In a last-minute push, the Oregon Senate last weekend passed a sweeping land-use bill that allows construction of duplexes and other small multifamily structures in residential neighborhoods.

House Bill 2001 carries the potential to transform many of Oregon’s historic urban neighborhoods. Some homeowners decried the zoning reforms as a bid to change the character of their neighborhoods, but housing and tenant advocates successfully pushed the bill by arguing that housing has become unaffordable to many Oregon residents.

The Senate passed the bill Sunday after Republican lawmakers returned from Idaho, where several had fled to deprive the Legislature of a quorum. A spokeswoman for Gov. Kate Brown said she intends to sign the bill.

Oregon will become the first state to require cities to allow duplexes, triplexes and fourplexes. The requirement applies to cities with populations of 10,000 or greater, or any residential zone in the Portland-metro area.

Advocates said more “middle housing” positioned between single-family homes and apartment complexes will benefit small families, renters and people of color who risk being priced out of Oregon’s cities.

“It is the kind of gentle infill that can be very compatible within existing neighborhoods, and it’s long overdue,” said Mary Kyle McCurdy, deputy director of 1,000 Friends of Oregon.

The bill was backed by House Speaker Tina Kotek and other Democratic leaders, and came as Portland advanced its own Residential Infill Project with similar provisions for increasing housing density. Cities are required under the bill to bring their land-use rules in line with H.B. 2001 by June 30, 2021, or June 30, 2022, depending on the city’s size.

Portland has until June 30, 2021, to come into compliance with H.B. 2001. The Bureau of Planning and Sustainability plans to bring the Residential Infill Project and related changes before the City Council in the fall, the bureau stated in a news release.

It remains to be seen how the density push will play out in Oregon cities. Housing and policy professionals were skeptical that the zoning change alone would spur a rush of redevelopment.

“I think people will be surprised how little things change,” said Eli Spevak, owner of Orange Splot LLC, a Portland-based developer and general contractor that builds townhomes and other urban housing types. “The way to think of it is it expands choices, but in most residential neighborhoods, the choice people will make is single-family homes, as they have in the past.”

Historically, most housing units in Portland were single-family even before modern zoning was in place that limited housing development options, Spevak said.

Housing analysts also pointed to Portland’s experience with corner-lot duplexes, which have been allowed for years.

“In general, we haven’t seen a mass demolition and new development of duplexes on corners,” said Tyler Bump, a project director for ECONorthwest.

In many cases, it makes sense to leave single-family homes in place, Bump said.

“When we look at development feasibility of middle housing, it’s still challenging,” he said. “The existing single-family house is the highest and best use in most transactions, most sales. There’s a lot of value in single-family houses, and there’s a lot of demand for that still.”

ECONorthwest is at work on an analysis of middle-housing development potential, but the findings were not yet available.

Bump suggested some of Portland’s close-in suburbs, such as Gresham and Beaverton, may be well-positioned with land values high enough to support middle housing.

Other likely places are those areas newly added within urban growth boundaries, McCurdy said. In December, the Metro Council voted to add inside growth boundaries 2,181 acres that could accommodate at least 1,325 homes in Hillsboro, Beaverton and King City, according to the regional government.

Oregon is not alone in pushing to undo restrictive single-family zoning. Minneapolis made national headlines by allowing middle housing throughout the city, and Seattle recently passed rules to encourage construction of accessory dwelling units. In California, where arguably the nation’s most severe housing crisis is ongoing, legislators recently killed a bill that would have allowed denser housing near transit lines, but housing advocates have vowed to keep pushing for change.

For developers, investors, contractors and architects, middle housing is likely to be the domain of small operators. The projects are not large enough to generate returns that would interest major investors and firms, housing professionals said. Investors “want 40 to 50 units at least,” Spevak said.

Z Design-Build is among the small firms that could benefit from expanded housing options. Owner-operator Pete Zenczak is at work with partners on a townhomes project in the Capitol Highway area of Southwest Portland, and another in Southeast Portland. Early plans for the Capitol Highway project call for two duplexes. It could be even denser, Zenczak said.

“Depending on when the infill project goes through, we’re going to include attached ADUs as part of it,” he said.

Developers may seek small homes of about 1,000 square feet as attractive targets for demolition, Zenczak said.

“I think what we’re going to see is we’re going to see small cottages get gobbled up by developers and demoed,” he said. “We’re going to find a lot of these mid-block little cottages, and I think those are going to get demoed and they’ll build duplexes.”

Some large houses in the range of 4,000 square feet could be converted into triplexes, Zenczak said.

Portland is expected to grow by about 123,000 households by 2035, according to the Bureau of Planning and Sustainability.

“Everybody’s trying to pack into this place,” Zenczak said. “It’s either we go out, or we go in. Portland is more inclusive and people are socially wanting to live closer together.”

Preferences are changing too.

“As long as we’ve got a good parks system, people don’t really care about large yard spaces,” Zenczak said. “Millennials and urbanites don’t care so much about that. They want something a little more affordable, and (density) is really the only way we can get it.”

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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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