Oregon’s 2026 Housing Bills: From a “Land Use Attorney Killer” to a Possible Fix for Inclusionary Housing,
by Aaron Kirk Douglas, HFO Director of Market Intelligence
PORTLAND, Ore. — Oregon’s 2026 short legislative session, which convened Feb. 2 and adjourned March 6, produced a significant package of housing bills — including one measure that attorneys and developers are calling the most transformative land use reform the state has seen in a generation.
But the session also exposed the persistent tension between Oregon’s stated housing goals and the bureaucratic and political machinery that often works against them.
Ezra Hammer, counsel with the law firm Ballard Spahr LLP and one of the state’s leading voices on land use and housing law, sat down with HFO Investment Real Estate partner Greg Frick on HFO’s Multifamily Marketwatch® program to unpack the session’s wins, losses, and what comes next.
“We’re seeing positive momentum at the legislature,” Hammer said. “We’re seeing energy session after session on the housing issue. So we’re not at the goal line yet. It’s still far too expensive and far too challenging to build housing in Oregon, and we need to do a better job. But the momentum seems to be swinging in the right direction.”
The One That Got Away: SB 566 and the Prevailing Wage Fight
Not everything made it through. Senate Bill 566, which would have carved out explicit exemptions from prevailing wage requirements for certain housing projects, died in committee — a casualty of organized labor’s considerable influence in Salem.
The bill was a direct response to what Hammer described as a years-long shift in posture by the Bureau of Labor and Industries (BOLI), the state agency responsible for determining when prevailing wage requirements apply to construction projects.
“Over the last three or four years, we’ve seen BOLI become more and more aggressive,” Hammer said. “They’re stepping into areas where they haven’t previously engaged and applying prevailing wage standards in ways that haven’t been applied.”
Prevailing wage requirements can add roughly 30% to labor costs on a project, Hammer said, a burden that falls especially hard on affordable housing developments operating on thin margins.
BOLI Stopped Collaborating
The cultural shift at BOLI has been stark, he added. “If you talk to folks that have spent time with BOLI over the decades, there was a culture around collaboration. If you were an applicant or a practitioner, you could engage with BOLI. There’d be a back-and-forth; there’d be an opportunity for detailed analysis. Now they’re operating like a black box.”
The consequences have been concrete. Hammer cited three examples: a small affordable housing project on the Oregon coast killed after BOLI determined that required commercial components triggered prevailing wage for the entire project; a state-funded boat decommissioning program halted on the coast after BOLI ruled the work triggered prevailing wage; and a Eugene-area redevelopment scheme effectively killed after BOLI took the position that a city’s engagement with a single developer in a master planning process could trigger prevailing wage requirements across dozens of market-rate projects in the plan.
“It was a real scare for a lot of small cities that may have brownfield sites and want to engage in the master planning process,” Hammer said.
An Issue for a Future Legislature
With SB 566 stalled, Hammer expects the issue to resurface in Oregon’s long session, potentially as part of a broader negotiated settlement with labor. “There’s an expectation that, because BOLI has been taking these aggressive positions, we might see legislation come back in the long session and the possibility for a grander bargain around a BOLI fix,” he said.
Frick framed the failure as symptomatic of a larger problem. “The state says publicly it wants more housing,” he said, “but then how it works in the different departments — you’re still having this uphill battle.”
Hammer agreed. “Silos are a perfect way to think about it,” he said. “You have the vision for housing production, but that vision hasn’t been translated into action with all the various departments and bureaus that are responsible for making it happen. When the governor says we want to build 36,000 homes, we should be able to do so without an individual department or bureau stopping that from happening.”
SB 1521: A Landmark Fix for Inclusionary Zoning — Now Law
In contrast to the SB 566 defeat, Senate Bill 1521 emerged as the session’s clearest policy success on the supply side. Gov. Tina Kotek signed the bill on March 31. It becomes operative for rental housing Jan. 1, 2028, and for all housing Jan. 1, 2029.
The bill requires jurisdictions in the Portland metropolitan statistical area that want to enforce inclusionary zoning — rules mandating that developers of larger multifamily projects set aside units at below-market rents — to fully offset the financial cost those mandates impose on developers. Offsets may take the form of direct cash payments, fee waivers or tax abatements.
Hammer described the measure as “really transformative,” crediting the Sightline Institute and state Sen. Khanh Pham for driving the effort.
Portland’s IZ Cautionary Tale
The backstory is a cautionary tale. Portland adopted inclusionary zoning in 2016, and the results were immediate and damaging. “We had the ramp up to February of ’17, and then you started seeing permits going down on new projects, and we’ve never really recovered,” Frick said.
“Inclusionary housing is a giant tax on new construction,” Hammer said. “If you build more than 20 units, you need to start setting aside some of those below-market rent for a term of 99 years — even aside from any sort of offset. Cities now realize it’s not a free lunch. They’re going to have to pony up cash at the end of the day if it’s something they want to pursue.”
The market’s response to SB 1521’s passage was telling. When Ballard Spahr sent an action alert to its developer clients, Hammer said the calls that followed came not just from Oregon, but from across the country. “We got calls from New York, from Boston and Miami — folks who had a very negative perception of Oregon because of what’s happened the past couple of years, but were intrigued by the fact that the state is now starting to address some of these systemic challenges.”
There is also a longer-term wildcard in play. Hammer noted that litigation challenging the legality of inclusionary zoning is active in five states, with advocates pushing to get the issue before the U.S. Supreme Court. “They believe the Supreme Court may strike it down as an unconstitutional taking,” he said, “in which case this conversation could be moot.”
HB 4037, Section 17: The ‘Land Use Attorney Killer’ — Now Signed Into Law
The measure Hammer called the most consequential of the session — and the one he jokingly predicted could put him out of a job — was signed by Gov. Kotek on April 7. House Bill 4037’s general provisions take effect June 5. Section 17, the provision at the heart of the reform, becomes operative on July 1.
Section 17 amends Oregon’s land-use statutes governing the review of housing applications. For projects subject to clear and objective standards, local governments may now provide notice only to property owners within 100 feet of the project — or 500 feet for developments of 20 units or more. They may not require a public hearing before making a decision. And critically, they may provide an opportunity to appeal only to the applicant. Third-party appeals to the Land Use Board of Appeals are eliminated for qualifying projects.
Just saying “I don’t like this” isn’t good enough anymore.
“Section 17 addresses a lot of the risk and uncertainty that housing developers face when they want to enter the market,” Hammer said. “Right now, if you’re in Oregon and you have an opponent that doesn’t want you to build something, merely by showing up and saying, ‘I don’t like this,’ they can add a year-plus to a project. The threshold for participation is literally just showing up and saying that you don’t like something.”
The legislature’s message, Hammer said, was clear: “Housing is a collective good, and it produces localized impacts — but that collective good is so important that we need to do more to support it.”
Developer reaction has been enthusiastic. “We think it could be a tremendous benefit to local developers and to out-of-state folks who want to come in with a higher degree of certainty,” Hammer said, “and could in the short term be a major driver of housing production.”
The reform is expected to benefit affordable and market-rate projects alike — particularly the former, which have historically drawn the most intense neighborhood opposition. But it is also expected to generate legal challenges.
The city of Sherwood has already amended its city charter in a way that directly conflicts with Section 17’s provisions, taking the public posture that its charter controls over state law. “We’re not going to know until a project is tested,” Hammer said. “But that may be the posture that cities take: the state has gone too far. We want local control. We want the opportunity to appeal and to provide substantial notice to the community. This might be something the courts will have to hash out in the coming years.”
HB 4035: Making Room to Grow
House Bill 4035, which passed both chambers and awaits the governor’s signature — with an expected effective date of approximately June 5 — refines and expands the one-time urban growth boundary expansion process the legislature established under SB 1537 in 2024.
That earlier law allowed cities that met the “severely rent burdened” threshold — defined as 25% of households spending at least 50% of their income on rent — to pursue a streamlined, one-time UGB expansion. HB 4035 widens eligibility to cities where 25% of households spend more than 30% of their income on rent, raises acreage limits from 100 to 150 acres for cities with populations over 25,000, and, critically, allows expansion onto farmland and forest land when no other options exist.
The Farm Use Problem
That last provision addresses what Hammer called an existential problem for many Oregon cities. “At its core, the bill recognizes that for many Oregon cities, the only way they’re going to grow is by growing onto land that’s currently designated for farm use,” he said. “Cornelius is a great example — there isn’t one acre of land that borders its current municipal boundaries that hasn’t been designated for exclusive farm use. When you say you can’t grow into farmland, you’re saying to a Cornelius: you’re not allowed to grow.”
The bill was shaped in part by hard lessons learned in Roseburg and Monmouth. “In the case of Roseburg, they’d been going through that process for several decades,” Hammer said. “They’d spent upwards of half a million dollars on consultant fees. They engaged in lengthy community conversations, and they thought they’d crack the nut — but as they got to the final steps, out of the woodwork came some opponents, sent a few angry letters, and the state sent them back to the drawing board.”
Monmouth’s message was simpler: “We don’t have half a million dollars. We can’t even engage in the process.”
HB 4036: Preserving What Already Exists
Also passed and awaiting the governor’s signature is House Bill 4036, which creates the Preserve Affordable Homes for Oregon Fund, authorizing the use of state bond proceeds to acquire or place affordability covenants on existing affordable housing units — not just build new ones.
The bill targets a quiet crisis that Hammer said is growing more urgent by the month: the deterioration and potential loss of Oregon’s existing affordable housing stock.
“We’ve focused primarily on new construction, which is great,” he said, “but what we haven’t done is recognize that there’s a real opportunity and a need to preserve existing units and buy covenants on existing units.”
The economics are stark. “Right now in the Portland market, we’re seeing product built in the 2020s trading under $300,000 a door, and it would cost upwards of $500,000 a door to build that product,” Hammer said. “That disconnect means we’re not seeing projects get financed. But it also means there’s a real opportunity for folks in the affordable housing space to go out to market and buy units or covenants at really reasonable terms.”
Without intervention, Hammer warned, the consequences are predictable. “Operating these projects is challenging. It’s done on razor-thin margins. You’re going to start seeing a lot of unfunded capital improvements every year. And eventually those will either go back to the bank, or the covenants are going to fall off because they’re not going to be able to operate them as they currently are, absent a major investment by the state.”
HB 4082: Filling a Senior Housing Gap
House Bill 4082, also passed and awaiting the governor’s signature, was requested by Kotek herself and adds a targeted pathway for 55-and-older communities to use the one-time UGB expansion process.
Under the bill, land may be added to an urban growth boundary to support housing for older Oregonians — including manufactured dwelling parks — provided that at least 80% of units remain affordable for at least 30 years.
“There’s a crazy need for this,” Hammer said. “We’re an aging population. We haven’t built this product historically.” He noted that neighboring Washington has been ahead of Oregon on market-rate 55-plus apartment development.
The bill also creates strategic opportunities for developers planning larger expansions. “What we’re starting to see is the coupling together of: what if I do one big expansion, and part of it is for a 55-plus community and part of it is a market-rate piece?” Hammer said. “Better master planning, better working with utility infrastructure, and from a municipal standpoint, a better process to show the public how we’re going to grow and what benefits will accrue.”
The Takeaway
Oregon’s 2026 short session didn’t solve the state’s housing crisis. The prevailing wage fight was tabled. The goal of 36,000 new homes remains aspirational. And the cost and complexity of building in Oregon still rank among the highest in the nation.
But the session’s accomplishments — particularly SB 1521 and the newly signed HB 4037 — signal a legislature increasingly willing to make structurally significant changes rather than incremental ones. And the response from out-of-state capital suggests the market is watching.
“Oregon’s changing image this legislative session attracted attention from developers nationwide,” Frick said.
For a state that has spent nearly a decade trying to rebuild investor confidence in its multifamily market, that may be the most important development of all.
Ezra Hammer is counsel in the Portland office of Ballard Spahr LLP, where he focuses on land use and real estate law. Greg Frick is a co-founder of HFO Investment Real Estate, the Pacific Northwest’s largest multifamily brokerage. Watch the entire interview here.