Lake Oswego granted exemption from SB 1537 mandatory adjustments but conditions tied to 90% approval rate concern council

At a Sept. 16 study session, City of Lake Oswego planning staff briefed the City Council on the city’s approved exemption from the state’s SB 1537 mandatory adjustment program and the conditions the Department of Land Conservation and Development attached to that exemption.

Background SB 1537 created a “mandatory adjustments” program that allows eligible housing projects meeting specific criteria (including achieving a minimum units‑per‑acre threshold and producing a net increase in housing) to request up to 10 adjustments to certain commonly cited design and dimensional standards. The law also established an exemption process for cities that already provide robust local adjustment pathways; Lake Oswego applied for and received an exemption July 2025, but the approval included conditions and reporting requirements.

Conditions and performance requirement Staff explained that the city’s exemption is conditional. To keep the exemption the city must maintain an approval rate of at least 90% on land‑use applications for housing that include adjustments; staff reported a 100% approval rate in the five‑year retrospective they submitted with the application. The city must also provide a required notice to applicants about the local adjustment pathways and publish a detailed local adjustment handout describing how applicants can pursue local adjustments, and how to file a complaint if an applicant believes the city is not offering required flexibility.

Three required mandatory adjustments DLCD required Lake Oswego to allow limited mandatory adjustments in these three areas because the agency found local adjustment pathways insufficient in how they applied to SB 1537’s standards: - Special street setbacks: DLCD determined Lake Oswego’s “special street setback” (setaside area for future public improvements) must be subject to a 10% adjustment in some cases; staff explained this will apply only where the setback actually encroaches onto private property and said the practical effect will be limited and site‑specific. - Maximum building height versus city charter: SB 1537 requires jurisdictions to permit either a 20% height increase or one additional story (whichever is greater) in some cases. Lake Oswego’s charter limits residential structures to 50 feet; staff said the charter cannot be changed administratively, and noted a conflict could arise for eligible projects where one‑story allowance would exceed the 50‑foot charter cap. - Maximum density: The state requires that adjustments to dimensional standards that increase building massing not be undercut by local unit caps; where massing increases are allowed, the city must allow the corresponding number of units in certain eligible projects. Staff noted the mandatory adjustment applies to units (not lot counts) and that Lake Oswego’s code currently prohibits variances to density.

Staff recommendation and council reaction Staff recommended the council retain the exemption for now and monitor incoming adjustment applications. Planning staff argued at present the mandatory adjustments would apply in a small number of sites and that amending local code to replace the limited mandatory adjustments may be duplicative given the program sunsets in 2032. Several councilors expressed concern about the 90% approval threshold and said it could produce perverse incentives to approve marginal requests to maintain the exemption. Councilors asked staff to track staff time spent on exemption compliance and to return if the volume of adjustment requests makes the city reconsider its exemption status.

Next steps Staff will publish the required notice and the local adjustment handout, begin annual reporting to DLCD on adjustment approvals, and return to council if the city sees a meaningful change in the volume or type of adjustment applications that would jeopardize the exemption.