Public Comment for 1/21/23 City Council Meeting
on proposed ADU Ordinance

By Daniel Hornal, Tenants Revolt Lawyer

My name is Daniel Hornal. I worked as a civil rights and tenant’s rights lawyer in Washington D.C. for about a decade before moving to Bellingham. I was a tenant from 2000-2019, and in 2021 I bought my first home, a single-family house in a multi-family-zoned area in Sehome with a D-ADU over the garage. I am currently a small landlord, leasing the D-ADU and a couple of rooms to working people in Bellingham. I am also the lawyer for Tenant’s Revolt, a grassroots organization that is working to fight the white-collar crime spree by certain property management companies that are leasing low-quality, often dangerous housing to our community members. I am commenting for myself and on behalf of Tenant Revolt’s large and growing membership of activated voters fighting for decent, affordable housing in Bellingham.

We stand in enthusiastic support of the removal of unnecessary barriers to affordable, decent housing for Bellingham tenants and potential homeowners, and therefore support the vast majority of the ordinance under consideration today. However, the ordinance as proposed today contains a provision that, if enacted, would render the proposal wholly counterproductive to its stated goals.
At first glance, and with a naive understanding of economics, one might assume that removal of the owner-occupancy requirement for the leasing of ADUs would increase the supply, and therefore decrease the cost, of housing in Bellingham, with no obvious negative consequences. However, a deeper look at the policy reveals the serious flaws in this naive analysis.

The owner-occupancy requirement increases the quality of housing in Bellingham

First, let’s turn to the effects this policy will have on the quality of our housing and our neighborhoods. It is obvious that property owners who live on the premises will be more inclined to keep up on maintenance. On-site property owners have a vested interest in maintaining the quality of buildings in their neighborhoods. Nobody wants to look at dilapidated slums every day. Our experience at Tenants Revolt, and my experience representing low-income tenants as an attorney, has unquestionably demonstrated that the vast majority of complaints come from tenants of absentee landlords. If an ADU tenant has no heat, the tenant can walk a few feet and knock on the door of the person who is responsible for fixing the problem. It is very difficult to ignore when your neighbor is suffering at your hand. On the other hand, absentee landlords who only communicate with their tenants through a property management company can and regularly do ignore complaints, because they never see the consequences of their actions, and instead focus only on the financial burden the landlord might face in making the repair.

The ordinance as written would unquestionably raise the number of absentee landlords in the city. It can have no other effect. This is foolish, short-sighted and, once the precedent is set, will be very difficult or impossible to reverse.

Some people opposed to the ADU ordinance have legitimate concerns about unsightly properties driving down the quality of neighborhoods. Driving around Bellingham, it is easy to tell the difference between neighborhoods with high owner-occupancy and those dominated by tenants. Absentee landlords are more likely to allow landscaping to decay and to delay repainting and repairs, because they don’t have to live with the consequences of their negligence. The creation of slums is bad for the community. So why encourage the creation of slums by people who don’t live in or care about our community?

The owner-occupancy requirement decreases the price of housing in Bellingham.

Second, let’s look at the cost of housing. Here we must make a distinction between value and price. The value is how much something is worth to a potential purchaser. The price is how much they must pay for it. The price is determined by the market. A person is likely to purchase something when the value exceeds the price. For capital-constrained people, which in this case is individuals (as opposed to institutional investors) in the single-family housing market, they may not purchase something even if the value exceeds the price, because they cannot afford it. This means they cannot outbid an institutional investor who believes that the value is higher than the price the individual can afford.

The owner-occupancy requirement is, perhaps unintentionally, economically brilliant. It increases the value of a house to owner-occupants but only owner-occupants. This means that the institutional investor cannot extract the same value from the property as an owner-occupant. This means that the institutional investor will not be willing to outbid the owner-occupant, and a home that would have gone to an absentee landlord will instead go to a working family. The owner-occupancy requirement therefore benefits both individual homeowners and tenants.

The arguments in favor of eliminating the owner-occupancy requirement fall apart upon examination

In its letter in support of removal of the owner-occupancy, the Whatcom Housing Alliance wrote “ADU’s (sic) are the only housing type with the restriction of an owner-occupancy requirement and discriminate against renters who make up over 53% of Bellingham residents.” This is, frankly, sophistry. First, the requirement does not discriminate against renters at all, in any way, because the owner-occupancy requirement, by definition, only applies to persons who are fortunate enough to purchase or inherit investment property. Secondly, there is nothing wrong with “discriminating” against absentee landlords, who overwhelmingly provide lower-quality, higher-cost housing while sucking money from hard-working tenants out of Bellingham and redistributing it to wealthy persons with no connection to our community. Finally, co-opting the language of “discrimination” to apply to the “rights” of absentee landlords is incredibly disrespectful to disabled persons, people of color and others who face discrimination from Bellingham property management companies daily.

 1. The Whatcom Housing Alliance is a local lobby group that does not include tenant groups or owner-occupant homeowner organizations, the people who would bear the costs of this policy. 

Next, WHA stated “It’s imperative that the removal of owner-occupancy be applied to all zones, including single family residential zones so that we have equitable land use.” The whole point of zoning laws is to restrict what can be built where. If the City wishes to eliminate all zoning so that, for example, high-density apartments could be built in Edgemoor so lower-income residents could enjoy the natural beauty afforded to residents there, then it would make sense to invoke the concept of “equitable land use” in zoning. But that’s not on the table here. Increasing the number of absentee landlords in Bellingham will not further the cause of equity.

Next, WHA stated “It’s imperative that the removal of owner-occupancy be applied to all zones, including single family residential zones so that we have equitable land use.” The whole point of zoning laws is to restrict what can be built where. If the City wishes to eliminate all zoning so that, for example, high-density apartments could be built in Edgemoor so lower-income residents could enjoy the natural beauty afforded to residents there, then it would make sense to invoke the concept of “equitable land use” in zoning. But that’s not on the table here. Increasing the number of absentee landlords in Bellingham will not further the cause of equity.

The WHA notes that the owner-occupancy requirement limits flexibility for homeowners. This is true, but it is not a reason to eliminate the requirement. Rather, if this is a serious concern, simple changes like requiring that the homeowner only live in the house for, say, three years out of five, would provide the necessary flexibility for homeowners who have a short-term need to leave the community but intend to return. Requiring less-frequent re-certification of owner-occupancy compliance would also sharply reduce the burden on city staff to process the documents (a concern noted by staff in favor of eliminating the requirements). If a homeowner will be absent from the community for an extended period beyond that, it is in the community’s interest that the home be sold to people who actually live here, which would increase the housing stock and make it possible for renters to set down roots and become owners. Another option would be to prohibit leasing of ADUs when the property is owned by an LLC or other non-natural person (other than a community land trust), or if the property owner (other than a community land trust) owns or controls more than two rental units in Bellingham. There are no legal barriers to such distinctions. Similar requirements have survived Constitutional challenges. See D.C. Code § 42-3502.05(a) (exempting landlords who are natural persons that own 4 or fewer units within the District of Columbia from the rent stabilization program.) It may also be possible to waive owner-occupancy requirements if the resulting units are rented below market rates, although this is still not an advisable policy. As explained in this comment, owner-occupancy requirements have many advantages for renters and prospective homebuyers.

2 Of course, the homeowner would not be required to sell the home even if they chose to be away for an extended period. They simply could not rent out the ADU as a separate housing unit, or use it for storage, etc.

3 This suggestion would not eliminate the harm of waiving the owner-occupancy requirement, as it would still result in community members being priced out of home ownership and the proliferation of absentee landlords. 

4 This compromise is less desirable than an across-the-board requirement for owner occupancy, for the reasons stated in this comment. It is not a good compromise. Despite this, if this approach is taken, the legislation must be clear that if this provision is found to be illegal under State or federal law, that the legislation reverts to a prohibition on the leasing of non owner-occupied ADUs. 

The WHA claims that “Owner-occupancy requirements limit institutional investor interest, but they also stifle ADU use and other ownership options (and the wealth-building opportunities that accompany homeownership) for non-investor buyers.” It is true that owner-occupancy requirements limit institutional investor interest. In fact, this fact alone is more than enough reason to keep the requirements. It has been widely reported that institutional investors are buying vast amounts of single-family housing, raising rents and not maintaining the properties.5 Institutional investors want to turn the United States into a nation of precarious renters, and it is the height of foolishness to change the rules to make this easier for them. However, it is false and self-contradictory to state that the rules stifle ownership options for non-investor buyers. By definition, purchasing or developing a property you don’t live in makes you an investor-buyer. The owner-occupancy requirement means that non-investor buyers will have the opportunity to build wealth, and make it more likely that said owner-occupiers would be able to participate in the market rather than being outbid by investment groups and wealthy landlords. We need more homeowners in Bellingham, not more absentee landlords. 

My own experience in purchasing my house here in Bellingham demonstrates this point clearly. The only way I could afford the home was thanks to the income produced by renting out the D-ADU. A few days after my offer, another buyer (who had no intention of living in the home) came in with an all-cash offer. If it were legal for the investor to rent out the ADU, they would have outbid me. With the ADU, my property would have been an amazing investment opportunity ripe for big money to scoop up. The owner-occupancy requirement ENABLED me to purchase a home in Bellingham that I could live in. It means that middle-class people have access to build wealth and invest in our community. Removing it would force middle-class people to bid against Wall Street. Wall street would win, and we would lose. 

WHA states that “the high cost of construction does not make ADUs a worthy institutional investment and currently make up a very low % of ADU ownership.” This is no reason to open the door to institutional investment. Regardless, institutional investors are, for the most part, currently buying aging housing stock. Even if the first wave of ADU construction is lead by owner-occupants (which is unlikely to happen under this proposal, given the current interest rates), the investors will scoop up the properties with ADUs as soon as they go on the market. 

A nice ADU in Bellingham can currently rent out for $1800+/month. $1800/month is far more than enough to turn a marginal investment into a great one. Wall street is not stupid. If they don’t see the investment opportunities this year, they’ll see them next year. 

Let’s keep Bellingham for Bellinghamsters. ADUs are a very good investment opportunity, and those opportunities should be reserved for middle-class people who have few other opportunities, not handed to slumlords. We urge the Council to maintain the owner-occupancy requirements, and to take other actions, such as construction loan guarantees, a streamlined permitting process, and waiver of construction permit fees to enable owner-occupants to build local wealth, invest in the community, and provide affordable housing to tenants who desperately need it.