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The Paradox of Portland's Inclusionary Housing Law: Is It Making Housing Less Affordable?

June 29, 2023
Authors: HFO Investment Real Estate
Publishers: HFO Multifamily Marketwatch

Mayor Wheeler has Pledged to Scrap Inclusionary Zoning if It's Not Working

KOIN-TV reports that Portland's Inclusionary Housing Law, a pivotal ordinance in an attempt to control the city's escalating housing costs, is being scrutinized. Initially introduced in 2016, the law mandates that developers incorporate affordable housing units into their new construction projects, primarily those containing 20 or more units. Under the current provisions of the law, 20% of units in such projects must adhere to affordability standards, which are then offset by incentives such as tax exemptions offered to developers.

However, the definition of 'affordable' in this context is tied to median incomes, meaning that 'affordable' one-bedroom units could still cost approximately $1,598 per month, or $1,918 for a two-bedroom unit. The law has drawn criticism from various quarters, with detractors arguing it is one of the factors impeding overall development in the city.

Critics within the development community, including Patrick Gilligan of Lincoln Property Company CRE, have expressed their concerns about the legislation. "Our inclusionary zoning, unfortunately, if the intentions were to provide more affordable housing, has been a failure," Gilligan said. "It's very hard to underwrite in regards to how you're going to finance a project to go forward."

The law and other barriers to development, including the city's slow permitting process, were highlighted during a January symposium of the commercial real estate group called "Revitalize Portland." Jerry Johnson of Johnson Economics noted that the law had the unintended consequence of making housing less affordable overall.

Meanwhile, the City of Portland is grappling with a shortage of 25,000 affordable housing units, even after the construction of about 1,859 units across 169 inclusionary housing projects since 2017.

In response to the mounting criticism, the Portland City Council has formed a work group to assess the effectiveness of the Inclusionary Housing Law. The group, which includes Samuel Diaz of 1000 Friends of Oregon, is looking into whether the balance between incentives offered to developers and the costs of developing affordable housing is appropriate. 

The recommendations from this workgroup are highly anticipated, and they are expected after July's meeting. They could potentially influence the future of housing development in Portland, as Mayor Wheeler said, “I’ve pledged that if it needs to be tweaked, we’ll tweak it. If the conclusion is that it hasn’t worked, then we’ll scrap it.”

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