Is Portland's affordable housing law working? Yes and no, watchdog report finds

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Portland’s Inclusionary Housing program is intended to help the city’s affordable housing needs, but could instead make it worse, an audit found.

PORTLAND, Ore. — Unclear goals, lack of resources and trusting compliance are some of the risks identified by a recent audit of one of Portland’s most-criticized affordable housing programs.

The city audit of Portland’s Inclusionary Housing initiative released Wednesday revealed that if adjustments are not made by Portland’s Housing Bureau, a program intended to help the city’s affordable housing needs could instead make it worse.

The program requires new apartment buildings with 20 units or more to make some of them affordable to tenants earning less than the area’s median income for 99 years after the building opens. In return, property owners and developers can get some tax breaks and fees waived to help offset the revenue loss for those units.

Despite these incentives, the initiative has remained highly contentious since its adoption in 2017, to a point where several 19-unit apartment buildings have sprung up in a clear effort to avoid meeting the affordability requirements.

Critics of the policy also contend that it has stifled the creation of housing and added to the affordability and housing crisis at hand.

While a lot of attention has been paid to these critiques, City Auditor Simone Rede’s office said less focus has gone toward whether housing through the initiative is being used as intended and is addressing Portland’s housing needs.

From the start of the program to April 2023, 566 apartments for rent across 78 buildings had been built and around 1,157 more units were anticipated, according to the audit. Plus, two condominium buildings had been built.

Most of the new apartment units built and planned are income-restricted to tenants earning no more than 60% of the Median Family Income (MFI), which in Portland is $47,400 for a one-person household.

Nearly 70% of these units are in what’s considered “high opportunity” areas of Portland that have “superior access to quality schools, services, amenities and transportation” — like downtown Portland and the city’s inner east side, where rent can typically be higher. This is largely because Inclusionary Housing is mixed alongside market-rate apartments in privately developed buildings; developers want to build in these areas because they are highly desirable to renters.

What is affordable?

However, despite the program’s success in creating affordable housing, the audit found multiple problems that could in turn make it more difficult for people struggling to find lower cost options; starting with how affordability is calculated.

“The Program has created new housing opportunities for moderate-income households — those making below 60% and 80% MFI — not Portlanders facing the greatest economic disparities,” the report said.

The eligibility and rents for Inclusionary Housing are tied to the Median Family Income for the Portland area. The U.S. Department of Housing and Urban Development (HUD) calculates the MFI using incomes from both homeowners and renters. Since the median income for homeowners tends to be significantly higher than the average renter, the Median Family Income for an area can quickly become skewed, and in turn, increase Inclusionary Housing’s rent and eligibility ceiling.

“The expanded eligibility and rent increases may make Inclusionary Housing apartments less accessible to households whose incomes have not risen at the same rate,” the report said.

Portland city code also allows property owners to require that tenants make a minimum income. This is to ensure tenants don’t default on rent, minimizing risk for the owner. For apartments priced below market-rate, per city code, property owners can require tenants to prove they earn at least two-and-a-half times the rent, while most market-rate tenants are asked to show they earn two times the rent.

Because the Inclusionary Housing program requires that renters not make more than the maximum allowable income, the income minimum can narrow the eligibility window substantially. It also further ties a string to the area’s Median Family Income, making it harder and harder for people to afford housing in Portland when their incomes may not have risen as quickly as others.

The audit found that this has substantially limited the ability for Black families looking to rent in Portland to find housing. While a family’s median income may be high enough to be eligible for Inclusionary Housing, when property owners require a minimum income fewer Black families can find apartments that may best suit their family size, according to the report.

Since Inclusionary Housing units are mixed with market-rate housing, most of the apartments are studios and one-bedroom units. Of the 566 Inclusionary Housing units built, 435 are studios or one-bedroom apartments. Only around 23% of the units are considered “family sized.”

Compliance woes

If a developer chooses to not set aside units to be affordable, they can pay a fee instead. Between July 2017 and April 2023, the Housing Bureau collected more than $5 million in fees. According to the audit, the bureau expects to collect an additional $7 million by the end of 2025 from a single building.

For the most part, these relatively low collections suggest that while the Inclusionary Housing initiative is highly criticized, developers and project owners tend to include affordable units over paying a fee.

The fees are supposed to fund future affordable housing development, but according to the auditor this hasn’t happened yet. Instead, the Housing Bureau has been using the fees collected over the course of five years to fund operating costs for the Inclusionary Housing program.

“Bureau managers said they plan in the future to use the fees to also fill affordable housing finance gaps,” the audit report said.

The audit also found that Housing Bureau staff rely on the “honor system” in assessing whether the rents charged and tenant income reported by project owners and property managers are correct. The bureau doesn’t require owners to submit backup documentation in their annual compliance report.

As of May 2023, Housing Bureau staff were also two years behind in reviewing all submitted compliance reports, according to the auditor’s office. And based on the current pipeline of Inclusionary Housing units, buildings the Housing Bureau will need to monitor will more than double.

“Without timely compliance monitoring, the Bureau cannot always identify and correct issues that can nullify the affordability benefits of the Program,” the report said. “This creates a risk that Inclusionary Housing units may not help meet Portland’s affordable housing needs.”

In response to the auditor’s report, Commissioner Carmen Rubio and Portland Housing Bureau Director Helmi Hisserich largely defended the program’s work and pushed back against many assertions made in the auditor’s report — like that the Housing Bureau should help property owners and managers market and lease Inclusionary Housing units.

They also said the program is “ill-suited” to provide housing to those that are significantly below 60% of the area’s median income and that low-income households are served best through permanent supportive housing options that include more wrap-around services.

“We provided this report to the Housing Bureau and the Commissioner in Charge for their response,” auditors noted, in part. “Their response did not specify agreement with our audit findings and recommendations.”

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