Introduction—Editors Note: The following article is an open letter to the City of Hillsboro, our City Council, our Mayor, and all of our people, especially those still looking for a home to call their own. I was recently asked to participate in the Housing Production Strategy process and was invited to participate on the Technical Advisory Committee. Unfortunately, the invitation came after two of the four meetings had been held.  I contributed some of my 40-year experience in the housing industry at meeting 3, and meeting 4 is tomorrow.

There will be very few if any, more chances to offer input after that as the Housing Production Strategy moves to a Planning Commission meeting and then City Council adoption by December.  This is big stuff- heady stuff.  And we have to get this right, for all of us.  For my part, we have to get this right for our kids, Seniors, those struggling to pay rent, and all those losing the dream of ever having a home.  When we get to that point, it’s too late.

I have often written about our housing problem, including some general and more specific articles.  This decision that the City is making is huge and we can not get it wrong.

Here is the Statement from the City about the project:

Project Vision

Strategize increased housing production of a variety of housing types, choice, and differing levels of affordability to ensure the supply of housing meets the current and future needs of Hillsboro.

Background

The Housing Production Strategy will include specific actions the City plans to take, like changing regulations or offering financial incentives, to encourage the development of the necessary housing types identified in the Housing Needs Analysis Report 2023, along with a timeline for adopting and executing each strategy.

Some of the actions, tools, and plans could include looking at different policy areas, such as:

9/9/2024

To: Technical Advisory Committee – City Of Hillsboro- Housing Production Strategy

From: TAC Member, Dirk Knudsen

RE: Middle Housing & Building Permit and SDC Charges

Greetings, TAC Members and Hillsboro Staff;

As you know, I was added to the TAC to help advise our Hillsboro City Council and others on how to best move ahead for Hillsboro’s considerable housing needs.  I was added to just the last two meetings, and as a result, I have not had time to get to know you all, exchange ideas, or meet you to have a meaningful exchange of the best ideas. Truthfully, Hillsboro needs a standing Committee or Commission outside the Planning Commission to tackle our crisis-level housing issues. I believe that the TAC can play a crucial role in this, and I propose we work towards establishing such a body as a City and a community.

I am writing today about two specific housing-related policies that must be fixed immediately. I will explain this in this document, along with graphics created after completing a study on this critical housing matter. I finished this work after as a long-time housing advocate, policy expert, and developer/contractor/broker working in housing. They are:

• Middle Housing Projects are not being built in Hillsboro and elsewhere due to unintended/unconscious Bias in our policies and codes, which must be fixed immediately.
• Our city’s delays in adjusting our Systems Development Charges (SDCs) based on the size and impact of Middle Housing units have ensured that important Middle Housing, the promise of Senate Bill 2001, is not showing up in Hillsboro.  For those of you not up to speed on SB 2001, it was the most important legislation worked on for years and passed in 2019, allowing duplexes, triplexes, fourplexes, and cottage clusters on all lots in Oregon in cities of 25,000 or more.  These crucial units have the potential to support housing in older areas of our towns and to revitalize and support legacy neighborhoods where large lots and undeveloped property are common. Like all cities, Hillsboro adopted its SB 2001 policies before the June 2021 deadline.  To date, we have almost no Middle Housing.

I completed a survey and interviewed planning staff at six Cities in Oregon. I tried to add Beaverton, but their staff refused to provide information unless I paid a sum too big for me to agree to.  Each staff member responded over time (some did not) to detailed questions about Middle Housing and how the rules were being implemented.  In addition, I asked questions about how each city had adjusted its relative SDC permits and building permit fees.  The following charts directly result from these interviews and the information delivered to me.

The Bar chart below shows the number of reported Middle Housing Units built in each City through May 15th, 2024. Remember that the laws went into effect in June 2021. This chart uses three years of total data.

As you can see, Lake Oswego performed horribly with a ZERO unit-built number. Right behind them is Hillsboro. Newberg and Tigard are middle housing stars that are getting excellent unit production in smaller towns than Hillsboro. Salem is having great results, and Portland is, too.

To understand these cities’ performance in terms of how they have adopted the SB 2001 Middle Housing rules, we have to see a graph that reflects the total number of units completed over the past three years compared to the town’s size. So, a per capita look at the successes so far. The graph below reveals how Hillsboro compares to the other cities I looked at.

Tigard, Newberg, and Salem are leading that charge. They are towns known for their creativity and flexibility regarding Housing. It is fair to say they are easier to work with, and that is a systemic and fee-based opinion based on being in the industry and interviewing others who build and do planning work.  The bottom line is Hillsboro is doing something wrong and is getting its butt kicked on this vital housing front.

On March 31st, 2022, the City of Hillsboro heard via a letter from its Housing Consultant, EcoNW.  This is a firm that was hired to review the city’s new codes for SB 2001 and the implementation recommendations they had.  The City has hired EcoNW on several other projects, and the City knows they are credible and an excellent group.  In that letter, EcoNW made the following statements:

The letter went on to specifically advise the City that Variable-Rate SDCs needed to be explored for Middle Housing to work.

 That was 2.5 years ago, and nothing happened.  Hillsboro, under its current leadership and staff, has yet to see fit to move on this issue. The TAC is here to advise and to do that. I encourage you all to understand these dynamics, use your voices, and give your input.  

I have testified to the City Council at least four times on this matter, specifically, the need for reduced fees to give us meaningful adoptions and realize the promise of SB 2001. There has been no movement, not even when my Mother was denied, due to inequitable permit costs, her chance to live her last few years in a cottage she wanted me to build for her. I will illustrate that beyond any shadow of a doubt shortly.

Why?  Why is Hillsboro so behind on this issue?  We are certainly at the cutting edge of everything else.  High Tech, massive industrial growth with dozens of new projects and zoning initiatives to make them happen. Even baseball has taken more staff time and held more meetings and public attention than Housing.  

Here is my take.  There is Bias against this type of housing in Hillsboro.  I have seen it first hand when repeatedly testifying to the Planning Commission during the 2019-2022 run-up to adopting these codes.  That Bias was unintended, I hope.  Not staff, but volunteer members of the Planning Commission- one telling me that many people were not as excited about these housing options as I was.  I was, and am, excited about our state law with the premise of more housing for people like my Mom and my children, who can probably never own a home in Hillsboro without the help these new laws can offer. Not everyone is retired, living in a beautiful custom home.

The result was that many of the EcoNW recommendations, ideas, and policies were rejected.  I am not suggesting that was what the staff wanted, but the Staff does what it is asked to do.  

The bias is manifested by rules that restrict smaller, more affordable homes financially through higher permitting and SDC charges. This becomes a form of housing discrimination based on economic standing and ability to pay.

Our recommendations at the end of this process must be heard and must get action.  Otherwise, our work is for not will have no effect.  I am sure that is different from what you all signed up for

BIAS, Inequity, and Financial Discrimination Show Up In The Permitting Costs Of Homes In Hillsboro

I do not believe anyone intended this to happen, but here we are.  This is happening. It has happened for 3.5 years now.  Let me show you firsthand.  To best show you and anyone reading this document what is happening in the real world, I have asked Hillsboro, Tigard, and Portland to estimate building permit fees for two homes I have built or will be building. They are VERY different, but I am looking to build both and considering them both as options for a parcel of land I own on SE Walnut Street.

The units under consideration are:

• A large custom home. 4,160 SF 2 story with 8 Bedrooms, 8 Full Baths, and two ½ baths. It also has a covered front porch and back patio.
• A tiny cottage home.  A 576 SF Studio, no Bedrooms, one bath.
• The large home has about 8 times more SF and Bedrooms/Baths than the small home, so the big home will have 800% more of an impact on the neighborhood and systems (sewer, water,parks, roads, storm water, etc) once built.

The Big Home:  A version of this home was built on NE Birch Street in Orenco:

This is a single-family home.  It could be allowed on any lot in Hillsboro if it fits on the lot.  Because we no longer define family, this house is a home that works for anyone and everyone.  It is easily used to rent long-term rooms, which Americans have done since our country was born.  It exemplifies how housing has come full circle with many people renting rooms.  It is also a wonderful multigenerational home for those generational groups living together like most fo the world does. The house is beautiful and can accommodate a second kitchen via an ADU upstairs.

This plan was submitted to the City of Hillsboro for a building fee estimate. After a couple of weeks, I received the estimate.  

Here is the home shown on the lot I have on Walnut Street purely for illustrative purposes.. Permit fees with SDCs are $57,689.30. In total, the costs to build this home, when viewed on a budgetary basis, are $13.86 cents per SF. This home, not including the lot, costs about $600,000, including the permits and city fees. So, the percentage of the budget to build the house is about 9.5%. That is very reasonable in the building industry. Even lower than what we usually see.

Look at the yellow box above for a per BR and Bathroom rate for the Systems Development Charges. Hold that thought-

With that summary in mind, let’s look at the cottage. This plan, known as The Joel, and it is offered as a free plan in the City of Eugene and, I believe, Bend for those needing an expedited permit and free plan set.  That is a fantastic program! I will call this Mom’s Cottage. This little cottage has been built as an ADU and stand-alone cottage, and man, does it live big! I have lived in a space smaller than this cottage for some time, even though we have larger places to live.

The Joel – Mom’s Cottage – 576 SF

I received a Fee Estimate from the City of Hillsboro using the same method. Here it is. Take a few minutes to really look at these costs.

See the yellow summary box above.  The Fee estimate is $45,773.59. All SDCs are the same except for the School charges, which are based on a per-SF or pro-rated basis.  That is $79.47 Per Square Foot.  

The per BR and bathroom charges are astronomical compared to Big House’s.

Without the land, the cottage’s total construction cost is estimated at $65,000, not including the permits and SDCs. With the Permits and SDCs, the total cost, not including the land, is $110,773. The permits are 41.2 % of the total cost of this home.  That is unacceptable no matter where you live in the US.

Therein lies the Bias, inequity, and financial discrimination. 

9.5 % of apx. costs for permits/SDCs on the Big Home

VS

41.2% for the apx. Costs for permits/SDCs of the Cottage

This says to people unintentionally: If you have money and means, you get a break. Build a mega-home? Get a huge break. Needing a minimal home just to have a place of your own? Your total fees will be 600 percent more than those of your fellow citizens who are better healed financially in Hillsboro. Sorry.

Results In One Shareable Graphic

A Cottage Cluster As Option 3

Now, let’s take things a step further.  My Walnut Lot can handle a cottage cluster.  It is easily the most attractive and impactful middle housing project allowed, in my opinion.  I can fit 5 or 6 of Mom’s cottages on that lot as it is 12,000 SF with a nice alley behind it.  So I took a stab at placing five cottages on the lot, all facing a common greenway with raised garden beds.  Parking, which is not required, is provided in the back off of the alley.  This is 2 blocks from the light rail and historic downtown, not to mention the University and Medical district and numerous parks and shops.  It is a perfect spot for these homes.

Cottages would look nice on this land and would work.  But look at that fee – $228,379 for 5 units, Yikes.

Facts:  Even with 5 Cottages, the entire project will not impact the SDCs the way the 1 Big House does.

• The Cottage Cluster in Total would have just 5 Bedrooms VS 8 of the Big House.
• The Cottage Cluster, in Total, would have 5 bathrooms VS 8+ of the Big House.
• The Cottage Cluster in Total would have 2,778 SF VS 4,160 SF of the Big House.
• The Cottage cluster could put 5-10 people into the community to use parks, roads, schools, etc., while the Big House could put 8-15 people into the community to use the same. The list goes on and on about why cottages have less impact on our Hillsboro community than big homes—and yet they cost 400% more in permit fees. Why?

Look at the side-by-side comparisons of each proposed home.

Look at the house-by-house costs above. Only Schools have this right, as they scale the charges by a formula that gets to impact. To get this right, we must adopt policies that reflect the services and systems used by the homes built.

Equity and removing bias will require that, and it needs to happen now.

Hillsboro VS Tigard and Portland

Big House VS Cottage Permit Costs

Now that the Hillsboro cost inequalities were identified firsthand using real-world numbers, it is essential to turn to two of the cities that were shown to outperform us in the earlier graphs in this report. Portland and Tigard were asked to provide fee estimates on the same floor plans: The Big House vs. Mom’s Cottage. I have the individual estimates, which I will give separately.

The Big House, Hillsboro, has it right.  Mom’s Cottage and those smaller homes like it?  Not so much.

Remember the production of middle housing charts in the opening of this report?  That is directly tied to these fees.  Lower SDCs equal more houses. Not just any homes, but homes that are smaller and typically being sold or rented at lower prices.   And the SDC costs are not cut to the bone.  They are just reasonably lower.  More fair, equitable, and better.  We should probably do more and have better policies, but the proof is in the pudding.  Lower SDCs and building costs are the key to getting more Middle Housing.

In conclusion:

• Hillsboro must act immediately.  There have been communications that this is being worked on, but that time has passed.  
• Hillsboro can review all of the notes, call Portland, Tigard, Salem, or Newberg, and see how they scaled their SDC charges to ensure city services are supported while fees are lowered.
• Hillsboro must fix this inequality and end this Bias. It is not okay and contradicts everything the City leaders have set as priorities.
• Hillsboro must lower its SDC charges for smaller homes.  Using a Bedroom and Bathroom figure to scale the permits makes more sense.  Set a reasonable base charge and increase the SDCs for each additional BR and Bath.  That gets to the issue- people living in a home, sinks, toilets, cars, and bedrooms…those are the drivers of what might stress our systems.
• Hillsboro needs to listen to its paid experts. In May 2021, EcoNW Nailed this: Scale the SDCs and permit charges or get very little Middle Housing built. That has come to pass.  
• Did Bias, Unintentionally or Intentionally, stop Hillsboro’s progress on this life-changing housing opportunity so far?  The Council, staff, and the Planning Commission who approved this know what happened.  I am now showing everyone what the outcome has been.  This is out in the open now- this has to be dealt with.  It is no longer okay to say, “We need to study this,” or “We did not know.”  We know- we have a problem.  The time to act is now!

Middle housing is but one option for our housing woes, but it is a powerful and important one as it gets to the heart of the matter: more units and, even more importantly, more affordable housing. This can only be accomplished with corrective and immediate action to the SDCs and permit fees.

I have shown and documented, through upwards of 100 hours of my time, unpaid and unbiased, that, factually, this is what is happening. Take my example and apply it to other homes. Use any combination of Middle Housing options and compare them to building a regular house in Hillsboro.  Few, if any, builders or developers, investors, or even more importantly, end users are building infill affordable homes unless these fees change.

Additional Notes from Our Survey Results – March 2024 – Key Points Revealed

Dirk Knudsen: Question:

“The housing survey asked all Cities to respond: Has your city adjusted/reduced SDCs or building permit fees based on square footage, bathroom count, reduced impacts, or smaller middle housing unit sizes compared to what it charges for a traditional larger residence?”

• Portland– Yes, in addition to SDC waivers for Accessory Dwelling Units, the City has adjusted some of its SDCs to relate to housing type and size. For example, the sanitary rate for middle housing units are assessed at 0.8x the SFR rate, and for micro-units, its 0.6x the SFR rate. Parks and Transportation each have differentiations based on unit size: https://www.portland.gov/bds/current-fee-schedules/system-development-charges-sdcs
• Newberg –  Yes. On February 20, 2024, the Newberg City Council recently modified the City’s SDC rates to include a reduced rate for units that are less than 1000 square feet in size. Details and materials of the meeting are available at https://www.newbergoregon.gov/citycouncil/page/city-council-14.  
• Tigard – Yes!  We did apply the lowest SDC rate (for townhouses) to all middle housing. It is our intent in the future to base SDCs on the square footage of the housing unit rather than the unit type.

• Salem—Yes, SDCs for middle housing are less expensive relative to single-family construction. Middle housing is charged the same SDC rate as multifamily housing, which is lower per unit. Additionally, SDCs are waived for ADUs through June 30, 2024. The City Council may decide to extend or expand this waiver. SDCs are also waived for deed-restricted affordable housing. The cottage clusters that are in process are taking advantage of this.

• Lake Oswego – No. We have not adjusted or reduced SDCs or other fees for market-rate middle housing.
• Hillsboro – No, with the exception that ADUs are not charged System Development Charges by policy. We are allowing the 5/8” meter for water which is about a $6,000 reduction in cost for most residential units including 2,3,4 unit buildings, cottages, and townhomes. To date I believe we have allowed over 1600 of the reduced rates in SoHi to date. We are also currently evaluating a reduced Parks SDC approach and Water Meter/SDC approach for the recently planned Witch Hazel Village South.

Let’s see that Graph one more time.  Those who said “Yes” and their people are winning.  Period.

Last question – Also Crucial Technical Information About Special Incentives and Tools

Dirk Knudsen – The housing survey asked all Cities to respond: Question

” Does your City have an economic incentive, loan funds, SDC offsets or delayed payments, or other tools specifically designed to stimulate Middle Housing and infill development?”

Portland – Yes.  The city began allowing SDC payments to be deferred until final inspection last year.

• Request a deferral of fee payment for 6, 9, or 12 months, depending on the project valuation, by signing a deferral contract. Interest shall accrue at the City’s interim rate during the deferral period and will be payable, along with the deferred amount, upon the end of the deferral period. There is a non-refundable $50.00 finance fee.*
• Through June 30, 2025, projects providing new housing units may elect to pay in full 24 months from when the permit is issued without interest. Failure to pay TSDC in full within 24 months will result in the accrual of interest at the City’s default interest rate, calculated from the day of permit issuance.
• You can request a loan contract by completing and signing an installment contract to pay the SDCs in monthly or bi-annual installments over 5, 10, or 20 years.

Most of the City’s direct financial incentives are geared toward meeting certain affordability goals, which many of these smaller units are more able to meet, such as SDC waivers and Construction Excise Tax exemptions. In addition – on substandard streets (lack full frontage improvements) – builders can opt to pay LTIC instead of building the required street improvements, which avoids the added cost of engineering design and variable construction costs. The LTIC is also waived for certain qualifying affordable projects.

 Newberg – To the best of my knowledge, such incentives are not available here.

Tigard—  Yes, We do. It is the Tigard Middle Housing Revolving Loan Fund, which provides $4.5 million in acquisition, pre-development, and construction lending at a competitive 6% interest rate. 

See more info about that here: https://noah-housing.org/financing/middle-housing-revolving-loan-fund/

 Salem – To my knowledge, Salem does not have anything specific to middle housing. We do have general incentives that could be applied to middle housing. Salem is kicking off a housing production strategy this spring, and we will be looking at new incentives for housing during that process.

Hillsboro– The answer is no as of now, but this is being evaluated as part of the Housing Production Strategy. 

Lake Oswego – We do not have any such programs to promote market-rate middle housing development.