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Portland’s inclusionary housing rules have been in effect for nearly a year and the impacts are beginning to appear fully around the city 鈥� including historic districts.

The rules state that any project including 20 or more residential units must designate a portion of them as affordable, or pay a fee in lieu. Such projects must have at least 20 percent of units affordable to people making 80 percent of the median family income or 10 percent of units affordable to people making 60 percent of the median family income.

Many developers rushed to submit projects before Feb. 1, 2017, when the rules took effect. The submission rate of proposals has since dwindled.

One of the biggest issues is that designating a certain number of units to rent below market rate dramatically changes the financial dynamics. That impact can be especially profound within historic districts, where height and design guidelines are especially stringent.

鈥淢y understanding is that there has not been a land use review for a project that would trigger the inclusionary zoning rules,鈥� said Brandon Spencer-Hartle, historic resources program manager for the city of Portland.

One team did come before the Historic Landmarks Commission in December seeking advice on a project that would trigger the inclusionary housing requirement: the Omni tower. As proposed, it would sit on the corner of Northwest Fifth Avenue and Glisan Street. The design presented to landmarks commissioners called for 13 stories. At approximately 135 feet tall, it would be significantly shorter than the 350-foot height maximum allowed within the district. However, during the hearing, landmarks commissioners said the height would be too tall given the context of the district.

鈥淭he building’s owner does not believe that a smaller building is financially feasible given the city’s current inclusionary housing rules,鈥� Ankrom Moisan Architects designer Paul Jeffreys told the commission during the hearing.

The problem for the project is that the Historic Landmarks Commission is charged with ensuring districts’ character and context are maintained. That can often mean that while zoning rules may allow for a taller maximum height, it may not be found appropriate within a particular district.

鈥淚 don’t like that process, personally,鈥� Jeffreys said. 鈥淭he inclusionary zoning is a problem for every area. Historic districts carry a bit more risk. We are hearing a lot of area developers having problems all over the city.鈥�

Another hurdle for the Omni tower is that it is proposed for an area that already has a significant amount of affordable housing. The number of existing affordable units in a particular area isn’t factored into inclusionary housing requirements.

鈥淭his district has stagnated,鈥� Jeffreys said. 鈥淧eople are risk averse. We need market-rate apartments in this neighborhood.鈥�

While landmarks commissioners were sympathetic to the developer’s dilemma, financial viability is outside of the commission’s purview.

During the Dec. 4 advice hearing, some landmarks commissioners wondered if the developer would be better off going through the review process with the intention of appealing a denial to the City Council.

鈥淭he City Council’s ear is tuned a little different,鈥� Commissioner Matthew Roman said during the hearing. 鈥淭hey approach it a little different.鈥�

However, that option has drawbacks.

鈥淚t’s more costly and we don’t want to do that,鈥� Jeffreys said.

The overall problem for project teams is incorporating enough floors into buildings on small sites to accommodate the minimum number of affordable units and still achieve financial viability.

鈥淢y view (of) the quota is that it is too high,鈥� Jeffreys said. 鈥淚t puts too much of a burden on the project and the other options (taking off floors) are not financially helpful.鈥�

Even developers whose overall goal is to provide affordable housing can find historic districts challenging to build in. A development at 1727 N.W. Hoyt St. aiming to provide 165 units for seniors and others making 60 percent of the area median income. But the proposal for a six-story building in the Alphabet Historic District drew a cool reception from landmarks commissioners.

鈥淲e are not like market-rate apartments where we can increase our rents to be able to cover the costs of the construction we need to do,鈥� said Stephen McMurtrey, director of housing development for project developer Northwest Housing Alternatives. 鈥淲e need the amount of units proposed to deliver much-needed affordable housing to an area of the city.鈥�

While the city is looking at the issues caused by the inclusionary housing rules, one issue that was not considered was exempting historic districts.

鈥淭he intent after passage was to apply it broadly,鈥� said Tyler Bump, senior economic planner for the city. 鈥淥ne unintended consequence was if we don’t have requirements (in historic districts), it could have motivated investment into those districts. The requirements also had to meet the state law.鈥�

Spencer-Hartle pointed out that floor area ratio bonuses and tax incentives can help offset the costs associated with the requirements. Also, the city will examine options for keeping projects financially viable while the goal of increasing affordable housing is achieved, he added.

鈥淭he height limit is in front of council,鈥� he said. 鈥淭here are some real decisions to be made.鈥�

A mixed-use project at the corner of Southwest Third Avenue and Ash Street was able to successfully use bonus floor area ratio and tax incentives to offset costs incurred by adding affordable units, prior to the new inclusionary rules taking effect, Spencer-Hartle added.

The city is aware of the struggles that area developers are experiencing, Bump said.

鈥淲e are sensitive to the private sector,鈥� he said. 鈥�(The inclusionary housing policy) has been in effect for 10 months now. We are trying to find out how this works. We have ongoing conversations with area builders.鈥�

One of the goals of the inclusionary housing policy is to promote a diversity of housing types throughout the city 鈥� including historic districts.

鈥淲e want to help these districts,鈥� Spencer-Hartle said. 鈥淭he question is: How do we get there?鈥�