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High cost of 'affordable'

Should housing standards be lowered to help more homeless?


by: TRIBUNE PHOTO: JAIME VALDEZ - At  her old studio apartment, Kemiyia Hunt and her daughter Zoey Sims did not have her own washer and dryer, a dishwasher, granite counter tops in the kitchen, bathroom cabinets or two full bedrooms. Shes got all those at the new Snowberry Apartments that were built for $70,000 per unit. The Snowberry, according to developer RobJustus, shows that quality low-income housing can be built inexpensively.Rob Justus isn’t waiting for somebody at City Hall to pat him on the back, but he is wondering why nobody has. Housing officials have noted Portland is about 12,000 units shy of low-income housing, and the lack of low-rent living spaces is driving many working poor into the ranks of homelessness.

Meanwhile, Justus is doing what many in the housing field say is impossible — building sturdy apartments for $70,000 per unit. At his new building at Southeast 151st Avenue and Burnside Street, right near a MAX stop, tenants are paying an average of $650 a month for rent. And Justus accomplished his project without public funding, though he did get a waiver on system development fees.

“We’re three times as cheap as what is being built for publicly funded affordable housing,” Justus says.

Justus founded nonprofit JOIN, one of the city’s most respected homeless agencies, before transforming himself into a developer of low-income housing. He says he could build hundreds more low-income housing units without public funding. But he’d need more cooperation from the city Bureau of Development Services. He has all sorts of ideas for inexpensive dwellings, including micro apartments with kitchenettes, that could cheaply house the growing number of Portland’s working poor.

“Do I think the city of Portland BDS is going to let us do something like this? No,” Justus says.

Two and a half years ago Bud Clark Commons in Old Town was built with $47 million of taxpayer money to house 130 of the city’s chronically homeless. Subtracting parts of the building used for other services, the 130 apartments cost $253,000 each to build.

Nonprofit Human Solutions is completing its publicly funded 67-unit Glisan Commons in Gateway. The cost? About $200,000 per apartment.

The Snowberry Apartments, which Justus built without taxpayer funding for nonprofit Portland Habilitation Center Northwest, not only provides low-income housing at a rate nobody else has been able to duplicate, it stands as testimony to the inefficiencies involved in building low-income housing with taxpayer dollars.

Eli Spevak has been building low-income housing in Portland for 12 years, but he says he can’t build it for less than $100,000 per apartment. And at that price, he can’t afford to rent it out to the people in the lowest income brackets.

Spevak says he has tried to develop low-income housing the conventional way, using taxpayer dollars and tax credits, but the strings attached make it too expensive. Developers who take public housing money have to abide by rules that, for instance, require them to pay all workers the equivalent of union wage. Bud Clark Commons has solar panels and other add-ons that gained the building LEED platinum certification. In Portland, developers who take public money have to build green and meet requirements for minority hiring.

In addition, Spevak says, “soft costs” associated with public funding remove the possibility of building at low cost. He says to meet federal regulations on a housing project he has to spend about $15,000 in extra attorneys’ fees to set up a required limited entity corporation and another $35,000 to set up a special partnership to meet federal regulations. Those are just examples, according to Spevak. “Think of it as a thousand paper cuts,” he says.

Justus, who served on a committee that helped map the Ten Year Plan to End Homelessness, uses stronger words.

“What is wrong with the system is there is a fixation on addressing multiple social issues on the backs of poor people,” he says.

Justus isn’t against building green or paying union wages to construction workers. But the job is to get low-income people into housing they can afford, he says, and all those extra requirements are making it impossible.

The same applies to the bureaucracies that have built up around housing, according to Justus. In his eyes, nonprofit builders have come to rely on the current system of federally subsidized housing for their very existence. The Portland Housing Bureau had only a couple dozen employees when the Ten Year Plan to End Homelessness was formulated, he says, and now has more than 50. Housing officials say they too need extra “soft cost” staff to deal with myriad federal regulations.

“It’s not about the people on the street,” he says.” It’s about sustaining these big social service agencies.”

Code waivers needed

University of Portland economist Mark Meckler would swing the regulation pendulum back the other way, toward fewer limitations on developers of low-income housing, not more. He proposes a special pared-down building code. This secondary code would require low-rent buildings to meet minimum safety and liability standards, but forgive a lot of the extras that current building code now requires of new structures. The goal, Meckler says, has to be to incentivize developers to build for the homeless and minimum wage earners.

“This has literally got to be housing for the poor,” Meckler says. “Don’t even stick a fancy name on it. Poor people are really struggling.”

Spevak says without at least some code waivers on a project by project basis, the numbers of Portland homeless will not go down substantially. He says a special code for low-income housing projects could guarantee that all units are safe and livable, with enough exits, smoke detectors, adequate heating and hot water. Even minimum room size would be OK. But maybe not all apartments would need all bathrooms to be disabled-accessible or bedrooms with the many electrical outlets current building code requires.

“Unfortunately, we have this presumption that it’s inhumane to let people live in housing that’s below some standard,” Spevak says. “It’s more inhumane to let the standard be so high that many people have no housing at all.”

Jean DeMaster, executive director of nonprofit Human Solutions, isn’t sold on the idea of letting developers of low-income housing build to a lower standard. She’s worried that some developers, given code leniency, would build poorly weatherized apartments so tenants’ heating bills would become a burden, or might use cheap linoleum that develops cracks, or cheap paint that peals off walls.

“We should have the same standard of housing for everyone in the community, and not allow lowered standards for low-income people or homeless people,” she says.

DeMaster is certain that she doesn’t want housing officials to compromise on rules that require developers getting public money to hire union wage contractors. “Our clients are the ones who suffer from nonunion wages,” she says.

DeMaster would prefer increased funding from the federal government for new public housing construction and additional rent relief, rather than relaxing code to incentivize private developers to put up low-income buildings.

Traci Manning, director of the Portland Housing Bureau, says it is time for the city to at least consider whether the added demands made on low-income projects are worth it.

“We think we buy a whole bunch of benefits and those decisions have been made by folks over a period of time,” Manning says. “It’s responsible to periodically ask yourself if there is something different we can do.”

Spevak, like Justus, has become convinced that without a change in policy, more taxpayer dollars to subsidize more public housing projects will never work to end homelessness in Portland. If that were the answer, he says, Portland would have made more progress since enacting its 10-year plan.

“That hasn’t closed the gap as much as anybody had hoped,” Spevak says. “So it’s appropriate to change the rules of the game a little bit in terms of changing the standards by which we build housing.”


by: TRIBUNE PHOTO: JAIME VALDEZ - Public funding of low-income housing makes building efficiently impossible, say John Murphy, president of Portland Habilitation Center Northwest, and low-income housing builder Rob Justus, here touring their Snowberry Apartments.

No public funds key to building low-cost housing

What John Murphy calls his journey through the world of low-income housing started with a jolt. Murphy is president of Portland Habilitation Center Northwest, a long-running nonprofit based in outer Northeast Portland that provides training and job opportunities for developmentally disabled men and women.

Up until 20 years ago, Murphy knew nothing about low-income housing, and he wanted to know nothing about it. But he was starting to experience a turnover rate of close to 40 percent among his 750 disabled employees who contract out on jobs such as janitorial, landscape and clerical work at the Portland airport, among other places.

When Murphy talked to his workers he found housing was the primary reason some were leaving jobs that they desperately needed. Many told him they couldn’t find apartments they could afford to rent, even on the $12 an hour he was paying. Others were suffering episodes of mental illness and getting evicted from apartments they could barely afford. With little savings, some of these employees were living under bridges, finding their lives spiraling downward and eventually leaving their jobs.

Reluctantly, Murphy decided he had to help solve his employees’ housing problem. He spent $14 million to buy seven apartment complexes that had been built using public money and carried contracts that allowed the U.S. Department of Housing and Urban Development to set the rents. Just managing those buildings, Murphy says, became untenable. He insists that he had to spend an inordinate amount of time working to meet all the special federal and local regulations governing the buildings, rather than spending his time maintaining the actual buildings.

Murphy says just to deal with the extra regulations he had to add four employees to the three he already had. And Murphy knew he needed more units.

Buying more subsidized apartment buildings made no sense, Murphy says. And building his own without taking public money and getting bogged down even further in what had become an administrative nightmare, he was told after asking around, was impossible.

“This was the truism in the industry,” Murphy says. “You can’t build affordable housing in Portland.”

Murphy eventually met Rob Justus, who said he could build low-income housing that would last for $70,000 a unit, about a third of what publicly funded apartment buildings were costing. A deal was hatched.

PHC Northwest put up $1.9 million to build Snowberry Apartments at Southeast 151st Avenue and Burnside Street. It was decided rents would start at $625 for studios and run up to $675 for two-bedroom apartments — what Murphy’s employees could afford. For that to happen, Justus would have to stick to the $70,000 per unit cost. So the contract with Justus was written so that if the developer failed to deliver the units at $70,000 at the quality he promised, Justus would have to pay back to PHC Northwest the $1.9 million.

In Murphy’s eyes, the contract incentivized efficiency, the opposite of the effect that occurs when developers use public dollars and get paid in the form of a fee that is 10 percent of the total cost of their projects.

“Rob has risk, and that’s good,” Murphy says.

PHC Northwest loaning Justus money up front allowed the developer to realize tremendous cost savings unavailable to developers with public money, according to Murphy. With money in hand, Justus could move quickly and find deals on materials, and he had bargaining power. Justus wasn’t encumbered by rules that, for instance, would have required him to buy only a HUD-certified door.

Even bigger savings, Murphy says, resulted from his not having to meet all the added government rules and regulations. He figures he saved $100,000 on legal costs simply by not taking public money on the Snowberry. That comes to about $5,000 a unit.

Skeptics say Justus must have skimped on materials in order to build so cheaply, and that the Snowberry apartments won’t last. Murphy says they will, and points out the granite countertops, steel stairways and LED lighting fixtures.

Murphy and Justus are planning other buildings, including an 80-unit apartment building at Southeast 171st Avenue and Division Street where the rents will again average $650 a month. Not having to build green or hire only union wage workers makes it possible, according to Murphy.

“Part of it is I’m not part of the housing group, it’s not my thing, and that gives me such an advantage,” Murphy says. “There’s no ideology. I will consider everything on its objective merits, and I can move fast.”

But Murphy and Justus acknowledge that without help, their model can’t be used to build the 12,000 low-income apartments Portland needs. Justus needed Murphy’s upfront financing to be able to move fast and save money, and Murphy’s funds are limited.

The Snowberry did get one public subsidy — a waiver of $350,000 in system development fees by the city in exchange for a commitment that the apartments maintain their low rents for 60 years. System development fees are intended to fund the demand for city services — from road repair to fire department services — generated by a new building.

On a large scale, Justus says, bank loans will have to replace Murphy’s up-front money. But most banks won’t provide the loans, Justus says, when buildings are committed to low rents for 60 years. If the city would come down to a 20-year promise, Justus says, banks would come through with loans so he and others could build $70,000 per unit apartment buildings on a large scale.

But housing authorities such as Jean DeMaster say a 60-year commitment has a purpose that translates into better housing. A developer with a 20-year low-rent knows he can sell his building after 20 years to someone who might raise rents or turn it into some other use, she says.

“You put in more durable materials because you know you’re going to own it for 60 years or more,” DeMaster says. “You want to make sure you can maintain it in a reasonable fashion.”

Justus says he is able to build durable, inexpensive buildings because the greatest savings comes from the legal and accounting fees avoided by not taking public money. He says the biggest obstacle preventing him from building low-income housing on a large scale in Portland is attitudes.

“It’s a threat to how things are done now,” he says.