Where are Portland and its housing headed?

In Portland, private developers are building primarily for people with incomes well above average.

In Portland, private developers are building primarily for people with incomes well above average.

City leaders are actively responding to a report they commissioned that lays out in stark detail by how much the city is failing to meet its affordable housing goals.

The report suggests Portland is at a tipping point that will determine whether the middle class remains in the city 10 years hence. That’s because those now focused on housing in the city are playing up to the rich or down to the poor, but not to the middle class.

The city is among a number of stakeholders focused on providing housing for the lowest income brackets, from the Portland Housing Authority and Avesta, to Shalom House and Habitat for Humanity. Despite their combined efforts, Portland failed—by a long shot—to meet its goal of 4,000 new units in the 10 years following 2002. It still hasn’t met that goal 13 years later. As one result, the Portland Housing Authority has a waiting list of about 1,400 households for its 1,000 existing housing units.

Meanwhile, the private real estate market is heavily skewed toward creating housing for the well off, folks earning 150% of the area’s average income or more, say $100,000 and up. Retiring baby boomers from Boston and other eastern cities also bring their wealth and sizeable cash-outs from housing in those markets to—for them—the relatively inexpensive Portland area.

With wealth driving the open market and government programs ramped up and aimed down for the poor, the really gaping hole in local housing falls on people earning between 80% and 150% of average income, especially households looking for three-bedroom rentals or homes. Three-bedroom apartments return so little more money than a two-bedroom, that developers won’t build them. Meanwhile, three-bedroom houses in Portland are selling for roughly $100,000 more than median income families can afford.

The worry becomes, as Justin Alfond, a local developer and state senator, put it recently (1/28/2015) to the Council’s Committee on Housing and Community Development, “Where are our firemen, teachers and middle managers going to live? Will only the suburbs be affordable to them?�?

The facts argue that the answer is yes, Portland will be unaffordable to them unless the City Council soon takes several, serious, coordinated actions related to housing. Even then, there are reasons to doubt that the city can remain as diverse as it is in incomes and family size, reasons that bear on housing but involve other things, like new jobs.

One real fly in the ointment is that the new upper-income housing creates demand for more middle-income apartments to house the workers needed to service the newly arrived, well-heeled folks.

This makes a myth out of the position held by the Portland Press Herald and others that new housing for the wealthy might somehow make the rest of city housing more affordable. The reality is the opposite: Unless a lot more housing is built specifically for the middle class, the trickle-down effect of all the new housing for the wealthy will drive rents up for the rest of us.

Of the several measures available to increase affordable housing for a range of income brackets, the one now uppermost in the minds of City Councilors is mandatory inclusionary zoning.

Mandatory inclusionary zoning requires projects of a certain size to provide a percentage of units affordable to some lower-than-market rate income levels. Based on a public hearing and the comments of City Councilors, city planning staff is proposing that any project proposing 10 units or more be required to provide 10 percent of units affordable to folks earning 100 per cent of the city’s average income.

To avoid including apartments or housing affordable to average folks a developer might be allowed to pay a fee into the city’s Housing Trust Fund to build such residences elsewhere. Suggested fees per unit range from $64,000 to $125,000.

The city already has voluntary inclusionary zoning on the books, but it has been used so little that in 10 years it has produced fewer than 10 units of affordable housing.

Other measures the city might take include a spectrum of incentives, market prods, and administrative actions:

  • Using municipal bonds at lower borrowing rates to help fund new housing
  • Providing funding to help families buy homes. Called shared equity, the program as initiated by a number of cities allows either the locality to share in any home price increase or the money to reduce the cost of the home to the next buyer.
  • Creating a tax increment financing (TIF) district relieving 50% of the develop-ment’s property tax. Developer Richard Berman estimates that could lower rents by about $100 a month for a new 2-bedroom unit of about 900 square feet.
  • Giving away city parking lots and unneeded property for redevelopment. Land typically represents roughly 10% of total project cost. The city is actively considering doing this, as well.
  • Requiring less parking. European cities are even adopting parking caps to limit car use. Developers say renters accept carless apartments more easily than condo buyers. Building parking into buildings—now common practice—drives up the cost of units, deadens the adjacent street, and continues to favor cars over people, a decision often deadly for downtowns.
  • Offering a density bonus for including affordable units, that Berman estimates could save $50 a month on a two-bedroom apartment.
  • Allowing more flexibility in accessory dwelling units, especially for lower income residents and perhaps especially on the Casco Bay islands.
  • Simply increasing the allowed housing density of key zoning districts. The City Council has already approved a B-2 zone increase; and up-density changes in the R-6 zone across much of the peninsula are before the Planning Board. Developer Jonathan Culley says increased density makes a significant difference in the amount of building developers will undertake.
  • Streamlining the process for approvals of new housing projects, especially small ones. Berman says he adds 5% to project cost in Portland because of “the process.�?

City Councilors, city planning staff and developers alike agree that involving developers in fashioning these measures is the only way to assure transparency, widespread acceptance, and probable positive impacts in the number of units actually constructed at the desired price points.

Some local developers are doing their part, building smaller, smarter, more energy efficient units. But their financial spreadsheets show they cannot lower costs into the affordable range for average folks, especially those with full-size families, even if their hearts are in the right place.

Meanwhile, despite the clear need for governmental intervention to avoid hollowing out the city’s middle class, there is some question about whether Portland is ready to push forward with “big city�? measures like inclusionary zoning. That’s because in one way or another requiring the renting of below-cost units shifts costs to the other units.

Developer Culley notes that his West End Place under construction and his 3G project in East Bayside before the Planning Board are the first two unsubsidized market rate apartment projects in the city in 30 years or more.

With healthy profit margins working to fuel building in the city for the first time in so long, Culley asks whether Portland is really ready to start adding costs to new development. He thinks not.

City Councilors appear ready to disagree, and point to 500 communities across the country that have adopted mandatory inclusionary zoning, including large cities and suburbs as close as Cape Elizabeth.

Note that if affordable units represented 10 per cent of a project and paid half the price of a full-cost unit, the price of the full-cost units would be raised by only 5 percent, or $20,000 on a $400,000 condo. Many argue that those who can afford a $400,000 condo can afford the increase.

In any case, stay tuned because the backbone and foresight of the City Council in coming months will determine whether Portland maintains its middle class workers and families or empties out to leave only the rich and the poor.

One Response to Where are Portland and its housing headed?

  1. nini mcmanamy March 24, 2015 at 10:15 am #

    You are so right on all of this. It is incredibly distressing to see the prices of new condos and renovated buildings. The coming tax hikes with inevitable revaluation will drive out another wave of middle class residents–I know mine is going to result in higher rents. My suspicion is that the city has absolutely no economic development strategy beyond high end housing–and they are in a hole with welfare spending. Really a shame. The golden egg–the young entrepreneurs that fuel the bayside, restaurant and boutique bar economy to say nothing of our cultural life–is very vulnerable. At some point they will start families, need affordable housing and a place to keep a car to carry the soccer gear. And when they leave (South Portland is getting 100 bps internet) Portland will sadly decline.

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