Inclusionary Housing: one year later
Inclusionary Housing: is it adding more affordable units to the city of Portland, or reducing the total number of units added?
There is still concern among the development community that the policy that went into effect a year ago Feb. 1 will still tie up the pipeline of new construction work, but the City says everything is moving forward — slowly but surely.
The Business Tribune has been investigating the topic over the past 12 months, and has the latest trends and numbers on the subject. There are 12 private sector multi-family projects and nine Portland Housing Bureau projects subject to inclusionary housing in the queue, along with 21 projects that are vested and not subject to inclusionary housing, but could opt-in.
The Inclusionary Housing policy came into effect in Portland one year ago this February, mandating that any new residential properties being developed with more than 20 units include a percentage — 10 percent and up, depending — that are rented at affordable rates.
The City of Portland and proponents intended to alleviate the housing crisis by adding affordable housing wherever housing was already being added. However, critics and big-time real estate developers had said they didn't know how they get that to pencil out.
One year later, there are a total of 12 private
and nine Housing Bureau projects submitted for
permit that qualify for the inclusionary housing
In 2016, about 41 residential projects with more than 20 units were approved for permit, with a
combined estimated value of at least a total of $272.2 million. January 2017 alone saw 20 permit applications for developments with more than 20 units, with a total valuation of $74.7 million, before inclusionary housing took effect.
The Housing Bureau officially told the Tribune in 2017 they will focus on the ones already in the queue, rather than worrying about the lack of developers submitting for new permits.
There's a list of projects that submitted for permit right before inclusionary housing came into effect the city is labeling as "vested," or not subject to inclusionary housing.
Projects queued up
Marshall Runkel, chief of staff for Commissioner Chloe Eudaly's office, spoke with the Tribune. Commissioner Eudaly is the liaison of the Bureau of Development Services, which worked on the IH policy with the Bureau of Planning and Sustainability and the PHB.
"Those are projects that came in right before the deadline, so there's no requirement for affordable housing or to comply with the inclusionary zoning policy, but we have the first project that is voluntarily opting in to inclusionary zoning with very similar requirements to the policy," Runkel said.
And one project is making the effort: the Greystar in Northwest Portland.
"I've been working with a property owner right on the edge of the central city in Northwest Portland who is really interested in opting in," Runkel said. "Progress has been limited, and I'm just hoping we can get this first one that's opting in through — I'm hoping to file it with the mayor's office early next week."
He's positive about the future of it.
"I'm incredibly impressed and ... some people clearly are figuring out how to pencil it out," Runkel said. "There's kind of a perception in some corners of the community that the inclusionary policy is going to stop the development of multi-family, but the evidence doesn't seem to support that."
Of the private sector projects, one is planning to build the affordable units off-site, one is planning to build with 8 percent of units at 60 percent of the area median income, and seven plan to build with 15 percent of units at 80 percent AMI — all options under the inclusionary housing policy. There are also three still pending, for a potential total of 682 units to be added to the city.
There's still the potential that the City Council could change the incentives, although there's no consensus on it yet.
"We've talked about ironing out a couple wrinkles in the way things work," Runkel said. "Two issues I've heard over and over again is right now, if you comply with the inclusionary policy in Central City, the developer receives a tax abatement for the whole project — not just the affordable units."
Outside Central City, developments only get a tax abatement from the affordable portion.
"The other thing that I've heard over and over again of the development community is the term of affordability being required versus duration of the tax abatement," Runkel said. "The tax abatement is limited; the duration of the affordable requirement is 99 years."
As Runkel reviewed numbers with numerous development groups, the performance looks fine for the first decade, but goes into the red when the tax abatement disappears.
"I don't think there's consensus in the City Council about making any of those changes, but I have heard pretty strong consensus from the development community about those two items — if we're going to look at any policy stuff in inclusionary housing, those are the two issues that kept coming up in my conversations," Runkel said.
Private sector voices
Overall, it hasn't seemed to affect the construction industry yet.
"The AGC was not involved in the discussion or adoption of this ordinance," said Mike Salsgiver, executive director of the Associated General Contractors Oregon-Columbia chapter. "That said, I have heard absolutely nothing from our members about this issue. On the other hand, real estate is already new trends post IHU noticing"
Patrick Barry is an apartment appraiser specialist at Barry & Associates.
Barry and Associates, founded by Patrick's father Mark in 1983, is a real estate appraisal company that specializes in apartments. It has completed more than 5,500 appraisals.
"I follow the weekly permits from the City of Portland. Since IZ (inclusionary
zoning) went into effect, there has been
a major slowdown in proposed apartments, especially large ones," Barry told the
Tribune. "Trends I've seen in the permits includes smaller infill projects on small sites — lots of 19 unit apartments. There has also been a number of large subsidized apartments, which will not be subject
That would be the Housing Bureau projects, planned to be all affordable from inception. In terms of larger effects, Barry hasn't seen developers downsize from large, 50-unit apartments or split those into two buildings to side-step the policy.
As for private-sector projects, some critics of the policy feared that developers would either build 19-unit apartments or just go to the suburbs as easy work-arounds. Anecdotally, it's true.
"I recently completed a project where the developer was planning on building 20 units, but ended up combining two studios to make a one-bedroom unit," Barry said. "This brought them down to 19 units and was able to avoid IZ. This same developer has also moved some projects to Vancouver and other outlying communities to avoid IZ."
The suburbs in Portland and Vancouver have seen an increase in development, but whether that's due to developers moving their projects out of Portland or simply to the hot market surrounding the popular city is anyone's guess.
"The suburb question is a tough one.
I anticipate increased construction in the suburbs in the coming years," Barry said.
"I think the main driver of this will be
(cheaper) land values and because there has been so much construction activity in the urban area. IZ probably just helps nudge developers further out."
Some of the options allow developers to move the affordable units off-site, or waive the parking requirement to make space for the affordable units.
"A very prominent Portland developer has been converting their non-IZ projects to IZ compliant," Barry said. "This has allowed them to add more units and reduce or eliminate parking."
The project at 5955 S.E. Milwaukie has plans to build the required affordable units off-site.
"We currently have so many units under-construction and with pre-IZ entitlements, I think that any slowdown in construction due to IZ won't been seen for at least 18-24 months," Barry said.
By Jules Rogers
Reporter, The Business Tribune
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Portland Housing Bureau IH Projects
• 1620 N.W. 14th (93 units)
• 6905 N. Interstate (51 units)
• 5005 N.E. 72nd (101 units)
• 12621 S.E. Stark (115 units)
• 333 S.E. 127th (38 units)
• 20415 S.W. River Pkwy. (203 units)
• 2065 S.W. River Pkwy. (177 units)
• 12121 E. Burnside (34 units)
• 8118 S.E. Division (48 units)
Multifamily, private sector projects that include IH
With 15 percent of units at 80 percent AMI:
• 123 S.E. 13th (87 units)
• 6012 S.E. Yamhill (76 units)
• 2821 N.E. Everett (119 units)
• 2580 S.E. Ankeny (96 units)
• 5770 E. Burnside (48 units)
• 14775 N.E. Couch (30 units)
• 1515 N.E. 28th (53 units)
With 8 percent of units at 60 percent AMI:
• 5401 S.E. Woodstock (38 units)
Building the affordable units off-site:
• 5955 S.E. Milwaukie (54 units)
IH option still pending:
• 6263 N. Cecelia (21 units)
• 2508 S.E. 32nd (32 units)
• 5434 S.E. Milwaukie (28 units)