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Recent study names Portland as one of the hardest markets to build apartments

To the casual pedestrian it might look like there are plenty of boom cranes putting up new apartment towers in Portland, but developers know the truth: it's not easy to wade through the city's development policies to get to that point.

A new study out of Washington, D.C., ranks Portland No. 21 out of 50 metro areas in terms of hardest cities to add necessary new apartments.

The new research is from Hoyt Advisory Services (HAS), commissioned by the National Multifamily Housing Council (NMHC) and the National Apartment Association (NAA). The leading cities in which it's the hardest to build new apartments are Honolulu, Boston, Baltimore, Miami and Memphis.

The rankings are based on local regulations and amount of available land to develop, naming New Orleans as the easiest.

Regardless of where each metro area ranks, the U.S. needs to build at least 4.6 million new apartments by 2030 to meet the expected increase in demand — otherwise, the affordability problems that exist today will only get worse across the board.

The number of apartment renters is at an all-time high, and the growing demand for apartments is creating a nationwide challenge for people to find quality housing that is affordable at their income levels.

"For many reasons, building apartments has become costlier and more time-consuming than it needs to be. Over the past three decades, not only have hard costs like land and materials risen sharply, but regulatory barriers to apartment construction have also increased significantly, most notably at the local level," said NMHC Chair Bob DeWitt in a release. "These obstacles to development, such as outdated zoning laws, unnecessary land use restrictions, arbitrary permitting requirements, inflated parking requirements, environmental site assessments and more discourage housing construction and raise the cost of those apartment communities that do get built."

According to the new study, meeting the demand for apartments means building more than 325,000 new apartment units each year on average. From 2012 through 2016, the apartment industry averaged only 244,000 new apartment buildings with five or more units per year. The last time the industry built more than 325,000 in a single year was 1989.PAMPLIN MEDIA GROUP FILE PHOTO - Block 33 in Chinatown, which is currently this parking lot, is planned to become a 10-story mixed-used development — but exceeds the Citys height requirements in the historic neighborhood, stalling its development.

Portland's piece

The Business Tribune checked in with local experts to bring the subject home — especially because the metro area has seen a downturn in permit applications for new apartments since the Inclusionary Housing policy went into effect.

John McIsaac, principal of Atkinson McIsaac and spokesperson for Multifamily NW, said the biggest issue making it hard to build apartments in Portland is the permitting process.

"What used to take six weeks to three months to pass through the system, now takes anywhere from six to nine months, and even longer," McIsaac told the Business Tribune. "They've got to streamline this permitting process so more apartments can be built both market-rate and affordable, and that is a City Hall problem."

McIsaacThe DOZA (Design Overlay Zoning Assessment) project is working on streamlining the development permitting process, and while certain administrative aspects have already begun to come into play, it's another piece of molasses to developers.

"I don't have a lot of faith in the people who are working on that," McIsaac said. "I work with property managers and landlords who are progressive, they are not evil conservative money-grubbing landlords ... We want to build more apartments both market-rate and affordable, and it's just too hard to get it done politically here in town. The building permits are not being issued nearly fast enough."

He's seen a lot of his clients move toward developing in Milwaukie, the southeast suburb. The smaller city has easier, faster processes — and McIsaac thinks specific NIMBY-type policies are holding Portland back.

Problem solving

Cities with big employers located nearby — like Beaverton, with Nike and Intel — are infilling the fastest. This new trend may indicate further stunting of growth in Portland's east side, which has room for development and renovation but is stuck under the slow big-city rules.

"My clients (landlords) believe that there is a housing crisis. Some of them are really happy that the economy is great, and that they have the opportunity to completely rent all the apartments they own or manage because it's so hot here," McIsaac said. "On the other hand, they don't feel good about the fact that people are priced out, and think more affordable housing needs to be built."

The group of landlords he represents would like to participate in troubleshooting the housing crisis — they feel left out of the policy that requires them to pay moving costs for people who can't afford rent hikes.

"The group I represent would like to propose an initiative that does away with Oregon State income tax for families below a certain income, so they can afford the housing as rents go up. It would give them a 9 percent pay raise, basically," McIsaac said.

That's not on the ballot yet, but don't be surprised if it shows up.

"Another thing is the vertical density — there is an ordinance of some kind in play that caps them and the NIMBYism of the neighbors is another problem. Those two go together and are responsible for capping that vertical density," McIsaac said. "A lot of these developers would like to build taller buildings, which would help alleviate rising rents and it would provide tax advantages to the city, who in turn could pass those rebates to subsidies for affordable housing."

McIsaac said the City is annually missing out on millions of dollars by ignoring vertical density tax rebates.

"On a personal level, I love the urban growth boundary and I think that's probably part of the problem," McIsaac said. "If you could build out, then you could bring down the cost of housing ... unfortunately a (byproduct) of density is expensive living, it's something that happens in progressive communities that people want to live in all over the country."

The landlord's lawyer

John DiLorenzo, partner at Davis Wright Tremaine, has authored and been a primary advocate for major state and local legislation with an emphasis on property tax, natural resources and economic development.

"From a philosophic perspective first of all, I think we all agree — leading tenant advocates and the organized property owners — that we need to do something to provide more places for people to live in Portland, there is no doubt about that," DiLorenzo told the Business Tribune. "Where we part company are the strategies best designed to respond to that circumstance."SUBMITTED: DAVIS WRIGHT TREMAINE - John DiLorenzo, partner at Davis Wright Tremaine, has authored and been a primary advocate for major state and local legislation with an emphasis on property tax, natural resources and economic development.

No one argues the fact that Portland has a ridiculous amount of inward migration — but DiLorenzo wonders why we have a tremendous amount of inward migration of people with disposable incomes.

"Is it because the new employers are providing jobs to them, which begs the question why aren't the employers providing jobs to people who are already here?" DiLorenzo said. "Maybe what we have is a marketable skills crisis as opposed to anything else."

The housing advocates push for solutions like landlords paying for moving expenses when they displace someone on their property — a demand-side resolution.

"We advocate supply-side resolutions. We believe that you can build adequate housing to accommodate everyone," DiLorenzo said. "The housing advocates say no, the answer is rent control and other types of policy that control demand. Here's the problem: we believe that their resolutions are going to exacerbate the problem, not help it."

Everyone wants to increase units and give every Portlander the opportunity to have a place to rest their heads.

"Why is it difficult then to increase supply? First of all, I've got clients who want to build really modest housing projects — $10 million housing projects, small," DiLorenzo said. "In the City of Portland, the permitting fees including system development charges alone approximate up to 15 percent of the total construction costs, so I can refer you to people who are building $10 million (projects) who are paying $1.5 million before they even get started."

In April, the City Budget Office of Management and Finance issued a report on strategies for accelerating housing development in Portland. In total, according to the report, government-imposed fees represent roughly 13 percent of total costs of housing development projects.

System development charges (SDCs) represent the majority of government-imposed costs, hovering between 56.4 percent for single-family homes to 79.8 percent for four-story multi-family developments of the total cost imposed by the government.

Government-imposed costs to housing development projects include city review and permit fees for land use, building, public works and others, as well as system development charges for Environmental Services, the Water Bureau, the Parks Bureau and the Bureau of Transportation. City specific taxes include local transportation infrastructure charges (LTIC) and a 1 percent construction excise tax on affordable housing. Sometimes there are regional or state costs, along with city development requirements.

The City has also waived some SDCs for affordable housing projects (multi-dwelling and single-dwelling) and accessory dwelling units.

Ideas for solutions

DiLorenzo has ideas he'd implement if he could — and he has taken them before legislature.

"We do have in mind some strategies that would do a number of things," DiLorenzo said. "When you have a housing emergency declared, local government cannot charge more in fees than the actual cost of delivery of the service. So for instance, if the government is going to charge you fees for design review, those fees should be very close to what it spends on its staff to do the design review."

Republicans liked it, but Democrats canned it when he took that idea before legislature.

"Here's another idea: expand the (Inclusionary Housing) rules and see how many building permits result," DiLorenzo said. "Everybody has the right to live in Portland, I think — but there is no reason why everybody has the right to live in the most expensive real estate there is. If you live in L.A., do you automatically have the right to live in Bel Air?"

Much of Portland's affordable housing is in the Pearl District or Chinatown near downtown services, but the Housing Bureau had hoped the Inclusionary Housing policy would spread it around.

By the grace of TriMet, Portland's connectivity makes it all right to live in the outskirts — even though it might not be the most desirable commute.

"The third thing is expand our urban growth boundary so we can build more affordable housing within easy reach of light rail, so people have total connectivity and can come downtown. We haven't explored those options, either," DiLorenzo said. "The fourth thing we can do is enact what we introduced in legislative session this last session: a renter's assistance act that will allow for temporary renter's assistance for people who are in between jobs who find it difficult to pay rent, a kind of statewide Section 8."

The main point is that Portlanders do have ideas and want to participate in solutions to the housing crisis.

"The organized property owners stand ready, willing and able to sit down with tenant groups and public officials and others to design ways in which we can construct more housing so people can live in the city," DiLorenzo said. "There's plenty of room for more housing, we just need to eliminate the disincentives."

By Jules Rogers
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