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Portland’s City Council is on the verge of enacting an inclusionary housing policy that some developers warn could bring apartment construction to a halt in Portland.

On Wednesday, the City Council quickly approved a raft of amendments. One allows developers who build affordable units to forgo constructing parking that would otherwise be required. Another changes the affordability requirement from units to bedrooms, encouraging developers to build some family-size apartments.

A final vote will be held Dec. 21.

During a special session on Tuesday, developers, tenant advocates and nonprofit housing executives filled council chambers for more than three hours of testimony.

The inclusionary housing policy has been controversial as developers have repeatedly warned that affordable housing requirements could make their projects unattractive to investors, leaving plans on the shelf and projects unbuilt.

City officials have forged ahead with the program, saying it’s a necessary tool to address Portland’s housing emergency. A parade of tenant advocates testified Tuesday, saying rising rents are forcing low-income residents out of Portland or onto the streets.

One man, John Molby, said he was spending 90 percent of his income on rent before he lost his apartment. Now he sleeps on the streets and cleans up in bathrooms at Fred Meyer stores.

Developers have pushed, with some success, to soften the inclusionary housing policy first proposed by Commissioner Dan Saltzman and the Portland Housing Bureau. It now includes a two-year ramp-up period with lower inclusion rates in 2017 and 2018 before the program fully kicks in at the beginning of 2019.

For some developers, the changes were not enough.

鈥淲e stand here today getting ready to start an artificial housing recession started by a well-meaning but flawed policy,鈥� said Tom DiChiara, a principal at developer Cairn Pacific.

DiChiara responded to some public testimony that developers could afford to take a hit to their profitability. If the margins don’t work, financing will dry up and projects won’t get built at all.

鈥淚t’s not a matter of making less,鈥� he said.
Joe Cortright, a local economist and analyst for City Observatory, warned investment could flee to other markets.

鈥淒evelopers have options, and investors have options,鈥� he said. 鈥淚f the profit isn’t high enough, they will go elsewhere.鈥�

According to the policy, apartment projects would be required to initially provide 15 percent of their units at levels affordable at 80 percent of the Portland area’s median family income, rising to 20 percent of units by 2019.

A 鈥渄eeper affordability鈥� option calls for 8 percent of units affordable at 60 percent of median family income, rising to 10 percent of units by 2019.

Developers may also pay a fee in lieu of actually building the units 鈥� a requirement of the state law that paved the way for Portland’s policy 鈥� but city officials want to encourage developers to build affordable housing themselves.

Portland Housing Bureau Director Kurt Creager said the fee-in-lieu option would delay construction of affordable units by three to five years, and place the bureau in competition with private developers for valuable land.

鈥淩eceiving the fee is not in the city’s best interests,鈥� he said. 鈥淚t’s much more efficacious and efficient to tap the hydraulics of the private market.鈥�

The policy also offers developers a number of subsidies that include exemptions from property tax and construction-excise tax and density bonuses.

Developers, through a new Oregon chapter of the trade group Locus, offered competing economic analyses to those put forward by the city’s consultants, David Paul Rosen & Associates and ECONorthwest.

Most of the developers who testified Tuesday said they were not opposed to building affordable housing, but they cautioned that the policy must be crafted carefully to avoid a housing slowdown.

鈥淟ocus is trying 鈥� a lot of developers are trying 鈥� to not be the party of no, and be the party of OK, but let’s tune it up,鈥� Cairn Pacific principal Noel Johnson said.

The policy is not properly calibrated, Johnson said.

鈥淭his is a red-flag moment,鈥� he said.