“Yonah Freemark, the Massachusetts Institute of Technology researcher who conducted the study published in Urban Affairs Review, cautioned against drawing direct conclusions… Yet he suggested cities watch for increased land prices and displacement after up-zoning.”

Based on the 91ĘÓƵ article (and drawing specific attention to the above quotes from it), I would like to offer some input on the Residential Infill Project. As a member of the design community and one of the early ones out of the chute with an ADU at my own home, I can attest to the success of this formula for myself, my renters and the community. What I see in the diagrams published by BPS is, well, troubling. Fourplexes smack of redevelopment that will blow up established neighborhoods. Living in an architecturally rich and sensitive area (Irvington/Grant Park), I can attest to the irreparable damage that will come and the blow back that will inevitably follow. Show that diagram of the four options to anyone that owns a house in an established neighborhood and see what happens. Ditto on blowing off minimum parking requirements as well, especially with PBOT & BES gobbling up on-street parking at an alarming rate. Look, regardless of how people commute (I use TriMet myself), car ownership ratios are not going to shift much. The fact that someone uses transit, bikes or walks to work doesn’t mean that they don’t have a car. Whether they run on gas, batteries or hydrogen, they all take up the same amount of space. The City quite willfully has a blind spot about this and it doesn’t help.

Let me use an example from my own back yard. Over a year ago, the modest older home immediately behind me (a well-kept rental that fit well into the neighborhood street) was bought by a developer for around $450,000 and demolished, to be replaced by a clumsy barn of a house that was then listed for about $1,200,000. My guess would be that they spent something like $50,000 for the demolition, etc., putting the land cost at a tidy half million. They overshot their mark; the house is large but generally unattractive and built to a poor level of design and finish for the neighborhood. A year later, it is still sitting empty in a pretty hot market (a much nicer older home across the street sold for about $650,000 in about 2 weeks). They may by now be taking a bath but the point is that, had it been a fourplex (or even a duplex), the math would have been much better (2 units at $600,000 or 4 units say at $300,000- $400,000), with greater chance of meeting market and making profitable sales.

The real point that the City seems to be completely missing, with respect to affordability, is the upward pressure on the cost of the dirt. The appraised value on my 4,750 SF lot is around $120,000, already outrageously high from an affordable housing standpoint (it is more than twice what I paid for the house AND land back in 1992). The development project behind me has effectively quadrupled that at $500,000, and even at that insane level may just be falling short of profitability. Leverage this equation with multiplexes and there are only a handful of single family houses in the whole city whose demolition cannot be justified. Just buy good, solid, old neighborhood houses at $450,000 -$650,000 for the land, level them, then build and sell cheap four-plexes at $400,000 each (or charge commensurate rents) until the cows come home. What this results in is a complete gutting of established, close-in neighborhoods, replacing higher quality housing with cheaply built housing that is still ridiculously expensive. Because this formula so inflates land cost, developers are effectively forced to build as cheaply as possible to hit the prevailing market. The proposed FAR limits only go so far to inhibit this likely chain of events and the buildable area should be pro-rated on a formula of both lot size and average house size in a given location, rather than the simplistic, one-size-fits-all formula proposed. An oversized 10,000 SF corner lot might, in the right circumstances, merit a four-plex, but a standard 50’X100’ city lot just wouldn’t.

If the City is sincerely serious about using the Residential Infill Project to constrain housing costs and not just help developers access highly desirable close-in neighborhoods, a strict owner occupant requirement would be a good start. Unlike the developer behind me, the land cost for my ADU was effectively zero (apart from the increase to my property taxes). Consequently, as teh effective developer, I was able to build the unit to a quality standard commensurate with that of my house and still offer it at about $100 or more per month below market rate. My renters are happy and my neighbors are happy. If you look at the many units in my general vicinity, this is almost always the case; nice units with design and quality compatible with/sympathetic to the surrounding housing for reasonable rents. The owner occupied requirement slows the rate of development, yes, but it is effectively self-regulating. No one in a good established neighborhood wants to throw up a T-111 shack up next to their own house. Incentivizing tear-downs by allowing multi-plex development will net MORE housing units but it is highly unlikely that it will net more AFFORDABLE units. It will also drive a qualitative degeneration of established residential neighborhoods.

If the City REALLY wants to establish a mechanism for encouraging development generally and affordable housing specifically, it needs to look at revising how its property taxes are structures to de-incentivize “land banking”. Contrary to popular opinion, there is not a shortage of land available for redevelopment within the city; there is just a shortage of land FOR SALE within the city. This is primarily due to the fact that property tax assessment on commercial real estate in Portland is heavily weighted to improvements and generously forgiving to owners of vacant and underutilized land. The city is absolutely littered with vacant and underutilized land that is, nevertheless, not for sale. Vacant lots, surface parking lots, derelict and boarded-up one story commercial buildings, etc. Even with the remarkable recent building boom, there are literally dozens of prime lots right in the Downtown core, to say nothing of Old Town, Central Eastside and outlying districts. Why? Because in a market with steadily rising property values (driven in part by in-migration and in part by an artificial paucity of land for sale) and relatively low property tax assessments on un- and under-developed land, private parties can feel as though they are making money ( increasing the value of their estate for their children) just by holding their land.

On paper, I myself have made over $90,000 on my home lot in about 25 years, or about three times the property taxes annually. The equation is likely even better for commercial real-estate; that doesn’t do much to help housing affordability. It is a vicious cycle; “making money” in this way, effectively by doing nothing, encourages private owners to hold the land; everyone holding the land, creates an artificially constrained market with no land available for sale, which in turn pressurizes land prices; rapidly escalating land prices increases the incentive to hold the land… But these “legacy” holdings compound the problem at hand for the City. To break this cycle, the City needs to take a hard look at reversing the property tax incentive; tax bare & underutilized commercial land at a much higher rate and tax the improvements at a lower rate, perhaps graduated or prorated with respect to ultimate build-out based on zoning, balancing revenues. Such an arrangement would actually encourage and facilitate owners developing their own land (by making the land development effectively cheaper) or, if they can’t or won’t develop to zoning themselves, it incentivizes them to sell the land at market rate (now lower because of the increased amount of land likely to be for sale at any given time) to someone who will develop it… because they are incentivized by the property tax structure to do so. To further incentivize the construction of housing in the City, mixed use projects could be given preferentially lower property tax rates for the residential portions of the project.

I think this is a huge issue for the City’s future and would be interested to hear back on these thoughts from someone in Planning and Sustainability.

Ted Grund

From above:
“City officials estimate the Residential Infill Project would lead to the creation of 1,700 additional housing units in 20 years’ time. That works out to about 85 units per year. The city’s analysis suggests this would result in a slight reduction in rental rates citywide and slightly fewer demolitions of existing properties.”
Thanks.

There is no certainty that Portland will continue to grow as it is now. There is also data to suggest that there is ample buildable land under current zoning to accommodate the possible population expansion. That fact continues to get ignored by those who are pushing this project.

Zoning is predictability. Eliminating low density desriable neighborhoods is a betrayal of the residents who have invested in their homes and communities.