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Inclusionary housing memorandum (PDF)

A year after inclusionary housing rules took effect, a key Portland agency is providing support for developers’ complaints that the rules have dramatically reduced new multifamily housing proposals in the fast-growing city.

The Bureau of Planning and Sustainability, in a one-year review of Portland’s inclusionary housing policy, recommends changes to the rules that require developers to provide affordable units in sizable multifamily projects.

New development applications have fallen steeply, and the development pipeline risks running dry within two years, according to the BPS report.

The bureau’s report comes shortly after the one-year anniversary of the policy’s Feb. 1, 2017, effective date. It was quietly posted on the bureau’s website on Friday.

The city of Portland would 鈥渘eed to start seeing significant increases in land use review and building permit applications over the next six to 12 months to replace development pipeline units that will be delivered to market over the next 18 (to) 24 months,鈥� according to the BPS report.

The four-page report from BPS senior economic planner Tyler Bump recommends the city 鈥渆xplore a process to make adjustments or modifications to the Inclusionary Housing Zoning Code and Program requirements.鈥�

Since inclusionary housing took effect, permits were filed for 17 projects that would be subject to inclusionary housing requirements. Of those, 12 came from privately financed developers and five were backed by the Portland Housing Bureau.

The Housing Bureau’s five projects offered 353 affordable units and no market-rate units.

The privately financed projects added up to 565 market-rate residential units and 89 affordable units. Of the affordable units, 69 were available to renters at 80 percent of the Portland area’s median family income, and 20 were pegged at 60 percent of MFI.

Developers warned even before the policy took effect that the rules were infeasible and would slow new development. The policy requires developers to either designate a percentage of new multifamily building units as rent-restricted or pay a substantial fee.

Mayor Ted Wheeler is considering changes to the inclusionary housing program, spokesman Michael Cox said.

鈥淭he mayor is concerned about the slowdown in new development permit filings, and it does warrant BPS and PHB exploration of potential adjustments to make the program more effective,鈥� Cox said.

As part of the review, BPS in January convened focus groups. Developers in those groups raised concerns about how heavily buildings will be taxed after the program’s 10-year property tax subsidy ends, and how lenders value buildings with a 99-year affordability requirement.

Wheeler and other city officials are also looking for ways to stimulate approximately 10,000 multifamily units in the development pipeline that were submitted before inclusionary housing requirements took effect. City officials said they’re considering whether to offer incentives similar to those in the former Multiple Unit Limited Tax Exemption (MULTE) program. The potential incentives package will be presented to the City Council in March, Cox said.

The slowdown in applications for new projects comes as new apartment buildings have opened, reducing average rents throughout the Portland area. Managers of some luxury buildings have stepped up concessions they’re offering to new renters.

The surge in supply has 鈥渃ompressed shorter-term returns鈥� for multifamily developers, said Mark Desbrow, principal of Green Light Development.

Meanwhile, land and construction costs have remained high.

Inclusionary housing links market-rate and affordable developments, so when market-rate development slows, it also affects the number of new affordable apartments in the pipeline.

The Housing Bureau and BPS have the authority to make administrative changes to inclusionary housing rules. Any more fundamental changes would require City Council’s approval.