Development Services Bureau 2022 Audit Status Report

Short-Term Rental Regulation: Enforcement is lax and effect on housing is unknown

Report published August 8, 2018 | Follow-up report | Contact KC Jones

Our 2018 audit of Portland’s short-term rental regulation found that only about 22 percent of units were registered and the effect on housing availability and affordability was unknown. We made recommendations to improve data collection and enforcement and to monitor the effect of short-term rentals on the housing market. In 2019, the City reported that it reached a data-sharing and registration agreement with a key rental agent and passed an ordinance requiring compliance from all agents. In 2020, the City made progress using publicly available rental data to enforce restrictions on hosts with multiple listings and hosts in commercial areas. However, the Bureau of Development Services was still developing software that will be used to analyze the data and enforce the rental registrations. The Housing Bureau started reporting on short-term rental activity but still needs to work on measuring its impact on the housing market.

On this audit there were two recommendations in process and one not implemented.

In Process Recommendation Details

We recommended that the Revenue Division and Bureau of Development Services obtain data on active short-term rental hosts, listings, and occupancy from booking agents or from other publicly available sources and use it to enforce the City's zoning and tax code. City Council passed an ordinance in June 2019 requiring all booking agents that did not enter into an approved data-sharing agreement with the City to include only rental addresses that are in the City's Short-Term Rental Registry and were permitted by the City. The City and Airbnb signed a data-sharing and registration agreement in August 2019 and the City now receives host and booking information directly from that company. The Revenue Division is using this registration information and other data to enforce the City's short-term rental regulations. The Revenue Division is reporting non-compliant listings to the booking agents to have them removed from their websites. Bureau of Development Services is still developing an application system for registration data and hasn't developed software to analyze rental transaction data. The Bureau prioritized other work during the pandemic and related economic downturn, which affected its staffing. Management said it was unlikely technology would be available anytime soon. (Short-Term Rental Regulation: Enforcement is lax and effect on housing is unknown)

We recommended that the City use proactive, risk-based enforcement to target short-term rental hosts with multiple listings and potential commercial activities in residential zones. Both the Revenue Division and Development Services now have data to identify hosts that may be operating illegally. Revenue uses data from the booking agents and the City's Short-Term Rental Registry to identify hosts with multiple listings. The findings are then reported to Development Services for enforcement as needed. The Revenue Division works with Development Services staff to verify that hosts in commercial locations are operating legally. Development Services has work to do to finalize the enforcement process. (Short-Term Rental Regulation: Enforcement is lax and effect on housing is unknown)

We recommended the adoption of a performance management system capable of achieving consistent fulfillment of the City’s comprehensive performance goals. At the time of our audit, the City assessed its performance for reviewing building permit applications with a single benchmark: time to finish the initial plan review. The Task Force has since adopted overarching goals to improve performance management and to reduce permit time by one-third. The latter is a key shift to scrutinize the permitting process holistically – from submitted application to issued permit – that reflects a partnership between the City and customer. As part of measuring the duration of the overall permit process, the City also addressed a critical reporting gap that we identified in our audit: the City began examining recheck data – reviews after an applicant makes corrections – and now reports on the timeliness of the second round of plan reviews. Because of the Task Force, the City began reporting average times from submitted application to issued permit in its new performance dashboard, which was launched in April 2022. The public dashboard – a subset of more extensive internal reports – showed the City was unable to meet its timeliness goals over the last year. The knowledge that in recent months the City has been taking roughly twice as long as stated goals may help customers set more realistic expectations about permit duration. As we reported last year, timeliness remains the only measure the City uses to evaluate building permit reviews. The Task Force is researching other important areas of performance that we highlighted in the audit – customer service and quality – with the intention of adopting measurable goals in the future. The City has dedicated new staff resources to help sustain this work within Citywide performance management. (Building Permit Review Audit)

We recommended the City follow its policy for resolving and reporting customer complaints about plan review delays or propose an alternative that provides the same level of accountability to the customer, the Development Review Advisory Committee, and Council. The City intends to replace the existing policy with an alternative and to develop reporting functionality. A new position adopted by Council in the Fiscal Year 2022-23 budget will be assigned to work on customer complaint accountability. In the interim, the City has chosen to strengthen existing informal practices we reported on last year that do not fulfill the accountability elements in the audit recommendation. For example, the practices do not have clear timeframes for resolving delays and Development Services still is not fulfilling its complaint-reporting responsibilities. The Task Force has been laying the groundwork to reduce customers’ complaints by improving their experience with the process. Commissioners Ryan and Mapps convened in December 2021 the first Town Hall for the staff across the City’s permitting bureaus. Alongside permitting directors, they announced the adoption of a consistent Citywide review and customer communication policy. The City also developed a foundational customer experience training course for permitting staff. While the new policy does not address complaints, these activities established baseline expectations for a customer service culture at the City. (Building Permit Review Audit)

We recommended Council dedicate resources and hold permitting bureaus collectively accountable to the full and timely implementation of City improvement initiatives related to governance, business process improvement, and bureau agreements. At the time of our audit, there were three improvement initiatives underway to address substantive coordination and process recommendations from studies in 2017 and 2018. The City has since completed work with its consultants on these projects. However, the projects require additional phases of critical work to effect a change in the customer experience. 1) A new City governance committee is piloting ways to improve decision-making among bureaus. The City’s permitting directors adopted the recommendations from the Governance Structure Initiative in July 2021. Those recommendations included creation of a new committee as well as the new structure for reviewing, approving, and prioritizing proposed changes to development reviews and for resolving conflicts. The City plans to share results with Council after the pilot is complete. 2) Development Services will work with other City bureaus to address the next steps for the Business Process Initiative. The report from December 2021 identified suggestions to streamline the building permit process for new commercial construction projects, including action plans to address four problem areas. 3) Development Services is working on a comprehensive update of bureau agreements to refine expectations for areas of deeper collaboration. It signed updated agreements with Environmental Services, Fire and Rescue, and Housing. It is still working with Parks, Planning and Sustainability, Transportation, and Water. We highlighted in our audit the slow progress for each initiative, even before the pandemic, and these latest milestones missed anticipated published deadlines. Staff also do not have clear timeframes for completing the next phases of work. Staffing capacity remains a challenge when the same key employees and workgroups across City permitting bureaus are responsible for and involved in these concurrent initiatives in addition to their regular and other assigned duties. In light of that reality, employees said they were trying to align, coordinate, and streamline across initiatives where possible. (Building Permit Review Audit)

We recommended that the Commissioner should ensure that City Council follows City policies and implement the 2018 recommendations – or adopt alternatives – to address Citywide regulatory improvements that also involve other bureaus, such as the Bureau of Planning and Sustainability and the Office of Management and Finance. The Task Force discussed regulatory challenges with Council at the January 2022 work session after reviewing and vetting improvement alternatives to those mentioned in the audit. Council adopted in May 2022 the first legislative reform area: aligning effective dates of Code and fee changes across the City to minimize disruption and delays experienced by customers. The Task Force will address the other two reform areas – greater inter-bureau coordination and earlier Council direction – in the future. The City decided these two areas will require more time to develop and implement across bureaus and may be impacted by the permitting structure design changes. (Building Permit Review Audit)

We recommended that the Commissioner should ensure that City Council holds the directors of their individually assigned bureaus accountable to the implementation of this set of audit recommendations intended to improve Citywide performance. The Task Force discussed potential changes to Citywide system design with Council at the January 2022 work session and, with Council’s support, has been researching a new structure to achieve defined goals. The Task Force adopted in April 2022 the permitting structure design change recommendations from its work group. One notable change is a new Infrastructure Development Services team to consolidate reviewers from Environmental Services, Parks, Transportation, and Water. The Task Force anticipates further research, discussion, and implementation of these structural changes over the next two years. (Building Permit Review Audit)