PORTLAND, Ore. (PORTLAND TRIBUNE) — The City Council will take up a controversial Inclusionary Housing proposal on Thursday as part of its efforts to increase the supply of affordable housing in Portland.

The proposal, which became possible after the 2016 Oregon Legislature lifted the statewide ban on Inclusionary Housing, would require residential developers to include affordable units in multi-family projects with more than 20 units. It includes incentives intended to offset the revenue that would be lost by the lower-priced units.

“Inclusionary housing is an important tool to help ensure integrated housing across the city,” Commissioner Dan Saltzman said during a Tuesday morning council work session on the proposal. Saltzman is in charge of the Portland Housing Bureau, which drafted the proposal with the help of consultants and a panel of experts.

The requirement would apply to all projects with more than 20 units. Incentives in the proposal include eliminating minimum on-site parking requirements, allowing large buildings with more units, and waiving city System Development Charges on the affordable units. They would vary in different part of the city.

Some developers say the proposal reduces the profitability of their projects too much, however, making it too difficult to obtain financing and potentially curtailing much future construction. Developers have submitted permit requests for up to 14,000 new units ahead of the council’s potential vote on the proposal, a far higher number than usual in attempts to be “grandfathered” into the pre-Inclusionary Housing rules.

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“We’ve never seen this kind of rush to permit. I was shokced. It speaks to the inability to guess where the market will go,” David Rosen, a national expert on Inclusionary Housing hired by the city to advise on the proposal, said at the Tuesday work session.

Mike Kingsella, executive director of a group of developers called Oregon LOCUS, says the proposal is far broader than similar programs in other cities, many of which exempt high rise buildings and residential projects in certain parts of town. He says institutional investors could put their money into residential projects outside Portland if the incentives are not calibrated correctly.

“Inclusionary Housing can be a great tool in an overall strategy for housing affordability, so long as it continues to achieve strong housing production. Portland is looking at a more sweeping urban program than other cities; we can be a leader others follow if we do this right but a cautionary tale if we don’t,” says Kingsella, noting that the members of his organization support the increased residential density the council is trying to achieve though the updated Comprehensive Plan it approved earlier this year.

Two developers told the Business Tribune in early November that the proposal will increase housing costs for most new renters,” however.

Vanessa Sturgeon, CEO of TMT Development, said the inclusionary zoning would make Portland more like San Francisco’s model — “ultimately worse in affordability.”

And Vic Remmers, owner of VWR Development and Everett Custom Homes, said he won’t be able to develop at all in the city under the inclusionary housing proposal.

Even the Planning and Sustainability Commission that previous reviewed and recommended the proposal is concerned the incentives may not be strong enough.

“The PSC is concerned that if the incentive package offered as part of the IH program is not sufficient to fully offset the cost of providing the affordable units, there will be an unacceptable risk of reducing the overall rate of residential development. A slowdown in the overall rate of development will hinder Portland’s ability to meet housing affordability, transportation, carbon reduction and other goals in the 2035 Comprehensive Plan. If there is a significant gap between the cost of compliance and the incentives, either the incentives need to be increased and/or the inclusion rate decreased,” notes a city-prepared Impact Statement that accompanies the ordinance the council will consider on Thursday.

But Saltzman says compromises are being offered to minimize the risks. He believes the council should move forward with the proposal.

“This is an art, not a science. The best way we can figure out if it’s going to work is to go ahead and do it. There’s been a lot of brainpower invested in this trying to get it right, and it now falls on us to take the plunge. I feel we have a reasonably crafted policy here. We can micromanage it forever in hopes of getting a perfect policy, but we’re not going to get a perfect policy until we have a policy on the ground and a chance to recalibrate it as market conditions reveal themselves,” Saltzman said at the work session.

To read the ordinance and Impact Statement, click here.