Gerard C.S. Mildner
Mildner is an associate professor of real estate finance at Portland State University. He lives in Beaverton.
The Oregonian/OregonLive’s recent coverage of Portland’s problematic inclusionary zoning policy (“Latest debate on Portland’s ‘inclusionary zoning’ policy centers on affordable family apartments”, June 3) should alert citizens that the city’s housing policy is in shambles. Housing production in the city has collapsed in recent years, despite record home prices and rents. Portland remains attractive to migrants from California, yet our excessive regulation of new development has caused existing housing to become ever more unaffordable.
Inclusionary zoning is a policy that the Legislature unleashed in 2016 at the behest of the city of Portland. The city quickly abused its new powers by requiring developers of buildings of 20 units or greater to provide deep subsidies lasting 99 years for subsidized units, while offering meager incentives lasting no more than 10 years.
The policy has taken five years to reach its full impact as the city (correctly) allowed projects already in the development pipeline to avoid this extortionate policy. However, housing permits in the city fell from 5,094 housing units in 2019 to 1,779 units in 2020, a decline of 65%.
Since apartment projects typically take three to four years from conception to completion, the decline in permits cannot be blamed on the pandemic, labor shortages or rising material prices. Rather, it is a direct result of city and state policy – an outcome that economists had warned could occur. We’ve chosen to tax new housing development to produce social welfare outcomes, rather than placing the cost of social policy on the city’s general fund.
The city’s leaders have pushed a model that we should accommodate the region’s housing needs with high-density development. That policy has been abetted by tight regional restrictions on suburban development, and high demand for apartment living following the Great Recession of 2008-2009. With the loss of employment from that recession, young adults delayed marriage and family formation, and the market for downtown and near-downtown apartments was strong. We saw corridors like Southeast Division and Williams-Vancouver in North Portland erupt with new five-story apartment buildings.
The challenge of the “grow up, not out” pro-density strategy is that higher density costs more to build. In rough terms, 5-story apartments built of wood over a concrete platform cost 50% more per square foot than 2-story wood construction. And beyond 5-stories, developers must use steel and concrete construction that costs an additional 50% more per square foot.
Once the additional burden of inclusionary zoning became effective, developers stopped proposing new projects and the apartment pipeline dried up. And as the pandemic recession of 2020-21 hit us, demand soared for single family housing, which the region was completely unprepared.
The city has placed additional burdens on housing developers – mind-numbing delays caused by permitting processes and design review; requirements for tenant relocation fees and year-long eviction delays for non-payment of rent. These policies have demoralized the small landlord community in the city and contributed to Portland dropping in popularity in an Urban Land Institute real estate investor survey from #3 to #66 in a sample of 80 U.S. cities.
Remedying this problem will either take a great deal of humility in City Hall (a rare commodity) or action by the state Legislature to remove powers that the city has abused in the past five years.
As a state, we rely upon a strong central city to establish our reputation, create employment opportunities and build multi-family housing for young adults, young families and seniors. When the city abandons that role to create a welfare state that’s divorced from economic reality, the state is duty-bound to intervene.
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June 30, 2021 at 08:04PM
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Opinion: Plummeting projects shows Portland’s broken housing policy - OregonLive
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