Dweller is taking on the housing crunch, plus a tricky area of homeowner financing, one backyard at a time.
The Portland, Ore., company’s ambitions are to create thousands of affordable infill living spaces in the city by plopping its single-design, prefabricated accessory dwelling units (ADUs) behind existing homes—with no upfront investment from homeowners, and without the headache of pulling permits or managing the project themselves.
Funded by both private investors and bank loans, Dweller manages and pays for the cost of the unit and its installation upfront (aside from site and utility preparation costs) in return for a 25-year ground lease on the portion of the homeowner’s lot the unit occupies. It cranes the 450-square-foot unit, which arrives with appliances, cabinets, and a bathroom installed, onto a pre-poured foundation.
Once installed, the company manages the unit as rental housing, and gives 30% of the rent—currently in the $1,200 to $1,500 range—to the homeowner. Utilities run on a submeter from the main house. At the end of the 25-year ground lease, the ownership of the unit reverts fully to the homeowner, who can also buy the unit outright on a pre-determined sliding scale at any point during the lease. For owners who want to use the unit themselves, Dweller also offers for-sale units, fully installed, for $125,000.
Turnaround Time
Dweller says the process takes about three months, from signing a contract to having a completed, functional unit out back. Crews are on-site for roughly six weeks—compare that with stick-built, on-site ADU construction, which typically can stretch to six months or more.
The idea has gotten a lot of attention in the Portland area since Dweller launched in January 2017. As of press time, the company had installed four units in Portland, with five more in permitting and about 20 prospects in various stages of qualifying. “It’s a way for homeowners to tap into the unrealized value of their properties, while at the same time providing additional housing within the city,” says Patrick Quinton, Dweller’s co-founder and CEO.
As former executive director of the Portland Development Commission, Quinton is familiar with the city’s housing woes. Since the end of the Great Recession, the region’s economy has created over 200,000 jobs, but its housing stock has struggled to keep up. With rents increasing as much as 30% since 2013 and homelessness surging, the Portland City Council declared a “housing state of emergency” in 2015 that’s still in effect today.
Meanwhile, Bryan Lynott, a long-time contractor and Dweller co-founder, saw how popular backyard cottages or “granny flats” were with homeowners—when they could actually get them built. The city has issued about 600 ADU permits in each of the past two years.
But site-building an ADU on a finished lot as a separate project after the main house is already complete is more time-consuming, expensive, and burdensome than many homeowners imagine. Quinton estimates the cost for a site-built ADU similar in size to Dwellers’ units to be as high as $200,000. “ADUs should be cheaper and more accessible, but to this point, they haven’t been,” he says.
Due to the variability in the condition of backyards, Dweller’s clients are required to take care of any existing impediments to work in their yard, such as trees, structures like playsets, and underground tanks, Quinton says. These costs can vary from a few hundred dollars to thousands, depending on the work required, but most homeowners have little in the way of additional issues to address in their backyards. On about 20% of projects, existing water service isn’t sufficient to serve both the primary residence and the ADU, and the city requires new water service, at a cost of about $7,500 to the homeowners.
Dweller also helps solve for another common problem: the financing conundrum homeowners often face when building an ADU. Construction is feasible by taking out a home equity loan, if homeowners have enough equity in the main house. But many lenders balk at financing ADUs because, since they’re on the main home’s lot, they’re harder to use as security if the loan goes south. There’s also the issue of appraisals; in years past, banks haven’t always added the future value of the ADU to the appraisal amount, forcing homeowners to come up with more cash. That’s slowly changing; in Portland, for example, Umpqua Bank offers an ADU construction loan tied to the main house.
“The banks and appraisers are getting better with ADUs, but our model really solves for the fact that the typical homeowner just doesn’t have that kind of cash sitting around,” Quinton says.
The Dweller model seems particularly well adapted to Portland’s progressive ethos. “Illegal granny flat” is a common moniker for ADUs, either due to the fact that they aren’t allowed by right, or that homeowners skirt the permitting process when having them built. Case in point: nearby Seattle has been experiencing a contentious public debate over allowing more ADUs to be easily built that’s dragged on for more than four years.
But in Portland, that perception has been turned on its head as it’s widely recognized as the most ADU-friendly city in the U.S. While 70% of the metro area is zoned for single-family, more than 116,000 lots within the city are cleared to have ADUs by right, and the city council, in an effort to spur development, began waiving impact fees on ADUs in 2010. Quinton estimates there have been 2,000 ADUs developed within the city limits.
Repeated Success
Dweller capitalizes on the city’s ADU-friendly zoning because of the scalability of its single-design model.
“We have one unit, and one floor plan,” Quinton says. “You can choose your finishes, but we’re not putting in an extra sink. So every time I submit plans to the city, I’m giving them the same thing. That should allow us, eventually, to cut another 30 to 45 days off the permitting process. The whole key to this thing is replicating the process, over and over.”
Construction volume can ramp up quickly thanks to Dweller’s contract with the Idaho plant of Champion Homes, one of the nation’s largest manufactured home builders. But there’s still the physical challenge of placing a pre-constructed unit into an existing, densely populated neighborhood. A video on Dweller’s website of one of its units being craned over the gable-end of an existing home is the stuff of a site manager’s nightmares. Trees and power lines are a constant hurdle and, like others in the industry, Quinton says it’s a challenge to find qualified labor. But being able to place the units themselves is a big differentiator for the firm.
“A lot of companies design and sell prefabricated ADUs,” Quinton says. “But they don’t solve the problem of how do you actually pull the unit from the factory floor into the backyard. That’s what we do.”
ADU Expansion
Dweller could extend to other U.s. cities. Many municipalities have viewed ADUs as skirting the spirit of R-1 residential zoning. But given the current affordability crisis, many cities are redrawing their zoning to be ADU friendly. California enacted statewide legislation in 2017 to allow homeowners to have these buildings by right, which resulted in a surge of ADU permit applications in Los Angeles, from 80 in 2016 to over 1,970 in 2017. Across the state, municipalities issued 4,529 ADU permits, up 60% from 2016, according to the Orange County Register.
Dweller has aspirations to expand along the West Coast. But Quinton sees opportunity across the broader housing industry to replicate the manufactured ADU model in other locales where housing is in short supply, and increase housing stock in an affordable way.
“Our innovation isn’t designing ADUs. It’s the turnkey element of the business model that we’ve created, including construction, financing, and leasing,” Quinton says. “We are proving out a model that, ideally, will lead to the development of this kind of innovation from others in other markets.”
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