The January 24, 2019 meeting of the Oregon Chapter of NAIOP, the Commercial Real Estate Development Association, featured a panel of affordable housing experts who described the root causes of Portland's affordable housing crisis, and what is being done to fix it.
Marc Jolin, Director of the Joint Office of Homeless Services, moderated the panel, which included Shannon Callahan from the Portland Housing Bureau, Sarah Stevenson from Innovative Housing, Inc., Steve Messinetti from Habitat for Humanity Portland Metro East, and Eric Cress from Urban Development + Partners.
Jolin described our current landscape: in 2018 the Joint Office for Homeless Services served 35,000 people under its A Home for Everyone program (a 50% increase over 2014), including putting 6,000 people into permanent housing. But despite those successes, they cannot keep up with the thousands more people who are homeless compared to four years ago. Jolin noted the biggest issue is our housing market. A recent study by the Oregon Community Foundation and EcoNorthwest showed that the biggest indicator of the rate of homelessness isn't mental illness or addiction, but how hard it is to find affordable housing.
Shannon Callahan provided some context to why it is so difficult for people to find affordable housing in Portland right now. The median income is $58,423 per year, for which rent of $1,461 is considered affordable. For that rent amount there are still studios and one-bedroom apartments available in most Portland neighborhoods, but 2- and 3-bedroom apartments in this price range are scarce. For a three person low-income household earning $43,980 a year, $1,100 rent per month is considered affordable. The only neighborhoods with apartments available in that range are in outer East Portland, and none of them are 3-bedroom apartments. For a three person, extremely low income household earning $21,990 a year, $550 rent per month is considered affordable. There are no areas of Portland in which you can find apartments of any size for that amount. With incomes rising at a rate substantially slower than rents, the problem is only getting worse.
Callahan explained that the Housing Bureau regulates some 14,000 units of affordable housing, providing financing from tax increment financing, the Portland Housing Bond, the Metro Housing Bond, the construction excise tax, Airbnb fees, and inclusionary zoning. With the two housing bonds, the Portland area will receive 1,775 new units of affordable housing. According to Callahan, there are currently 362 units of affordable housing in the works due to the inclusionary zoning ordinance.
While the government provides carrots and sticks to incentivize affordable housing, it is primarily nonprofit Community Development Corporations (CDCs), and to a lesser extent, private developers who are actually constructing the projects. According to Sarah Stevenson, the primary source of funding for CDCs like Innovative Housing, Inc. is through federal tax credits. However, the challenge is bridging the gap with other types of financing that come with their own regulatory schemes that may not all play nicely with one another, increasing transaction costs. She noted the problem is even worse outside Portland: becuase incomes are lower, rents need to be lower as well, meaning CDCs have to find even more sources to fund the gap.
Steve Messinitti discussed the role nonprofits like Habitat for Humanity play in making home ownership affordable. Habitat provides homes which are affordable to families with 35% to 60% of median income ($26,000-$44,000 per year) by providing mortgages with no down payment, and mortgage payments that are no more than 30% of the homeowner's income. Messinitti's view is that without homeownership opportunities, these families would stay renters, which would exacerbate the supply and demand problem for rental housing, causing rents to go up. In 2018, Habitat constructed 34 homes in the Portland area.
Finally, Eric Cress discussed affordable housing from the perspective of private investors. He believes that private investment could be a key because it offers scalability and an appetite for risk. He noted the biggest issue is making sure private capital plays nicely with public funding, so the public money is not seen as padding the pockets of private investors. Asked whether Opportunity Zones might encourage development of affordable housing, Cress noted that Opportunity Zones may reduce the return requirement from investors by up to 300 basis points, which is significant. However, demand may push land prices up as a result. Stevenson pointed out that because all of downtown Portland is in an Opportunity Zone, residential projects may begin to pencil out in the area again, and the inclusionary zoning ordinance means that some of the units will have to be affordable.
Ultimately, it is clear that efforts are underway to construct more affordable units, but it is also clear that demand is greater than what our current undertakings will provide. To paraphrase Cress, paraphrasing a proverb: the best time to plant a tree is 15 years ago; the second best time is now. Since we can't turn back time, we need to look at new ways to incentivize even more affordable housing in our area now, if we want our community to thrive.