Agenda Packet 2-20-19 Work Session

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Eugene Housing Tools & Strategies Evaluation 30 rental income for an ADU is informed by the size of the unit. Therefore, the combination of the SDC policy and size restrictions on ADUs likely negatively impacts ADU feasibility. ADU Feasibility The factors that impact financial feasibility of ADUs vary from those of larger-scale developments because they are built under different circumstances than projects from professional developers. While additional income can be a driving factor, motivations among homeowners adding ADUs are typically multilayered. For instance, they may be providing housing for a family member, or creating a way for themselves to “age in place.” This is in contrast to professional developers who make decisions based on their financial bottom line. Homeowners may also have to take on a substantial amount of personal debt to build an ADU, meaning they typically view the endeavor as very financially risky to take on, substantially more so than a traditional developer managing a comparable project. With this in mind, ADU feasibility is less about short-term profitability and more about the perceived risk and time commitment associated with breaking even. Additionally, professional developers are likely to plan for selling their projects after a certain period has passed, and they may make their decisions based on information from a shorter time span. In contrast, homeowners adding ADUs are likely to think of them as a long-term investment into their own property or home. Therefore, while a larger projects’ feasibility is typically measured by its “yield on cost” or “return on cost” (depending on if they are rentals or for-sale product), a potential ADU’s long-term cash flow better informs whether it will or will not be built. This evaluation of ADU feasibility tested four scenarios: Scenario 1 represents current circumstances for building ADUs. Scenario 2 reflects if SDCs were waived, which is roughly equivalent to Portland’s ADU policy. Scenario 3 incorporates waived SDCs, and a larger building size. Scenario 4 is modelled after the Alley Flat Initiative, a program in Austin, Texas that aims to increase the production of designated affordable housing units by assisting with the development of ADUs (see Appendix II for more information on the Alley Flat Initiative). Figure 23 shows assumptions held constant for each scenario. FIGURE 23. ASSUMPTIONS FOR ALL SCENARIOS IN ADU CASH FLOW ANALYSIS Metric Amount Operating Cost as Share of Rent Income 30% Vacancy Cost as Share of Rent 5% Interest Rate for 30-Year Fixed Rate Cash-Out Refinance 4.50% Down Payment as Share of Total Project Cost 20% Rent Per Sq. Ft. $2.00 Time from Financing Approval to Certificate of Occupancy 1 Year Source: Strategic Economics, 2018. Figure 24 shows a summary of feasibility results for the four scenarios. Among the first three scenarios, which assume the ADU is rented at market-rate, the current status quo is the least favorable to the homeowner, requiring 14 years before the ADU project turns a profit. Waiving SDCs completely, and February 20, 2019, Work Session – Item 1