A local start-up developer of accessory homes is embarking on a .

Dweller, led by Portland’s Patrick Quinton, is using Small Change, an investment platform that promotes social responsibility. Small Change allows accredited and nonaccredited investors to put money into a portfolio of vetted real estate projects in urban neighborhoods.

Dweller will use the investment to build up to eight accessory dwelling units (ADUs).

Quinton founded Dweller in 2017 after stepping down as executive director of the Portland Development Commission (now Prosper Portland).

To date, Dweller has developed 10 ADUs with what Quinton calls a deferred ownership model. It allows ADUs to be built next to single-family homes with no upfront cost in exchange for a long-term ground lease. Dweller owns and operates the rental units. Homeowners receive 25 percent of the rent and have the option of buying the ADUs later.

Quinton, in an interview, said the business model is amenable to crowdfunding.

“We felt like what we were doing was well-suited to what we were seeing on the real estate crowdfunding side,” he said. “We also weren’t finding that many traditional lenders and investors understood the business model that we had or were willing to be aggressive in terms of putting their money into the ADU market.”

Rents for Dweller’s units built to date average about $1,250. The new round of ADUs will be affordable to renters at 80 percent of area median income, Quinton said.

Dweller was selected in 2019 by the Terner Center for Housing Innovation at the University of California, Berkeley, to participate in the first cohort of its Housing Lab program.

The company’s investment round comes as Portland prepares to implement the Residential Infill Project; zoning rule changes are set to take effect Aug. 1, 2021. The initiative will loosen single-family zoning to make it easier to build ADUs, duplexes, triplexes and fourplexes in much of the city.

“It opens up more sites for us,” Quinton said. “Portland was already way ahead of the curve in terms of the ADU code. We didn’t feel really constrained.”

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Accessory dwelling units are going mainstream.

Once a curiosity, ADUs are being constructed in Portland at a rate that is rapidly nearing two per day. In many East Portland neighborhoods, the sight of an ADU going up next to a house is becoming commonplace.

As demand for ADUs has increased, general contractors and architects have jumped into the business. Some small builders are tackling ADUs along with single-family homes and renovations. Meanwhile, entrepreneurs are competing to find ways to cut costs and scale up ADU business with modular construction.

In 2016, the city of Portland issued 615 building permits for ADUs, a 27 percent jump from the previous year. The increased pace of ADU construction has coincided with the city’s decision to continue waiving system development charges (SDCs) for such projects and maintain relatively friendly zoning rules.

The city has repeatedly waived SDCs for ADUs. The waiver is currently scheduled to expire on July 31, 2018, unless the City Council again extends it.

ADUs are providing close-in neighborhoods the density that city officials say they want. City officials are backing increased density through initiatives including the Residential Infill Project.

Amanda Petretti, founder of Studio Petretti, a Portland architecture firm, said it makes sense for the city to extend the SDC waiver on ADUs.

“From a sustainability perspective, it’s low-hanging fruit for the city to incentivize, and they should,” she said.

Some local residents have gotten involved with pro-density groups such as Portland for Everyone, which seeks to serve as a counterweight to neighborhood associations and historic preservation advocates who often oppose ADU infill.

Joe Robertson, owner of Shelter Solutions, is a senior figure among Portland’s ADU builders. He started building ADUs in 1998, when almost no one was building the auxiliary buildings in Portland. Now, he has a lot more competition.

“Ever since the recession, when builders had to branch out and do remodeling, it’s grown and grown and grown,” he said. “With the lack of building lots, it’s just another opportunity to build a product. It’s grown exponentially the last couple of years.”

Robertson built one to two ADUs per year until 2010, when he founded Shelter Solutions to focus on ADUs. Now, Shelter Solutions builds about 25 ADUs per year. He has three employees and a network of longtime subcontractors.

Also known as mother-in-law apartments or “granny flats,” ADUs are small dwellings built alongside an existing single-family home. Under Portland’s zoning code, they must be smaller than the original home, limited to 75 percent of the existing home or 800 square feet, whichever is smaller.

Costs vary widely. A simple garage conversion can be done for $80,000 to $90,000, Robertson said. Building an 800-square-foot detached ADU would cost $160,000 to $190,000. Some units with high-end finishes can cost more than $200,000.

Alan Armstrong of Strongwork Architecture is among Portland’s ADU designers. He tells customers – who often come in expecting to pay less – that $150,000 is a standard figure.

“That’s what you should expect,” he said.

Financing remains largely a missing piece for ADUs. Most property owners who build ADUs either pay cash or use home-equity loans, builders and architects said.

Property owners build ADUs for a number of reasons. The most lucrative investment is to rent them out as short-term rentals via websites such as Airbnb.

Robertson said one customer told him he expects to have earned back his investment on an ADU in five years.

“They typically do pay for themselves pretty well for the customers,” Robertson said.

Other ADU owners use them as traditional long-term rentals. Some build ADUs to house family members, typically aging parents or so-called “boomerang” kids. In some cases, an aging parent has paid to build an ADU on their adult child’s property to move into, Robertson said.

In Portland, ADU construction is concentrated in North, Northeast and Southeast neighborhoods.

Robertson said he hadn’t encountered outright opposition from any neighborhood association. Even historic neighborhoods have bowed to the trend.

“Eastmoreland might be the most stringent, but as long as you comply with what the code requires, you’re OK,” Robertson said.

As ADUs become more popular, builders and entrepreneurs are seeking to drive down costs and make the process more easily replicable. Builders clear only a modest profit on each unit, making a larger scale appealing.

“The next nut to crack is to figure out how to get more efficiency of scale for ADUs,” said Eli Spevak, owner of Orange Splot, a general contractor that has built ADUs. “There are a lot of people working on modular prototypes. I think that’s the next frontier locally.”

Shelter Solutions has four models designed in-house that range up to 500 square feet.

Studio Petretti in early November rolled out a line of prefabricated ADUs called “Stuga” – the Swedish word for “cottage.” Studio Petretti is working with builders Mods PDX, TaylorSmith Sustainable Construction and Akos Construction on the units.

The prefabricated models cut construction time, costs and the myriad of decisions ADU buyers are confronted with, Petretti said.

“We’re trying to balance high design with budget consciousness,” she said.

Patrick Quinton, former executive director of the Portland Development Commission (now Prosper Portland), has founded a startup, Dweller, that is aimed at reducing ADU building costs with modular units.

“Our goal is to be able to build and install ADUs for under $100,000,” he said.

Quinton is working with Champion Homes to manufacture modular units, and hopes to soon install Dweller’s first two projects – one in northeast Portland and one in Southeast Portland.

“It’s a good time to be in the market,” he said. “That means more competition, but hopefully that’s a good thing for the market.”

Quinton also is working to get state approval on a standard design. That way, Dweller would not have to go through design review for each project.

“We think it’s a more efficient process for us as we grow,” he said.

Other firms are at work on “tiny homes” and other modular designs. SQFT Studios advertises a compact ADU, 16 feet by 24 feet, for an average of $120,000 to $150,000. The company also does custom designs.

As demand for ADUs continues to gain steam, more designers are doing the work. Propel Studio, Environs and Polyphon Architecture & Design and Mitchell Snyder Architecture all design ADUs.

Some of these architects hold competitive bidding to solicit ADU builders.

Portland State University recently hosted a conference for the ADU industry, and the school’s Institute for Sustainable Solutions has spearheaded the Backyard Initiative to examine ADU-related issues.

Multnomah County is also pushing ADUs with a $350,000 pilot project. The program, , is paying for the design and installation of ADUs with contractor Enhabit on four homeowners’ properties in exchange for hosting residents rent-free for five years.

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