Agenda Packet 2-20-19 Work Session

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Eugene Housing Tools & Strategies Evaluation 28 either through a home equity line of credit (29 percent), or cash-out refinancing based on the primary home’s value (12 percent). Meanwhile, very few (2 percent) relied on a construction loan, and no respondents paid with cash-out refinancing based on the property’s future value.28 National lending institutions do not have an established definition for ADUs, and therefore they improperly categorize them as non-income generating properties, which largely accounts for these financing issues. Fannie Mae and Freddie Mac underwriting guidelines, for instance, treat properties with ADUs differently than they would a duplex or other small multiplex, which they consider as “mortgage-helper” units. A prospective homebuyer of a triplex, for instance, can partially rely on their expected rental income to qualify for a mortgage. In contrast, a homebuyer purchasing a property with a detached ADU would likely not be able to use expected rental income to qualify.29 The solution to circumventing nation-wide ADU financing issues rests in collaborating with local banks and credit unions, who may be more willing to invest in ADU projects and to craft innovative financing solutions that can support them. Umpqua Bank in particular already offers construction loans for ADUs and other investment properties (see Appendix II for more information on Umpqua Bank’s programs). BARRIERS CREATED FROM EXISTING EUGENE ADU POLICIES While the City of Eugene currently allows ADUs in all traditional residential zones (R-1, R-2, R-3, and R- 4), and the majority of Special Zones by right, very few ADUs have been permitted and built. From 2008 to 2014, approximately nine ADUs were permitted per year, representing 1.5 percent of total permitted units during this timeframe. However, after the City of Eugene adopted more restrictive ADU requirements in July 2014, the annual number of ADU permitted units declined significantly. From 2015 to 2017, only seven ADUs were permitted in total, about two per year, representing just 0.3 percent of housing units permitted in those three years. System Development Charges (SDCs) discourage people from building ADUs and from engaging in the existing permitting process required to legally build them. Eugene ties SDCs to a building’s unit count rather than to unit size. Developers of ADUs and other small-footprint housing units, such as cottage clusters, pay comparable SDCs to developers of large, single-family homes. Homebuilders estimated that there are potentially 50 to 60 ADUs being built per year in Eugene that are not permitted as ADUs, but rather as “additions with two-bedrooms and a wet bar.” Because incorporating a full range into an addition triggers ADU review, contractors frequently build “de facto” ADUs omitting that feature. Since such units are unpermitted and therefore not subject to City review it would be very difficult for the City of Eugene to confirm this estimate. However, the City was able to provide data for “not an ADU” deed restrictions and for code compliance issues related to illegal dwelling space. In 2018 the City processed 22 permits that required “not an ADU” deed restrictions, which are required when a proposed project includes space that could be used as a separate dwelling but an ADU is not being permitted. Again for 2018, the City found 19 code compliance cases related to illegal dwelling space. Many of the cases appeared to be related to people living in unconverted garage or shed space. Staff also noted that they have many more inquiries on ADUs than actual permitted units. 28 Brown, Martin and Jordan Palmeri, “Accessory dwelling units in Portland, Oregon: evaluation and interpretation of a survey of ADU owners,” Oregon Department of Environmental Quality, 2014. 29 Wegmann, Jake. “Financing Ancillary Apartments on Residential Properties: Challenges and Solutions,” UC-Berkeley Institute of Governmental Studies, 2015. February 20, 2019, Work Session – Item 1