced to build the ADU by the city's waiver from paying development fees.
• Only 38 percent of ADU residents drive alone to work, compared to 70 percent across the region.
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