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Per-unit apartment price tag tops amount cited in bond campaign, but Portland Housing Bureau says costs for those projects can be held down.

COURTESY HOME FORWARD - Home Forward's planned affordable housing project will have 240 units and meet city requirements for longevity, energy efficiency, and prevailing wage rate payments. The total cost is just under $74 million.The cost of the newest affordable housing project approved by the Portland City Council is raising questions about other projects to be funded by the $285.4 million affordable housing bond approved by Portland voters in November 2016.

The same questions also apply to the $500 million affordable housing measure being considered by Metro for the November 2018 ballot.

The 240-unit apartment complex to be built at Northeast Grand and Hassalo will cost just under $74 million. Deducting the cost of the ground-floor retail space, that averages to more than $285,000 per unit — $85,000 more than the $200,000 average promised for units to be funded by the affordable housing bond.

Although the city is contributing only $5.6 million in urban renewal funds and the $1.4 million cost of the land to the project, the high per-unit price was an issue during the council deliberations.

"I think the number one question is going to be the price tag," said Commissioner Chloe Eudaly, who asked why "the per-unit cost appears to be so much higher than what we're anticipating for our housing bond units."

Mayor Ted Wheeler, who oversees the Portland Housing Bureau that submitted the funding request, repeatedly stressed that the city's contribution would leverage more than 10 times as much in other funding. Also financing the project is its developer, Home Forward, and Bank America Merrill Lynch.

"I want to keep that front and center — 10-to-1 leverage," Wheeler said of the project, which is expected to be completed in 2019 on the property known as Block 45.

But the question will be more important when the council begins considering projects to be financed with affordable housing bond funds in March. Because of restrictions in the Oregon Constitution, the city cannot partner with private businesses, like Bank America Merrill Lynch, on those projects.

Even if qualified nonprofit partners can be found, the city likely will have to pay the vast majority of the costs. And the more the units cost, the fewer of them can be built.

Although Metro has not yet finalized its potential measure, the same restrictions apply if it puts a property tax bond before voters.

That restriction might eventually be eliminated. At the Oregon Leadership Summit on Monday, State Rep. Alissa Keny-Guyer, D-Portland, said the 2018 Oregon Legislature will consider a ballot measure to allow state and local governments more flexibility with such bond funds. But the potential change Keny-Guyer described to business and elected leaders gathered at the Oregon Convention Center cannot reach the ballot until November 2018 at the earliest.

The Portland affordable housing bond is expected to preserve or build 1,300 units of housing affordable to households earning 60 percent of less of the area median family income. The council has already approved the purchase of an existing apartment complex with the funds, leaving approximately $200 million to be spent after administrative costs. The council is expected to receive its next request for funding from the housing bureau in March.

COURTESY HOME FORWARD - The cost of housing in the Block 45 project is just under $68.5 million, which comes out to $285,330 per unit.
 Building height raises costs

During the Nov. 29 council hearing, several reasons were offered why the per-unit costs of the new affordable housing project are so high. Among other things, city and state requirements unrelated to housing increased the overall cost of the project.

Those include paying prevailing wage rates to construction workers on the project. Such rates, set under Oregon law by the state Bureau of Labor and Industries, traditionally mirror union wages in the communities where the work is taking place. Affordable housing projects of five stories or less are exempt from the requirements. The new project in the Lloyd District is 12 stories high.

As a condition of providing city funding, the council is also requiring the rents to remain affordable for 99 years, meaning the building itself must be built to last that long. The building also has to meet high environmental standards and comply with design review standards in the Lloyd District.

Tim Collier, the communications director for Home Forward, says the per-unit cost is not unusually high for such a project.

"We build to own these properties and ensure their affordability for the long term. We've committed to a 99-year affordability period, which means investing wisely on the front end, with a design that complements the neighborhood. The total cost of developing the housing is just under $68.5 million. That includes $1 million of increased costs due to market instability caused by tax reform. It comes out to $285,330 per unit, which is in line with other affordable housing developments," says Collier, whose organization was formally called the Housing Authority of Portland.

Commissioner Nick Fish defended the city requirements and standards during the hearing.

"I never remember someone getting up and saying, 'I object to quality. I object to planning for the long term. Can't we go cheap? Can't we find some way to make it look crummy?' " Fish said.

Existing units cheaper

Portland Housing Bureau Director Kurt Creager says the average cost of the affordable housing units can be kept down, however.

Although his bureau is still reviewing project submissions to be presented to the council, he expects them to include older apartments that go up for sale. The Ellington, which the bureau purchased last year in Northeast Portland, cost only $168,950 per unit — about the average price that Creager thinks existing buildings should cost to buy.

Creager also says he does not expect new construction projects to be as tall as the one in the Lloyd District, which required costly steel framing. He believes smaller apartments will average around $218,000 per unit.

And the housing bureau is preparing a pilot project to be presented to the council to purchase newly completed, turnkey-ready projects built by developers with private funds that do not meet all of the nonessential city requirements and standards. That concept has been promoted by Rob Justus, co-owner of Home First Development, a company that builds projects for nonprofit affordable housing developers at a much-lower price point.

The company's most recent project, the Maple Vine at Southeast 146th Avenue and Burnside Street, cost an average of around $90,000 per unit to build. It is the fifth affordable housing complex built by Home First Development for Relay Resources, the nonprofit affordable housing developer and operator formerly known as PHC Northwest.

No public funds were used to finance the new complex because of the strings attached with government money.

It still has many of the amenities the council says it wants in affordable housing developments, including easy access to transit. Justus said it also meets Earth Advantage environmental standards, although it did not go through the costly certification process.

Despite the lack of public subsidies, the Vine Maple rents are affordable to households earning 60 percent or less of median family income. Studio apartments rent for $535 a month, while one-bedroom units go for $726 and two-bedroom units are priced at $868 a month.

"The question is, do we want to build the most affordable housing units at the lowest cost?" Justus asked.

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