Portland, like many U.S. metro areas, has an abundance of office vacancies and a shortage of housing. These issues are not news, but rather an obvious — and fixable — disconnect between two real estate market sectors. Thoughtful, intentional and responsible public-private partnership, with local and state legislative and executive support, can remedy these two problems at once.

First, consider the current manifestations of these two issues:

• Office vacancy in Portland’s central business district has rendered downtown a shadow of what it was in recent years. Portland’s office vacancy rate at the end of 2023 was approximately 30 percent; in 2018, the vacancy rate was closer to 7 percent. The current vacancy rate does not reflect the actual usage of leased office space; for example, a downtown building may be 70 percent leased, but only half of that leased space may actually be utilized by office workers on a regular basis. “Return to work” policies, both public and private, have struggled to gain traction due to the lack of critical mass that would make working in an urban center preferable to staying at home: without shops and restaurants, a central business district (CBD) can be uninviting to workers and dwellers, and without downtown dwellers and workers, restaurants and shops cannot survive.
• Housing availability and affordability are fundamental requirements for a thriving society. A flourishing city or region is built on reasonably proximate residential opportunities for multiple socio-economic groups. Though residential vacancy rates in the central business district have risen over the last year, the Portland-metro area has overall seen a tightening of residential vacancies – to the extent that folks are staying in the area, they are moving to the suburbs, where rents remain high, vacancies are low, and commutes are long. Reasonable minds may disagree about which policies will generate the most robust and measurable improvements to the current housing crisis, which is characterized by high rents and demand outside the city’s core relative to a dwindling demand (and flat rates) in the CBD. The basic concept of supply and demand cannot be ignored: increases in housing supply, particularly in the affordable sector and in the city’s urban core, will decrease housing costs and reduce barriers to entry into the central housing market. If blue-collar and white-collar workers, students and teachers, employees, and employers can (and want to) live more or less in the same zone, everybody benefits. If there is a fundamental housing shortage or a disconnect between where desirable and affordable housing is available and where the city’s thriving core should lie, this benefit cannot be realized.

How, then, can Portland (or any other U.S. metro area) flip the script and transform office vacancy from a problem to a solution? The fundamental barrier to an office-to-residential conversion is dollars and cents: the cost of conversion, which may include a substantial array of plumbing, seismic, and other facilities-related upgrades, is greater than the return on investment. No sane real estate developer can be expected to invest millions of dollars into a conversion without expecting a reasonable return. As an initial attempt to incentivize conversions, some measures have been offered to developers seeking to take on these projects. The city of Portland has offered partial exemption from system development charges. This program offers developers a relatively small break on public infrastructure costs, which would otherwise be triggered by the conversion. Additionally, the city of Portland will reduce seismic improvement standards otherwise applicable to converting office space to residential units.

But these measures are not enough to get developers in the game. Conversion projects still do not pencil out. If they did, we would see projects under way.

To create incentives that spur developers to take on office-to-residential conversion projects, state and local government officials need to work with developers to consider:

• expedited and fee-reduced permitting, with quality controlled by requiring participation by reputable architectural and engineering firms,
• property tax abatement,
• loan and grant programs to provide developers with the capital to pursue conversion projects, and
• programs to convert management of converted projects to government agency management after conversion completion.

If these suggestions sound like a handout to developers, please revisit the point of this opinion piece with me before drawing that conclusion: as things stand, Portland’s CBD has too much office space and not enough housing. As a result, our urban core has disintegrated. A vital, robust urban core produces immeasurable benefits to a metropolitan area. The government cannot address this on its own and therefore needs to create incentives – some of them financial – to induce developers to engage in public-private projects to revitalize our core and benefit the region.

Oregon was a national leader in land use law in the early 1970s, when we pioneered the concept of an urban growth boundary and shunned the suburban sprawl that was sweeping most of the nation. Oregon can be a leader once again in urban revitalization and affordable housing. This will happen when private developers and the public sector view each other as allies and partners rather than as adversaries. Conversations, task forces, and study groups will not be enough. Municipal, county and state leadership must develop the resources and frameworks necessary to connect the dots between an abundant resource (vacant space in buildings) and a pressing need (housing).

Dave Hepler is a Schwabe, Williamson & Wyatt shareholder. He helps clients lease, purchase, sell, and finance properties in Oregon and Washington. Contact him at 503-796-2885 or dhepler@schwabe.com.

This column is intended to provide readers with general information and not legal advice. Consult professional counsel for help regarding specific situations.

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the authors and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. None of the authors nor the 91��Ƶ guarantees the accuracy or completeness of any information published herein.

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Utility bills can bring unwelcome surprises: a water bill that reminds you of the extra irrigation costs incurred during a heat wave, an electric bill that makes you realize how much extra power is used when working from home or gaming nonstop, an embarrassing cable bill documenting how many shows you binge-watched last month. But consumption of utilities is generally within the control of the consumer, and getting the bill is really no different than the check appearing on your table at the end of a meal out.

One exception is when the bill actually does not go to the consumer, but rather is sent to and paid by the consumer’s landlord, who then passes those costs through to the consumers as tenants. The potential for overcharging the user/tenant (whether nefarious or accidental) is real, even if seldom occurring. Oregon’s Legislature has addressed this potential in the Residential Landlord-Tenant Act (specifically, ORS 90.315) by requiring residential landlords to be transparent in their pass-through of utility charges to their tenants. However, the law, as written, unfairly and harshly punishes landlords for noncompliance with the technical requirements of the rule, even if the failure was inadvertent — and the noncompliance is punishable even if the charges passed through were completely accurate.

The Residential Landlord-Tenant Act seeks to promote transparency through technicality by requiring landlords to include underlying provider utility charge information for utility costs passed through to tenants. ORS 90.315(4) applies to utility charges and requires, among other things, that landlords:

1. Include in the bill to the tenant a copy of the provider’s bill; or
2. State that the tenant may inspect the provider’s bill at a reasonable time and place and that the tenant may obtain a copy of the provider’s bill by making a request to the landlord during the inspection (with payment to the landlord for the reasonable cost of making copies).

The requirement to include the provider’s bill, or statement of its availability, seems innocuous at first glance; however, it applies to every pass-through utility charge for each tenant. Compliance requires that a landlord either attach the underlying provider’s bill, with updates, for each utility every time the tenant is charged, or create and indefinitely resend a form statement describing the availability of underlying provider bills. This creates an administrative burden and associated cost that the landlord will inevitably offset through increased rent.

The reality is that a technical requirement to include additional documentation with every utility charge passed through to tenants does not increase transparency, as it is unlikely that people crosscheck calculations from a multi-page provider’s bill or read a form statement and request copies every month. It is likely that most would forego the included provider’s bill or statement in lieu of lower rent costs and simply reach out to the landlord when a utility charge is unusually high.

A landlord’s failure to comply with the technical requirements of ORS 90.315 can be punished harshly. ORS 90.315(f) provides that “the tenant may recover from the landlord an amount equal to one month’s periodic rent or twice ‎the amount wrongfully charged to the tenant, whichever is greater.‎” In instances where the violation is technical (i.e., no overcharge occurs), the damages recoverable are one month’s periodic rent.

Oregon courts have not yet resolved whether the damages can be “stacked.” Stacking damages would allow a tenant to recover one month’s rent for every month the technical requirements are violated, rather than being limited to one month’s rent in total even if the violation was repeated.

The stacking theory of damages leads to an absurd result for a failure to comply with technical requirements. Assume for example that a landlord is unaware of the requirement to include a copy of the provider’s utility bill, or a statement of its availability, in the bill sent to the tenant. The tenant, who pays $1,500 per month in rent, finds out one year later that there was supposed to be an extra document or statement attached to their utility bill and sues the landlord. The landlord never overcharged the tenant for the utility but did violate the statute by failing to include the provider’s bill or a statement of its availability. Under the stacking theory of damages, the landlord’s potential liability is the amount of monthly rent multiplied by each month landlord was in violation, or $18,000.

The above hypothetical is limited to one tenant and one utility bill. A more realistic situation involves multiple tenants with multiple utility bills, and the amount doubles for each tenant or utility bill added. Running the same hypothetical for a landlord with 30 tenants who each pay two utility bills per month for a year, the potential liability increases to $1,080,000. Over $1 million in liability for a technical violation, all despite the fact the actual amount overcharged is zero. The extreme penalty creates a trap for unwary landlords and, once again, leads to increased rent in order for landlords to account for the risk.

The administrative burden and associated cost, along with the potential for extreme penalties, create a need for the technical requirements of ORS 90.315(4) to be amended. One approach could require landlords to provide underlying provider utility bills only when a tenant makes the request. Another approach could provide for a penalty-free warning for first-time offenders. Either amendment would ease the administrative burden of including additional paperwork with every utility bill passed through to tenants and substantially reduce the risk of landlords incurring an extreme penalty despite not overcharging for utilities. The need for additional expense and risk to be absorbed by landlords and passed down to tenants through an increase in cost of rent is similarly reduced. The amendment would preserve transparency by still allowing tenants to review underlying provider bills as often as they would like by simply making a request to the landlord or their representative. As currently written, ORS 90.315(4) is an overly punitive technical requirement — the same policy goal can be achieved without the unnecessarily harsh outcome for unwitting property owners.

This article summarizes aspects of the law; it does not constitute legal advice. For legal advice for your situation, you should contact an attorney.

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There is a fundamental tension between a property owner’s rights and the government’s role ‎in regulating and limiting those rights. Historically, and still today in much of the world, landowners had ‎a free hand to develop, divide and exploit their property; government largely stayed out of the ‎way. But in the industrial and postindustrial world, society came to realize that rational limits on ‎private property rights are often necessary to protect the larger landscape from distasteful, ‎dangerous or incongruous choices by individual landowners.

In 20th century America, a regime of ‎broad-based government control over property rights took hold: zoning. By 1926, a U.S. Supreme ‎Court case (Village of Euclid vs. Ambler Realty Co.) confirmed that local governments are afforded great ‎power to implement zoning controls over private property unless the restrictions are “clearly arbitrary ‎and unreasonable, having no substantial relation to the public health, safety, morals or general ‎welfare.”

In Portland, add to this mix:

• the groundbreaking “urban growth boundary” framework implemented ‎by the state of Oregon in the 1970s (preventing urban sprawl by concentrating property development ‎within a government-created ring on a map),
• the resulting controlled inventory of land available for ‎development,
• the strong current demand for affordable housing in Portland, and
• growing ‎exploration of rent control measures.

The result is a fault line between individual property rights and ‎the interests of broader society (with government as its proxy) to limit those rights.

Recent controversy in Eastmoreland illustrates how these tensions between individual property rights, ‎market conditions, governmental regulation and the wishes of your neighbors can manifest ‎negatively. Eastmoreland’s large lots, tree-lined streets, and historic ‎homes are cherished by residents. But what one landowner considers historic, another landowner ‎may consider ripe for redevelopment. And the shortage of housing in Portland is driving developers to ‎buy lots at a premium and maximize density, at the expense (in the eyes of some) of the character of ‎the neighborhood.

Where should the line be drawn between an individual owner’s rights ‎with respect to his or her own property, and the rights of all owners, collectively, to expect common values ‎to be respected and enforced? And who should be empowered to draw that line?

It’s easy for a developer to impose restrictions on all the lots of a new development while still ‎under the common ownership of the developer. They can impose no cars on blocks, no homes over/under certain ‎sizes or group approval of certain architectural features. In some cases a very limited color palette ‎for home exteriors can be imposed to promote uniformity. But what happens after all the homes have been ‎built and sold to individual owners?

Under-regulation and over-regulation resulting from the original ‎developer’s vision (which was surely based on his or her perception of value maximization at the time ‎of development) are equally difficult to modify once all the homes are under separate ownership and ‎no single owner has the right to change the rules.

In Eastmoreland, this conflict between the rights of the individual and the rights of the group has led to ‎some creative thinking and perhaps a few feuds. Eastmoreland residents seeking to preserve the ‎neighborhood’s current flavor sought to block increased density through zoning changes, but these ‎efforts failed in 2016 due to lack of support from the Portland City Council.

The Eastmoreland ‎Neighborhood Association (ENA) then initiated an attempt (which remains alive, if on life support) to ‎curb redevelopment by implementing a historic district designation that would preserve many ‎buildings and property lines. Those efforts appear to be flagging from lack of support from the ‎Oregon State Historic Preservation Office due to questions about whether the required majority of ‎Eastmoreland property owners support the historic designation application.

Friends of mine who live in Eastmoreland recently took action on the most local level possible: the ‎house next door was up for sale following the owner’s death, and word got around that a developer ‎was under contract to purchase the property, with plans to scrap the grand old building, divide the lot and build two new homes. My friends loved the old house – an Eastmoreland classic. They didn’t ‎want to see it demolished, and wanted to preserve the character of their block. They approached the ‎developer and struck a deal to step into the developer’s shoes and buy the house for themselves – ‎with a promise that they wouldn’t flip the house to another developer any time soon. They closed the ‎deal and are now planning to renovate before moving in permanently.

This is not a large-scale solution, but it impressed me as a quiet, agreeable way to take meaningful ‎action in a tense and controversial situation. And it inspired me to think about these issues and write ‎this, and to conclude that sometimes the smallest solution may be the best.

Great deference ‎should be given to the desires of a community – whether a neighborhood, a city or even a state – to ‎exert reasonable control over its land. But when it’s not possible to bring a community together, the ‎best approach may be for individuals to find ways to control what they can.

Dave Hepler is an attorney with Schwabe, Williamson & Wyatt PC, and chairman of its real estate and land use practice group. Contact him at 503-796-2885 or dhepler@schwabe.com.

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