A 155-unit apartment project under construction in North Portland in 2013. (Doug Beghtel/The Oregonian/file)
Portland might alter a key policy designed to create more affordable housing throughout the city.
City housing officials are proposing big changes to a year-and-a-half-old program known as "inclusionary housing." The approach requires developers to include rent-restricted units in large housing developments, which the city hopes will create a pipeline of affordable apartments in some of the city's most desirable neighborhoods.
But the Housing Bureau has recommended a delay for a scheduled increase in the number of affordable units required, and its leaders are weighing bigger tax breaks to developers in an attempt to get more apartments built.
The move doesn't signal that the program isn't working, said Matthew Tschabold, the bureau's assistant director. One worry when the city adopted it was that it might restrict construction, a byproduct that could leave renters with fewer choices and drive up rents.
"From our perspective it still is too soon to tell," Tschabold said. "This is just the Housing Bureau doing what we committed to doing, which is to actively manage the program, to bring back refinements and adjustments as needed."
Portland inclusionary housing units
Data: Portland Housing Bureau | Map: Elliot Njus/The Oregonian
Some developers disagree. They say the program has made it too hard to build homes in the city, and they point to a decline in new projects proposed since the program took effect.
One complicating factor is the thousands of apartments proposed before the inclusionary housing mandate, many that are just beginning construction or even still in the permitting process. Developers are still working their way through those projects, which helped push 2017 to a record-setting year for housing unit permits.
An analysis of numbers provided by the Housing Bureau found that the program has resulted in 291 rent-restricted units in 33 private, for-profit developments. Projects backed by the Portland Housing Bureau or nonprofit affordable housing developers bring the total to 362.
Because the mandate took effect just last year, none have yet been built and some are still seeking building permits.
Another 57 projects, totaling 6,300 total units, a fraction of which would be rent-restricted, have been proposed, but are in an early phase of the permitting process. Those projects could be abandoned or altered.
The policy was expected to produce an average of 382 new affordable units per year over 20 years, assuming the city lives up to the housing forecast outlined in its comprehensive plan.
An apartment building is shown under construction in Southeast Portland in 2014. (Mark Graves/The Oregonian/file)
The shifting winds of the construction business have further confused things. Construction costs have climbed and rents have plateaued, which could slow construction regardless of the effect of the inclusionary housing policy.
"I'd say inclusionary housing is working exactly the way we designed it," said Vivian Satterfield, an activist who pushed for the state to allow inclusionary housing and sat on the committee that helped design the city's program. "It's designed to be responsive to the market. These shifts can happen and are unrelated to inclusionary housing."
The changes the city is considering would delay a scheduled increase in the percentage of rent-restricted units in developments across much of the city.
The program currently requires that 15 percent of units be restricted to rents affordable at 80 percent of the median family income or that 8 percent of units be affordable at 60 percent of median family income. The requirement was set to jump in January to 20 percent and 10 percent respectively, but the bureau has proposed to delay the increase until 2021.
The city could also expand tax exemptions that developers receive to offset the cost of affordable units. Instead of receiving the exemption on just the rent-restricted units, owners of large apartment buildings could be exempt from taxes on all residential units in the building.
That's a benefit already offered to developers within the central city, but the expansion could remove thousands more apartments from the tax rolls. It's not yet clear how much that would cost, Tschabold said.
New apartment buildings were sprouting up on the east end of the Burnside Bridge last year. (Stephanie Yao Long/Staff/file)
Program backers said from the outset that the program must be calibrated to ensure building homes remains profitable so the supply keeps up with demand to keep prices at bay. Portland's apartment buildings have been full-up for years, and the recent construction boom is only just beginning to create some breathing room.
At the same time, officials don't want the incentives to be a windfall for developers that deprives the city of money to pay for parks, roads and schools.
The changes won't address of the biggest gripes developers have with the program: that the tax exemption lasts just 10 years while rent restrictions remain in place for 99 years. That makes it difficult to predict future costs, which can complicate financing or selling a building.
Dennis Sackhoff, whose Beaverton-based Urban Development Group has been a prolific developer on Portland's east side in recent years, voluntarily resubmitted permits for four buildings under the program primarily to get a requirement to build parking waived.
But he said that was a way to get projects going on property he already owned.
"I don't see that the program works well enough to encourage me to do any more," he said. "It's not attractive enough."
Apartment buildings are shown under construction in North Portland in 2015. (Kristyna Wentz-Graff/Staff/file)
Joe Cortright, a Portland economist and director of the City Observatory think tank, said the number of housing development proposals coming in since the inclusionary zoning policy took effect isn't enough to sustain the level of building needed to meet demand.
That could push rents higher for everyone, he said.
While the policy might have created 360 affordable units, Cortright said, "if you deterred the construction of that many market-rate units, you arguably had at least as big, or possibly bigger, impact of the affordability of apartments."
Tschabold said the Housing Bureau would study the proposed changes over the coming months. The Portland City Council would have to sign off on major changes to the program.
-- Elliot Njus
enjus@oregonian.com
503-294-5034
@enjus
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