A one-stop source about accessory dwelling units, multigenerational homes, laneway houses, ADUs, granny flats, in-law units…
(Update: Part II , Part III , Part IV and Part V are also available.)
This post is complicated, thick, and heavy – it’s about property taxes. Ick! For the purposes of retaining readers’ interest, I may as well write a 10-page piece about getting dental procedure work done on the mesial side of molar #31.
Yes, it may seem too boring for most of our readers to bother continue reading. But, it’s actually one of the most significant issues I’ve covered on this website, because it could spell the death of detached ADUs in Portland.
As a pre-amble to this post, read the Portland Tribune’s coverage of this same topic, posted on October 22nd, 2015. It’s a much lighter and quicker read than this post is, and explains the basic dynamics at play very well. But, if you want or need to fully understand the full details of this taxing issue, or want to see further evidence that the County is misleading its citizens, read this post.
Background on How Property Taxes Increased with Detached ADUs
Without any public notice, discourse, or explanation, Multnomah county has changed the formula of how properties with detached ADUs will be assessed and taxed this year. This change dramatically impacts the resulting property tax increase for many owners, wiping out any financial motivation for developing an ADU in the first place.
Up till this year, the average tax increase for properties that have added ADUs has been $1,134/year. This tax increase was high, yes, but it seemed reasonable and was in alignment with how all structural improvements were taxed.
County assessors would visit properties after the development of an ADU, increase the Real Market Value (RMV) of the property by adding their perceived value of the ADU structure to the previously established RMV. But, they would only raise the property tax proportionally to the added structural “improvement” value of the ADU to the property.
From a property tax perspective, ADUs were classified as an “improvement”. Like hundreds of other types of “improvements” a homeowner might make to their property, taxes would go up proportional to the improvements that were made. My experience over the last four years of talking with hundreds of ADU homeowners, has been that the property tax increase for the assessed $40K-$150K ADU improvement, typically ranged from $500-$2,000/year, with some rare instances where taxes increased by $2,500. Under the old method of property tax increases for detached ADUs in my classes and consultations, I used to advise as a rule of thumb, “After building an ADU, your annual tax burden will increase by roughly the equivalent of one month’s rent for the new ADU”.
This year, for reasons only known to the directors of the Multnomah County Division of Assessment, Recording & Taxation, they suddenly flipped the calculation on its head in a radical, extreme, and unilateral manner, uncharacteristic of the relatively good government I’m used to witnessing around Portland. Under the new method that this post will spell out in excruciating detail (because Multnomah County hasn’t done the honors), the increase can be so severe that it will force some homeowners who have just developed ADUs, to sell their properties and move to another location in order to stay above water financially.
In a unilateral policy move this tax season, without public notice and explanation and without consultation and permission from elected officials or the State Department of Revenue, the County’s tax directors decided that after the development of a detached ADU, they would re-assess the entire property, including the land and primary structure, tying the new tax Maximum Assessed Value tax rate to the current Real Market Value.
This may seem fair if you don’t understand how Measure 50 tax law works. Measure 50 tax law isn’t “fair” to begin with, but the surgical and selective manner in which the County officials are opting to apply obscure Measure 50 code to detached ADUs, is not only unfair, it’s abominable.
This single change in property tax calculation kills the economic rationale behind the development of detached ADUs. Under this new method, property taxes after ADU development may increase by 600% or more.
Seems unbelievable, doesn’t it? 600%? But, it’s true.
Here’s just three examples of property tax increases for adversely impacted homeowners whose ADUs happened to be featured in recent City-wide ADU tours. In other words, this is a relatively random sample set of detached ADUs that illustrate the perverse and extreme changes that are happening, and that are representative of what is likely to happen with any detached ADUs in the future if political intervention does not happen immediately. I have not included the names/addresses used in this post in order to protect the owners’ privacy, but I encourage anyone adversely impacted by this new formula, to speak up in the comment thread if they are inclined to do so. There’s power in numbers and in knowing that you’re not alone.
In all three of these examples, homeowners built these ADUs for themselves and are either renting out their primary structure or their ADU as a traditional rental. In other words, they were adding another unit of housing to Portland’s housing stock. Their motivation for building an ADU was the same primary motivation that most people have for building an ADU–the possibility of generating passive rental income.
Let’s now consider the post-development personal finances math for the three examples sited above in light of Multnomah’s new taxing method.
The owners of Example 1 would have to pay $6,061 more each year- a 594% property tax increase. Let me repeat that. Their taxes increased by 594% for adding an ADU.
After first learning about this tax increase, the owner’s first reaction was understandable:
“Wow that is so fucked . I’ll be putting that property up for sale soon if that sticks. I have very little patience for extortion.”
If the County gets its way in Example #1, the owners will pay an extra $505 each month. For comparison, I recently got a quote for full health care coverage-and it came out to $250/month. The property tax increase for Example 1 is equivalent to the cost to cover two people each month for health care. The tax impact is also roughly equivalent to the cost of two plane tickets around the world annually.
Looked at over a longer time span, it’s even scarier. In 8.2 years, the owners will pay $50,000 more in property taxes than if they hadn’t built an ADU at all.
In the 2nd example, the tax increase this year went up by $5,172.84/year, or 494%.
As a professional ADU design/builder, the owner was both personally aghast and professionally concerned about his business prospects:
“Wow, we were expecting an increases but that is indeed absolutely without precedence. Sounds like something we need to fight. If this is the case it will immediately put a stop to detached ADU’s being built at all. (At least with permits). We will not be able to work with clients and not inform them of how much their taxes will increase. We have two detached in the pipeline right now”
In the 3rd example, the taxes increased by $3,488.77/year, a 358% tax increase. His reaction was this:
“I really appreciate paying taxes especially towards schools and infrastructure but I also feel they should be fair and don’t like surprises. When you live in a house for 10 years and get used to paying a certain amount for taxes. I was really shaken by the tax. Like wrecking a brand new car. At $4,800 its almost 4 times higher than my previous cost. More money than anyone I know pays for property taxes.”
When you consider that most people are building ADUs largely as a means to develop a good source of passive rental income, you’ll quickly come to understand why this radical new tax calculation will deflate a rational homeowner’s motivation for building an ADU.
Were You Adversely Impacted by This?
If you thought this issue was complicated before, you will be amazed by how complex its going to get before this post is over. Sorry, but I warned you.
The county is only applying to this new interpretation to detached ADUs. Because of Measure 50 tax law, put into law in 1997, the County has decided to only “re-MAV” properties with detached ADUs (garage conversion ADUs and detached new construction ADUs).
If you add a 2,000 ft addition, that’s no problem. If you a detached bedroom, you’re fine. And, if you attached a structural wall between your ADU to your house or converted a basement to an ADU, no worries. But, if you added a detached ADU anytime in the last two years…surprise! Watch out for the tax wrecking ball that may have just ruined your life. Surprise!!
Here’s how they’re justifying the unilateral move to penalize detached ADU owners. The City of Portland only started allowing detached ADUs in 1998, which is one year after Measure 50 passed in 1997. Before 1997, basement and attached ADUs were allowed. But, the city’s design code regulations changed over time to allow for people to have detached ADUs starting in 1998. So, suddenly, and without any public warning, 18 years after detached ADUs were first allowed in Portland, the County tax directors have unilaterally decided to “re-MAV” the property, claiming that Portland instituted a “zoning change” and that Measure 50 requires them to re-MAV the property. More on “re-zoning” later.
To find out whether and by how much you were impacted, you can find your new property tax bill by visiting http://www.multcoproptax.org and clicking on “guest”. Type in your address eg. “100 N. Example”. Leave off “st” or “ave” from the address. Once in, click the “Tax Summary” tab, then click the hyperlink “click to view tax bill”. That’s where the new tax records can be viewed.
If you’re trying to figure out what the tax impacts would be on your property if you were to add an ADU under this new formula, take your RMV. Then, add $100,000 to that or whatever you think your ADU value would add to your property to get the new RMV. Then, multiply that new RMV by the CPR (0.59411) and then multiply that again by the tax rate (0.02365). Or, just multiply the new RMV by 0.014051.
So, if your RMV was $300K, just take $400,000 x 0.014051= $5,620.
$5,620 would be your new property tax.
What Does “re-MAV” Mean, Anyway?
In the past, the County treated all ADUs just like they treated all other property “improvements”. They would simply take the previous “Maximum Assessed Value”, then add on the value of the additional improvements (eg $100K), established by taking the RMV of the addition, applying the CPR (~0.59411) coefficient to it. They’d establish a new “Maximum Assessed Value” by adding the previously established MAV and the MAV of the additional improvements ($59,411), and they’d apply the 0.02365 property tax rate to it ($59,411 x 0.02365=$1,405.07). This is the formula that is used for all “improvements”. Property taxes would go up roughly by that amount ($1,405.07).
“Re-MAV” means that the county will take the current Real Market Value (RMV) of your property, which consists of the land, the ADU structure, and the primary structure, and base the new year’s taxes on this RMV. They will multiply the RMV by the Changed Property Ratio (CPR) of ~0.59411 to establish the Maximum Assessed Value (MAV). The property tax rate is directly tied to the MAV via a property tax rate-which this year, is 0.02365. So, if anyone looks at their tax bill, and multiplies the 0.02365 property rate by their MAV, that’s what their property tax is this year.
Re-MAVing means that the County will increase the MAV basis on which the taxes are levied from the values originally established in 1997, to a basis established by the current RMV of the property. To put it another way, if your property value has increased by more than 3%/year since 1997, you don’t want your property to be re-MAVed.
This year, they’ve cherry-picked detached ADUs to teach them a lesson. This sneaky re-MAV that the tax directors have applied, is the metaphoric equivalent to beating detached ADUs down with metal-spiked cane.
The Commonly Used Method for Increasing the Property Taxes after Adding an ADU
Here is an example of the tax impacts on a detached ADU
from the ADU Tour in 2014.
Note that in 2013, the “improvements” value increase from went up by $113,130-a normal, justifiable increase. Their “RMV” went up accordingly from $223,350 to $352,480.
Under the common “improvement” taxing method, their “MAV” increased by $69,340 to $120,530. If the property had been re-MAVed under the new crazy method, the MAV would have gone up to $209,411.89 [$352,480 (RMV) x by of 0.59411 (CPR)]
Look at the relationship between the RMV and the MAV in all previous years versus this year. For numbers geeks, the numeric relationship between the MAV and the RMV from this 2014 tax bill is 0.342.
This indicates that the CPR was not applied to the whole RMV in this older ADU. Instead, the CPR was was only historically applied to the ADU “improvement” portion. Till this year, detached ADUs were simply been considered “improvements”.
If their property were re-MAVed such as they are being re-MAVed this year, their new tax would have been approximately $4,952.59, instead of their actual new tax 2014 amount of $2,908.77.
Now, let’s look compare that to Example 1, from above–the one whose taxes increased to $7,286.15
In contrast, the numeric relationship between the MAVs and the RMVs from all the 2015 tax bills with detached ADUs is 0.594. In the case of Example 1, $308,120/$518,640= 0.594.
0.594 is the Changed Property Ratio number. But, instead of just applying that CPR coefficient to what you’ve CHANGED ON YOUR PROPERTY, they’re suddenly applying it things YOU MAY NOT HAVE EVER CHANGED ON YOUR PROPERTY, such as your PRIMARY HOUSE and your LAND.
If the common method that Multnomah County used before this year had been applied, Example 1’s taxes would have increased from $1,225.14 to $4,085 instead of increasing to $7,286.15.
So, if you built a detached ADU and your taxes increased by more than $2K/year, you should still be pissed off, but whatever, right? Your taxes may have gone up by that much anyway.
If your taxes increased by more than $3K/year, you should be outraged. No ADU property taxes have ever gone up by $3K before this year as far as I can tell.
If your taxes increased by more than $4K or more like in Examples 1 and 2 above, you should raise hell. Your financial planning has officially been screwed up for life by your County, without any notice, explanation, or apology.
Fortunately, the Multnomah County Division of Assessment, Recording & Taxation is not very well positioned to defend their rogue position in an appeal process. To make sure that I wasn’t going crazy when I first heard whispers about this change, six weeks ago, well before the taxes were posted, I reached out to Multnomah’s parent agency, the Property Tax Division in the Oregon Department of Revenue, for a legal determination on whether the County was allowed to do this.
And, predictably, the state’s interpretation was totally different from the County’s. They spent a month reviewing the issue at hand, and here’s their finding on the matter, which they shared with the County tax directors by no later than October 12th, 2015.
Hello Mr. Peterson,
The issue regarding accessory dwelling units (ADUs) in Multnomah County involves interpreting the phrase “rezoned and used consistently with the rezoning” in Article XI, section 11(1)(c)(C) of the Oregon Constitution.1 The department interprets the term “rezoning” as a formal change in the legally allowable uses of property under the zoning laws, as determined by a governing body with zoning authority. The change can refer either to a change in the zoning designation applicable to a particular property, or a change in the uses permitted under that designation.
In order to create an exception event and the recalculation of maximum assessed value (MAV), the property must be both “rezoned” and also “used consistently with the rezoning.” Because “rezoning” refers to a change in the zoning laws governing the property, we have interpreted “used consistently with the rezoning” to refer to a use that is newly permitted under the rezoning, as opposed to a use that was permitted under the prior zoning.
Prior to the adoption of Measure 50 in 1997, which established Article XI, section 11 of the Oregon Constitution, most of the city of Portland did not allow detached ADUs. The city allowed houses to have an accessory rental unit (ARU), which was “an additional and auxiliary living unit in an existing house.” PCC 33.205.020 (1997). For the most part, ARUs could be created only through internal conversion of an existing house, and could not be created in detached structures.
In February of 1998 the city adopted Ordinance No. 171879, which permitted detached ADUs in all residential zones, except in certain attached houses. Before 1998, most owners of residential property in Portland could not construct detached ADUs on their land, or convert existing detached structures into ADUs. After the passage of Ordinance No. 171879, they could do so. The city amended its zoning laws to permit a use of property that was not previously permitted in residential zones; therefore, property in those zones was “rezoned.” Once a homeowner uses that property to construct a new ADU, or convert an existing detached structure to an ADU, the property is “used consistently with the rezoning,” and the county assessor is required to capture exception value for whatever portion of the property is “used” consistently with the rezoning.
What portion of the property is used consistently with the rezoning is a fact-dependent question. Regardless of the “rezoned and used consistently with the rezoning” exception, an adjustment to MAV is made for the new construction as “new property” under Article XI, section 11(1)(c)(A). The existing dwelling typically would not be used to site or construct the new dwelling. Therefore, under this interpretation, only the land, which is now used to support two structures with living units instead of one, is affected by the zone change and use consistent with the rezoning.
Our interpretation isn’t codified in statute or rule. Other interpretations may exist and may be legally sound. We would likely engage our formal rulemaking process if we discovered inconsistency among counties in the assessment of properties in the same fact situation. We haven’t seen such a problem relative to the situation you’ve asked us about, but will continue to monitor the issue for potential inconsistency among the counties.
I hope this information is helpful. Please let me know if you have more questions or concerns.
1 Refer to Article XI, section 11(1), Oregon Constitution (https://www.oregonlegislature.gov/bills_laws/Pages/OrConst.aspx), ORS 308.146(3), 308.156 (https://www.oregonlegislature.gov/bills_laws/lawsstatutes/2013ors308.html), and OAR 150-308.156(5), 150-308.156(5)-(B) (http://arcweb.sos.state.or.us/pages/rules/oars_100/oar_150/150_308.html),
Their official finding is a bit a dense to understand if you’re not already steeped in this issue, but in summary, they’re stating that when an ADU is added, the land value can be re-MAVed, but that the main house should not be re-MAVed. And, this minor change in interpretation would make a lot of difference for you, if you’ve been screwed over by the County.
This finding is certainly far more reasonable than that of Multnomah County. This interpretive change results in a tax increase that lies somewhere between what has been done in previous years (adding the value of ADUs as “improvements”), and what the county is doing this year (re-MAVing the whole property). Given that Multnomah County’s job is to implement state statute, the fact they have deliberately strayed from the state’s interpretation in a way that causes permanent financial damage to its citizens, should be a cause of great concern to anyone who lives in Multnomah County.
The good news is that in the end, an appeal should ultimately make its way to the State Department of Revenue, and the Department of Revenue’s interpretation should overrule the County’s interpretation. This will presumably force the County to correct property taxes where they were calculated in error.
But, interestingly, even the State’s carefully constructed findings aren’t in alignment with all of the other counties in Oregon in terms of how they treat tax increases on properties with detached ADUs. To do some due diligence for the benefit of detached ADU owners in Multnomah County, I reached out to three other counties in Oregon to see how they taxed properties with detached ADUs.
And, unsurprisingly, they use the exact same method to assess and increase the taxes on properties with ADUs that Multnomah County had used up till this year. That is to say, they all interpret detached ADUs as “improvements”, and raise the taxes proportionally, based on the additional value that has been added to the property. This is the way it should be done, and has always been done in Multnomah County up till this year.
I’m including here the written explanations below of how taxes are increased in three other counties throughout Oregon. Incidentally, it was so refreshing to receive clear explanations in plain English of what methods they use. Multnomah’s County Tax and Assessment Division directors have been opaque and misleading throughout this process, claiming that they’ve always calculated taxes this way. Despite numerous requests to explain their methodology in writing, they haven’t done so, instead only responding with cryptic references to statutes and avoiding answers to the simple and direct questions I posed.
Response from County #1
We can only assess the new property value being added. Anything that was previously assessed is protected by the appraisal/assessment that occurred when the primary structure(s), land, etc. were first placed on the tax roll.
Also, once the new property is added and it is the first tax year that new value is recognized, if you believe our new value is too high that year is the only year in which you can appeal the value to reduce the additional MAV, otherwise it gets locked in and grows by 3% annually.
Response from County #2
Thank you for your email. As you may know, by statute there are limitations to when changes can be made to the maximum assessed value. Generally speaking, the value added for the ADU would be considered ‘exception’ value and there would be an addition to the maximum assessed value. ( not 100% of its value gets added to the MAV- there is a calculation that determines that each year )
In the scenario you describe below, I can see a couple ways a change to your maximum assessed value could occur. 1) the addition of a new bldg. & 2) if there were changes made to the existing improvements that are not currently reflected on the tax roll – potentially value could be added to the maximum assessed value. However, we do not establish new maximum assessed value for the entire property based on a new real market value.
Response from County #3
Typically, we will add the contributory real market value associated with the ADU and per statute, we will add a portion of that to the existing Maximum assessed value (the portion added as a percentage changes yearly). Generally, if there are other items noted during the inspection, such as garden sheds, pavers, asphalt, decks, additions, etc. that we do not have on our records, we will add those at that time as well. I have included a couple of the statutes that may help you too.
I hope this helps.
So, while the State’s interpretation is more reasonable that Multnomah County’s rogue interpretation, it nonetheless, seems to run totally afoul of how counties in Oregon are commonly interpreting Measure 50.
And, just to be sure that I was comparing apples to apples, I confirmed that these were examples from locations where detached ADUs have only been allowed since after Measure 50 passed. Just as in Multnomah County, detached ADUs have only been allowed by right in these locations since after Measure 50 passed. But, unlike Multnomah County, for taxing purposes, their tax directors treat detached ADUs just like any other improvement to a property.
What has changed on properties in Portland that have built detached ADUs since Measure 50 is not the zoning, nor the allowable uses of the property. In other words, these properties weren’t “rezoned” from Residential zoning to Commercial zoning, which SHOULD trigger a re-MAV. Rather, what has changed is the rules surround the design of the types of the structures on a property.
Here’s an analogy. Imagine you could only store a bike in your basement under old zoning rules back in 1991. Then, in 1998, the City said, actually, now you can now store your bike in sheds outside. Then you built that bike shed, and moved your bike to it instead of storing your bike in the basement. You could always have stored a bike on your property, but now you can store it the shed that you built. I bet people who then built those bike sheds would be a pissed off if their taxes then went up by $6,061/year because the County said that the owners had taken advantage of a “rezoning”.
This is analogous to the type of code change that has occurred to the rules regarding the allowance of detached structures to be used as structural forms in which an “ADU” can be hosted. There hasn’t been any change in density or intensity of use of the residential property. Multnomah County had the audacity to classify this as a “zoning” change. It is laughable, but certainly not defensible.
And, while the State’s more tempered interpretation above could be rationalized, all other counties appear to be doing exactly what any rational actor would assume that a taxing authority should do after an ADU is added: they’re increasing taxes based on the improvements made. It’s pretty simple, really.
Methods Used to Calculate Tax Increases and Impacts
Before I continue to the final section of this post, I want to clearly explain who is impacted, and who isn’t. This change in taxing methodology is only being applied to those who developed detached ADUs (new construction or garage conversions). It is not being applied to those who developed basement ADUs or attached ADUs.
The reason for this difference in tax treatment pertains to whether this type of structure was allowed to be used as an ADU on a property prior to the passing of Measure 50. That’s right. They’re reaching back to a statute from 1997 and just this year, 2015, eighteen years since detached ADUs have been allowed in Portland, are determining that they “must” increase property taxes by re-MAVing to follow Measure 50 statute.
Why now? I have no idea. No one does, except for the directors of Multnomah’s County Tax and Assessment division.
The formula for how taxes are calculated is confusing. You can try to go to the County for the authoritative calculation of what the impact of an ADU will be. But, after contacting the County several times, I’ve found that their own staff haven’t fully comprehended these changes either.
When I’ve called three assessors over the last two months, some staff will explain that they just add on the assessed value of the ADU as an improvement and tax accordingly, just like they would treat any other addition to a property. I wish this were the case, simple tax staff man, but apparently it isn’t the case anymore. Some of the staff just haven’t gotten the memo. Or perhaps they got the memo, but it was so outlandish that they misunderstood what the County tax directors were suddenly imposing on its own citizens.
I’ve found that they won’t put their calculations or methods in writing. There doesn’t appear to be a way to be afforded proof of what crazy formula they’d apply, nor to confirm that there is internal consistency among their own staff.
There appears to be a major disparity between what the rogue directors have now instituted as policy, and what the staff level appraisers understood to be the common method for calculating taxes for treating detached ADUs as improvements.
The irony here is that this tax increase will do a couple things that work against the County’s own policy goals:
1-It will actually decrease detached ADU development so much that the County will receive less overall tax revenue than it would if they had just used the common “improvements” tax increase calculations they’d always used in the past.
2-It’ll cause more ADUs to be developed “underground” without permits, much like City’s expensive System Development Charges historically forced ADUs underground before the 2010 SDC waiver went into effect. The SDC waiver dramatically spurred development of permitted ADUs. This change in tax policy is contradictory of the County’s responsibility to foster and regulate safe and healthy buildings for its citizens.
3-Given the evidence we have about the greenhouse gas reduction benefits of small homes, this tax change would actually be contradictory to the County’s own Climate Action Plan goals.
What Will Be Done to Fix This?
So, what is going to be done about this? Isn’t the City going to step in?
Actually, this is not a City issue. The City of Portland has no property tax authority, and therefor, this change was not up to them, and it’s truly not in their lane of regulatory authority. It’s not even in the lane of authority for City Council or even the Mayor.
And to be super clear about my stance on this, the City of Portland has done everything right regarding supporting ADU development. Their ADU zoning code is sound, reasonable, and generally has been in true alignment with civic interests and goals. Regarding Multnomah’s new rogue tax method, you will likely find that City’s planning, zoning, and building staff will be as confused and surprised by these dramatic property tax changes as the rest of Portland’s effected citizens are.
Although the City has nothing to do with this tax policy change, it probably wouldn’t hurt for the City’s politically elected officials to tell the County to stop screwing with a critical piece of their City’s future housing stock like it was a piece of meaningless gutter trash.
It’s important to understand to target your anger to the responsible agency here–and the agency responsible for these outlandish changes is Multnomah’s County Division of Assessment, Recording & Taxation. And, furthermore, it’s really only the people in charge of this decision who should be held responsible for this insane and underhanded change to their tax policy.
For better or worse, it’s really up to individual citizens who have been adversely impacted, to take it upon themselves to appeal. And, I would definitely suggest doing just that.
Appeal this up to the highest court that will hear this case. My hope is this blog post includes the basis for the information that you need to successfully appeal your property tax increase to the State level, where more rational regulators are awaiting your call for just treatment. They won’t come to you. You have to make your way to them via an appeal.
An appeal should ultimately force Multnomah County to step back in alignment with the method that every other County uses to increase taxes after the development of a detached ADU. Even if the State’s method is applied instead of the common method used by other Counties across Oregon, it will still help you get your tax rate back down to a more reasonable increase.
Personally, I am not directly impacted by these changes, so I can’t appeal. But, I plan to convene a meeting among impacted owners. It may serve the interest of those affected to meet in person to strategize a common approach in person. If you believe that you were adversely impacted, please fill out this Google Form so that we can start some grassroots coordination of these efforts.
Depending on the actions taken by the County officials at this time, it is quite possible that this will result in a mass tort by affected homeowners. If you know of astute property tax lawyers who may be interested in helping fight for a just cause, please have them contact me directly.
And, if you were adversely impacted by this, please put a comment below for others to see.. Are you outraged? Say so.
You’re not alone.
There is power in numbers. The county tax directors would be happy to brush this issue under the rug as one that only impacts a handful of angry peasants. But, some of those peasants happen to be people I personally know, and they’re getting totally screwed, and it isn’t right. Some of those peasants’ carefully constructed retirement strategies were just totally undermined. And some of those people may have to sell their homes.
And the 20% of ADUs that are rented for zero or far below market rates, were just delivered a clear message that providing an ADU for their aging granny or disabled adult child, is deserving of a severe annual property tax treatment that they should endure forever.
Don’t roll over and stand for it. It’s not right and you have the capacity to deal with this issue head on.
I predict that moving forward, the County will start to back-peddle on this issue, or will be told to back-peddle, and they should.
Multnomah County Division of Assessment, Recording & Taxation directors will explain that this interpretation will actually help some ADU owners. It doesn’t. That’s a lie. I’ve visited over 50 homes where owners are considering building a detached ADU. And, I can tell you, this new taxing calculation totally screws over every one of those homeowners. In a Multnomah County tax cubicle vacuum, absent from any actual ADU development trends happening on the ground, they will say that this tax change could lower some people’s taxes. But, in reality, when you do the math on properties where people are actually considering building ADUs, it screws over every one of them. It is damaging to every prospective detached ADU site I’ve visited in the last two months. It screws them over just like it screws over the owners in the examples shown at the beginning of this post.
The tax directors have no idea of how damaging this policy is for the future of housing in Portland. They are acting completely out of alignment with the rest of the State and their parent agency, the State Department of Revenue, and are obfuscating facts behind these policy changes. They are falsely claiming that this is how they’ve always re-calculated taxes for properties with ADUs. This is patently false. See my example of how ADUs have been treated as “improvements” in the past.
Is that evidence not solid evidence enough? I challenge the County to identify a single example of where the addition of a detached ADU has increased property taxes by more than $3K before this year. Find one example. Please. If the County directors are telling the truth, and this formula has always been used, then plenty of properties with detached ADUs would have experienced a $3K tax increase in previous years.
No, they won’t be able to find a single example of such an increase prior to this year, let alone an increase of $4K, $5K, or $6K. Why? Because this method has never been used before.
Is that not solid evidence enough? Then, do what I also did. Ask any staff-level assessor and they will tell you that this is a new formula for the County as of this year.
It is beyond me to understand why the directors are making the claim that this is the way they’ve always conducted business. It’s a new internal policy, and that’s that.
But, more importantly than exposing the lies being perpetuated by the County Multnomah County Division of Assessment, Recording & Taxation directors, we need to stand up for a just resolution and uniform financial restitution for every citizen who is being adversely impacted by this change.
The Chilling Effect
Unfortunately, this perverse new tax calculation will put a chilling effect on detached ADU development until the issue is fully resolved by the County’s elected officials, or is corrected by the State Department of Revenue in a legal rulemaking process which could take years.
Or, thinking optimistically, perhaps there’s still time to put a stop to this madness before property taxes come due. Perhaps the County’s elected officials will come forward to intervene before the tax letters are officially sent out or at least before it’s too late for them to stop the impending detached ADU-killing-tidalwave that has now crested.
I don’t know where elected officials in Multnomah County stand on this issue. For all I know, they still have no idea that their tax staff directors went rogue and disregarded the state’s own interpretation of the state’s own tax code. I’ll leave it to the elected officials to determine whether the responsible county tax directors responsible for this decision should be permitted to retain their current positions of huge authority.
But, if the County proceeds with this outlandish interpretation, elected County officials will have to awkwardly attempt to justify why their highest staff are entitled to ignore the State’s statutory guidance on this matter.
It is also likely that the Multnomah County Division of Assessment, Recording & Taxation will ultimately spend thousands of hours correcting these mistakes, which will make for a very miserable workload.
I bet many of you readers who were adversely impacted by this ADU tax change would have far preferred to have a dental surgery for $6,061 than to suffer through what the County has now done to you. At least there would be a point to dental surgery. Unchecked, this tax change helps no one really, not even the County. And for those impacted the worst, it will slowly pick away at your pocket book over the years like unmitigated tooth decay.
I don’t believe that elected County officials are responsible for this mistake, but unfortunately for them, they are politically on the hook to help fix it.
What To Do About it
If you were adversely impacted by these changes (a $2K+ tax increase), reach out to the elected officials at the following addresses and request an explanation. The elected officials need to understand that citizens won’t stand for this irrational punitive tax treatment for those who opted to develop a little flat for granny out back.
Deborah Kafoury, Chair
Term ends: December 2018
Jules Bailey, District 1
Term ends: December 2016
Loretta Smith, District 2
Term ends: December 2018
Judy Shiprack, District 3
Term ends: December 2016
Diane McKeel, District 4
Term ends: December 2016
Rod Underhill, District Attorney
Term ends: December 2016
(Update: 11/2/15– Part II to this post is now posted)
Does this new tax apply to the conversion of a detached garage into a detached ADU?
That’s what I feared. We have an ADU about to start construction. We plan to use it for my aging parents. It was onerous enough to get the financing…and now this?!
By “conversion” is it meant that the garage is no longer used for autos? We planning building above (Id consider that an addition) the existing 2 car garage of our son’s home. Will that be impacted by this new interpretation of the rule?
Great info Kol. I know a property tax appeal expert, if you want to be in touch with him please contact me. Thanks.
I know the article stated this is for detached only, so I am hoping my attached garage conversion I am about to get final on is exempt! This is scary!
“If your property value has increased by more than 3%/year since 1997, you don’t want your property to be re-MAVed.”
I don’t think this is accurate. The question is whether your property value has increased by more or less than the average rate of property appreciation in Multnomah County.
That’s the point of the Changed Property Ratio, which changes every year based on the countywide average of AVs/RMVs. For people in former redline neighborhoods in inner N/NE that have risen very rapidly in value since 1997 (blue on this map), reverting to the CPR is a very bad deal. For people in inner SE and other neighborhoods that were more white working class in the 90s, (blue and green on this map) it’s a semi-bad deal. For people in Southwest and outer East where property values have stagnated, getting the whole property reset to the Changed Property Ratio would actually be fantastic. The county’s new practice is actually a major boon to ADU development in those parts.
For people in in-between neighborhoods (south of Powell, 52nd-122nd), it’s not a huge deal either way.
This is, I think, a special case of the problem discussed here.
The problem, of course, is that land values in the central neighborhoods have inflated so much because there’s a huge housing shortage in those neighborhoods, and ADUs are supposed to help solve that.
Another aspect of the problem is that financing ADUs is so hard. A large percentage of the people with enough capital to even consider building ADUs are people whose properties have inflated rapidly in value, thus making them big losers in the case of a re-MAV.
But unless I misunderstand things, this isn’t really an attack on ADUs as a class. It’s a manifestation of our fucked-up property tax system that happens to be falling on central neighborhoods for a change rather than helping them.
Thanks for the further analysis, Michael.
The redlining of taxes in the close-in NE neighborhoods is the only reason I’m a homeowner and, I imagine, the only reason there’s any cultural/income/ethnic diversity left in this area. I don’t know how typical my situation is, but it can’t be unique: I have a small house on an R5 lot, bought in the 90s. The house itself now has almost no resale value–the day after I sell, it will be torn down and replaced with a bigger house for richer people.
I could have built a single detached ADU that would allow me to house a family member who currently rents. If this new tax stealth-attack is for real, that option is now off the table. The State would tax me out of my ability to stay here.
As a non-car-owning retiree, this would literally force to move to another city (I hear the winters in Fargo aren’t so bad what with global warming and all), since I couldn’t manage a life out in the “affordable” suburbs. Again, my selling the place would result in one more big-box house–at most, two more big-box houses–on the lot.
Remaining choice: sit here in my itty-bitty old house and huge overgrown side yard until they carry me out in a bag. It works for me, in a stagnating kind of way, but creates no gain in density, diversity, affordable housing, OR property taxes.
That is similar to my situation. I live in a 1950 built house that is only 650 sq ft. I was in plans to build a 450 ADU to live in and rent out my house. It would have supported the local economy, provided someone housing amdand me a bit more secure future.
Thanks so much for putting together such a comprehensive account of this and steps towards how to fight back against it. I will definitely be sending all our past and current ADU clients to this post so that they can understand what has been done to them and what to do about it.
The most obscene aspect of this entire article is not the tax increase, it’s the fact that someone that owns a nearly $400,000 dwelling has only been paying $1200 a year in taxes when so many with a house worth half that are paying two or three times that much.
I agree that the disparity in tax has been appalling. I own two homes: Inner NE and SW Portland. They both would sell for similar price on the market, but SW home is 600% higher property tax. I’d love to have the SW one be less and the NE home be more. I really would. But no matter how you shake it, a sudden increase of 500% or so is a shock to any family’s budget, even if historically the disparity in tax rates has not been fair.
Can I get an Amen! My house/property value has been at around $350,000 before I added an ADU and no where in my last 20 year tax history have they ever been close to $1200 a year. It’s a shame that they skyrocketed so high, that seems unfair. But damn I can’t believe that they been paying that little in taxes and I’ve been paying so much more for so many years with a house worth the same.
It’s great to see the lively discussion here. And thank you Kol for all your work on this.
There are so many aspects to this it’s hard to even start talking about. Like in the real big picture, this screwy situation, where there are essentially different tax rates in different parts of town, has its roots in the long-term effects measure 50 and its predecessors. It’d sure be simpler if those things hadn’t passed. On the other hand, if property taxes had increased along with market value, I’m in a situation similar to Ann. I don’t think I’d even be able to live here. Portland might be further along its gentrification path than it is now.
But from a practical, here-and-now perspective, I should say this: this tax policy change pretty much kills the promise of ADUs as affordable housing. The social goods that come about from ADUs, as I’ve reported before, come from the fact that homeowners feel like they can be flexible in the way they use them — they can choose to rent them to granny for $100, or to a friend, or to start a business in one. They are not tied to the market. But these large tax increases will basically force anyone with an affected ADU to make it a full-out market price rental. Not to mention, they will discourage the creation of ADUs for anything but use as full-market price rentals (or short term rentals, which can be more lucrative).
I personally plan to write a letter to county commissioners, FWIW.
Martin, how can this property change kill the promise of ADUs as affordable housing if it makes it significantly cheaper to build an ADU throughout Southwest Portland and much of outer East Portland? Unless I’m mistaken, what it does is kill the promise of building ADUs in inner N/NE.
I’m on 82nd and it killed my plans. I pay $1,400 now for a piece of crap 650 sq ft house and regular lot but I’m in a green zone so my taxes with am ADU would hit about $5,000. I could still build and charge $1,500 rent but don’t see how that contributes anything beneficially other than the county. If everyone had their taxes reassessed it would be different and I’d be less outraged.
Hi Michael, sorry I missed this before. I’m going to have to revisit your argument about the CPR and its applicability to those neighborhoods before I make a decent response. But for the time being, I would just note that there doesn’t seem to be as much demand for ADUs in those neighborhoods… https://accessorydwellings.files.wordpress.com/2013/05/slide5-1.jpg . More later!
I haven’t read this whole page yet, will do so tomorrow. Just my initial reaction – we literally signed the paperwork yesterday to refinance our mortgage and get the funds to do an ADU conversion of our detached garage. The primary motivation is a guest house/potential future home for my parents, NOT RENTAL OR AIRBNB INCOME. I had pretty much decided if we did rent it, I was going to rent it for a low price to a low-income family in need. Basically upon finding out that our property taxes could skyrocket like this I am going to either decide to scrap the project altogether (most likely scenario) or do it and rent it out at exorbitant prices like everyone else in Portland. This sucks. I feel sorry for all the people who got screwed already and all the people who have been making this their business for the past few years.
Yes. My taxes went from $1900 to over $7000. Crushing my budget.
wow… that is such a bummer! That is over 350% increase. No warning at all?
No warning. I will try to appeal, but I’m worried about the process. If anyone else is planning to appeal maybe we could chat. I knew there would be an increase and somewhat of a correction but this seems crazy.
Super upset about my increase $1900 to over $7000.
Sorry for the duplicate post.
Thank you again to the Portland OR ADU team! Such important information. The Madison WI ADU team will start preemptive action to make sure this does not happen here.
We just completed our detached ADU here in far SE Portland. Our taxes only went up $69 from last year but I’m suspecting that is because they have not taken the ADU into account. Also, our taxes are already on the high side ($4500) so I’m wondering if we are in the “in-between” neighborhood that Michael mentions above and that this won’t affect us like it has some other folks.
What gets me is that it seems like a common misconception is that all detached ADUs are built by greedy homeowners trying to make a fortune gouging people with Airbnb rents. My experience is that most folks just want to put their property to work either to house friends and family or make some extra cash to help with retirement, sending kids to college, etc. The high price of rentals and airbnb overload is a serious problem that this change will only exacerbate as folks will have to raise the rent to cover taxes.
I really feel for those people who are dramatically affected by this change. Hopefully the appeals process will set things right. I’m an architect with several ADUs in the pipeline and have just in the past day received word from a couple clients that their enthusiasm for the project is wavering.
Would it make sense to write a joint letter to the important people Kol lists above? One that we could all sign? Or is it more powerful to bombard them with multiple letters, emails, etc…?
Thanks Kol for your work on this.
I spent the morning talking to assessors at the county. I was just told that as of right now, any property improvement–not just detached ADU’s –that triggers an exception event will be “re-MAVed’ by increasing the AV to 59% of the new RMV of the total property. I have a feeling this person is misinformed but that’s what they said. I replied that something has very recently changed in their calculation methods and they agreed.
The bottom line is I cannot proceed with my ADU project until this gets resolved.
Same boat. I was just gearing up with an ADU project. Now dead in its tracks….
Wow, John, that seems like an even bigger issue. I guess the question is what kind of work triggers an “exception event” according to the county? Kol’s article gives the state’s interpretation. Anyway, I can imagine that all sorts of work will go underground and unpermitted in order to avoid any experience with the assessor.
There’s going to have to be some clarity on what constitutes a ‘Change of use’ – which triggers a re-MAV of the entire property. Because this could potentially extend beyond the world of ADUs. It’s probably something for tax court to decide, if politics doesn’t get to it first.
I think there is a major flaw in the County’s approach, from a legal standpoint. The idea that “change of use” is a trigger comes from an interpretation of the Constitution, not the Constitution’s language itself. just says counties can re-MAV if “the property is rezoned.” None of these properties were re-zoned –the zoning designations have been exactly the same for dozens of years. MultCo is arguing, I guess, that Portland allowing detached ADUs is equal to a rezone. But the constitution says “is,” not “like” or “the same as”. That’s a very big difference.
I actually think the state’s position is incorrect, too. The quoted letter from the State Revenue office says they think rezoning means “either a change in the zoning designation…,or a change in the uses permitted under that designation.” I’m sorrry, but a change in use is not a rezone. No new uses are permitted by allowing ADUs. Portland’s use table in their zoning code classifies what happens there as “household living” regardless of how many people or units exist on one property. It’s all the same household living use–even apartment buildings fall into this use category. Intensifying the residential use of a property, to me, doesn’t trigger the threshold of a “rezone” that is a necessary precondition that would allow counties to re-MAV a property.
That happened to us on an addition to our house last year, so I think this is correct – it’s not an ADU focus, but they get to significantly up the AV.
Hi Kol… thanks for this info. Sadly, it might have taken the wind out of my sails. I grew up in NE, and my home there has really low taxes. I would TOTALLY absorb a rate increase of, say, 300% and think “that is reasonable or fair”. If $1200 becomes $3600, no worries. But it looks like it’d be more like $6000-$7000, and that makes the entire project pointless. I was really excited, met with an architect, talked to a couple contractors, and was just about ready to do the “all systems go” thing. And now I’ve come to a screeching halt.
I currently live in SW Portland, and the NE home is a long term rental. My intention was to have two rentals in a great spot (main home + ADU). I pay $6500 in taxes in SW. Its really unfair the way the taxes are distributed. I get that, and I’ve always maintained NE should now pay more, and SW should pay some less. Homes in NE that get away with $1500 or less tax really are no longer fair in any sense to the rest of the county. That said, using the building of ADU’s as a backdoor way to bring homes up to now inflated market rates so suddenly feels disingenuous on the county’s part. They are going in direct opposition to what the City is encouraging.
I guess I’m just wondering if you see this issue resolving itself within months, or do you think this will be a drawn out, years long, process? Do you think the City will use any political relationships to try to get the county to come back to earth and stop having a policy that simply stops the building of ADU’s? I like the idea of of the land value being recalculated, but if my creaky old 1904 home is going to be treated as if its new construction along with the ADU, I guess I just won’t do it.
A problem this will likely cause is people trying to do work arounds with other more obscure permit titles, or just no permits at all. Seems like a really bad direction. Feeling pretty bummed at the county’s actions….
Hi Kol. Thank you so much for the well-written article, expansive research and your advocacy.
Here is our story: Our architect was going to submit our plans to the city next week. I JUST sent him an email to hold after reading your article. Our taxes in SE Portland are currently $4500, a reasonable amount, and we anticipated that the ADU would increase our property taxes to ~$6500, which we think is fair. But with the new equation there is NO REASON to build an ADU as we couldn’t recoup our investment. I believe we have invested over $6000 thusfar. With the cost of the architect, structural engineer, property survey, appraisers, and closing costs on HELOC + re-fi.
We have beautiful drawings from our architect, that have a structural engineer stamp, and ready to go to the city for permits but with this new county tax assessment info, we wouldn’t be smart to go forward.
We asked our architect if it is easy to take out the kitchen sink and then proceed with a detached second bedroom, but his response was consider the cost benefit analysis if the BDS fees on the detached second bedroom are not waived then it may be a wash. Thoughts on detached second bedrooms?
Thank you again Kol! See you at the 7/7 ADU tour.
I meant the “11/7” ADU tour (not the 7/7 tour). – K
Same here, I’m putting on the brakes on the ADU that my architect is designing until/unless this becomes more reasonable. I’ve written to all the County commissioners in the hopes that they will see the error of this decision. Jobs alone for all of the ADUs being constructed will be impacted – architects, landscapers, arborists, contractors, etc.
Well, there’s goes the ADU that I have in the design process. No way I want to move ahead with a property tax increase like that. Makes no financial sense. Way to go Kol for the excellent post. Way to go Multnomah county for killing ADUs.
Did anyone have any clue this was coming? I’m pretty shocked! I would still have built mine, but I can’t believe they can raise the taxes like that without a heads up! I’m a single mom of 2 girls and this puts my finances in serious jeopardy!
City Council will be reviewing administrative rule changes for ADU’s on November 12, 9:45AM at City Hall. I wonder if it would be a good idea for people to attend the public hearing and weigh in on this issue.
The county does the taxes, not the city but I intend on going to give light to how this is a bad policy.
That’s true but the city is pushing ADU’s and will be a strong ally. Especially when they see that a large number of their constituents are extremely pissed off and planning to cancel their building projects.
Those of us in the planning stages also need to rise up. The funds I’ve spent already are now gone. And the future tenant I was going to have, that would have been paying a respectable rent, will now have to settle for an overpriced, corporation owned apartment.
Speaking as someone who plans to build an ADU as a long-term rental, the re-MAV of my single family property would cost $1300 in additional taxes above the costs added by the ADU. Not a deal-breaker, but also not ideal. I plan to continue with my project.
I come from states that re-MAV every few years and so go along property values — the examples posted in this article were getting an extremely good deal on property taxes. For them, the hit is hard, but it’s business-as-usual in most states.
If the county is only re-MAVing for home improvements, I agree with that policy in concept. Improvements means home value is going up significantly and the county should tax accurately on property value. I do not agree with how the situation was handled nor their lack of transparency as an organization.
I’m getting out the popcorn for this one.
I had an architect working on the design of my garage ADU. If I have the calculation right my tax would rise from $6,540/year to ~$14,209/year, an increase of $640/month which essentially kills any financial incentive to create the ADU.
My architect’s suggestion is to switch the design to a “detached bedroom” without a kitchen. This would still allow it to be used as a guest room or as an AirBnB rental. It does however elimination any possibility of renting it out.
Ah! I think is miscalculated this and it possibly changes everything. I understood the new assessed value to be the total RMV value. However I need to multiply by 0.59411 .
So recalculating: My present RMV (without an ADU) is $550,970. My present MAV (called “assessed value” on my tax statement) is $276,550. So the house re-MAV (without ADU value) would be $327,336, an increase of only $50,786. That would increase my tax bill from $6,539 to $7741, an increase of $100/month.
I live in Irvington in the NE and it seems that the assessed values are already very close to market rates. I I suspect that rental ADUs in this particular neighborhood might still make financial sense.
I plan to approach Multco Assessment and Taxation and request a clear statement of what improvements trigger an Exception Event and a detailed description of the recalculation of Assessed Value. I feel that the intent of the law, which was written to protect owners from sudden unmanageable tax increases by imposing the 3% limit, would allow assessors to include the market value of the improvement adjusted by CVR but not to suddenly increase the AV to include the real market value of the total improved property. I understand that governments throughout Oregon and Multnomah County in particular are struggling to meet their budgets but there must be a way to reconcile the needs of government and homeowners.
I’m interested in compiling a list of recently completed and assessed ADU’s. If you have one and are willing to contribute your data please send the following: Project description: neighborhood, size, footprint, # stories, # bedrooms, assessed RMV, other relevant info. Send to: email@example.com. Thanks!
Readers who are being impacted by this change, I can’t express how important it is from a civic standpoint for you to share your experience as well. Public officials are reading this.
Commenters, whether you’ve been screwed by this, or whether you would have been screwed if you had proceeded, thank you for sharing your experience.
On that note, I’ve updated the post by adding clarifications to several sections.
1) In ‘Were You Adversely Impacted by This?’ I’ve added a clear explanation of how to simply calculate your property tax increase under Multnomah County’s new twisted formula.
2) In “The Commonly Used Method for Increasing the Property Taxes after Adding an ADU”, I’ve clarified the what the change would have been for Example 1 under the common used tax method to adding an “improvement”.
3) In “STRIKE TWO for Multnomah County”, I’ve provided an analogous zoning change about bike storage that should help clarify what the County has done regarding taking a residential site design change and calling it a “rezoning”.
These three updates well help spell out some of the more confusing aspects, and hopefully off-set the number of emails from homeowners I’ve worked with who are in the design phase or just about ready to submit their architectural plans, but are now deciding to put everything on hold. This is the “chilling effect” that I was referring to in “STRIKE THREE for Multnomah County”.
First I want to thank Kol for a precise and well-research posting.
This is my own story: My mother-in-law who is in her late 70s and living by herself in a different state, has been considering moving to Portland. At the beginning of the summer, 2015, we looked at the increasingly derelict and unused detached garage in the corner of our 50 by 100 foot inner SE lot and thought the obvious: we could turn it into a “granny flat.” In June we started working with a couple of excellent and very patient architects, meeting with the City of Portland, and reading and rereading the changing ADU regulations in Portland (which, by the way, are intended to simplify regulations to facilitate new housing in the city). We now have gone through a couple of rounds of designs and intend to file for building permits in January, 2016.
I should acknowledge that our contact with the City of Portland Department of Development Services—I think her name is Amanda–has been superb. When we met with her, she very honestly and clearly walked us through the permit process and informed us of problems with our design. Very much the engaged professional, she then gave us feedback we’ve followed to address the permit issues in ways that actually enhance the design. I suspect that most people who have gone through the ADU process would attest to how complex it is. In my case, without the support of the City of Portland (and definitely the architects), I think that I would have walked away from an expensive and draining project. In the background for me one of the “cons” of dong a project like this has been the unpredictability of the process and the nagging fear of unexpected bad outcomes. Working with the City of Portland in an open and transparent manner has helped me to become informed and confident that no hidden surprises lurk somewhere beneath the surface. What I’m saying is this: It is essential in doing a project like this to be able to trust our representatives in public regulatory agencies. For me (and I suspect others) this trust has been a bedrock foundation to adding an ADU—which, importantly, is ultimately in the public good.
Part of this trust for me has also involved the calculation of property taxes. While not a tax specialist, I have been aware of the pattern of increases in property assessment and taxation that have resulted from the addition of a detached ADU in Portland. As Kol delineated in his posting, since 1998 (until recently) these increases have followed a formula stemming from Measure 50 tax law in ways consistent with policy established by the Oregon State Department of Revenue. Now there is a new and highly problematic interpretation of this formula by the Multnomah County Division of Assessment, Recording & Taxation. In my own case, following the formula given by Kol, my own property taxes would rise from approximately $3,000 dollars a year to nearly $9,000. While my estimated increase might vary by a few hundred dollars, I have to assume that an exorbitant increase would occur.
This increase would definitely doom this project. Even the possibility of this increase will lead to a decision for us to not build the ADU. Yes-I can still add a couple of basement rooms and a bath for my mother-in-law. And this basement space could actually be quite nice. But instead of having a small but charming backyard apartment, she would be in a small but charming basement space which would present serious mobility issues for her and decrease her independence and quality of life.
I would also like to point out possible unintended outcomes with this new taxation formula (to state the obvious, perhaps):
1. New and much needed new housing in Portland will not be built.
2. Given a significant decrease in the construction of new ADUs, the tax formula intended to increase tax revenues would become counterproductive and lead to a decrease in taxes for the County.
3. Elderly people who had hoped to move into “granny flats” (yes—this does happen) will no longer have that option and thus lose quality of life.
4. Non-elderly people will also lose this housing.
5. ADUs that are built may a) become Airbnbs to pay the taxes, further decreasing the number of housing units getting built and resulting in higher rents for tenants or b) demand higher rents in proportion to the higher taxes. Rents go up not only because of “supply and demand” forces, but also operating costs.
Finally, I want to say that I have no doubt that the people with the County who have introduced these changes had good intentions to increase tax revenues. However, I have to conclude that instead of increasing revenue, they will result in a net decrease. But perhaps more importantly, this is a human issue, and this decision will lead to a decrease in existing housing and an increase in housing demand for renters. The solution is simple: return to the original tax formula which is consistent with State law and for which there are long established precedents within the County.
Thanks for the detailed information. I’m in the early design phase of a detached ADU project. I’d chosen to add an ADU to my yard rather than take an easy rount to sell my house and move to Washington, because I love my N. Portland neighborhood and Portland in general. Based on what’s happening within two blocks of my home, if I did sell, this house would be immediately torn down and replaced with a McMansion or row houses. Instead, I sincerely want to be part of increasing density while preserving the nature of what makes this area great.
I’m a single mom with a kid heading off to college next year. I intended to stay in my small house until I’m sure college is working, and then move into the new ADU. I plan to live there for the rest of my life: I’d be a block from public transportation and close to necessacities and medical care. My currrent house (a solid 1947 small structure) would be preserved in a rapidly changing area–in other words, density, minimal impact for added living space, maintaining housing diversity (vs a tear down to create one of two extremes: a super-expensive, huge single family home, or a super-expensive set of tiny apartments), and age-in-place housing. I’d be able to better support my retirement, making me less of a potential future burden on the system.
This new taxation spits in the eye of all that, and in all that is sensible and well-meaning about ADUs. I’m hard-pressed to believe I’m still making a good decision in sticking with the plans, vs. moving to another state. That’d end up being a big loss to me, my family (I’m trying to ensure my future so my family isn’t stuck with my care some day), the county, the city, the neighborhood, and the people involved in building a new structure.
This is grotesque, and the lack of parity is appalling. Tax abatements for high-rise, high end apartments, but huge increases for a hew hundred square feet for me to grow old in? They should be so ashamed at this low-ball money grab.
I expect this will be fought up into some very high courts if there isn’t a very quick reversal of this regressive and unfair taxation.
Thanks, Kol, for all your efforts.
I am considering building an ADU in 2016. This tax change may change my plans.To whom should I write, to voice my concern about this issue?
We are about to complete our ADU and my mother will be moving in and renting out the main house. As a single woman, the ADU is a much more appropriately sized space for her, supports aging in place better than the main house, and will provide some housing cost savings to support her in retirement. While we fully expect and are supportive of an increase in the real estate taxes related to the improvements, I am disturbed by the lack of transparency and clarity by the assessors, the surprise and unprecedented change in tax treatment of detached ADUs, and the effects this is having on recent ADU builders and those going forward.
I would also like to comment on the posters who have commented on the low tax rates paid by some. This is not the forum to debate the merits of Measure 47 or Measure 50. Tax rates are set by legislators and not taxpayers. Those paying relatively low taxes did nothing to reap this benefit except choose to buy a house in a particular neighborhood that happened to be more affected by these measures than others.
More relevant is that a tax increase of 500% or even 200% without warning and with a completely different interpretation of the law without any actual change in the law, is against public policy, probably not legal, and reeks of an underhanded and sneaky way to try to squeeze a few additional dollars out of the tax system. Any home owner considering building an ADU would have expected to pay an increase on the improvements, in the same way that the improvements have been treated for tax purposes for the past umpteen years. No home owner would have reasonably expected an entirely different approach to the tax treatment and recent builders had no warning or opportunity to make informed decisions about whether building an ADU made financial sense given an individual’s circumstance. I know that an additional $5,000/year expense would have significant budget ramifications for myself.
Going forward, not only are potential builders not moving forward with projects due to the concern around a much greater tax increase than expected, even those whose properties are already assessed closer to their market value are very skittish about moving forward – anecdotally it seems to be because they either don’t understand the formulas well enough to understand that their specific property taxes would not actually increase 500% and would be a more modest increase, closer to the value of the improvements; or because the lack of transparency, unpredictability and seeming irrationality from the assessors office is enough cause for concern regarding other unexpected changes in tax treatment. This seems to be an irrational approach by the assessors, as many ADU projects are getting the brakes applied, not built at all, will be built without permits, etc. which will be lost tax revenue.
The city needs more housing, more affordable housing, and housing that supports sustainable development. This change is completely contrary to those goals, public policy and as one poster said “a low ball money grab.” I ask the county to make this right by reversing this tax treatment and being transparent in its approach.
I have recently lost an ADU client over this tax issue.
It changes the whole realm of feasibility.
Here’s hoping we can get holler at MultCo enough to get them to change course.
We just bought our home with an ADU a year ago. Our taxes just jumped from $2,000 to $8,000! We were prepared for our taxes to jump to $5000 but never expected $8000!!!
We support renters rights and believe in affordable living for everyone. We cant afford this tax increase without having to displace our ADU family member/renter. We are being forced to Airbnb our space…even then…it’s not worth it!
I’m facing the same problem. Detached ADU completed Feb. 2014. Taxes doubled in 2014 from $2200-$4400, when I opened my 2015 tax bill last week and saw the increase to $7300 I was shocked.
As a home designer who has done 15 years of work within Portland, here is a “simple” solution: Attach the structure to your house. This can often be very simple. One time when I asked plans examiners what “attached” meant they replied “More than an I-joist”. In some cases it may be as simple as running a short roof from structure to structure to attach them. Attached doesn’t always mean completely enclosed. Unfortunately this part can be up for interpretation. But in my experience “attaching” is usually pretty low key. Not to sound too spammy but I’m willing to do some brief free consulting for anyone who is in this predicament since this new ruling could affect my business if it sticks. Hit me up via istockhouseplans.com or at firstname.lastname@example.org. I’ll need your property address to check satellite photos and then I’ll offer a few solutions for your unique case. If you want drawings done then we’ll talk rates. But if I don’t have to leave my desk, no charge.
Hi Brian – just a quick comment. While I appreciate that there might be some “easy” solutions for those contemplating ADUs to avoid the tax issue, there are many properties where an attached ADU doesn’t make sense or wouldn’t work at all. In our own situation, we did a garage conversion and therefore an attached ADU wouldn’t have made any sense given the lot layout and the fact that we had an existing structure to take advantage of. The existing structure was also within the setbacks (which is legal for garages and conversions meeting certain requirements) and therefore doing an attached garage would’ve meant we couldn’t have the ADU within the setbacks and would’ve had to cover up bedroom windows on the main house to do it. If you look at the ADU projects on the accessorydwellings.org website there are many that were either conversions or given lot layout and existing structures just wouldn’t make sense for an attached structure. Given how few attached ADU structures I see profiled on this website, it seems that attached ADUs (that aren’t attics or basements) are a solution that will only work for a few builders. Thanks for offering solutions but I think the solution won’t apply to most.
The point I was making is that even after the buildings are built, you can use easy solutions to consider them attached in the eyes of the city. Don’t think about a truly built-in type garage. Like I mentioned, it doesn’t even have to be an enclosed connection. If that still doesn’t make sense then hit me up privately and I can give you some specific examples to your property. I love a challenge and I’ll bet I can give you at least 2 ways to “connect” your structures.
I immediately thought of the same issue. But, after researching that with the County, I have learned that it generally won’t work. While the City deems a breezeway an “attached ADU”, the County does not. They require an “attached structural wall” to have the ADU be deemed attached. Detached bedrooms may be the next logical “workaround” this issue.
Much more importantly though, any workarounds being discussed is basically conceding to the interpretation that the County tax directors have instituted this year without any public notice, explanation, or justification.
Furthermore, even as of today 10/27/15, I learned that the County tax directors are still insisting that this re-MAV is not new. I can’t believe that they are still saying that given the evidence laid out in this post. In fact, since learning this, I am now planning to share evidence with the elected county officials that this formula is new. I assumed that they had read this post by now, but perhaps they haven’t?
I am firmly of the belief that we must work on fighting back against these changes, rather than to start conceding that they were justifiable changes in interpretation in the first place.
Left and right, I’m receiving emails like this one.
“Thank you for posting this. I was in tears when I spoke with the tax assessor this morning because I thought there clearly must have been some mistake made on their end when I opened by tax bill on Saturday. The increase is debilitating to say the least. I may be forced to sell my home because the increase is too much. I wouldn’t have pursued developing an ADU if I knew my property taxes would increase this much. Please let me know if there’s anything I can do. Thank you.”
It is so reprehensible it is making me sick to my stomach.
I agree that my workaround could concede that the county is right. However in a worst case scenario, I’d rather be prepared. If this is going to take 3-4 years to sort out, it might be nice to only have to deal with the high bill for one year while implementing a solution and having it reassessed. But I hope for everyone’s sake that this is hammered down quickly and resoundingly.
Is there any class action movement to take legal challenge of these onerous and unexpected property tax increases? I’d like to participate. Thanks
I’m an architect and also own an ADU. I believe the folks with the huge increases were initially being under charged on their taxes. After the ADU was complete and they had their taxes reassessed, the existing house’s value was appraised along with the ADU and the value corrected. Not sure, but is what I suspect.
Since I had recently refinanced and my taxes were already over $3500 annually, the hit I took for my new detached ADU was only $2400. That comes to $200 a month and easy to swallow as a rental income. I can also clearly see that that the increase in assessed value was around $110k, which is pretty accurate.
Those who aren’t planning to receive income from the ADU and are concerned about the property tax hit should consider not building them as an ADU, but instead as a detached secondary structure. They should also understand that if they are getting a building permit and receiving construction financing, they will likely have a new tax appraisal on their property anyway.
Dana – I think there are a couple incorrect or misleading statements in your post. Although there are those with lower taxes than others as compared to the real market value or their property, your post implies that there was some error in the tax assessment and that a tax increase due to an ADU is justified. However, that is not the case. The relatively low tax amount that some pay is related to Measures 47 and 50 which basically froze the tax rate to the 1994-1995 rate for all properties (its slightly more complicated than that but accurate enough for this purpose). This has impacted different neighborhoods differently over time as certain neighborhoods’ property values have increased more than that others but the tax increases are capped and therefore the taxes have not necessarily risen the same as they related to the market value of the property. While you may or may not agree with Measure 47 and Measure 50, I don’t believe a homeowner should get hit with a 500% tax increase (or more!) simply because they add a detached ADU. How is it fair that someone who adds an attached ADU or an additional bedroom would simply pay an increase on improvements while someone who adds a detached ADU gets taxed on the current market value of the whole property which might result in an enormous increase without warning? While, I think everyone agrees that a property owner should be taxed on the improvements they make, there is no sound legal justification for increasing the entire property’s tax to current market value. Everyone else in the county is paying taxes on the 1994-1995 rate (plus yearly increases of a max of 3%/year) yet the person who just added a detached ADU is going to pay tax on current value.
The other point you made was that homeowners who “are getting a building permit and receiving construction finding will likely have a new tax appraisal on their property anyway.” You’re implying that anyone adding an ADU or getting a building permit for improvements will be getting a new tax appraisal on the improvements but you are ignoring that fact that the tax treatment for detached ADUs v. attached ADUs (or those adding square footage or other improvements) is a radically different approach between the two. Again, I don’t think anyone here disagrees that getting a building permit and completing improvements (I don’t see how construction financing has anything to do with it) should not result in being taxed on the improvements themselves. However, treating a detached ADU radically different for tax purposes than an attached ADU with no warning and no precedent is simply against public policy, likely not legal, and not sound judgment by the assessor’s office.
My wife and I have invested several thousands in the planning of an ADU in inner Southeast Portland which would be my living space — not a rental. Unless this tax picture changes, we will not be able to proceed.
I mentioned upthread a little bit that “attaching” the structures will nullify the tax issue. Talk to your architect or feel free to contact me about how to do that. email@example.com
We built a detached ADU for my mom. It is not a rental. We spent roughly $75k to build it. That includes permit fees, architectural designs, etc. This week we got our new tax statement in the mail. Our taxes increased $5200 (more than $7000 bill). The property taxes more than tripled. Before we built I did research to see how taxes were computed on detached ADUs. We expected a $900 – $1200 increase. $5200+ every year for the rest of our lives (more with inflation) is life-changing money. The thought of selling has entered my mind. Everyone impacted needs to fight this. I know I will be with you.
We turned all our paperwork in to the city to get permits for a detached ADU a month ago. We have time to see if this tax increase is sorted out. The ADU is for my brother with Downs Syndrome when he needs it after my mother cannot take care of him. Should we contact the permit agency to stop from going forward with permits? We do not want to go ahead with construction if this is the new tax code for ADUs
You have time to let your permit go through the process. Likely you will get a checksheet and you can take months to respond to it if you want. Once the permit is approved you can wait months to pick it up. It costs you nothing until you actually get it. There is no clear information that I’ve found on how long you can wait but I would not go longer than 6 months on each of the steps.
Im in process right now (we started just a week before the tax information came out) of building a accessory unit on my property. My garage was falling apart and it seemed logical that instead of doing another garage only to make it a studio with a bath for my mother with potentially putting in a kitchen down in the next year if she needed it. She will be living there off and on during the month outside of her travel for work. We had thought to do airbnb on the week she is not here to keep the unit used and we (my husband and i live int he main house) enjoy meeting travelers and have heard some good experiences from neighbors. We are in NE alberta area. I expected a small tax increase with the new renovation but nothing like like this! Im really scared. There is no way we can absorb the financial impact of such an increase.
Another thing that has happened is that next door to us a nice old 1920 house. Our is 1911. Just got torn down and sent to dump and now two three story skinny with ad in the first floors!!!! are being built! So now all my south sun is gone all is see is a huge building and most of my plants are dead already. Not to mention my energy bills going up due to no sun on my house.
Really upset and not sure what to do. MY construction is in process and no turning back now.
I’m sorry if these two points have already been brought up, but I wanted to make sure they’re posted here in the limited time I have today:
1. Double lots: what if (like my own situation) I want to build a detached ADU on a separate tax lot zoned R5 (same ownership, lot meets all zoning requirements for size, etc.) from my house? How is that a flip from single-family to multi-family use? That is exercising my property rights pure and simple, with incremental infill for folks like me who don’t want to move.
2. Selling the property. With MUCH higher tax bill than comparables in the vicinity, this higher tax attaches a “ball and chain” to the property that prospective buyers will not want to take on, given the alternative homes for sale, with “regular” annual tax bills.
Do these two situations amount to a ‘taking’ of property rights? How is the nexus of proportional financial impact / development impacts of increasing property tax for DETACHED vs. attached ADUs justified? Where is the relationship or nexus? How can this be constitutional?
Read your article and am at a crossroads. I have spent about $8k in drawings for a detached ADU, but perhaps I should just quit right now. These new taxes would wipe out any financial advantage to building the ADU. I am so disheartened.
Mary Beth Young
Former ADU student
Wanted to jump in on ADU vs Detached Bedroom. I have a 220 sq ft fully permitted detached bedroom (not an ADU), built in 2014. The tax statement I just received was recalculated the same as an ADU. Jumped from $1,181 to $4,658. It doesn’t seem as though Detached Bedroom is a workaround. If anyone has a similar or different experience with a detached bedroom, let me know. Thanks.
I’ve been wondering whether spending more than $10,000/year, or $25,0000/5 years triggers an exception event that result in a re-MAV. Is it possible that’s what happened in your case? I’d think it would be near impossible to build an ADU without keeping under $20,000 assuming costs are spread over 2 years.
Tracy, this indicates to me that they have interpreted your detached bedroom as though it were a detached ADU, which is inaccurate.
This is yet another example of how this new tax policy will result in unfair assessments based on misinformation on the part of assessors. Because, of course, a detached bedroom looks exactly like an ADU on the outside. It takes some diligence on the part of the County to actually authoritatively determine whether or not a structure is a “ADU”, instead of a detached bedroom, detached studio, etc.
I have talked to a staffer for Mayor Hales and emailed all of City of Portland Commissioners: its on their radar and they have a hearing on Nov. 12 at 9:45am to discuss ADU’s. Hoping they will weigh in and leverage any relationship they have with Mult. Co. to bring a sensible solution to the table.
I also emailed all of the County Commissioners. Am calling and leaving messages right now. Let’s make noise!
This will cause people to charge TOP dollar or do AirBnb only, and so it harms the housing situation. This will cause many cancelled projects. 100 projects at top tax dollar, or 250 at the mid-amount? The county might make MORE $$ with more projects at lower tax levels. Also: contractors and architects will lose money…. I mean, this is really bad policy from the county.
I hope they listen.
Thank you. Everyone should start doing this.
The policy staffer for Kafoury (Mult. Co. Chair) who is assigned to this:
Call him! Email him! He’s getting lots of calls all week. He needs to hear about this. Loud and clear.
so far getting a lot of crickets from emails.
I live in NE Portland and was part of a small group who fought to make the current city policies a reality (SDC exemptions, size increase, and so forth). I paid over $17k in SDCs and permit fees, so I know how difficult it is to develop under “regular” conditions. My ADU was completed in 2010.
In Cully, where I live, there are many low- to moderate-income individuals. And, the homes tend to be on the more modest size (but with large lots ripe for ADUs).
When I built my project, the taxes doubled: from $2500 a year to over $5000. My taxes this year are $6600.
I’ve built a unique property and live in the ADU (while renting the primary residence). I’ve been fortunate in that the market has supported healthy rents, but I see the writing on the wall for others: This kind of tax burden will only serve to kill ADU development OR to further increase rents. While I ran into many, many issues with the city during development, I never once considered how the tax changes would affect my situation.
I’ve recently looked at buying another property in the neighborhood that has plenty of space for an ADU. While I can’t say this policy would kill the ADU, I can say that the math would mean I’d need to charge a fairly high rent to make it all pencil out. If the city’s goals are to “solve the housing crisis,” they are clearly at odds with the county. And, if the county wants to limit it’s costs (like having to fix bridges) they’d be smart to align with the city and work towards policies that keep higher density in the urban core. If we drive the low- and middle-income earners out of Portland, they’ll be piling in cars, driving on roads, and wearing out the infrastructure the county must maintain.
I just wrote an email to Dave Austin. I encourage all of you to do the same and more, if you can.
this is EXACTLY the issue. The county is going to cause other big picture problems by going for the low hanging fruit of easy money.
We are in the middle of an ADU project and would not have considered it had we known the county was going to gouge us on property taxes. I have written letters to all of the county chairs. Is there anything else we can do to be sure we are heard? Can we band together to finance the hiring of a lawyer who can help with this?
it really does look like this will end up in a legal wrangle. It seems like there is great legal standing to challenge the county. No idea how costly that would end up being though.
Had a long talk with Leslie Cech at the County. She also brought up statutes 308.156, as well as 308.142. Sounds like detached bedrooms are still a possibility in some cases, and that if you live in the Albina Plan area, you can do an attached ADU without a MAV event because they are allowed pre-Measure 50. But detached ADU, she says, will trigger the re-MAV because they feel they have to follow the statute… which maybe wasn’t being understood previously? Or maybe its being reinterpreted.
End of story is this: the legislature or the courts need to fix this, so the statutes are clear and do not trigger such massive tax increases. Because the legislature needs a supermajority, it would seem the courts are a more likely venue for success.
Measure 50 is a convoluted, horrible mess of a law. I am not sure how I will proceed. I do appreciate, at least, that Ms. Cech took the time to call me back, and spent 45 minutes talking to me about statutes and various details. Still, I intend to keep pressing to get answers to how we can change this. I hope someone has the ability to take this to court.
I too received a damage control call from Denise Terry from the county tax department and they are throwing the city under the bus for not informing citizens that since the city changed the zoning the county is legally obligated to do the REMAV and jack your taxes up without explanation or warning. She basically said that unless the law changes you are screwed.
Thanks Benno. Good Sleuthing.
This is the first I’ve heard of the Albina plan area and attached ADUS having different re-MAV treatment than the rest of the county. Do you know if this means that outside the Albina plan area, an attached ADU will trigger a re-MAV on the existing dwelling and land? And what is the Albina plan area?
This is getting increasingly complicated. I met with my architect last night to consider changing my ADU plans from detached to attached, but I’m extremely leery of doing so now for fear that I’ll be hit with the re-MAV. I’m not trying to cheat the county out of taxes, I just want an affordable solution that adds one more rental unit to the Portland market and provides me with an affordable way to remain in Portland throughout retirement. Thank you!
thanks great info
City folks and county folks are reading this thread indeed! I just got off the phone with David Austin (very nice guy, picked up the phone right away while he was at home) and I gathered from him that this conversation is loud and people are paying attention and we should all keep talking!
Ok, here I go… I will try to keep this short. (I read most of this thread but not all. forgive me if I am redundant.)
We converted our garage into a small house for my husband’s parents. They are old and the winters in Michigan are hard on them. Plus we have kids that they love. We rent it out when they aren’t here. Our property taxes more than doubled, which will add up to our monthly payment increasing by over $400. I’m looking at an increase of over 200% on something that should only increase annually by about 3% to 4%.
A graduated or more easily absorbed (yet still significant) increase with a nice explanation due to the surprise factor, would have been the professional thing to do. It would allow us that have already bought-in a chance to keep-up without getting behind. Could that have happened? I’m not talking about a payment plan, I’m talking about a graduated (yet still significant) increase over time.
David explained the measures to me and who approved them and why they are there and how the city (my words not his) messed up with all of their “lowered building permit incentivising discount sale that’s about to end any day now, so you better build build build!” messaging to us. That’s all well and fine but all that doesn’t really work on the new surprise problem we all got delivered to our mailboxes.
Personally, I believe in taxes and I believe in paying my fair share. I also believe in predictable safe budgets and clear financial planning. The relationship between our city and our county fucked my budget and my financial planning for the foreseeable future because some people didn’t get invited to a few meetings.
I do believe our city and the county folks could come up with a better or a different plan that doesn’t screw us all and that could still be law abiding. The appeal process sounds so far like an opportunity for an assessor to explain my bill to me instead of an opportunity to rethink or reassess my personal situation.
Nikki, thank you for this great information, and I’m sorry you found out only AFTER the fact, and that you got hosed financially. I’m the lucky one: I was about to build an ADU and all this has brought my project to a screeching halt. But I still feel very invested in seeing this snafu get worked out.
I just emailed Dave Austin, the county chair, district commissioners, and the DA. Please include me on any other efforts to correct this policy change.
We completed our detached ADU this year, and are living in it. Our plan is to continue living in it in our retirement. Our taxes went up from $5652 to $9164, an increase of $3512. We were prepared to pay taxes on the added value of the ADU but are unwilling to accept having to pay Multnomah County’s illegal, wrong, and unprecedented NEW formula of raising the land and existing house value up to Real Market Value. We want to challenge this assessment and are willing to be part of a class action suit.
We are ready to picket their office!
Wow. Now yours is a case that is beyond ridiculous. You weren’t paying the low $2000 tax bill of some in N/NE… you were already paying above $5600! To have it land at $7K would be one thing, but nearly $9200? Its really just not right.
I am prepared to keep the heat on the county and state, participate in a lawsuit and picket if needed. How are we going to organize this group?
2014 tax without ADU: $3451. 2015 tax w/ completed ADU: $7617. Definitely not what we were expecting. We’re renting the ADU at way below market rate to my mother-in-law so she can afford to stay in Portland near us and our young daughter.
We have a lot of loans to pay back for this project, and this crazy tax hike won’t make that any easier. We’ll be in touch with the county folks on this for sure. It really does not seem like a fair or reasonable interpretation of the statutes.
Some have said (above) that this isn’t the place to debate Measure 50 itself, but I disagree; this is all about Measure 50, and the legacy of that bad (collective) decision. If that law had been written differently, this wouldn’t be an issue.
Some points I’d like to make:
#1: Everyone in Portland who’s bought a house within the past 10-15 years has made some kind of affordability calculation based on the fact that assessed value is generally far lower than RMV. (Even in areas where the ratio of RMV to assessed value is high, it’s still generally not much higher than 50-60%.) We’re all in the same boat.
#2: I’d find it hard to argue that it’s economically and politically “fair” for two different households, living in different parts of town but in homes that have a similar RMV, to pay vastly different property taxes. We all live in the same city and we all have the same say in how it’s run.
#3: It’s hard to make any kind of argument that it makes sense to adjust RMV of the entire property upon addition of an ADU. It’s just wrong. But if the courts agree that Mult Co must interpret the law that way, then that’s what we’re going to have to live with, short of changing Measure 50 itself.
However, arguing that Mult Co’s new policy about ADU’s and RMV’s isn’t fair isn’t going to get very far. Measure 50 isn’t fair to begin with, it’s been unfair for a long time, and it’s going to continue to produce unfair results until it’s changed. What’s needed here is a *political* fight against Measure 50, not a *legal* fight against this particular policy change. (I understand that many of you with recently-constructed ADU’s have an urgent issue that likely *does* need to be addressed in court; I’m speaking more generally about where the rest of us should be directing our time and energy.)
Ultimately: Measure 50 needs to be changed, and there are plenty of ideas out there about how to change it in a way that balances the principles of i) equal property tax payments for homes of equal value, ii) protecting homeowners from sudden large jumps in property taxes, and iii) protecting the affordability of home ownership for long-term residents. Good solutions exist!
Good perspective, Matt2. I think it is ok if the discussion takes a tangent for a moment to talk about the general nature of the property tax system, because there’s no question, it is the long-term effects of Measure 50 and its kin that have gotten us into this bizarre situation.
Your 3 goals sound like a great outline for a new tax system. How could it be done?
The general idea is some combination of 1) re-MAV when the property is sold; 2) increasing the 3%-per-year maximum for properties where the ratio of assessed value to RMV is below a certain threshold; and 3) providing exemptions for certain homeowners based on various qualifications (age, length of residency, family size, ability to pay, decrease in property value due to anticipated re-MAV at sale, whatever).
This can all be done in a way that is roughly revenue-neutral to the cities/counties.
Inequities would still exist, but the problem should diminish with time.
The information at http://www.orcities.org/taxreform is a bit old, but I find it helpful in understanding the issues here.
Good comments Matt. The present tax system is very unfair, not at all transparent, and apparently quite arbitrary. Additional issues as I see them:
– Home owners paying low (~$1,500) taxes have significantly less stake in the cost of levies and city spending policies than those whose homes are fully valued. It would be interesting to see stats on the correlation between support for levies and property tax payments. (Making the property tax pass-through to tenants fully transparent would also help ensure we have a rational city budgeting process.)
– Re-MAVs triggered by major improvements – basement conversions, detached bedrooms, ADUs – disincentivize improvement of Portalnd housing stock and expansion of floor area and therefore density. It’s also likely to result in work be done outside of the permitting system with possible consequences for health and safety. I agree with the priciple that higher valued homes are assessed for higher taxes. However increases need to be affordable and perhaps phased in over time.
I agree with you that there should be a focus on the tax systen itself. With many state, county, and city positions up for re-election in the next couple of years there is a chance to hold candidates to an intention to revise the tax system. Is anyone aware of existing tax activist groups that we could support?
NE Portland ADU completed 3/14, tax bill $1,428 (admittedly low and was expecting sizable increase in the 150%-range). The main house was a dump prior to renovation, but I don’t believe in tearing down old Portland homes. 2015 Tax bill $6,761. That is a 473% increase people! Have already written Dave Austin and county officials and ready to participate! Thanks again for your advocacy on this Kol
Has anybody been able to make sense of Measure 5? I read through some of it but the language is unclear to me. I would like to know if Multnomah County is actually following the law. Forgive me if this has already been explained in this post……
Will every property with a detached ADU built since 1998 be affected by this change, or only the properties with recently-built ADUs whose taxes are being adjusted for the first time?
We just gave the ok to move forward with pre-design starting in 2 weeks for our detached ADU in North Portland (Arbor Lodge). My head is spinning on what to do with this latest news. We actually visited Portland 2 years ago and did the ADU tour from out of state and the pathway and ability to build and live in ADU from sustainability perspective and from a financial security angle, was a large reason why we moved her in March. I am unsure what to do at the moment, I will definitely be reaching out in hopes of rectifying this.
Just so I have a clear message to send to the “powers that be” our taxes increased from 3,926.24 to 4,333.11 for this year (this increase was most largely triggered my our sale in March and some items the county assessor adjusted with the sale (partially finished basement room, kitchen “updated”, etc). Something I don’t understand is the total owed is 4,203.12 – which on our tax bill states is after the “discount” although this discount is not line items or explained anywhere on the bill.
Using the 4,203 amount and saying we added a 200K ADU to our property (we have plans to do 800 sq ft 2 story detached) would our new tax amount with the county “reMAV” be just north of 7,000 or would they be even higher????
When we bought with taxes at 4K we were higher then lots of other homes we were looking at in N/NE – we never could exactly figure out why even though I did some reading on measure 50 and had realtors attempt to explain why it really never made much sense out of it. Initially when we were planning and already starting at 4K a year in taxes we anticipated with the addition of the ADU we would see a 1500-2000K a year bump at MOST. Was this initial assessment of ours accurate? We have to figure out worst case scenario and see if its even feasible to move forward, we had planned on renting our main house for a fair market value which in our scenario basically would cover our current mortage – a tax bump that results in $300+ more dollars a month would mean we would have to gouge on rent or just abandon our dream altogether.
To calculate your new tax bill after the re-MAV and ADU:
Take the value “Market Values: Total RMV Value” from the “This Year” column.
Add the value of the ADU ($200,000) to this.
Multiply this by 0.59411 to get the new “Assessed Value”
Then multiply this by 0.02365 to get you new annual property tax bill.
Thanks Bill – I believe that is the math I did before – my new tax bill would be: 7,662.55. That is factoring the the county assess the added value of 200K, I suppose it could be assessed lower then that, but then again they could assess the added value at more then 200K – either way we are going to be north of 7K. Our taxes were already slightly slightly higher then lots of folks but that doesn’t make it any easier to swallow.
I built an ADU last year and my taxes went up from $1828.42 last year to $4586.41 this year. Thank you for writing this and providing guidance. I find this extremely confusing so it helps to have some support 🙂
I have emailed Dave Austin and we are ready to participate in any movement to change the *new* way Multnomah County is assessing these detached ADUs.
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I hope this doesn’t stick. Our ADU will be finished in two months and our property taxes are already 6K. Yes ADUs offer additional income… But with the housing shortage many of us are doing this to add places for people to live. This will be our third rental and we charge fair prices and have never increased the rent on any of our tenants. With so many people becoming homeless this has been one more way for us to help. With the increase, we may have to charge more than an average family can afford.
This increase does not help solve the problem of lower and middle class people becoming homeless.
Part II to this post is now posted
It appears that Multnomah County has finally concdeded that there HAS BEEN a tax policy change! http://www.oregonlive.com/front-porch/index.ssf/2015/11/boom_in_granny_flats_causes_un.html
Up till now, they had been (amazingly) denying this fact.
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An Oregonian editorial just got released about this issue.
“The last couple of weeks have been intensely uncomfortable for the Multnomah County assessor’s office, which has found itself at the center of a controversy involving the taxation of so-called accessory dwelling units, aka granny flats. That’s only fair, we suppose, as “intensely uncomfortable” also describes the experience of opening a property tax statement, as a number of Portland residents did recently, to discover a significant increase that most reasonable people could not have anticipated. These people are entitled to some relief, and the assessor’s office should do everything possible to provide it.”
Come on folks! Are you naive enough to believe that your politicians and government agencies would allow ADU units or home improvements without zinging you with much higher taxes. I do not have any sympathy for any of you. I do have sympathy for every neighbor that has had to endure additional neighbors, parking issues, noise, and depreciation value of their properties because more people moved in right next to them.
Yes, I live in NW and live in a zoned single home dwelling residence. I pay outrageous $12,000 dollars in taxes to support our schools, pay pensions etc. The neighborhood is traditional and everyone maintains there houses. Now my neighbor changed his garage into an ADU that literally butts up to my property line. Access is walking down my property line. The neighbor is now adding another ADU, or what looks like a food cart with wheels, to the other side of his property. Every neighbor is now upset with his actions and how he has diminished their neighborhood and property values. So, I propose every neighbor of poorly designed ADU units to appeal to Multnomah County for a reduction in assessed values due to the additional noise, parking and devaluation of their property caused by an ADU, or two. These ADU units may allow the owners to bring in more money, but they are also ruining many neighborhoods and hurting their neighbors.
George, if you’re enduring difficulties related to a next door ADU, I do have sympathy for you. Your neighbors should minimize your discomfort by advising guests to quiet for neighbors and to park in such a way that you are less impacted. They should check in with you, as ant good neighbors should, to see what can be done to make life easier for you and others nearby. With the increase in density that the city desires, it behooves all of us, including developers, to be mindful of how it affects our neighbors. I’m sorry this is not working for you. I have an ADU and short term guests. Mine is permitted so my neighbors have recourse to contact me or the city should it adversely impact them. So far, with me on site as the law prescribes, we have had no issue with loud or disruptive guests. I check in with those around me to make sure the situation is still working for others. I haven’t heard that property is devalued by having an ADU next door but would like to hear more about this. Have you had your property assessed and found this? Also, my understanding is that any structure needs at least a 5 foot setback as opposed to the situation you describe – at the property line. Is yours different? Lastly, if your neighbor is installing a tiny house and using it for short term guests, this is illegal as one can only have either up to 2 bedrooms for rent in their owner-occupied home or an ADU in which they live on the property at least 9 months of the year. You can see if they are listed on Airbnb or other sites and if so, contact the city to investigate. Best of luck!
sorry about the typos 🙂
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Doe this ne way of tax calculation impact improvements that are attached? If I add a second story to an existing home?
Measure 50 never affected adding a second story to your home. That was always an allowed use under old law as Mult Co interprets it. But if you convert it to an ADU, who knows?
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Holy crap! It’s not just ADUs that are having this problem! I have owned two lots in SW Portland since 1997. I was thinking of selling one of them, and marketing it to someone to build a tiny home on. I thought hey, I could sell the land for a fair price, avoid a McMansion going in next door and provide an affordable option for the right person. Wow, was I surprised. Now I’m afraid of submitting a ‘lot confirmation’ application, in the event they decide to re-MAV both of my lots. The County said they would for sure re-MAV if I applied for a ‘lot line adjustment’ ON BOTH OF MY LOTS!!(I would need the adjustment because of set-back rules – and FYI that costs about $6K).
In other words, they would re-assess the value of my existing, current land which has the house where I live on it, in addition to the “new” lot! After doing the math, my property taxes would go up to almost $10,000 A YEAR for both lots, whereas now they are both considered one property and taxes are $4564! That’s already a huge property tax bill every year. I could sell the “new” lot before January 1st, 2017 and avoid that tax bill, but my own property taxes would go up as a result of the lot division. Of course, I can only guess how much they would increase because of course the county won’t give me an estimate. One of the wild cards is how much next year’s Changed Property Ratio will be. It has ranged between 59% and 72% just in the last four years. I don’t know if it’s worth living in Portland anymore. Seriously, I’m about ready to just say ‘fuck you’ to this town.
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