A new proposal in Northwest Portland shows how developers are getting increasingly creative to avoid Portland’s inclusionary housing thresholds.

Cairn Pacific is proposing six buildings, each with approximately 18 apartment units. With that arrangement, the developer can build about 108 units, with none required to be offered to low-income renters.

Portland’s inclusionary housing rules exempt buildings with fewer than 20 units. For larger buildings, developers must provide a proportional amount of apartments at rents affordable to people who earn less than either 60 percent or 80 percent of the Portland area’s median income, or pay a fee in lieu.

Noel Johnson, a principal at Cairn Pacific, said the proposed project would not be built if it had to include affordable units, which bring in less revenue for the developer.

“The reality is basically no projects pencil with inclusionary zoning,” he said.

Other developers have moved forward with projects that fall just below the 20-unit threshold. A 19-unit building is under construction at 4130 S.E. Division St. That building is from a limited liability company that lists Anita Chan as manager. It was designed by Baysinger Partners Architecture.

In a September 2018 report, the Portland Housing Bureau said the pace of constructing buildings with fewer than 20 units was in line with recent years. In 2017, 13 percent of building permits were for structures with fewer than 20 units, according to the Housing Bureau.

“This proportion is consistent with what has been occurring since 2012 as Portland emerged from the recession,” the report stated.

Still, 2017 saw the most such buildings constructed since 2012. Data for 2018 were not immediately available.

Gerard Mildner, a Portland State University real estate professor, said it’s not surprising developers are finding a way around inclusionary housing rules.

“Folks are really scratching their heads over this, and if it takes a lot of 18-unit buildings, they’ll do it,” he said. “I think a more likely reaction is to go to the suburbs.”

The 20-unit threshold is embedded in the 2016 state law that permitted municipalities – with Portland foremost in mind – to enact inclusionary housing ordinances. The law says inclusionary zoning rules “may apply only to multifamily structures containing at least 20 housing units.” Developers have responded by building multiple structures of fewer than 20 units on the same site.

Johnson said he expects to see more such projects.

“That’s kind of I think the new normal in terms of how Portland’s going to be producing housing in the short run,” he said. “The reality is we either produce housing, or we don’t produce housing.”

Portland has no flexibility to change the 20-unit threshold without a corresponding change in state law. Some small projects have included affordable units anyway.

“The Housing Bureau is encouraged that 14 residential projects with less than 20 units have voluntarily opted into the inclusionary housing program (paying the fee-in-lieu or providing affordable units) due to the incentives provided, and many others are considering doing the same,” stated Eileen Park, spokeswoman for Mayor Ted Wheeler, in an email. “The city will continue to consider options to incentivize more affordable housing.”

Cairn Pacific is best known for developing a series of large mixed-use projects in Northwest Portland’s former Con-way area, now rebranded as Slabtown. These include the Leland James and L.L. Hawkins buildings, with tenants such as New Seasons Grocery and Breakside Brewery.

This new proposal calls for a series of five-story buildings at 2123 N.W. 30th Ave., and the adjacent block. Jones Architecture is designing the buildings on 30th Avenue, and Waechter Architecture is designing the others.

Using different architects is meant to provide some variety in design, Johnson said. The new buildings will be next to townhomes designed by architect Rick Potestio for Cairn Pacific.

“I’m trying to get a potpourri of designers working in that area to get an eclecticity of design,” Johnson said.

Cairn Pacific’s intention is to create a walkable, livable neighborhood for families within a short jaunt to Forest Park, Johnson said.

The multifamily buildings will have amenities such as bike rooms, storage, common areas and at-grade parking. Cairn Pacific plans to use cross-laminated timber. The material has become popular for office projects in the Portland area, but not multifamily projects.

The proposed buildings are in early-stage design, Johnson said. They’re likely to be a mix of one-bedroom and two-bedroom units, with perhaps some three-bedroom units.

The small buildings will be sited on corners wherever possible, to give them more light and air and better energy performance, Johnson said.

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A new development proposal popped up in mid-July for a 19-unit apartment building that would be built along Southeast Division Street in Portland. Two weeks prior, a separate proposal was unveiled on Southeast Milwaukie Avenue. The size: 19 units.

For apartment projects 20 units or larger, developers in mixed-use zones must build affordable units or pay a hefty fee.

Portland planning officials are watching carefully to see whether multifamily developers are avoiding providing affordable apartments by keeping the number of units just under the 20-unit threshold.

“We’re tracking it,” said Tyler Bump, senior economic planner for the Portland Bureau of Planning and Sustainability.

By one measure, proposals for apartment buildings with fewer than 20 units are steady. There were seven proposals for apartment buildings of 15-19 units from Feb. 1, when inclusionary housing requirements took effect, to July 7. During the same period last year, there were eight such proposals, according to Bump.

Bump is preparing a report on the inclusionary housing policy’s first six months. He noted many developers are busy with proposals that vested under the old rules, which did not require affordable units.

The city would be most concerned if developers are building small structures on large lots, Bump said. That would indicate developers aren’t building projects with as much density as city officials desire.

“If they’re bigger sites, that’s certainly an issue,” Bump said.

Design Commission Chairman David Wark said density is also his primary concern with small apartment buildings.

“If those start becoming 19-unit buildings across the city, the real question is how many units could have been built?” he said. “That might be the unfortunate byproduct of a low threshold.”

Portland officials are encouraging bigger and denser multifamily development as part of their response to the city’s self-declared housing emergency.

Wark said the city should incentivize developers to build more densely, rather than find ways to punish those who build smaller structures.

“It’s really about focusing on incentives versus more requirements, let’s say,” he said.

The inclusionary housing policy requires developers to provide 15 percent affordable units at 80 percent of the Portland area’s median income, or 10 percent affordable units at 60 percent of median income. The fee in lieu of providing affordable units varies from $19.50 to $29.85 per gross square foot, depending on location and zoning.

The most recent proposal for 19 units was for a four-story apartment building at 4130 S.E. Division St., part of the eastward creep of redevelopment on the Southeast Portland neighborhood. The property is currently the site of Division Medical Clinic. Its single-story, 2,880-square-foot building was built in 1957.

Efforts to reach the developer through the applicant, Jennifer Rinkus of Baysinger Partners Architecture, were not successful. A staffer at the clinic said she was unaware of planned development on the site.

Another recent proposal calls for an 18-unit apartment building in the Alphabet District of Northwest Portland. In June, a 19-unit proposal emerged for a five-story building at 5340 S.E. Milwaukie Ave. The proposed building would replace an existing eight-unit apartment building. The applicant, architect Sinan Gumusoglu of Wilsonville, could not be reached for comment.

Nineteen-unit buildings are the natural result of developers attempting to make their projects pencil out, Wark said.

“It’s not a surprise,” he said. “People that are trying to build apartments are trying to make them work financially. And if they can’t make them work financially with affordable housing, they turn to the metrics that make them work.”

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