P
ortland has joined a growing national trend by mandating the construction of housing that’s affordable to the middle class. But the city is taking a less aggressive approach than other communities in hopes that the new rule won’t deter developers from building residential projects.
Called inclusionary zoning, the requirement is meant to create housing that’s affordable to the core workforce — such as teachers, police officers and nurses — who often can’t afford to live in the cities where they work.
But starting salaries for those professions in Portland are well below the income level that will be needed to pay rent on the so-called affordable units that will be created because of the new ordinance adopted in October.
Most inclusionary zoning ordinances require that at least 10 and as much as 35 percent of new housing units are affordable to people earning 60 to 120 percent of the median income. In return, developers are given benefits, such as increased density, a reduction in fees or tax breaks for their projects.
While more aggressive communities target the affordable housing for below-median income earners, Portland’s target is renters earning the median income or higher.
“We were very modest in our income targeting because we didn’t want to inhibit development at all,” said outgoing City Councilor Kevin Donoghue.
Portland is far from the first community to try it.
Inclusionary zoning ordinances exist in an estimated 500 U.S. communities throughout the country, and Portland is part of a wave of cities and towns adopting the ordinances now as rents surge around the country.
“It’s kind of the affordable-housing policy topic of the day,” said Stockton Williams, executive director of the Urban Land Institute’s Terwilliger Center for Housing, based in Washington.
Portland also is among the communities hoping to find the right balance that results in actual relief for the housing market.
While the concept dates back to the 1970s, at least, the ordinances so far have not been widely successful in creating more reasonably priced housing.
“Most have produced relatively small numbers of housing units,” Williams said.
More than 13,000 affordable housing units have been built as a result of Montgomery County’s 1973 zoning requirement. But only 200 had been built in Burlington, Vermont, which adopted its policy in 1990, and 77 units have been built in Denver, Colorado, since that city passed an ordinance in 2002, according to a report by the nonprofit Rand Corp.
Despite the mixed record, a lot of cities faced with housing shortages and displaced renters are now determined to try their own versions of the rules.
And some are being more aggressive than Portland by mandating that the new housing units must be affordable to renters who earn less than the median income.
New York City is considering a proposal requiring that between 25 percent and 30 percent of new units are affordable to households earning 60 percent to 120 percent of the area’s median income – part of Mayor Bill de Blasio’s plan for adding 80,000 affordable units to the city’s housing stock by 2024.
The Seattle City Council is considering a proposal for at least 5 percent of units in a new building to be affordable to people making 60 percent of the area’s median income. In Nashville, a task force was formed to study the option.
Portland’s ordinance requires that new housing projects with more than 10 units make 10 percent of them affordable to renters earning up to the area’s full median income, $53,970 for a single person. Units to be sold instead of leased must be affordable to prospective homeowners earning 20 percent more than median income.
The maximum rent now considered affordable at the median income in Portland is no more than $1,349 a month, utilities included, or 30 percent of their monthly earnings.
But the area median income is influenced by higher-income residents – midcareer workers and homeowners – and is significantly higher than the incomes being earned by many of those struggling with Portland’s overheated rental market.
A young person beginning a career as a city firefighter, for example, would earn a starting salary of $34,164 and be able to afford monthly housing costs of $854. That would likely have been enough to rent a one-bedroom apartment a few years ago, but a red-hot rental market has pushed up prices more than 40 percent in the past five years, creating a gap between the market rate for an apartment and what residents can afford.
One bedroom apartments now rent for at least $900 a month, utilities included, most anywhere in the city. And the average two-bedroom apartment in Portland is now being advertised at $1,560 a month, including utilities.
The median renter household in Portland earned just $30,600 in 2014, according to Maine State Housing Authority. At that income, an affordable rent is $765 a month or less.
City officials said they chose not to be more aggressive to avoid making matters worse by discouraging new housing construction, something some developers warned will happen.
And, while Portland’s new ordinance does not directly lead to affordable housing for lower-income workers – someone starting a career as a firefighter or teacher, for example – Donoghue, the city councilor, believes that creating the slightly more expensive apartments will reduce competition at the low end of the market and allow middle-income renters to move up, freeing lower-cost units for others.
Donoghue has been advocating for inclusionary zoning for a decade.
In fact, adopting a voluntary version of the inclusionary zoning ordinance was one of the first actions he took as a new councilor in 2006. Under that ordinance, developers have been offered incentives, including increased building heights and tax-increment financing, to create housing that’s affordable to people earning 80 percent of the median income.
Portland’s voluntary ordinance has had limited effect.
Only low-income developer Avesta Housing and Sen. Justin Alfond, who backed the ordinance, have made use of those incentives, said Donoghue. He hopes developers now, who will already be mandated to include some affordable housing, will take advantage of the greater incentives offered by the voluntary ordinance to create units for lower incomes as well.
Portland’s new approach appears to have some of the ingredients that Williams says can increase the likelihood of success.
There needs to be a robust housing market and the requirement should be mandatory, he said. Perhaps most important, according to Williams, the incentives for developers must make the projects feasible for them.
Requiring certain types of housing units without deterring development is “the needle that every jurisdiction ultimately needs to thread,” he said.
Incentives offered to Portland developers as part of the new zoning rules include reduced fees and increased allowable density for projects with low-income or workforce units. Those incentives increase if developers include more than the minimum number of affordable units. Parking requirements are reduced, as well. The city also promises to make the projects a priority and to expedite the review process.
The ordinance gives developers the option of paying a fee of $100,000 per unit in lieu of building middle-income housing. And any money paid to avoid the construction of affordable units will go into a housing trust fund that will used to help build housing for people earning 80 percent or less of the median income – $43,176 for a single person.
Given that the citywide market rate is now $1,560 for a two-bedroom apartment, it might not appear overly burdensome to force developers to charge $1,542 for a family of two or $1,735 for a family of three. However, new apartments would normally go for much more than the average market rate rent in an existing building, said developer Jim Brady.
An example of that is West End Place, a 39-unit luxury apartment complex built last year, before the city had any requirement for affordable units. There, one-bedroom apartments are going for between $1,450 and $1,800 a month. Prospective renters would need to earn $58,000 to $72,000 a year for those rents to be affordable.
On Munjoy Hill, a highly desired neighborhood where Brady is proposing to build up to 400 housing units, two-bedroom apartments are going for $1,829 per month on average and between $2,500 and $3,000 on the Eastern Promenade, near his proposed project.
Brady said the market at the time will determine what he charges for rent on the site of the former Portland Co. complex, which could be the first major housing development that’s subject to inclusionary zoning.
Because there are no density limits on the site, it won’t benefit from that incentive, he said. The only payoff the project could receive is a reduced parking requirement, but Brady believes the market will demand parking spaces for every unit anyway.
Brady said he hasn’t yet crunched the numbers to determine whether it makes more sense to build the newly required units or pay the fee into the housing trust, a fee that could be in the millions of dollars. Though if he does build the lower cost units, he said, he’ll have to make up for it in the price of the others.
Although Brady said he is not opposed to inclusionary zoning, he fears the city’s new ordinance doesn’t provide enough incentives to avoid inhibiting housing development.
He thinks more access to tax-increment financing and increased building heights would be more effective.
In his case, he said, he may end up building more office or retail space, instead of housing, as a result of the ordinance.
“When the incentive is high enough, the developers will use it,” he said.
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