Portland’s Bet on Forcing Developers to Build Affordable Housing Is Getting Lackluster Results Now, Mayor Ted Wheeler Wants to Offer a Sweeter Deal

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DENNIS SACKHOFF doesn’t build a parking lot if he can help it. So, last year, the Beaverton-based developer jumped at the chance to scratch an expensive underground parking garage from an apartment building he plans to build in the Kerns neighborhood.

In July, city records show Sackhoff’s Urban Development Group scrapped plans to build a four-story, 74-unit building with a 26-stall parking garage at Northeast Everett and 28th. Instead, the company now plans to build a 119-unit building at the site—with no parking spaces.

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It’s the type of project that has made Sackhoff despised in some Portland neighborhoods, but city officials wish more developers would follow his lead. That’s because in exchange for a break on building parking stalls, Sackhoff will make 18 of the building’s 119 units “affordable.”

A year ago, Portland City Council enacted “Inclusionary Housing” (IH), a new policy requiring any apartment building of 20 units or more to rent a portion of them below market rates—from 30 to 80 percent of the city’s median family income, depending on the option a developer selects.

When the city implemented the policy, detractors warned the new rules would simply ensure developers stopped building here. City officials argued IH would force the private market to create much-needed affordable units in Portland’s building boom.

A year into the policy, the detractors seem to be winning. Apartment construction in Portland has fallen off a cliff, though there’s still ambiguity as to whether IH or other market forces are the key reason. Meanwhile, Mayor Ted Wheeler is planning to sweeten the deals that the city offers developers to convince them to build.

“We think we can do better,” Wheeler told the Mercury this week. “In March, I will be bringing an ordinance to the [city] council that will give the housing bureau authority to add some incentives.”

20-Plus Unit Multi-Family Projects Planned Since February 1, 2017

Key: Address / Total Units / Affordable units A 6263 N Cecelia / 21 / Number of affordable units currently unclear

B 1515 NE 28th / 53 / 8

C 2821 NE Everett / 119 / 18

D 14775 NE Couch / 30 / 5

E 123 SE 13th / 87 / 13

F 2580 SE Ankeny / 96 / 15

G 5770 E Burnside / 48 / 7

H 6012 SE Yamhill / 76 / 11

I 5955 SE Milwaukie / 54 / 11

J 5434 SE Milwaukie / 28 / Number of affordable units currently unclear

K 2508 SE 32nd / 32 / Number of affordable units currently unclear

L 5401 SE Woodstock / 38 / 3

So far, IH’s results are underwhelming. According to the city’s Bureau of Development Services, 12 qualifying buildings with a total of 682 units have applied for permits since the IH policy went into effect on February 1, 2017. Under IH, those projects could bring in anywhere from 55 to 170 below-market units, depending on the options their owners select (not all developers have decided, so an actual number of affordable units isn’t clear).

Whatever the case, 682 is a huge drop off for a housing market that from 2013 to 2017 typically built between 3,000 and 6,000 new units per year. And the number doesn’t give the complete picture.

Sackhoff, for instance, could have elected to avoid the IH rules altogether in the Kerns project, since it was underway before IH kicked in. Observers say his Urban Development Group made a calculated decision to build affordable units in exchange for a reprieve on building a hugely expensive parking garage—and not just in one building. All told, Urban Development Group’s projects account for more than 300 of the total units currently planned under IH (and more than 50 affordable units), but it’s not clear whether the company will keep it up, or that other builders are as eager to avoid building parking facilities.

“The question is in all of this: Are we meeting our goals in terms of adding affordable housing annually to the marketplace?” says City Commissioner Nick Fish, who thinks it’s too soon to say IH hasn’t worked. “What we do know is we aren’t getting the job done.”

The slowdown in apartment development can be explained by a number of factors. In the run-up to IH going into effect, developers rushed applications to build thousands of units in order to avoid the new requirements—nearly four years’ worth of development was filed in short order. Fish and others believe IH can’t be truly evaluated until those projects are built (or canceled, as many undoubtedly will be). Thanks to record demand in recent years, construction in Portland is also extremely expensive right now, and rents have softened, making projects less feasible, developers say.

But most people think it’s more than that.

“We’ve seen the spigot turned off so completely, so fast,” says Kurt Schultz, a principal at SERA Architects, who notes that his clients who’ve worked with similar policies in other cities often blanch when told of Portland’s strict IH rules. “I’ve never seen it turned off so fast before, and I’ve been doing this for 30 years.”

The projects submitted under IH are striking not just for their scarcity, but for where they’re located. Under the policy, developers are given more incentives to build in the central city, where tax breaks are bigger and the city offers steep bonuses that let developers construct larger buildings. But not a single building that’s applied for permits under IH sits in the central city. None are west of the river.

“It’s working well in the neighborhoods outside the central city,” argues Kyle Chisek, director of bureau engagement in the mayor’s office. “It’s not working as well in the central city.”

To try to curb the trend, Wheeler will offer new incentives to developers. In a recent City Council session, the mayor suggested he would seek to jump-start IH by allowing larger buildings in central Portland.

“Our biggest plays are around height and density,” Wheeler’s office tweeted as the mayor made a statement at the council hearing. “That way we can pick off hundreds at a time and with [Inclusionary Housing] we’re ensuring #affordability.”

That’s only true if builders bite. To whet their appetites, Wheeler’s mulling a range of incentives for developers who already have “vested” projects that don’t need to follow IH rules. Tax breaks will be on the table in March, officials say, though details are still scant. The mayor’s office will also consider future tweaks to the IH program to allow more density.

One big fish that the city’s been trying to angle: the Zidell family, whose large-scale Zidell Yards development is slated to bring thousands of residential units to the South Waterfront in coming years. Representatives of the family’s ZRZ Realty Inc, declined to comment on their ongoing negotiations with city officials.

Plenty of other developers are in the city’s sights, too. Wheeler’s office says to expect more clarity on what it will offer those companies in February, even as the mayor looks to tweak the IH program in the near future.

“By the time you come to a definitive conclusion” about whether IH is failing or not, notes Wheeler spokesperson Michael Cox, “it might be too late to adjust the program.”