Financing, red tape and lack of incentives cause delays in Portland’s affordable housing development

It’s no secret that Portland has a housing crisis. Affordable housing has always been an issue here, but the 2020 pandemic and subsequent recession has only made it worse. Families have been forced out of their homes despite rent relief efforts, and the city’s homeless population has skyrocketed.

Yet, in 2016 Portlanders approved a $258 million bond that was intended to create 1300 new homes. However, only 314 affordable units have been completed in 4.5 years. As of April 2021, there were 3 projects in construction and 7 more on the drawing board, despite the city having purchased land to build affordable housing on 3.5 years ago.

Portland needs 22,030 additional units to meet the city’s current demand, according to a 2020 report from the US Department of Housing and Urban Development, which is almost double the amount it currently has.

So, what has caused this snail’s pace of development of affordable housing? Developers say it’s a combination of complex application and financing processes as well as a lack of incentive. 

Initially, the delay was caused by the Portland’s failure to get clearance from a provision of the state’s constitution that prevented spending bond proceeds on buildings the city didn’t own. However, voters fixed this issue in 2018.

One huge roadblock is the financing and application processes. In one of the most recent bond-funded projects, the Las Adelitas apartments in Portland’s NE Cully neighborhood, developers faced an exhaustive financing process. The $23 million project took 25 pots of financing across 16 partners – made up of federal, state, county, city and private investors, and a combination of tax credits, grants and loans. 

This vast assortment of funding sources is required partially because private investors aren’t usually willing to give a large loan to affordable housing. Another issue with financing is that the 2016 approved bond only covers a fraction of the cost per unit to build a development. Paying for higher quality materials and prevailing wages for workers has driven the cost per unit of the Las Adelitas apartments up to $410,000 per unit. The bond only covers $175,000, necessitating the rest to come from different funding sources.

Additional delays are caused by a disorganized application process. First, developers apply for city approval, then once that process is approved, they apply for state, and so on. The process isn’t synchronized, and between planning, design, application, and financing processes, it can take up to 2 years for a project to even break ground. According to the developer of the Las Adelitas apartments, the financing process is even worse than the permitting process.

Then you factor in public review processes, open bid processes and unforeseen issues with the building process itself such as environmental factors and the process takes even longer.

The other major issue stalling the development of multi-family housing in general, including affordable housing, is lack of incentive. According to developers, the combination of rent caps and mandatory inclusionary zoning on complexes with 20 units or more makes it difficult to make a profit. Thus, developers build small, or they leave Portland completely and develop elsewhere. 

Inclusionary zoning requires that a portion of new units in a development be reserved for households making less than 80% of the current median income in complexes of 20 units or more.

Housing advocates claim that developers are exaggerating, and the main reason development is down is because the pace of development was so high for the last few years, and that there are incentives for building affordable housing, such as waiving certain taxes and fees.

Developers say that isn’t enough, and now is not the time to impose inclusionary zoning obligations. They also say that the immediate imposition of new policies such as inclusionary zoning and rent caps, rather than easing them into place over a few years, has deterred developers from continuing to invest in Portland, and has sent them elsewhere.

What are your thoughts? Do you think that Portland needs to adjust its approach to affordable housing, or do you agree that developers are exaggerating the pain and risk involved with continuing to build here? Leave your comments below.

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