On May 8, the Portland Planning and Sustainability Commission held its first hearing on the Residential Infill Project, which includes strict size limits for single-family homes that can be built or remodeled in most areas of the city. To that end, the city’s proposal would limit house size to 50 percent of lot square footage, although certain basement and attic spaces will not count toward the maximum.

This is the first time in recent memory that the city has attempted to limit house size as a general matter, and if the regulations are adopted, Portland will become one of only a few Oregon jurisdictions with residential floor area ratio (FAR) limits. The City Council and the city’s planning staff have promoted this change as a way to reduce the impact of new development on existing neighborhoods while artificially constraining the values of existing homes. However, the proposed FAR limit – especially in such a restrictive form – would, if adopted, bring city regulation deeper into the private sphere but probably not create enough housing to justify the intrusion.

The strictness of the proposed limit is noteworthy. For the typical 5,000-square-foot Portland lot, new and remodeled houses will be limited to 2,500 square feet of floor area. To put this in perspective, current single-family zone setbacks and height maximums would, in theory, allow a home of up to 6,750 square feet on the same lot. Thus, the 2,500-square-foot maximum is a 62 percent reduction in the potential size of a home on the most common Portland lot. On larger lots, homes can be larger but are still limited in proportion to lot size.

The Residential Infill Project was originally focused on providing additional allowances for duplexes and accessory dwelling units (ADUs) – policies that have the virtue of increasing options for new units in existing neighborhoods. In the background, a general 2,500-square-foot limitation on single-family homes arose as a way of assuaging neighbors’ objections to the feared proliferation of ADUs and newer-style homes, which tend to have a larger footprint.

Unlike typical zoning standards such as setback requirements and height maximums, which focus on the direct impact of a home on its neighbors’ access to air and light, a limit on house size really gets at tensions related to neighborhood change and image, the skyrocketing price of homeownership, and perceptions of increasing inequality in perhaps its most visible form. Proponents seem to come from two camps: those who do not want to see houses out of scale with their own and those who believe that a limitation on house size will somehow reduce the costs of housing.

Whether this limit will actually affect housing availability depends on whether you ascribe to the supply side or price control approach to housing policy. An economic analysis commissioned by the city suggests that the new residential FAR limits will slow redevelopment of single-family neighborhoods and generally reduce the value growth of single-family properties, the cooling effect of which will likely offset predicted new housing production – estimated at only 86 new units per year.

Also, one can reasonably question whether keeping all houses to a maximum of 2,500 square feet will somehow make them affordable. Instead, the proposed limit will likely have a simple deadening effect: increasing construction costs and high city fees often make construction of smaller single-family homes uneconomical, which has induced many builders to focus their production in other cities – a trend that this proposal would only exacerbate. Neighborhood aestheticians and those who already have houses larger than 2,500 square feet are the big winners here.

Absent from this discussion is any consideration of the rights being lost by current and future homeowners, or any recognition that a residential FAR limit constitutes the city’s crossing of a long-standing regulatory threshold. Aside from the sheer invasiveness of this proposal, there are many practical reasons not to go there. First and foremost, house size principally relates to peoples’ private lives and only indirectly determines how they impact their neighbors. For many families, house size is driven more by family size than a desire for luxury and certainly is a factor in whether they can establish a multi-generational household. Second, by extending to remodels, the proposed limit will substantially cap how much sweat equity people can build from their homes, which smacks of ladder-pulling when one considers just how many Portlanders already have houses larger than 2,500 square feet.

The proposed alternatives are not more affordable. For those lucky enough to own a home, buying a house on a larger lot is not necessarily feasible and will only become more unaffordable if this proposal is adopted. Then consider the considerable city permitting fees and high construction costs of building an ADU. At the end of the day, adding to one’s house is still the most affordable option when new kids are born, mother moves in, or a simple increase in comfort is sought. It is also one of the best ways for younger families to build wealth.

A rejoinder to the points above could be that FAR regulations are common in multifamily and commercial contexts, so why not regulate single-family homes the same way? The problem with that argument is that it ignores how differently people see their own homes than do developers evaluating a pro forma on a project. Homes not only reflect current market preferences – much different from those when most Portland neighborhoods were first developed – but also include the expectation that, within some general boundaries, owners can do with them what they wish.

The Residential Infill Project will not limit house size in most of the city’s upscale west-side neighborhoods. But for those of us living on Portland’s flatter land, the proposed limit will become a major downside when considering reinvestment in existing homes and be yet another factor in choosing where to raise a family. True, it is entirely possible to raise a whole passel of kids in a 2,500-square-foot house. However, at some level, it should not be up to the City Council to make that choice for anyone. This will not be a bell easily un-rung, so we can only hope that the Council considers these substantial downsides and errs on the side of regulatory humility when deciding the issue.

Garrett Stephenson is an attorney for Schwabe, Williamson & Wyatt in its real estate and land use practice group. Contact him at 503-796-2893 or gstephenson@schwabe.com.

The post OP-ED: Portland seeks to cross threshold with strict house size limits appeared first on Daily Journal of Commerce.

When purchasing existing properties to reposition or operate, the most important thing that real estate professionals usually want to know with respect to zoning — and certainly what they hope will be true — is that the development they are about to acquire is permitted or permissible. Most cautious real estate professionals do not want to be saddled with properties that feature uses or development aspects inconsistent with local land use laws, known as nonconforming uses or development. However, to the extent that such nonconformities are legal, they may present a unique opportunity to own a property type that is in high demand but in limited supply.

What is the reason for reluctance to take advantage of these opportunities?

For one, many lenders take a conservative view of governmental compliance and are hesitant to secure a loan with what is sometimes misperceived as an illegal development.

For another, those same lenders – as well as prospective owners – rightly want to keep what they believe they are getting, which may be thwarted by regulations making it difficult or impossible to rebuild if the property suffers a casualty.

These are all understandable perspectives. However, these same rational impulses can blind purchasers and lenders to an important reality: Like land, nobody is making new nonconforming uses and development. I do not mean that formerly conforming properties are not always becoming less conforming over time — they are. I mean that because prohibited uses and development types themselves cannot be newly established, they may present an opportunity to own a business or property with a unique competitive advantage.

Perhaps the best known examples of this dynamic in Portland are gas stations, which in many locations (and most in the Central City area) are considered nonconforming uses.  The fact that new gas stations are often impermissible means that existing stations are uniquely valuable, if for no other reason than location.

With the city of Portland’s adoption last year of its new Comprehensive Plan and Zoning Code, which will become effective in 2018, many existing auto-oriented developments – and particularly those where higher-density nodes and corridors are planned on the eastside – will become nonconforming in terms of surface parking, drive-through facilities, access, or all three.  While in some cases there will be substantial added value in redeveloping these properties to the denser style called for in the Comprehensive Plan, in other cases they present a unique opportunity to continue and reinvest in businesses that possess characteristics that are being zoned out of existence.

As an attorney, I am better trained to identify the risks of nonconforming development than the potential rewards of possessing a property with unique use and development rights. However, such risks are often overstated for several reasons. First, where nonconforming uses were legally established and not discontinued, they are considered to be legally nonconforming and can usually continue. In fact, established nonconforming use rights may be functionally superior in terms of land use entitlement to more recent land use approvals. Second, while improvements may trigger requirements to address nonconforming development, seldom must the nonconforming uses themselves be discontinued and the required upgrades do not usually impact the essentials of a property’s operation. Finally, nonconforming uses and development can usually be reestablished if destroyed by fire or casualty if done so within a certain timeframe and if a portion of the structure remains. In Portland, for example, under the current code a nonconforming structure can be totally destroyed and rebuilt on the same footprint as long as its destruction is not caused by the owner.

Obviously, the conformity of each property must be carefully evaluated on its particular facts in the context of applicable regulations. However, given the reality of nonconforming use and development risks as opposed to their stigma, buyers, lenders and investors should not ignore the potential value of properties with unique attributes that “they aren’t making anymore.” This is especially the case in regulatory environments like Portland, where upcoming zoning changes could substantially increase the potential rewards of continued investment in legally nonconforming properties.

Garrett Stephenson is an attorney for Schwabe, Williamson & Wyatt in its real estate and land use practice group. Contact him at 503-796-2893 or gstephenson@schwabe.com.

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The city of Portland is in the process of finalizing an update of its Comprehensive Plan and zoning code, which will govern development over the next 20 years. The new Comprehensive Plan, adopted in June, is based on a new urban design framework that directs future growth to dense urban centers and corridors, rather than large-lot commercial and single-family neighborhoods that have characterized outer Portland.

It is important that Portland property owners develop at least a rudimentary understanding of the proposed land use regulations, which may substantially affect their properties.

Portland’s code revisions touch virtually all of its land uses, including multifamily, commercial, industrial and institutional as well as Central City development. These changes will significantly alter the regulations by which land is developed and used throughout the city, and on balance, place more restrictions on most existing development types.

The plan will be the governing document for land use decisions in the city and be implemented by a revised Portland zoning code, set forth in Title 33 of the city code. Although all land use decisions must be in conformance with the plan, the city code is where the rubber meets the road for most developers, real estate professionals and citizens.

The Comprehensive Plan and code must be approved (“acknowledged”) by the Oregon Land Conservation and Development Commission, and its decision is subject to review in the Oregon appellate courts. Barring appeals, the new code will become effective in late 2017 or early 2018. Inclusionary housing will come into effect on Feb. 1, 2017.

Key dates include:

• February 2017: Inclusionary zoning regulations become effective, affecting multifamily properties with more than 20 units
• Late 2017/early 2018: New zoning code becomes effective
• January 2018: Last chance to get building or land use permits approved under current rules – Schwabe recommends starting due diligence work now because the city could be inundated with applications prior to the effective date

Risks include:

The primary risk caused by the new zoning code is the specter of nonconforming status. Nonconformity increases the long-term risks and costs associated with expanding or selling property. It can also affect property owners’ ability to replace a like property in case of fire or casualty.

Common examples of nonconformity include parking and circulation layout, ground-floor windows, and active ground-floor uses.

Property owners should:

Use the city’s map app to see how area properties are affected. Simply visit the site, select “Zoning Map Changes and Amendments” and enter the property address to determine the existing and proposed zoning.
Begin due diligence work now on properties you’d like to develop, remodel or expand under current zoning: The new zoning code will become effective in late 2017 or early 2018. If you are planning or considering property redevelopment, a remodel or expansion, it is still possible under the current zoning regulations by submitting a land use application (if required) or building permit application prior to the effective date. It is advisable to begin design and due diligence work on such projects as soon as possible, as there will likely be a large volume of projects submitted prior to the January 2018 effective date.

Garrett Stephenson is an attorney for Schwabe, Williamson & Wyatt in its real estate and land use practice group. Contact him at 503-796-2893 or gstephenson@schwabe.com.

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