In Portland, Oregon, the Paths to Homeownership Are Multiplying

In 2015, Eric Thompson heard that his city of Portland, Oregon, was considering overhauling its low-density zoning. He joined the project’s advisory committee with one paramount goal: to stop it.

Thompson had built a local business knocking down small old homes in fancy parts of town and replacing them with bigger new ones—3,000 square feet or so. Now, the city was looking to rechannel housing investment away from projects like those and toward smaller homes. It seemed like a dagger aimed at his livelihood.

"All I’d ever built for previously were the 5 percenters who could afford what today would be a million-dollar-plus house," Thompson recalls.

Seven years later, today’s Eric Thompson could tell his former self a thing or two. At his firm, Oregon Homeworks, permit applications are flying out the door. His team has 70 homes around the city in its pipeline, enough to keep themselves busy for the next year. They’re all in the same leafy, close-in neighborhoods Thompson has long built in—except his sale prices have fallen sharply, to $425,000 to $550,000. They’ll be the least expensive newly built homes on the block by far.

It’s not exactly the bottom of the market. But these days, he’s mostly left the "5 percent" behind and is signing deeds over to schoolteachers and restaurant managers, people who never thought they’d be able to afford new construction.

Thompson’s business is alive and thriving; every one of its recent projects has turned a profit, he says, and financing hasn’t been too hard. Thompson’s secret: the argument he lost seven years ago. Despite his efforts in 2015, new homes of the size he once built are now illegal in most of the city. But in exchange, almost any residential lot is now allowed to have up to four modest homes on it.

Welcome to Portland, America’s new test tube for rediscovering the "missing middle" of the housing market.

The Fall and Rise of the Triplex

Portland’s zoning reform, which took effect in August 2021, is part of a wave of similar changes across the United States and Canada. Houston, today the nation’s least expensive boomtown, arguably led the way by slashing minimum lot sizes to 1,400 square feet with a two-step reform in 1998 and 2013. Minneapolis made a splash when it legalized triplexes citywide in 2018. Cities from Walla Walla, Washington, to Greeley, Colorado, to Charlotte, North Carolina, have all made similar changes or set the wheels in motion to end bans on duplexes and lot splits.

Don’t call it a revolution, though. Call it a comeback.

One hundred years ago, duplexes, triplexes, quads, townhouses and backyard homes—"middle housing," they’ve recently been called—were legal almost everywhere. And they were fairly popular. In those days before the 30-year fixed-rate mortgage, one path to homeownership was to build a small duplex, rent out one side, and live in the other. Thanks to countless ad hoc arrangements like that, millions were built, often scattered through the low-density neighborhoods of the day. One out of 13 homes in the United States is part of a two- to four-unit building. But then, driven by a movement that was often deliberately segregationist, such buildings were gradually banned from most of our urban land between 1920 and 1960. Today these relatively affordable attached homes are disproportionately old, by far the oldest on average of any structure type.

In other words, this heartwood of the country’s middle-class housing stock is slowly rotting out.

In the last few years, as the issue has gained attention on both the left and right, politicians have turned to a new strategy for planting a new generation of mid-priced homes: state legislation. Statewide middle-housing bills have been introduced in 14 states since 2019, from Montana to North Carolina, and passed in three: Oregon, Maine, and (in 2021) the nation’s biggest housing market, California.

California’s zoning reforms are likely to bring change to the construction lending market, says Susan Brown: first a trickle, then a torrent. Brown, an Oregon-based Certified Mortgage Banker and founder and CEO of CoreSGB, spent 17 years scaling up a regional construction lending program for Umpqua Bank and now consults with small to midsize companies to launch their own. One of the niches she carved out for Umpqua was financing to help homeowners add accessory cottages and, now, other middle-housing infill projects.

A big constraint in Brown’s lending was the difficulty of reselling the resulting loans to Fannie Mae and Freddie Mac, the federally chartered loan companies.

"That was our argument for years: If we could get Fannie and Freddie’s attention by having California do something, then we’d get somewhere," says Brown.

Now, it’s happening. In May 2022, President Biden ordered the federal agencies that guide mortgage lending to start opening new channels to loans for two- to four-unit structures and accessory dwelling units. Within a month, Freddie Mac announced that it would now accept rental income from a new ADU as part of qualification for a home renovation loan.

Brown says she expects credit unions and community banks to be first to take advantage of this and other changes, followed by larger lenders. Eventually, she thinks, an array of entrepreneurs will come up with ways to help homeowners and other small-scale developers address local housing shortages and get more value from their property. In some cases, it might resemble the ways middle housing was financed a century ago.

"As the demand opens up, there will be creativity and ingenuity," Brown says. "There will be capital to deploy, and it will find a vacuum."

Flexible Rules for Ordinary People

Meanwhile, in Portland, policymakers are continuing to tweak the new codes to make them more usable, especially by homeowners, nonprofits, and others with less capital. 

A round of changes coming into effect there on July 1 will add several such options. Fourplexes can be a bit larger, to accommodate home offices, larger families, and wheelchair-friendlier bathrooms. "Cottage clusters," which allow a few homes of various sizes around a shared yard, will be a new option by right. Projects meeting affordability standards will have a new option, hammered out by city staff with the local chapter of Habitat for Humanity: up to six attached homes on almost any lot, arranged side by side to allow private yards and porches.

Owners of large backyards will have an interesting new option, too. Instead of having to scrape together the cash for construction and hope to recoup it in future rent, they’ll be allowed to plan a small home and then sell the backyard as a small developable lot to a new neighbor. It’s got particular potential for homeowners who find themselves land-rich but cash-poor.  

"They don’t have to expend $150,000 on land," Brown says. "They already have the land." 

One of the most important new options might be invisible. Oregon’s state laws include new townhouse-specific codes to let property owners drop a lot line down the middle of a shared wall. That will allow homes in new smallplexes to be sold independently without the hassle of renting or condoizing.

"I don’t think it’s on a lot of people’s radars," says Schuyler Smith, a Portland-based architect who specializes in townhouses and ADUs. "But as it becomes known more, I do think it’ll have an impact."

Portland’s housing entrepreneurs, from homeowners to lenders to designers to developers, know they’re just droplets in a vast, roiling housing market. But they seem to take pride in the possibility that they’re riding the front of a wave. Their next weird idea for working within the new rules might be one that goes global.

"We may not have the answer," says Mike Mitchoff, a builder whose firm, Portland Houseworks, has 42 homes in its pipeline so far that use the new rules. Mitchoff says they plan to use the new cottage cluster code to deliver new detached homes in the high $300,000s to low $400,000s. "But we have an answer."

"It’s a brave new world," says Eric Thompson. "For those of us in the know, Portland has the most progressive, flexible building code in the U.S."

Related Reading:

Here’s How We Fix the Hole in the Middle of the Housing Market

How to Build an Affordable America