Politicians, economists, housing advocates and developers have come to a broad agreement that more housing is needed in Oregon. A new report from ECONorthwest attempts to measure the scope of the problem.

The state underbuilt by 155,000 housing units from 2000 to 2015, according to the report. If that number of homes were built in Oregon during the next 20 years, home prices would be 5.5 percent lower than if the homes were not built, the report found.

“Oregon is seriously behind … providing housing at all levels of affordability,” Mayor Ted Wheeler said at an event Tuesday to mark the report’s release. “This report shows we have a lot of work to do.”

Wheeler called the report “very depressing” in its depiction of the housing deficit.

The report recommends employing some of the strategies the city of Portland already is, including promotion of so-called “middle” housing such as duplexes and accessory dwelling units (ADUs).

Other recommendations include:

• changing impact fees to be based on a per-acre or per-square-foot basis, instead of per unit (this would improve the feasibility of high-density projects, the report stated);
• holding cities accountable to meeting existing permitting timelines and clear and objective development approval standards; and
• allowing high-density zoning near high-capacity transit station areas.

“We need a Marshall Plan for housing,” said Mike Kingsella, an author of the report and executive director of Oregon LOCUS, a trade group for developers.

Local governments would garner a $13 billion net benefit if the 155,000 units were built, based on projections of property taxes, system development charges and other revenue sources, said Michael Wilkerson, an economist and partner at ECONorthwest.

Joe Cortright, director of CityLab, questioned the underlying assumption that more housing of any type is needed. Too many large, suburban homes are sitting with empty bedrooms, he said.

“I don’t think we face a shortage of housing so much as a shortage of cities and great urban neighborhoods,” he said. “Big, single-family houses in the suburbs are not meeting the housing needs of people who are more interested in living in urban neighborhoods.”

The report’s release came three weeks before the Nov. 6 election, when Portland-area voters will decide the fate of Metro’s $653 million housing bond measure. Also, Measure 102, a statewide bid, would allow affordable housing projects to mix private and public funding.

Both measures would help address the dire need for affordable housing, advocates said.

“I really, truly, deeply believe that we can solve this problem together,” said Alison McIntosh, deputy director at Neighborhood Partnerships, a Portland-based nonprofit.

The report is part of Up for Growth Oregon, a pro-housing group that includes developers such as BRIDGE Housing, Cairn Pacific, Holland Partner Group and nonprofits such as 1,000 Friends of Oregon and Oregon Smart Growth.

The group demonstrates developers and housing advocates such as McIntosh can find common ground, said Noel Johnson, principal at Cairn Pacific.

“At the end of the day, her goals are my goals,” he said. “The question is how to achieve it.”

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Tiffany Sweitzer has built in Portland more than 2,000 housing units, including the luxury Cosmopolitan condos in the Pearl District.

But now Sweitzer’s development company, Hoyt Street Properties, will not build more condos in Portland’s Central City, she said, unless changes are made to the city’s inclusionary housing program.

“With the latest inclusionary zoning constraints, we will probably sell our remaining land or build office (space) instead,” she said.

A year after inclusionary housing rules took effect, they are being reviewed by the Portland Housing Bureau. The rules for condos are the first part of a comprehensive reassessment of inclusionary housing, which took effect Feb. 1, 2017.

“We’ll look at what changes are needed to make sure the inclusionary housing program is effective, because the more units that are built, the more inclusionary units we get,” said Matthew Tschabold, policy and equity manager for the Housing Bureau.

Mayor Ted Wheeler has made building affordable housing a priority during his administration to address Portland’s self-declared housing crisis. In December, he shook up the Housing Bureau, replacing Director Kurt Creager with Shannon Callahan, a city policy analyst who is serving as interim director.

The inclusionary housing program has dramatically affected the multifamily pipeline. Developers rushed to submit applications for projects before the effective date, putting 19,000 units into the pipeline. But the amount of work for architects who design multifamily projects has since dwindled.

Among rental proposals, 23 projects totaling 1,083 units have moved into the permitting process. Of those, 730 units come from the private sector, with the Housing Bureau responsible for the rest.

The flow of condo projects has already slowed to a trickle. Since Feb. 1, 2017, only one application for a condo project – totaling 15 units – has been submitted for land-use approval, according to the Housing Bureau.

The condo rule changes are expected to take effect March 20. Prior to that, the Housing Bureau will take public comment at a Feb. 21 staff hearing.

The draft changes outlined by the Housing Bureau set restrictions on the resale of inclusionary housing condos. The bureau is given first right of refusal on purchasing units. Refinancing is tied to the restricted resale value of a unit set by the Housing Bureau.

Other rules require condos be maintained as a primary residence, be purchased by a first-time homebuyer and not be operated for purposes such as vacation rentals. Cash purchases of inclusionary housing condos would be barred. And units must be maintained under affordability rules even if they are converted from condos to apartments or vice versa.

Taken together, the rules would spook lenders, making financing for condominium projects difficult, Sweitzer said.

“It looks like condo construction is stopped in its tracks – and it will be with us,” she said. “We will be done under rules like these with building condos.”

Sweitzer said she was disappointed she was not asked to weigh in on the draft rules.

“I’ve built over 2,000 housing units, and I have not talked to the city of Portland, the Housing Bureau or anyone else working on the rules, which is just incredible,” she said.

The draft rules revisions allow for more flexibility, Tschabold said. For example, if a condo owner is unable to sell for 12 months within the program guidelines, the income restrictions on sales would be loosened. A buyer with 100 percent of Portland’s median family income could purchase a condo set aside for buyers at 60 percent of median family income, and a buyer with 120 percent of median family income could purchase a unit set aside for buyers at 80 percent of median family income.

“We’ll do whatever we can to help facilitate linking a buyer and seller,” Tschabold said.

Even after inclusionary housing rules took effect, the Housing Bureau permitted approximately 5,000 units – about the annual average in recent years, Tschabold said.

A forthcoming report from the Bureau of Planning and Sustainability analyzing inclusionary housing’s first year is expected to add fuel to the debate.

The Housing Bureau has been working with Oregon LOCUS, a trade group for developers, to devise incentives for developers who applied before inclusionary housing rules took effect to opt into providing affordable units. Mike Kingsella, executive director of Oregon LOCUS, did not return messages seeking comment.

The incentives will look similar to the Housing Bureau’s old Multiple-Unit Limited Tax Exemption (MULTE) program, Tschabold said, offering tax breaks in return for affordable units.

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The city of Portland is considering offering developers up to $50 million in tax breaks to include affordable housing in their multifamily properties.

The tax breaks are targeted at the flood of projects that were submitted to the city’s Bureau of Development Services ahead of the Feb. 1 effective date for inclusionary housing rules. Projects submitted before that date do not have to include affordably priced apartments.

This accumulation of projects submitted under the city’s old rules means it could be two to three years before Portland sees any meaningful affordable housing supply.

City officials estimate there are 19,000 housing units vested according to the old rules. If those projects had been submitted after the inclusionary housing deadline, they could theoretically yield 3,000 to 4,000 affordable units.

Details of the voluntary inclusionary housing incentives are still in flux. Housing Bureau Director Kurt Creager is considering a tax break capped at $5 million annually for the program, totaling $50 million during a 10-year period.

“This proposal would essentially grant a 10-year property tax exemption to any developer who will opt into inclusionary housing,” said Matthew Tschabold, policy and equity manager for the Portland Housing Bureau, at an Aug. 1 Housing Advisory Committee meeting.

Projects with 20 or more units submitted between Jan. 1, 2016, and Jan. 31, 2017, would be eligible for the tax breaks.

Some advisors said the property tax exemptions are at best premature, as the inclusionary housing policy is only six months old.

”I just hate to see you give up $50 million,” said Dike Dame, a Portland developer who serves on the Housing Advisory Committee.

The backlog of permits will eventually work itself out, Dame said. “These people are not going to sit on these permits forever,” he said. “We’re barely in the beginning of the game here.”

Tschabold cautioned against jumping to conclusions. I do think it’s too soon to tell,” he said at the committee meeting.

Affordable housing incentives will depend on a six-month review of inclusionary housing’s implementation being conducted by the Bureau of Planning and Sustainability, Tschabold said.

City staffers are also wrestling with how many of the 19,000 housing units vested before Feb. 1 will actually get built, and how many were placeholders filed by developers seeking to vest under the old rules.

“Some of these are just shell applications – let’s be honest,” Tschabold said.

As they formulate the tax incentives, city staffers have been in touch with developers to gauge what might work. Developers say the incentives will only prove valuable if they’re more lucrative than a market-rate project built according to the city’s old rules.

“We think that the effort is certainly interesting, and we continue to work with the city on that basis and provide feedback,” said Mike Kingsella, executive director of Oregon Locus, a developers’ association. “We think that our focus needs to be on the opt-in framework being better than the alternative, and that might mean taking a look at the duration of the affordable (requirement).”

Kingsella said the city should reconsider the 99-year duration of affordable units, which makes lenders and investors uncomfortable. Kingsella has advocated for the inclusionary housing program to look more like the city’s Multiple-Unit Limited Tax Exemption (MULTE) program, in which the duration of the affordability requirement and tax exemption matched.

“Ultimately, for a market participant, the decision is going to be based on does the project look better by opting in,” he said.

The tax breaks would require City Council approval.

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Developers are marshaling opposition to the city of Portland’s drive to implement an inclusionary housing program.

Some of Portland’s most influential developers have formed a local chapter of LOCUS, a developers’ lobbying group based in Washington, D.C., and are pushing for changes to the Portland Housing Bureau proposal to require developers to include affordable units in multifamily projects of 20 units or more.

“We’re cautioning that this is moving way too fast, and this hasn’t been thought through,” said Sam Rodriguez, president of Oregon LOCUS and senior managing director for Mill Creek Residential Trust, a major developer.

“The program as proposed today would definitely squash development moving forward and maybe move development outside of Portland,” he said.

LOCUS has put forward an alternative proposal that would ramp up adoption of inclusionary housing requirements over several years and offer more generous incentives than the city’s plan.

LOCUS provided its own analysis of the inclusionary zoning program that paints a competing picture with the city-commissioned analysis from David Rosen & Associates, the prime contractor for the analysis. The developers’ group also contributed pro formas from local projects that they said demonstrate the projects would not have been built if inclusionary housing had been in effect.

The Portland Housing Bureau has been working for months to lay the groundwork for inclusionary housing requirements at Commissioner Dan Saltzman’s request. Portland is the first Oregon city to go ahead with inclusionary housing, after the Legislature lifted a statewide ban in March.

The rules would require developers of multifamily buildings with 20 or more units to include 20 percent of their apartments as affordable to 80 percent of median family income, or 10 percent of units affordable to renters at 60 percent of median family income. Developers also would have the option of paying an in-lieu fee or building affordable units off-site, but the rules are structured to encourage construction on-site.

Last week’s Planning and Sustainability Commission meeting provided the first opportunity for public testimony. Developers showed up in force, providing an unrelenting stream of testimony in opposition to the policy as written.

“This proposal just doesn’t work,” said Marty Kehoe, owner of Kehoe Northwest Properties.

Kehoe said he’s developing three projects totaling 400 multifamily units in the Portland area. It would not make financial sense to develop those projects under inclusionary housing rules, he said.

“This would drop the income down so the pro formas just don’t work,” Kehoe said.

Some developers said multifamily construction in Portland would grind to a halt without greater offsets for building affordable units, resulting in reduced growth in the housing supply.

“It is punitive,” said Tom DiChiara, principal of Cairn Pacific, a developer building hundreds of apartments in the Slabtown area of Northwest Portland. “The offsets proposed are insufficient. The impact on yield, far too significant.

“Development is a margin business, and the policies proposed will squeeze already thin margins to the point where we won’t be able to attract capital.”

Members of the Planning and Sustainability Commission said they were taken aback.

“I’m kind of stunned at the onslaught of opposition to this,” Commissioner Mike Houck said.

“I’m also stunned,” Commissioner Michelle Rudd added. “I’m concerned we’re going to do the wrong thing because we’re being pressured to move fast.”

City leaders lobbied the Oregon Legislature during its previous session to end a statewide prohibition on inclusionary housing programs. Saltzman has put the Portland program on an aggressive timeline toward approval Feb. 1, 2017.

Saltzman included developers on a panel of experts he convened earlier this year to consider the policy. Developers on the panel included Dike Dame of Williams & Dame Development, Eric Cress of Urban Development + Partners, Sarah Zahn of Gerding Edlen, Greg Goodman of Downtown Development Group and Kira Cador of Rembold.

The panel, which also included housing activists, was not given the opportunity to vote on the Housing Bureau’s proposal.

“They did not take a collective position because every member has a position and was often representing their business or a collection of voices,” Housing Bureau Director Kurt Creager told planning commissioners. “We didn’t think it was appropriate to get to consensus. Commissioner Saltzman has advanced to you his best thinking based on the advice of the panel of experts.”

Dame and Goodman warned during panel meetings that an inclusionary housing policy could bring development to a halt if the income reduction from affordable units wasn’t offset adequately.

Matthew Goodman, vice president at Downtown Development Group, testified against the inclusionary housing policy. He said it must be modified.

“This issue is way too important to get wrong,” he said.

The policy will return before the Planning and Sustainability Commission for a Nov. 8 work session. If approved, it would move to the City Council for consideration.

City policymakers have acknowledged that the inclusionary housing policy does not include adequate offsets for projects outside of the Central City. Matthew Tschabold, the Housing Bureau’s policy and equity manager, said the bureau is looking at a direct cash subsidy for developers in mixed-use zones in amounts to be determined before the planning commission’s Nov. 8 meeting.

Vic Remmers of Everett Custom Homes has built several mixed-use projects with fewer than 100 units. He said the policy simply won’t work as written.

“A lot of these incentives are more driven toward the larger buildings, which have a different mindset, different financing, different economies of scale,” he said.

Incentives in the inclusionary housing policy vary according to project type, but they can include density bonuses, fee waivers, property tax exemptions on some or all units and exemptions from the city’s new construction excise tax.

Creager pushed for the planning commission to approve the inclusionary housing policy. He said the Legislature is unlikely to work on Portland’s legislative priorities in 2017 – including tenants’ rights measures – if the city doesn’t first take care of inclusionary housing.

Developers said inclusionary housing would result in cheaper projects.

“We’ll be incented – the industry will be incented – to build low-rise, stick-frame, poor-quality sprawl and less sustainable projects than we’re trying to do,” said Mark Edlen, managing partner of Gerding Edlen. “And so those who are building a cheap project will be rewarded. It’s just dollars and cents.”

Another fear, as Rodriguez told planning commissioners, is that investors’ dollars would flee Portland for suburbs like Beaverton and Hillsboro, or competing West Coast cities such as Seattle.

“Money is fungible and will go wherever it needs to go,” Rodriguez said. “My biggest fear is what we will do instead of densifying – we’ll end up pushing people to the outside, to the suburbs, which is exactly what we don’t want to do.”

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