Portland’s Decade of IZ (Inclusionary Zoning). What the Experiment Actually Produced [7/2/26]
July 2, 2026
Michael Pierce

Portland’s Decade of IZ (Inclusionary Zoning). What the Experiment Actually Produced [7/2/26]

Portland’s affordable housing mandate distorted the development market for nearly a decade. A 2024 fix appears to have corrected course. However, the policy’s future remains unsettled.

When Portland enacted its Inclusionary Housing program in 2017, the premise was straightforward. The city required developers of buildings with 20 or more units to set aside a percentage as affordable. As a result, the city would gain subsidized housing at private expense. This was preferable, as it avoided public cost. What happened next became one of the more instructive cautionary tales in Pacific Northwest housing policy.

Within the first year of the policy’s operation, the number of apartment projects built with fewer than 20 units — small enough to sidestep the IH requirement entirely — doubled to nearly half of all multifamily construction in Portland. This data comes from a December 2022 analysis by the city’s Bureau of Planning and Sustainability. Developers were not avoiding the affordable housing requirement out of bad faith. Instead, they were responding rationally to a mandate that, without adequate financial offsets, made larger projects economically unworkable.

The IZ Distortion

The math was not complicated. Under the original IH framework, including below-market units in a project reduced rental revenue. However, there was no corresponding reduction in construction costs, financing requirements, or operating overhead. For this reason, developers had a straightforward choice: build under the 20-unit threshold and avoid the requirement entirely, or eat the financial loss. Most chose the former.

The distortion persisted, largely uncorrected, for seven years.

During that period, Portland’s IH program did produce affordable units. According to Portland.gov, the program generated more than 1,313 regulated affordable units from 92 private developments through its first several years of operation. This is the equivalent of roughly $197 million in public subsidy value generated from private financing. The city achieved this rather than relying on the public treasury. Still, the program’s advocates acknowledge that the sub-20-unit migration almost certainly suppressed total multifamily production. This effect was particularly strong in the mid-size project range the market would otherwise have built.

The initial IH requirement of 10 percent of units affordable to households at 100 percent of area median income was tightened significantly in 2020. That year, Portland voters passed a package of ordinance changes known as the Green New Deal. As a result, that referendum raised the requirement to 25 percent of units affordable to households at 80 percent of AMI. The higher threshold made the feasibility problem worse, not better. According to reporting by the Bangor Daily News on parallel dynamics in Maine’s Portland, developers confirmed that projects totaling more than 800 units were “stuck unless there’s a material change to the inclusionary zoning requirements.” Moreover, at least four large Portland, Oregon projects totaling 324 units were scrapped outright.

A Fix in 2024

The fix came in March 2024, when Portland and Multnomah County dramatically increased property tax abatements for projects subject to IH requirements. The financial offset was large enough to restore feasibility for larger projects across more of the city. According to Sightline Institute’s November 2025 analysis, the share of sub-20-unit projects returned to pre-IH historical ratios almost immediately. Ian Lewallen of Deacon Development told Sightline that his firm had stopped looking at Portland for 18 to 24 months before the abatement change. However, his firm resumed site searches within weeks of it passing.

Oregon’s 2026 legislative session codified the lesson statewide. Senate Bill 1521, signed March 31, 2026, requires jurisdictions in the Portland metro to fully fund their inclusionary zoning programs. This law effectively prohibits cities from imposing IH requirements without providing the financial offsets that make compliance feasible. This is according to a post-passage analysis by Tonkon law firm.

What This Means for Owners and Investors

The IH recalibration of 2024 and SB 1521’s funding mandate represent the most significant correction to Portland’s development environment in years. If the tax abatement structure holds and the policy review does not reinstate the old unfunded mandate, Portland may see a modest recovery in larger-project permitting beginning in 2026 and into 2027. That new supply — when it arrives — will enter a market that has been severely undersupplied for two to three consecutive years. Per HFO’s own tracking, Portland permitted only 820 multifamily units in 2024, its lowest level in over a decade. Permit activity in early 2025 ran 21 percent below even that depressed baseline. Owners in well-located Portland submarkets should track permitting activity closely. The lag between policy correction and actual delivery typically runs 24 to 36 months. In that window, existing assets in supply-constrained areas tend to outperform.

HFO Investment Real Estate is Oregon’s and SW Washington’s leading multifamily brokerage by transaction volume.

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