Six years after a monumental rezone, Governor Kotek's HB-2138 will fill the gaps to more fully legalize starter homes.

Almost six years after Oregon became the first state to re-legalize duplexes, fourplexes, and cottage clusters throughout urban areas, the effects have arrived.

From Gresham to Grants Pass, permits are being pulled, roof beams are rising, and first-time homebuyers are signing their closing papers. Policymakers in Oregon and elsewhere, meanwhile, have their own opportunity: learning lessons.

Oregon's 2019 state-level reform to low-density zoning turned out to be the leading edge of a wave that has since rolled to California, Maine, Vermont, Arizona, Washington, and Montana, with various cities initiating similar reforms in their own right. But through it all, some sympathetic analysts have asked: Is this reform actually worth the trouble? Is the juice worth the squeeze? And if it is, which details do we need to worry about getting right?

Well, the proof is in the permits. Oregon cities are now several years past the state's deadline for legalizing so-called "middle housing." And though it's still too soon to say exactly how big a deal these smaller home options will prove to be over the long term, the data suggests they do have potential. Most notably, within three years of legalization in Portland, they accounted for 26 percent of new residential units approved there.

Another lesson: The finer details of zoning reform definitely seem to matter. As Oregon lawmakers consider a new law, House Bill 2138, that would build on the state's 2019 bill, here are some of the takeaways so far from the outcomes of the first one.

1. Zoning reforms take time to pay off - but they can!

In a thoughtful 2024 law review article, housing advocate Brian Connolly succinctly named one of the key "structural roadblocks" to middle housing getting built: "the absence of a middle-housing building industry."

Connolly is right. You can't build a business on something that's illegal, and fourplexes have been illegal in most of North America for 70 years. Therefore, the middle-housing building industry is very small.

The good news is that in Portland, entrepreneurs have been changing that. It just took them a few years.

After a lackluster first year, production of newly legal homes in Portland quadrupled in years 2 and 3.

The year 3 total of 400 new homes per year isn't a lot in the context of a city with 300,000 homes. But, crucially, this rapid growth has been happening in Portland even in the face of a three percent population decline over four years and a huge slowdown in local apartment building. By year 3 after Portland's reforms, those 400 homes actually accounted for 26 percent of all housing permits citywide.

The main reason these homes are so popular even in a relatively cool market is probably that they have been able to come to market at much, much lower prices than homes on their own lots. The newly built middle housing homes average $300,000 less than single-detached houses:

What does it mean that this previously obscure category of the housing market has been able to grow so quickly amid a homebuilding slump? At least two things:

A lot of Portlanders would like to live in relatively small homes that are not in apartment buildings, but regulations previously prevented those homes from being built, so there was a lot of pent-up demand.

Even after Oregon re-legalized these homes, it took a few years for people in the industry to figure out how to build homes like that.

Eric Thompson, a former McMansion developer, told me in 2022 that he'd retooled his business away from building only for the richest five percent and was now signing deeds over to school-teachers and restaurant managers, people who never thought they'd be able to afford new construction. His firm, Oregon Homeworks, became one of the first to jump into this market and immediately started turning a profit. He said,

"For those of us in the know, Portland has the mo...