House committee reviews S.127 ADU provisions; considers property-tax freeze for VHIP-built units

Thursday, April 10 — The House General and Housing Committee took testimony on S. 127, the Senate’s version of the House housing bill, focusing on accessory dwelling unit (ADU) provisions that were not included in the House measure. Committee members raised a proposal that had been in the Senate bill — a three-year freeze on property-tax increases tied to ADU construction under the VHIP program — and asked the Department of Housing and Community Development to clarify how VHIP covenants and affordability periods apply to ADUs.

Why it matters: ADU rules and program covenants affect whether homeowners who create rental units through state programs must rent to people exiting homelessness, how long units must stay affordable, and whether owners face higher property taxes after adding ADUs. Those questions influence homeowner participation in state incentives and local housing availability.

Sean Gilpin, director of the housing division at the Department of Housing and Community Development, said the department did not propose a property-tax freeze and that the idea was not included in the governor’s budget request. “It wasn't anything that we had proposed,” Gilpin said. He added, however, that some VHIP participants have been “rather surprised at the amount of property-tax reassessment they've seen after creating ADU[s],” and that a temporary tax freeze “would be something that would be beneficial to the program and provide a little bit of certainty and security for folks that engage. So we would certainly support the concept.”

Committee members noted that the three-year freeze was removed in Senate Appropriations. The Committee Chair said the Appropriations committee eliminated that provision but that both the chair and at least one member retain interest in exploring the idea further.

Committee members also pressed Gilpin on how VHIP covenants and the program’s two affordability options — a five-year option and a 10-year option — apply to ADUs. Gilpin said the VHIP statute prohibits conversion of a unit to a short-term rental while a covenant is in place. “That is—that's in the VHIP program statute,” he said when asked whether an owner may convert a VHIP-assisted unit to a short-term rental during the covenant period. He added that after a covenant expires, the department has no control over how an owner uses the unit and that conversion to short-term rental would be governed by any applicable local ordinances.

On eligibility and homelessness-related rental requirements, Gilpin said the two affordability options differ. Under the five-year option, certain units financed through VHIP must meet the program’s rental-targeting requirements — including prioritizing people exiting homelessness — whether an ADU is attached or detached. Under the 10-year option, he said, the homelessness-prioritization requirement does not apply. “If you commit to 10 years of affordability then there's no homeless requirement,” Gilpin said.

Committee members asked whether attached ADUs were treated differently than standalone ADUs; Gilpin said the department now treats attached ADUs the same as standalone units for purposes of VHIP affordability rules and noted that the change followed adoption of the 10-year option to encourage longer-term affordability.

The committee requested a copy of the department's covenant template. Gilpin confirmed the department created the covenant and that its contents are not dictated by statute, and he agreed to provide the covenant to the committee assistant.

No formal votes or final decisions were recorded during the testimony. Committee members indicated the topic may return for additional testimony at a later meeting.

Less-critical detail: Committee staff and other members deferred some witnesses and scheduled additional testimony later in the agenda. The hearing opened with the committee chair noting that testimony on S. 127 could continue at a subsequent meeting.

Next steps: Committee members signaled interest in further exploring a temporary property-tax reassessment freeze for VHIP-built ADUs and asked staff to circulate the VHIP covenant for review.