Portland Mayor Charlie Hales and the city's urban renewal agency want to revitalize gritty Old Town Chinatown by offering subsidies to build hundreds of new apartments that could rent for as much as $1,563 a month.

Waiving development fees would incentivize market-rate housing construction in a neighborhood left behind by Portland’s apartment boom, city officials argue, luring residents with disposable incomes to patronize new businesses and discourage street-corner drug dealing.

Big-name developers such as Gerding Edlen and the Goodman family, which owns several parking lots in the area, are already eying projects and throwing support behind the incentives.

But some city leaders and housing advocates question the wisdom of offering subsidies of $7 million to $20 million over five years to build so-called "workforce housing," particularly when the city's own statistics indicate that Portland has a surplus of such housing and a deficit of options for the city's poorest residents.

The future of Old Town Chinatown

Monday:

In an effort to lure new residents with disposable incomes to the neighborhood, Portland Mayor Charlie Hales and the city's development agency are pitching subsidies on apartment projects.

Tuesday:

A 19th Century saloon that was once the most famous watering hole in the Pacific Northwest could soon get new life as part of the vision for downtown’s oldest and grittiest neighborhood.

Wednesday:

Long-time owners of Asian businesses worry that the city's plans for what was once the heart of Portland’s Chinese community doesn't include them.

Thursday:

Join City Hall reporters Brad Schmidt and Andrew Theen for a live chat at noon.

The development incentives are shaping up to be the most politically challenging and controversial part of a comprehensive new plan being crafted by Hales and the Portland Development Commission to jumpstart Old Town Chinatown after decades of stagnation.

Despite numerous city efforts over the years, Old Town Chinatown hasn’t blossomed like the Pearl District, downtown’s West End or several close-in eastside locales. Portland’s oldest neighborhood is perhaps best known for its homeless shelters, nightclubs, soup kitchens and thousands of people living in poverty.

As part of the five-year Old Town Chinatown plan, officials are looking to earmark about $58 million from urban renewal funds to pay for unspecified redevelopment efforts. To address safety, the city is considering new licenses for nightclubs and beefing up foot patrols by police officers.

If the effort works, Old Town Chinatown will be a safer, more vibrant neighborhood that draws Portlanders of all incomes, said Ed McNamara, a policy director for Hales. For that to happen, developers need to see that the city is serious – and Hales believes the subsidies will show that.

“Part of that commitment to a five-year plan … is to give a clearer signal to people that, yeah, this is a safe place to invest. It’s going to change,” McNamara said. “The city’s not just going to pull out after a year.”

$1,563 a month

Portland already waives system development charges – assessed on new construction to help offset the costs of expanding public services – for rental projects serving people who earn up to 60 percent of the regional median income, or $29,160 a year for an individual.

What's median family income?

Median family income, or MFI, is a regional measurement used to determine who can afford to rent or own certain properties. For instance, 30 percent of the Portland MFI for an individual is $14,600 while 100 percent is $48,580. For a family of four, 30 percent MFI is $20,800 and 100 percent MFI is $69,400.

As part of the plan to remake Old Town Chinatown, Hales and the PDC made this recommendation late last year: extend the same breaks for "workforce housing" targeting middle-income earners whose individual incomes are twice as high, $58,320.

Under such a scenario, the city of Portland would subsidize construction for one-bedroom apartments that run $1,563 a month, including utilities.

That’s well above the going rate for one-bedroom apartments in downtown and Northwest Portland, which rent for about $1,115, according to the most recent rental survey by industry group Multifamily NW.

City officials are now backing off their recommendations, included in documents shared within City Hall and obtained through the state's public records law.

McNamara said the recommended income range was simply meant to start the discussion.

“The mayor’s office hasn’t gotten to that level of detail on what is exactly the right rent before a subsidy goes away,” he said.

Documents also show that officials recommended offering $20 million in fee waivers over five years.

The figure is now $7 million, which would cover fee waivers for about 500 apartments, McNamara said.

“I really don’t know how PDC came up with $20 million, and when I saw $20 million, I said, ‘We don’t need that much,’” said McNamara, who developed affordable housing before joining Hales’ staff in 2013.

PDC said the $20 million figure was a preliminary recommendation, based on an outside consulting analysis by Johnson Economics. The agency also said the recommendation was made “in partnership” with Hales’ office.

“Nobody’s really, at this point, even talking about what’s the right number,” McNamara said. “It’s what do we think of the concept?”

Where's the need?

It’s no surprise that Old Town Chinatown is at the center of Portland’s debate over whether to subsidize housing for middle-income earners.

Portland's housing needs

0-30% MFI:

28,975 renter households, 10,255 units,

18,720 deficit

31-50% MFI:

19,930 renter households, 21,460 units,

1,560 surplus

51-80% MFI:

23,240 renter households, 58,035 units,

34,795 surplus

SOURCE: Northwest Pilot Project's review of Portland Housing Bureau tabulations of 2006-10 CHAS data

The neighborhood is primed for redevelopment, tucked between downtown and the thriving Pearl District.

Yet developers have shown little interest, even as new apartment projects seemingly break ground every week on the central eastside and the Lloyd District. That’s because developers don’t believe people are willing to pay the rents needed to justify construction costs.

The city's outside analysis, by Johnson Economics, concluded that a variety of development scenarios were not financially viable.

The obstacles in Old Town Chinatown are numerous.

For starters, it's difficult to assemble large pieces of land, said Gerry Mildner, director of Portland State University's Center for Real Estate. Height restrictions limit buildings to 75 or 100 feet in some places, up to 425 feet elsewhere. Masonry buildings need seismic upgrades.

“This could be a very effective program for getting units built in this neighborhood,” Mildner said of the proposal to waive development fees. “This neighborhood has languished.”

But affordable housing advocates say the city should be focusing its attention on serving people with the greatest needs, not offering incentives to build in a neighborhood that may still capitalize on the Pearl District’s recent success.

“I think they’re spending their time on the wrong priority,” said Susan Emmons, executive director of Northwest Pilot Project, which serves elderly low-income Portlanders.

City officials are hard-pressed to document the need. Housing Bureau Director Traci Manning acknowledged that city statistics show a "glaring deficit" of about 19,000 units to meet the needs of Portland's poorest residents.

But she questioned whether a surplus exists for other income ranges, as the data shows, noting that the statistics are out of date and don’t capture the city’s white-hot rental market.

New Housing Bureau maps indicate that rents west of the Willamette River are too expensive for anyone earning 80 percent or less of the median, or $38,500 a year.

“I’d love to have better data, and I can’t point to anything more comprehensive than that,” she said.

In Old Town Chinatown, Portland’s Goodman family wants to develop seven properties among the dozens of parking lots it owns downtown.

Who lives in Old Town Chinatown?

Old Town Chinatown is already home to nearly 4,000 people living in 2,000 units. But two-thirds of those households have an estimated annual income below $25,000, according to the Portland Development Commission.

“There’s no demand in this neighborhood,” said Greg Goodman, co-president of Downtown Development Group. “So the SDCs (system development charges) are a big deal.”

Gerding Edlen also is interested in the neighborhood. The development company is negotiating to buy city-owned property at Northwest Naito Parkway and Davis Street for a 100-unit mixed-use apartment project, which is expected to include a limited number of rent-restricted units and qualify for a tax-abatement program.

“The neighborhood has challenges,” said Jill Sherman, a company vice president, “but also significant opportunity.”

Since 2008, the University of Oregon and Mercy Corps opened offices near the Burnside Bridge, light rail began running along Fifth and Sixth avenues, and the city dubbed a few nightclub-lined blocks in Old Town Chinatown as an “entertainment district.”

Adding more market-rate housing is the next step in unleashing the district’s potential, said Howard Weiner, who moved his skateboard business to the neighborhood 30 years ago and now chairs the community association.

“When you have folks that live in the neighborhood,” he said, “they’ll take ownership.”

Divided City Council

Portland Mayor Charlie Hales is considering options to incentivize redevelopment in Old Town Chinatown.

For now, Hales doesn’t appear to have the votes in City Hall to extend the subsidies to workforce housing.

Commissioner Amanda Fritz said representatives from Old Town Chinatown recently began asking for her support, even though she'd yet to receive information from Hales' office or the development commission.

While Fritz recognizes a desire for mixed-income apartments, she said couldn’t justify a subsidy “until we’ve got housing for people who are living outside.”

Commissioner Nick Fish, who oversaw the Housing Bureau from 2008 until early 2013, also questioned the need to subsidize workforce housing.

“If you have a limited pool of money, and you have a documented need at the low end, I think you have a heavy burden of proof to show that you should use those resources on something that the market might be able to address,” Fish said.

Fish and Fritz also said they’re not interested in using development fees collected by the bureaus they oversee – water, sewer and parks – to subsidize new development.

Commissioner Steve Novick is the swing vote.

Novick, who manages the Portland Bureau of Transportation, said in an email that he has been briefed on the issue but is “not yet well informed enough to have much of an opinion.”

The lone voice of support comes from Commissioner Dan Saltzman, in charge of the Housing Bureau since last year.

Saltzman said he supports fee waivers for projects serving people with incomes up to 80 percent of the median, if not 100 percent. Anything higher is not politically attainable, he said.

“I’m just not going to be pigeonholed into feeling guilty if I’m talking about addressing the needs of Portlanders whose incomes are not the very, very lowest,” he said.

Lack of support within City Hall helps explain why the plan for Old Town Chinatown did not come to the City Council in December, as development officials suggested would happen last fall.

Three months behind schedule, McNamara and PDC officials now say they don’t know when a proposal will move forward.

But McNamara remains hopeful he can find a sweet spot for incentives – one that works for developers, the City Council and Old Town Chinatown.

“That’s the idea,” he said. “By having some incentive now, everybody’s a little better off later on.”

-- Brad Schmidt