Justin Wood knows the vacant lot at Northeast 60th Avenue and Northeast Ainsworth Street could easily accommodate 10 households.
The 13,000-square-foot Northeast Portland corner currently holds one 1,200-square-foot house. Wood, a developer, says he could repopulate it with a cluster of 10 affordable townhouses of 800 square feet each 鈥� a small step in adding to Portland鈥檚 dearth of housing supply.
鈥淚t鈥檚 the exact kind of development the city says it wants to see right now,鈥� said Wood, who owns Fish Construction NW, a company that focuses on building new homes for families making at or below median income levels.
The landowner initially asked Wood if his company would be interested in buying and developing the property. Wood said he knew after taking one look at the lot that it wouldn鈥檛 pencil out.
To build, Woods knew, the city would require he add a stormwater drainage system and new sidewalks. Combined, those could cost up to $250,000 鈥� the estimated price to buy the property. He鈥檇 also have to cover the cost of building materials, labor costs, real estate agent pay, construction loans with creeping interest rates, city bureau development fees, and the cost to hold the empty lot for the months it can take for the city to process permits. With each unit selling for around $300,000, Wood estimated that he鈥檇 make about $35,000 in profit per unit. After taxes, that payout would drop closer to $20,000.
鈥淪ure, it sounds like a lot of money,鈥� Wood said. 鈥淏ut it鈥檚 not enough for most people in this industry to make that kind of investment.鈥�
Wood usually aims to make around $40,000 on each house.
The cost to build new housing in Portland has ticked upward in recent years, partially due to the accumulation of specific development requirements, like new sidewalk development guidelines and stormwater drainage plans. These types of requirements were put in place by the city in recent years to meet climate and equity goals, all meant to improve Portlanders鈥� quality of life.
鈥淚t鈥檚 not my place to say that those are not important improvements,鈥� Wood said. 鈥淏ut those requirements will probably prevent that property from ever developing.鈥�
Wood is far from the only Portland developer deterred by these costs. A recent city poll of local housing developers identified these kinds of new building requirements 鈥� ranging from mandatory bicycle parking spaces to bird-safe windows 鈥� as policies the city should suspend to accelerate housing development in Portland.
Portland has long been a national leader for its efficient land use planning and sustainable development practices. These methods are reflected in Portland鈥檚 walkable neighborhoods dotted with local small businesses, community spaces, parks and accessible public transit lines. But, whether it鈥檚 required eco-conscious building materials or mandatory low-income housing units in large apartment buildings, the incremental expansion of these building requirements over time has begun to add up.
Developers say these well-intentioned policies have disincentivized construction in Portland at a moment when new housing is in critical demand. But urban studies experts say that rolling back these requirements is shortsighted, and places Portland鈥檚 collective health at risk in exchange for developers鈥� financial comfort.
The city estimates needing to produce 295,000 additional units by 2040 to accommodate current and future population demands. To meet that goal, the city would need to see an average of 17,000 new housing units built each year 鈥� more than five times the current production rate. According to the most recent city data, Portland .
Meanwhile, Gov. Tina Kotek has set a goal to to 36,000 units, up from 22,000 鈥� and the state Legislature has passed bills to make sure cities help meet that target.
With a state mandate to dramatically increase housing and a ballooning homeless crisis spurred by housing costs, Portland leaders are considering all options to fast-track housing development. That might include rolling back some of its celebrated development standards.
鈥淚t鈥檚 not even so much that we need to blow our system up,鈥� said Wood, who sits on the governor鈥檚 Housing Production Advisory Council, counseling Kotek on how to reach her housing goals. 鈥淚t鈥檚 just asking questions, like: 鈥業s there a purpose for this regulation? What is it, and why do we need it? And can it be done better?鈥欌��
A lot of smaller costs
There鈥檚 not one single development cost required by the city that throws off developers鈥� project budgets; it鈥檚 an accumulation of line items.
Many of the development requirements burdening builders were first introduced by the city as incentives. For example, the city established an incentive program in 2008 for developers to build eco-roofs. After seeing considerable buy-in from builders and a positive environmental impact, the city turned that policy into a mandate for all buildings in the city鈥檚 urban core in 2012. This requirement 鈥� paired with others focused on building green spaces, bicycle parking and stormwater runoff systems 鈥� was established to meet the city鈥檚 goal to significantly reduce carbon emissions and slow the effects of global warming.
But these items began to add up.
In the city鈥檚 recent developer poll, meant to collect recommendations on how to expedite housing construction, respondents bemoaned the requirements levied on new construction in the city鈥檚 urban core. Those included mandates to use windows that are reflective enough to keep birds away, build eco-roofs and ensure that the first floor of any residential building includes public areas.
鈥淚t is not selecting just one of these items to correct that will cause a change in production,鈥� wrote one respondent. 鈥淭he problem is systemic.鈥�
For people looking to redevelop older buildings, the price of construction to prevent a building from collapsing during an earthquake creates another deterrent. Those types of seismic retrofits are required by the city whenever a building undergoes significant redevelopment and can add around $150 per square foot to a development project, according to Maurice Reid, an architect with the firm Gensler.
鈥淭hat [cost] puts developers over the edge,鈥� said Reid, who recently studied the feasibility of converting Portland office buildings into apartments.
While Reid found that the redevelopment is architecturally possible, he found that the overall return on investment for developers remains low due to costs like seismic retrofitting and system development charges 鈥� fees based on how new construction might impact city utilities, like the sewer system or public transportation.
Portland City Council voted in March to waive up to $3 million in system development charges, or SDCs, for developers seeking to convert a vacant office building into a residential property.
Most developers said that the discount to offset the cost of seismic upgrades and other design requirements.
鈥淐ertainly [seismic retrofitting] can be a significant cost driver for some of these projects,鈥� said Sarah Zahn, a Portland developer and president of Oregon Smart Growth, a developer advocacy group. 鈥淏ut even if you took seismic entirely out of the equation, it鈥檚 still very expensive to make these conversions happen. The reality is, it鈥檚 not going to be cheaper to do these conversions than it would be to build a new building.鈥�
Reducing the cost of SDCs is a tool the city has regularly relied on to incentivize residential construction and lessen the blow of other auxiliary fees 鈥� even if the loss of revenue decreases the bureau鈥檚 annual budgets.
It鈥檚 how Wood has been able to build housing and sell it at below-market prices for years. The Portland Housing Bureau has a program that exempts developers from paying SDCs if they guarantee the house is being sold to a household making at or below the region鈥檚 area median income (which, for a family of four, currently sits at $106,500). The asking price cannot rise above a price set annually by the housing bureau, currently capped at $455,000. The homebuyer is exempt from property taxes for a decade under this program.
Wood considers it a win-win.
鈥淚t鈥檚 about a $35,000 discount for us,鈥� Wood said. 鈥淎nd it allows a lot of first-time homeowners to begin generating wealth. If not for the SDC waiver program, I don鈥檛 know that we could sell in these price ranges.鈥�
But there are ways these waivers could go further to help spur housing development.
Through her development firm HomeWork, Jessy Ledesma focuses on building workforce housing 鈥� a term for housing affordable for people making between 60% and 120% of area median income, similar to those buying Woods鈥� homes. But, unlike Wood, Ledesma builds rental housing, which is not offered the same kind of sweeping SDC waivers in exchange for workforce rents.
Instead, the city offers SDC waivers on rental housing affordable for people making 60% median income and below. Keeping all rents this low makes it hard for the construction costs to pencil out, even with the SDC waivers.
鈥淯nfortunately, it really does come down to cost,鈥� Ledesma said. 鈥淪DCs are arguably a small piece of a budget, but removing them 鈥� that鈥檚 one tool that the city does have available.鈥�
Inclusive, but more expensive?
It鈥檚 an issue larger market-rate rental builders have raised with another city development requirement called inclusionary housing. Inclusionary housing is triggered for developers when they build apartment complexes with at least 20 units. The policy mandates that 15% of those units must be affordable to people making at least 80% area median income, or 10% affordable to people making 60%. In exchange, developers can have SDC costs and property taxes waived for affordable units.
Since City Council introduced the inclusionary housing policy in 2016, developers have shared scores of anecdotal evidence that the policy has driven development out of Portland. There鈥檚 no data to back up this claim, but the city has hired an outside firm to actually crunch the numbers. It will share its findings later this year.
Ledesma, however, believes the problem with inclusionary housing is its limitations. She鈥檚 currently working with another developer to build two new apartment complexes in Southeast Portland which qualify for inclusionary housing. Each has nearly 40 units, meaning a combined total of eight units will be capped at rents for people making 60% median income. But Ledesma wants the rest of the building to be limited to families making no more than 80% of the median income. Hoping the city would want to support this voluntary rental cap, she asked city staff if she could be granted SDC and property tax waivers for all of the units. They declined, explaining that it wasn鈥檛 part of the city鈥檚 policy.
鈥淵ou would think they would be encouraging any affordability from developers who are volunteering beyond what鈥檚 required by inclusionary housing,鈥� Ledesma said. 鈥淒uring such an extreme housing shortage, it feels to me like there should be some exemptions to those rules in order to remove barriers.鈥�
Without help from the city, Ledesma said she might have to list most of her apartment complexes at market rates. It鈥檚 the city鈥檚 strict adherence to its policies, like Inclusionary Housing and certain development requirements, that Ledesma and others believe are antithetical to the city鈥檚 ambitious housing goals.
鈥淚t鈥檚 these well-intentioned, city planning policies,鈥� Ledesma said. 鈥淎 lot of folks support the intention behind them, myself included. But if they lead to building fewer units, it鈥檚 time to rethink our priorities as a city.鈥�
The reason we do it this way
Matthew Gebhardt, a professor at Portland State University鈥檚 Urban Studies and Planning Department, agrees that this is a conversation centered on priorities. He said it makes sense that developers have zeroed in on sustainable development requirements as a leading deterrent to their work.
鈥淧rivate developers prioritize profitability,鈥� Gebhardt said. 鈥淭hey have to deal with interest rate increases, material cost rises, labor cost rises 鈥� so when they鈥檙e trying to balance things out, it鈥檚 not surprising that in looking to cut costs, some of the things that they would prioritize are the things that provide collective benefits and not benefits directly to them.鈥�
Those collective benefits can come in the form of low household energy costs, increased access to low-income apartments and urban cooling measures that can prevent deaths during a heatwave. Gebhardt noted that developers themselves may also be enjoying these benefits as Portland residents.
He said it鈥檚 important that the city really consider the trade-offs that come with cutting these benefits.
鈥淚 think that plans and regulations shouldn鈥檛 be static,鈥� he said. 鈥淏ut when we revisit them, it should be a process of carefully considering what the implications are, rather than a quick response just because developers say that they can鈥檛 make this work now.鈥�
If data shows that these regulatory costs are truly burdening developers, Gebhardt said the city could consider introducing temporary funding sources to offset costs. That could help support developers until other costs associated with construction 鈥� tied to interest rates or construction delays caused by city permitting slow-downs 鈥� are lessened.
Wood, the housing developer, said that waiting a year for numerous city bureaus to process building permits for one property can cost up to $20,000, due to loan and tax payments. That number has steadily grown as interest rates have ticked upward in recent years. While the city has convened a task force and strategic plan to improve the labyrinthine permitting process, developers haven鈥檛 yet seen it impact their project timeframes.
鈥淢y sense would be that [addressing permit delays] will be much more impactful to deal with costs right now,鈥� Gebhardt said.
The housing equation
Ledesma, Wood and other workforce housing developers argue that the city鈥檚 housing affordability crisis would best be addressed by building more housing affordable to households making near the area鈥檚 median income.
That鈥檚 because a shortage of housing within range for middle-income Portlanders also hurts the supply of lower-income housing. If someone living in low-income housing gets an income boost or sees their wealth grow for another reason, it鈥檚 possible that they may want to move into a new home that meets their new budget. But if housing for people earning slightly more income is scarce, it鈥檚 natural for that person to want to remain in their affordable unit. That leaves one less affordable unit available to a low-income household in need, which could prolong the amount of time that someone may have to experience homelessness.
Diane Linn, director of the nonprofit Proud Ground, sees that backlog play out in real time. Proud Ground is a community land trust focused on creating a permanently affordable property for Portland homebuyers. The nonprofit does that by purchasing property at market prices and reselling those homes to households making below 100% of the median family income, all while continuing to own the land. When the homeowner wants to sell the property, Proud Ground steps in to ensure that the cost of the property remains affordable. Proud Ground owns over 300 homes.
Linn said there are about 500 households on the waiting list to get into any of the properties in the organization鈥檚 portfolio.
鈥淚t鈥檚 a combination of lack of inventory and rising costs of production,鈥� Linn said. 鈥淥ur community has to lean into any and all solutions.鈥�
The city made moves to address the shortage of this kind of mid-range housing with its Residential Infill Project in 2021. This program erased bans on building 鈥渕iddle housing鈥� 鈥� a term describing duplexes, triplexes, fourplexes and clusters of small townhomes 鈥� on lots traditionally zoned for a single home. At the time, city planners hoped the move would nudge developers to consider building more middle housing over the next decade or so. But when the plan went into effect in August 2021, they saw a much more immediate response. In 2022 alone, Portland saw 1,246 new middle housing units built.
鈥淲e couldn鈥檛 have anticipated the massive pent-up demand for housing,鈥� said Morgan Tracy, a senior planner in the city鈥檚 Bureau of Planning and Sustainability.
The city previously calculated a need for the city to add 20,000 units of middle housing between 2010 and 2035. While that number is currently lagging behind schedule by just below 8,000, the interest in middle housing development following the passage of the infill project has city staff confident it鈥檒l meet that milestone. Tracy, who spent years developing the project, said its success is heartening. But it鈥檚 wrong to consider this interest in middle housing construction to be the solution to Portland鈥檚 housing supply problem.
鈥淢iddle housing is not a supply-buster, it鈥檚 a choice-buster,鈥� Morgan said. 鈥淚t offers another option. Supply is to come from more multi-dwelling apartments and condos. That鈥檚 just the nature of the scale of development.鈥�
Costly construction requirements could slow that supply chain.
Baby steps toward solutions
The city is hoping to chip away at those barriers. In January, City Commissioner Carmen Rubio, who oversees the housing and development bureaus, announced her intent to increase housing in Portland by spending the next several months researching ways to expedite development. Rubio said she鈥檚 interested to learn if some city policies have had an unintended impact on housing production, and how the city can restructure them without sacrificing the city鈥檚 values.
鈥淣othing鈥檚 off the table right now, we need to be able to look at every option,鈥� Rubio said. 鈥淭here are no wrong perspectives. 鈥� There can be multiple truths in a crisis.鈥�
It鈥檒l take months for these larger solutions to crystalize and reach the City Council. But there are some immediate fixes Rubio has prioritized, like streamlining information about development requirements across city bureau websites and creating a specialty team that can quickly respond to permitting requests for small, straightforward construction projects.
Rubio recently introduced an ordinance that will allow housing developers to defer SDC payments for at least two years to spread out the financial burden that might accompany the fees. The policy expires in 2025, as a way to incentivize near-term construction.
鈥淭his will make many housing projects more financially feasible and spur additional investment in our housing market,鈥� said Rubio at an April 5 council meeting.
Rubio said she鈥檚 hopeful that the coming overhaul to Portland鈥檚 form of government 鈥� which will streamline bureau oversight under a city administrator 鈥� will also help streamline some of these processes.
The city鈥檚 work may be expedited by new mandates coming from the state government. In January, Gov. Tina Kotek laid out a goal for Oregon to start producing at least 36,000 units of housing each year to make up for inventory shortfalls 鈥� with a goal to add 348,000 homes by 2030. The state Legislature followed Kotek鈥檚 direction in late March by passing a bill that would require cities to establish their own annual housing production goals for specific income levels 鈥� and penalize jurisdictions that fail to meet those targets.
Michael Andersen, a housing researcher at the Sightline Institute, said history can help illustrate how costly housing construction requirements might stand in the way of Oregon reaching Kotek鈥檚 production goal. The last time Oregon met such high production targets was in the 1970s when the state added nearly 330,000 new homes in a decade. While Oregon鈥檚 population has doubled since then, its construction labor force has tripled, which should allow for faster housing production.
鈥淭he issue isn鈥檛 the lack of workers,鈥� Andersen said. 鈥淚t鈥檚 that we have higher standards of what constitutes a home. There have been 50 years of good ideas turned into new regulations that have piled up since then.鈥�
Andersen said the intent behind these incremental, often costly regulations isn鈥檛 to blame. But that doesn鈥檛 mean they aren鈥檛 worth examining in the midst of a housing crisis.
鈥淭here鈥檚 a tendency to try to identify a villain in these situations,鈥� said Andersen. 鈥淏ut I think we instead need to be worried about our good intentions. We鈥檝e created all these well-meaning policies. And now we鈥檙e seeing their cost.鈥�
Copyright 2023 Oregon Public Broadcasting. To see more, visit .