Many of the newest apartment buildings in Portland represent the height of luxury, with workout rooms, Amazon Echos, and other upscale delights. But their developers are worried: Thanks to a relatively new city program, they’re being forced to rent some of those pricey units to the less-privileged in Portland. As a result, some say they won’t build as much housing in the city—and they place the blame on inclusionary housing (IH), a policy intended to help with the city’s affordable housing crisis.
IH—a program that requires developers to include affordable units in new residential buildings with more than 20 apartments—has been city policy since February 2017. While developers claim IH is cooling the market and driving development to other cities, the program’s advocates say it’s already helping to solve Portland’s housing shortage.
IH mandates that developers either make 15 percent of the units in large-scale apartment complexes financially accessible to those who make 80 percent or less of Portland’s median family income (MFI), or make 8 percent of the units accessible for those who make 60 percent or less of Portland’s MFI, which is currently $34,200 for an individual. The rental rate for IH units is set at 30 percent of a household’s income, just under the level at which the household becomes “housing burdened.” At that level, an IH studio apartment rents for $855 per month, while an IH two-bedroom apartment goes for $1,099.
According to RENTCafé, the average studio apartment in Portland currently rents for $1,172 per month, and the average monthly rent for a two-bedroom apartment is $1,530. A person working 40 hours a week at Portland’s $12 minimum wage makes an estimated $24,960 per year—less than 45 percent of the city’s MFI.
By the end of 2018, city ordinance dictates that developers across Portland will have to include even more inclusionary housing—falling in line with policies already in place in downtown Portland and the Central Eastside, where developers already have to include 10 percent of a building’s apartments to those making 60 percent of the MFI or 20 percent to those making 80 percent of the MFI.
The IH policy comes with perks for developers, such as not having to pay city property taxes for 10 years, waived fees on some city development charges, and the ability to build larger buildings than zoning would normally allow. There are also options for developers who don’t want to include affordable housing in new complexes: Portland’s IH requirement can be voided if a developer either pays a fee of $20 to $30 per square foot of the building or if they build or purchase affordable apartments in a separate building nearby.
PHB Interim Director Shannon Callahan says that since Portland’s IH program came online in 2017, 35 development projects have participated. Seventeen months into the program, a total of 280 affordable rental units have either been built or are in development.
Callahan says that’s a success, but developers aren’t so pleased.
Tom Brenneke, the president of development firm Guardian Management, says the IH program is a “deterrent” to developers. He believes adding affordable units cuts into the profit margins for big projects, making it nearly impossible for those projects to secure funding.
“If you’re going to tell me to price my units at a certain level,” says Brenneke, “I don’t know if I’ll build it.”
Brenneke adds that IH isn’t the only problem currently hobbling Portland’s developers, citing the city’s slow permitting process, stubborn neighborhood associations, and increasing construction costs. When combined with a recent plateau in local rents, Brenneke says, “You have a policy that’s out of balance.” Brenneke says developers haven’t been applying for very many permits since IH came into effect, but the city does not have data available to corroborate that claim.
Dan Drinkward, the vice president of Hoffman Construction, says IH could have a cooling effect on the Portland development market.
“When you change the economics of [development] pretty drastically, which inclusionary zoning does, then you have to change the deal with all those partners, and most of them will probably walk away,” he says, noting that out-of-town investors “don’t care about housing in Portland.” Drinkward believes national investors are instead focusing on San Francisco and Seattle, and that local developers are moving their projects to Portland’s less-regulated suburbs.
Determining whether IH is effective depends on your perspective, says Marisa Zapata, a land use and urban planning professor at Portland State University.
“When you hear developers say, ‘It depends how you implement [IH],’ they’re talking about how you make developers happiest,” Zapata says. “When I say it depends on how it’s implemented, I’m asking how many inclusionary units we’re getting that actually serve the interests of people from low-income backgrounds.”
Zapata agrees that the development market is slowing down, but she says it’s not as a result of IH.
“Developers hurt themselves by overbuilding luxury housing,” she says.
The numbers back her up. Portland’s vacancy rate for apartments built in 2017 is 12 percent, compared to an overall vacancy rate of 5.7 percent. While the housing market remains tight for lower-income renters, there isn’t nearly as much demand for the more expensive housing that developers have been building.
But Brenneke says Portland needs more housing in general, not just affordable housing.
“We’ve got to build 4,000 or 5,000 units per year to keep up with demand,” Brenneke says, adding that IH could deter developers from meeting that demand.
Even if IH has prevented some new projects from being built, Zapata doesn’t believe their loss will impact the Portlanders who most need affordable housing.
“Building a luxury unit today is not going to become low-income housing tomorrow,” she says. “Unless you’re building units that are designated and designed for people with low-income backgrounds right now, they’re not going to have access to that housing.”
“Brenneke says developers haven’t been applying for very many permits since IH came into effect, but the city does not have data available to corroborate that claim.”
How the fuck does the city not have data on how many permit applications have been submitted since a particular date?
“The numbers back her up. Portland’s vacancy rate for apartments built in 2017 is 12 percent, compared to an overall vacancy rate of 5.7 percent.”
No, the numbers do not back her up. Every new development takes about 2 years to fully fill up with tenants, that’s very standard for brand new apartment buildings. It’s a different story for condos, because the way condos are financed means a certain number of units are required to be pre-sold before the actual construction is financed.
This same claim was made by people about “luxury” apartments in downtown Los Angeles, where there was a big spike in the vacancy rate after a ton of new units came online simultaneously. People claimed it was evidence of “overdevelopment.” A year later? The vacancy rate had dropped back down to be close to the overall vacancy rate of the entire city.
Portland truly suffers from any journalism that actually demonstrates even passing knowledge of housing and development issues.
The city does have data – they have a website that tracks the IZ pipeline. There are currently only 24 projects in the inclusionary housing pipeline in the city (buildings over 20 units that have been submitted since February 2017). https://www.portlandoregon.gov/phb/76089
I think Brenneke’s right about the number of total homes we need to build per year on average. Pretty sure we’re going to exceed that number in 2017-2018, so it’s not the worst thing if we’re under for a year or two after, but if things are not heading back to that rate soon then we’re all in big trouble.
As for what a working IH policy looks like, I agree with Zapata that it’s about the number of below-market homes being produced. 280 over 18 months is better than 0, but we should be getting 400 to 800 per year. If we’re not on track to get to that rate, then the policy is out of balance.
As the earlier comment noted, Portland Housing has a breakdown of all projects since inception (https://www.portlandoregon.gov/phb/76089):
24 projects (22 apts/2 condo)
~210 IH units: 74 studio, 101 1BR, 29 TBD, <10 2/3/4BR apts/condos
Plus, it looks like those include some with public financing as well. The private projects are adding minimal numbers, mostly at the 80% rate.
From that Feb 2018 report (https://www.portlandoregon.gov/bps/article/672661)
“To maintain housing production and housing supply targets identified in the 2035 Comprehensive Plan, the City of Portland would need to start seeing significant increases in land use review and building permit applications over the next six to twelve months to replace development pipeline units that will be delivered to market over the next 18-24 months.
With the understanding that there are challenges to development feasibility due to broader market fundamentals, BPS and PHB recommend we explore a process to make adjustments or modifications to the Inclusionary Housing Zoning Code and Program requirements.”
The Portland area is adding btw 6000-8000 apts/yr right now. And there’s still a backlog of 1000s of units in pre-IH permits.
Maybe this program eventually works, but right now it’s getting worked around, with 19-unit projects and new developments in the suburbs. This handful of affordable tiny rooms is barely a rounding error.
Ah, jeez… Another go round from the same “experts” who’ve been taking potshots at this program since it was first proposed 20 years ago.
Get over it. This community WILL take every necessary step to ensure that low income people can still live here. Don’t like it? Go build in Texas or whatever other craphole will let you monetize peoples’ suffering. That’s not Portland.
No, Portland’s Inclusionary Zoning is not “really harming developers”. Developers are simply shifting business and doing projects in other less restrictive cities or building luxury single family to 10 unit projects instead, or they are keeping units empty and waiting which they can afford to do. It is however hurting the development of lower income housing in Portland, absolutely as the data and article clearly shows.
And at 280 measly units, the measure for success is a bar set so low that it has almost negligible affects in housing affordability or availability for under 80% mfi need and demands as well as keeping pace with continual growth – 1000 people moving her per month the past 12 months and continuing to do so.
And if the city doesn’t have data (they DO have the data, they just don’t want to share it because it makes IH look as much as a failure as housing experts say it is), then that speaks loads about the underlying problems with our dysfunctional city government and their inability to address or gauge affordable housing programs.
The other above commenters nail it. And while it’s admirable the reporter is interested in this topic, it would behoove them to learn about housing markets, data, economics because the whole article is apparent the reporter has zero clue on this topic.
Finally, housing experts are exactly that, experts, which is why they get interviewed on their expert knowledge and experience rather than some some angry housing “activists” who have no idea what they are talking about or politicians more interested in populism who want to look like they are doing something to appease the masses. Experts who build, work in, do economics for, finance, provide housing of all levels warned that IH would be problematic before it was adopted, the numbers are showing it isn’t working, and in yet another year or two or three we’ll have the same story again. If this community WILL take every necessary step to ensure low income people can still live here, then “this community” can start by booting out their current city council, because City Council seems hellbent on doing everything they can to ensure our city’s affordability woes continue. IH is a perfect example. Wishing otherwise doesn’t make it so.
The marketplace will not produce affordable housing on its own. Land has become too valuable.
For decades, developers spent millions of tax dollars (through the Portland Development Commission) replacing affordable housing with luxury apartments. Now that the city is finally dealing with the consequences, developers are whining like junkies going through withdrawals. The party won’t go on forever in Seattle or San Francisco either.
Developers also flooded Development Services before IZ was implemented to avoid dealing with it. Building was bound to slow down some immediately after that. I’m with Marisa, ““When you hear developers say, ‘It depends how you implement [IH],’ they’re talking about how you make developers happiest,” Zapata says.”
Plus, why isn’t the writer factoring in the “perks” the city gives. Developers aren’t just expected to do IZ without some advantages, which could be worth a great deal of money. We should be analyzing what their perks are worth.
Are the developers’ perks listed in the piece not correct?