Show notes
Kol : This is [00:02:00] kind of a interesting topic that is, on its surface kind of a dry topic, but one that I think is really important for some big picture policy reasons. Just to set a little bit of a framework for why this topic is relevant.There's a direct correlation with where ADUs are likely to take off and an affordable housing crisis. So in areas where there's an affordable housing crisis, we're likely to see ADUs. In areas where there's an affordable housing crisis, we're also likely to have stricter than normal rental regulations and therefore owner occupied properties, where people are prone to build ADUs, all of a sudden they may, may maybe in statistically speaking, more likely to be subject to onerous rental regulation standards.So I wanted to have Kurt Lane on today to kind of go over some of these issues and how some of these rental regulations apply in Portland. So in any [00:03:00] event Kurt, why don't I have you just give a brief introduction of yourself? Kurt: Yeah, sure. So my name's Kurt Lane, I've been a rental property owner here in Portland and in Detroit, Michigan for the better part of a decade.I started Chroma property management at, towards the end of last year after, spending a lot of time, self managing properties that I own and really just, I saw a need in the Portland market for really a more modern approach to property management. And also I saw a need or, property management services for ADU and owner-occupied people because obviously that makes up a significant portion of our market here., Portland, I think is arguably the most heavily regulated rental market in the country. So property management then becomes, pretty crucial here in order to help people navigate all of that regulation because, penalties for being in non-compliance can run into , easily into the thousands.So, it's a full service property management company, but we do have a suite of services specific to ADU owners.Kol : [00:04:00] So let's talk in broad strokes about the trends in terms of landlord tenant laws in West coast cities that are facing an affordable housing crisis. Can you talk about some of the big picture trends that we're seeing in those regards?Kurt: Yeah, so I think, really this started in Portland and really in other major cities over the last decade there was a really significant increase in the total dollar amount of money spent on rents and also on, the percentage of rent increases. So in Portland, in particular, 2010 to 2015 they saw , over 20% increase in rents and significantly, there was a spike in 2015. Overall Portland saw a lot of economic gains in, in the last 10 years. So it was a fast, fourth, fastest growing city , looking at income specifically, and it was only behind Seattle, San Francisco, and I think San Jose . So Portland saw a lot of economic gains, but also saw , people feeling really [00:05:00] squeezed out of the rental market, especially with redevelopment and sort of, inner Northeast and inner Southeast, which is, sort of close in to our city here.That gave rise to the city, declaring a housing emergency in the fall of 2015 and the housing emergency . I'll just read the language really quick because this language really then dictates the policies we're going to be talking about today. So the Portland city policy as of 2015, is that all Portlanders regardless of income level, family composition, race, ethnicity, or physical ability have reasonable certainty in their housing, whether publicly assisted or on the private market.And so this concept of reasonable certainty becomes very important. In defining how the city is going to implement a bunch of regulations. So primarily that's taken the form of rent control. So we have citywide rent control here in Portland. The state decided to then follow suit with the first statewide rent control legislation in the country.So that passed [00:06:00] last year. So at the state level, rents are capped at 7% plus the consumer price index annually. So this year it was 9.9%. Those rates are set every September. Portland also just incidentally has 9.9% increase year to year. So that was very fundamental shifts. Another big change was that there's this idea now of when a relocation assistance.So all of the things we're going to be talking about today, are expansions of tenant protections in the market to try and guarantee some reasonable certainty. So rental relocation assistance, what that really means is now there's direct form of cash payments from landlords to tenants in the event of, excuse me, in the event of a no cause eviction or a rent increase over 9.9%.And then most recently as of March 1st, there's now these ordinances that are called the fair ordinances. One of those deals with screening criteria. So how you can evaluate tenants and the second deals with security deposits. So [00:07:00] what you can charge for security deposit upfront, and then also how the landlord and the tenant have to document the condition of the property throughout tenancy.And so what you're seeing these that's Portland specifically, but you've seen that replicated in Seattle. Obviously you're seeing that in California and LA and San Francisco and other communities there Seattle, this winter, the city council passed a resolution that you could not evict tenants during winter months.The mayor refused to sign that, but that's going to come back around. And I think obviously with everything going on now with COVID-19 and major economic disruptions, you're going to see cities, make attempts essentially to guarantee housing for people. And so that's taking the form now in Oregon of there's a moratorium on evictions through the entire emergency and the state and city sort of, big dictate when emergency period ends.Kol : It use are largely developed by amateur homeowner developers. And many of these homeowners are becoming landlords for the first time when they finish your ADU and [00:08:00] rent out the primary house or the ADU. So what are some best practices that you would like to convey to first time landlords? Kurt: I think, really important to start thinking about the property, number one is an investment property. And, but number two also, as , you are providing , housing to people and there's a, there's a great deal of responsibility that comes with that. And so that means that, you need to have a legally binding lease. You need to have an application process that's equitable.You need to make sure that your screening criteria is documented. You need to make sure that how you go through the entire application processes is really well-documented. That basically you're you really in compliance with all these things. I mean, that's sort of legally, that's what you want to make sure of.I would also really advocate people , making sure you have the right insurance in place, so it's going to be a different type of insurance than you have for your home, for example . I'm a big advocate of people setting up LLCs for rental properties. I think there's a lot of protections that provides.[00:09:00] For a lot of people, it's the first time doing this. And with ADUs, it is unique because, typically the owner is, intimately involved in the development of the construction of it, as well as opposed to somebody who goes and buys a duplex or a fourplex to get started.So I think you have to separate yourself from the process a little bit and start thinking about what are the steps I would, I would be taking if I had, a standalone duplex or a standalone single family rental, and just really making sure you have everything in order to, to be going about it legally and to really, be taking on having tenants full-time. Kol : Do does having renters living on the same property, of owner occupied properties, meaning an owner occupied property with an ADU or duplex or triplex provide any separate legal protections for landlords or for tenants that are not afforded to non-owner occupied investment properties and can you describe what these protections are? Kurt: Yeah, definitely. So in, in [00:10:00] Oregon, and I think you're seeing this , in other places where ADUs becoming, an owner occupied, is becoming more and more prominent part of the mix of rental housing is, there's this trend towards creating a separate class of rental property.So a lot of times, obviously ADUs and owner occupied, they're, they're treated the same as, an apartment complex with a hundred units or 500 units. But in other key areas, the city and state are differentiating those types of properties. So the key things to think about when you're talking about ADU and owner occupied is the idea of the owner actually living on the property.So that means the owners that they're living in the house, which would be considered the primary dwelling or living in the ADU. It doesn't really matter, which just as long as you're living on both, if you're living on neither, then your property is just a rental property in the same way , again, a hundred unit apartment complex would be. It's treated the same legally. But if you are living onsite, which is obviously really common in the ADU world and [00:11:00] an owner occupied, in Portland and in Oregon, you are granted certain exemptions. So rental relocation assistance, which I talked about earlier that the direct cash payments and the, a bit of a no cause eviction or rental increase button 9.9%, that doesn't apply to ADU owners who live on site. They also are exempted from the screening criteria of the FAIR ordinance that passed. And what the screening criteria really was, was an attempt to standardize how tenants are screened and then also lower the bar economically to make, a wider pool of housing available to people.So it used to be that. Tenants would have to show three times , gross income relative to the rent. And now that's been dropped to two times. Credit scores have been dropped. So I think it's 500 now criminal history, they backed off on what you can look at in terms of criminal history.So before it used to be well now, for example, it's , seven years is as far back as you can look. So that doesn't apply to [00:12:00] ADU owners. Kol : Wait, none of those, none of those screening laws apply to ADU owners? Kurt: No. So in none of the FAIR ordinance screening criteria, none of that applies to ADU or owner occupied.So the other thing that's really important for ADU owners, especially if you're dealing with new development is, so there's the statewide rent control law that I discussed earlier that caps rent at 7% plus consumer price index annually. That doesn't apply if the certificate of occupancy was granted anytime within the last 15 years.So those properties are grandfathered in and exempt from state rent control. So, basically the key things to really know, in Oregon, in terms of the mix of how this works with ADU , you can have an exemption for state and rent control law if your ADU is less than 15 years old, rental relocation assistance, since doesn't apply to you. And also this, the screening criteria, the FAIR ordinance, doesn't apply. The second ordinance there, which is security deposit, [00:13:00] and that applies to everyone. And that's really that that's a fairly like it's a significant ordinance. So people should be really aware of that going into the process. But yeah, those are, those are some of the things that have been done to really differentiate ADUs.The important thing to know about all of this is that, especially with the rental relocation assistance, you have to file an exemption with the City of Portland. And that has to be granted by the housing bureau. So there is a process for that exemption, but it does exist. Kol : Yeah. Well, I'd like to talk more about those things in a minute. I will mention that roughly 10% per year rental price increase seems pretty high to me. Like if I'm charging say, a thousand dollars a month, right now it's just really inexpensive, the least expensive ADU probably would go for a that I can bump it up by 10%, how 1100 bucks. And it like to, that's a pretty big bump. So that doesn't seem [00:14:00] like it's a problem from our landlord's perspective to me. Does it seem like one to you? Kurt: Well, I think what was happening is that, we touched on it a little bit earlier, but over the decade, last decade , 2010 to 2019 there was rents in Portland, went up a lot. So it also, and there was also a lot of redevelopment of existing rental stock. So what was happening is, a person buys a fourplex and, does an extensive renovation and then suddenly their market rent went from, and this is a, pretty accurate example probably about like went from 650 to 850 for a one bedroom.And suddenly their market rate was 1200, right. So that represents a significant increase in rent. But it was in line with the market. So I think you don't have a problem with this if your rents are already at market rates. But if you have situations, which is also really common, where especially if somebody owned, owned a property for 15 years and they've had the same tenant and maybe they've raised [00:15:00] rents, 5%, every five years or something like that, which isn't unusual, suddenly you're way behind in terms of what the market rent actually is.And so if you're in that position, then 10% , doesn't seem like that great of an increase, but I agree. I mean, if you're, all the, all the landlords, all the owners that I work with everybody is, and the rents are at market rates already. So they're not really going to be worried about, 9.9, 10%.What happens though, and what people are worried about is that landlords were automatically increase rents to that level every year, just to make sure that they don't fall behind. Because if you miss a year, then , you can't make it back up. And also the other thing to important, important to realize about that is you can't raise rents above the allowable level between tenants.So there's, there's this idea that the rent level sort of , it is dependent on the property. So if somebody moves out and they've lived there for 10 years and let's say, do use the ADU example, let's say they were paying $800, right. And , now you can get 1200, you [00:16:00] can't automatically raise it to 1200.At the most you can raise. It is the 9.9% is the allowable rate. So even though someone moved out, it's a new tenant, all of that stuff, you still have to only increase at 9.9% in the city of Portland. Obviously there's a lot of people here listening who aren't in Portland. But I think the idea here is that you see a lot of times, West coast and major cities leading the trends and some of these things. So I think as you start to see , this become an issue in more cities and also, ADUs becoming more common in places that aren't like Portland or aren't like Seattle, you'll see a lot of these, a lot of these regulations type, trickle down. And it really, it is like in Portland, it is an experiment. I mean, it's, it's really an attempt to see, like, does this work, does this, not, not depress, but does this sort of just suppress the rapid growth we were seeing in rent?Obviously , you can't now sort of get a good baseline because it's all been [00:17:00] thrown into chaos essentially with, what's going on, with COVID-19 and economic destruction from that. But that was really what the city was attempting to do is seem like, is, do, does this work essentially.Kol : So I'm generally concerned about restrictive rental regulations an…
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