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Portland City Council adopts a $400 fee for homeowners wanting to avoid paying system development charges on new ADUS, to enforce new restrictions on using them for nightly rentals.

TRIBUNE FILE PHOTO - A new accessory dwelling unit or ADU is built in the South Tabor neighborhood. Portlanders whose development fees are waived when they build new accessory dwelling units won't get off scot-free.

The City Council on Wednesday, June 27, approved a $400 fee for homeowners who want to waive other fees, known as system development charges, when building accessory dwelling units. To get the waiver, which can slice up to $16,000 off the cost of developing a new accessory dwelling unit or ADU, homeowners also must enter into a restrictive covenant, written into their property deed, that specifies they won't rent out their unit for Airbnb-style short term rentals for the next 10 years.

"ADUs are integral to the achievement of the city's housing goals, and make up a significant portion of new dwelling units currently being constructed in Portland," the ordinance adopted Wednesday states. "These goals are not advanced when ADUs are rented as (short-term rentals), as they are not directly adding to housing capacity at that time."

If anyone violates that restriction, such as by listing their ADU on Airbnb or HomeAway's websites over the next decade, they can be fined 150 percent of the value of the initial fee waiver.

The city will hire a new staffer at its Revenue Division to implement the new enforcement. That person's salary will be covered by the new $400 fee.

Systems development charges are levied on new development to pay for the cost of adding water and sewer lines, roads, and parks associated with the growth that flows from the development. The city has used a series of temporary fee waivers since 2010 to encourage more ADUs, but a backlash arose because many owners began turning the units into profitable short-term rentals.

A new survey by Portland State University found that 26 percent of Portland's ADUs have been used as short-term rentals.

In May, at the urging of city Commissioner Chloe Eudaly, the City Council spelled out its wishes by adopting a resolution to make the ADU fee waiver permanent, with the new stipulation that recipients can't then use such units for nightly rentals.

Homeowners can continue using their ADUs as short-term rentals, but they won't qualify for the fee waiver.

City staff returned to the council Wednesday with a plan to carry out the resolution, including the new enforcement mechanism. Putting it into an ordinance has the effect of writing it into law.

Portland has been a national leader in promoting ADUs, also known as granny flats and mother-in-law units, because they can provide smaller and more affordable housing in closer-in areas nearer to where people work or study. The units can be in basements, attics, converted garages or freestanding backyard cottages of no more than 800 square feet.

By all accounts, the fee waivers have worked.

In 2009, the year before the first temporary fee waiver, the city issued 24 permits for ADUs.

In 2010, with the waiver in effect, that zoomed up to 86 permits.

In 2016, the city issued 615 ADU permits. That year, the city issued 957 permits for other single-family dwellings.

Most of the new residential development was for apartments, with the city issuing permits in 2016 to build 4,194 multifamily units.

PSU's survey found that 44 percent of the city's ADUs are being rented out below the market rate. Most are rented for less than the average one-bedroom apartment.

"ADUs are a promising component of addressing our housing shortage and housing crisis," Eudaly said as she voted for the ordinance. "This is a very targeted waiver meant to encourage people to develop the housing that we actually need."

The ordinance requires the city to survey landlords on what the ADUs are renting for, to assure that the city's housing goals are met. An annual report will be prepared for the council to monitor the success of the fee waiver.

Reach Steve Law at 971-204-7866, This email address is being protected from spambots. You need JavaScript enabled to view it., or twitter.com/SteveLawTrib.

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