On January 31st, Portland City Council voted to adopt updates to the City’s Inclusionary Housing Code that promote the financial viability of multifamily housing developments offering regulated units for people making at or below the 60% median family income (MFI). The new rules, going into effect on March 1st with Multnomah County’s approval, will expand deeper property tax exemptions for projects beyond Portland’s Central City and will now include Montavilla.
Portland’s Inclusionary Housing rules went into effect in 2017. This program requires the building to reserve a percentage of units for income-constrained residents when a new development offers more than 19 residences. Projects could accomplish this obligation by providing at least 20% of units at an affordable rate for renters earning 80% MFI or offering 10% of units at an affordable rate for renters earning 60% MFI. Based on 2023 numbers, a one-bedroom apartment would cost up to $1,269 monthly for a 60% MFI renter or $1,693 for an 80% MFI renter. This amount is adjusted annually based on the Department of Housing and Urban Development’s (HUD) calculations.
To incentivize developers to choose the 60% MFI option, Portland offers a 10-year property tax exemption for affordable units targeting those renters. Additionally, builders in the Central City received a tax break on all units in the building if they reserve at least 10% for 60% MFI renters. City Council’s action will extend the Downtown tax incentive to higher-rent submarkets outside the Central City, such as Slabtown and the inner Eastside commercial corridors. Montavilla is the easternmost community to receive this expanded development incentive, and its inclusion could spur more mixed-income multifamily construction in the neighborhood.
Officials designed the ten-year property tax exemption to offset the lost revenue from Inclusionary Housing units, and the expanded discount for all housing units could be the catalyst to allow more buildings to break ground. Higher interest rates, expensive land, and rising construction costs have made numerous Portland developments financially unfeasible. A state-mandated Housing Needs Analysis identified the demand for approximately 120,000 more housing units in Portland over the next 20 years, but current conditions have slowed construction. This Inclusionary Housing update could be what the housing market needs to build more homes.
Multnomah County has to agree to the additional loss of property tax revenue before the new rules can take effect. Developments in the building permit process or under construction can opt into this new rule after March 1st. Additionally, the City temporarily lifted its forgone property tax revenue cap for six years, allowing as many projects as possible to take advantage of this new rule and putting Portland back on track to meeting housing needs.
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