Portland could pass one of the biggest affordability mandates in the country — and that’s exciting
But with some outside experts warning that the proposal might be balanced wrong, the city should probably lay the groundwork for future changes if they’re needed.
By Michael Andersen | Dec. 13, 2016
To understand why an “inclusionary housing” policy could be great for Portland, stop by the construction site at 3423 SE Hawthorne Boulevard.
Last year, this block saw one of the most memorable moments in Portland’s recent housing history: a crowd of up to 200 people gathered on a Thursday afternoon to protest and/or gawk at the demolition of a 1909 four-plex at SE Hawthorne and 34th.
Next year, 30 new apartments are supposed to go up on the former site of the old internally divided house — adding 26 precious homes to the city’s housing supply but also replacing four lower-rent ones with high-rent ones.
Here’s the coolest thing about the policy Portland’s city council will debate on Tuesday: if it had been in place when this project was approved, and if the project had still been viable under the new rules, one in five of the units would have had to be affordable. Do the math: the 30-unit building would have included six lower-rent homes alongside 24 market-rate ones.
Instead of removing four lower-rent homes, the site would have added two.
And for good measure the project would also create 24 higher-rent homes, each of which would give wealthier people a place to move that is not the house of a less wealthy person.
In short: inclusionary housing can be a way that Portland can do two things at once:
a) add enough homes to keep up with population growth
b) preserve income diversity in growing neighborhoods
Done right, inclusionary housing can be a way to break the destructive link between development and displacement.
Done right, inclusionary housing turns every big new building into a win-win.
But if the City of Portland’s own best estimates are right, its current proposal isn’t optimal. As estimated by city consultant David Rosen and summarized Nov. 30 by the city budget office, the law would threaten to reduce the number of new mixed-use buildings, especially outside downtown. That’s because the “offsets” the city has proposed in exchange for the new requirement — lower taxes and fees, a few more stories of height — aren’t enough to fully cover the additional cost of the lower-rent units.
In short: The city can require developers to include lower-rent homes in all their new buildings. But it can’t require developers to build.
If the city’s projections are right, it would have two options to increase the number of below-market homes built: lower the affordability mandate, or raise the offsets.
At the city council today, a group of local infill developers called LOCUS will argue for lowering the affordability mandate.
But affordable housing advocates could chart the other course instead: raising the offsets, either immediately or over the next several years. Here’s why they should consider it.
The best thing about Portland’s proposal is its high affordability mandate
There’s a quiet but fierce debate going on in Portland right now about the details of this inclusionary housing proposal.
Some development industry pros are urging the city to require as few as 5 percent of units at below-market rates. Some affordability advocates are pushing for 20 percent.
Let’s call that number, whatever it is, the inclusion ratio. Expect heated debate about it at today’s city council hearing.
It’ll be an important argument, with valid arguments on both sides. But here’s one point that Portlanders who care about affordability (which includes people on both sides) shouldn’t forget amid the noise:
The higher Portland’s inclusion ratio gets, the more likely each new building is to be a win-win for affordability.
This is one reason it’s noteworthy that the 20 percent ratio Portland is considering would be among the highest in the country. According to the Grounded Solutions Network, a nonprofit that’s in the midst of an overview of inclusionary housing policies around the United States, fewer than 17 cities in the country (out of 177 cities whose IH policies the group has studied so far) require more than 20 percent affordable units.
Seattle’s similar concept, for example, would require only 5 to 11 percent of new units to be affordable. That’s better than nothing — but it’s probably not enough for new buildings to usually create more lower-rent homes than they displace.
To maximize the number of new lower-rent units, Portland should try to fully offset their costs
If Portland does inclusionary housing but gets it wrong, the Portlanders who suffer most would be the poorest ones. They’d end up on the street — because the city’s housing shortage would get worse.
Moreover, an inclusionary housing policy that slowed the pace of new building would be self-defeating. Fewer new low-rent units would be built.
Over the last month we talked to four independent housing experts, all of whom see inclusionary housing as a potentially useful tool. They were Lisa Sturtevant, the author of a widely cited recent study of inclusionary housing; Janet Viveiros, Acting Director of Research at the National Housing Conference, a nonprofit association of affordable-housing pros; Lorelei Juntunen, a land use economist at Portland’s ECONorthwest; and Dan Bertolet, a senior researcher for Seattle’s Sightline Institute.
All four said that if an inclusionary housing law doesn’t fully offset its costs at the project level, then it isn’t producing as many low-rent units as it could be.
Across all jurisdictions using or considering inclusionary housing, Viveiros said, “the unifying discussion that we hear is that a successful policy will not impact market activity.”
“If it slows down development, then it’s problematic,” agreed Juntunen, discussing the impact on low-income households of an inadequately offset inclusionary housing policy.
“Is it accurate to say ‘If a city is seeking to maximize the number of below-market-rate units produced at a given inclusion rate, its incentives should be large enough to fully offset the private costs of that inclusion requirement?’” said Sturtevant in an email. “I can’t think of a way to argue against that statement.”
And in a 4,000-word examination of inclusionary housing published last month, Bertolet praised the policy’s potential but warned:
There is no free lunch. There is no wiggling out of the economics. IZ without balancing offsets will push some prospective housing developments from black to red ink, suppressing housing choices and driving up housing prices for everyone.
If Portland’s current best guesses are accurate, its policy will fail that standard. David Rosen and Associates, a firm that specializes in inclusionary housing, estimated in October that Portland’s proposed policy wouldn’t offset the costs it creates.
Affordability advocates can start planning now for where to find more offsets if they’re needed
Amid all this heat over inclusionary housing, it’s important to keep a sense of perspective.
Real estate markets are full of uncertainty. If a few of the assumptions in Rosen’s model turn out to be wrong, housing construction might not slow after all.
Rosen made this case to the city in his report last month, essentially saying that even though his numbers suggested inclusionary housing would dampen new development, the dampening effect was small enough to ignore.
Housing Commissioner Dan Saltzman seemed to agree.
“We can micromanage it forever in hopes of getting a perfect policy,” Saltzman said at the time, as reported by the Portland Tribune. “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.”
If most of Portland’s city council follows Saltzman’s lead and approves this policy, it’ll be because of this argument: even if the policy fails, the city will have time to fix it.
What would that fix look like? Portland would face the same choice it faces today.
- Lower the affordability mandate, or
- Raise the offsets.
With luck, the city’s projections are wrong and its inclusionary housing policy will work perfectly. But in case it doesn’t, affordability advocates should probably be asking themselves now which of the above options they’d prefer.
Portland for Everyone supports abundant, diverse, affordable housing. This is an independently reported blog about how to get more of those things.
Correction 12:05 pm: An earlier version of this post understated the top inclusion rate in the Seattle inclusionary zoning concept. It’s 11 percent.
