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Portland goes big on affordable housing

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Developer says city spending too much on projects


PORTLAND TRIBUNE: JONATHAN HOUSE - The new Fern Grove apartment complex on East Burnside Street is not funded by the city but still aimed at low-income families. Responding to the housing crisis that is forcing many lower-income residents out of town, the Portland Housing Bureau announced last month that it will contribute $47 million to eight projects intended to create or preserve 840 affordable units — the largest commitment in the city’s history.

The projects include six new buildings and two rehabilitation projects. According to the PHB announcement, the average per-unit costs in each project will range from around $110,000 to $321,000, with the overall average being about $213,000.

In the meantime, Home First, a private development company, is wrapping up an affordable housing project with a per-unit cost of around $110,000. But except for the manager’s apartment, the other 33 units in Home First’s Fern Grove complex at East Burnside Street and 143rd Avenue have three bedrooms and one and one-half baths. The PHB projects include studios and one- and two-bedroom apartments.

“The city hasn’t gotten serious about cost containment,” says Home First co-owner Rob Justus, who says his company’s smaller projects cost around $80,000 per unit.

According to Justus, the cost differences show Portland is not stretching its affordable housing dollars as far as possible to produce the most affordable housing, despite the City Council declaring a housing state of emergency last October. The number of “unfunded” PHB units could grow significantly in the near future. The council has increased the percentage of urban renewal funds for affordable housing projects from 30 percent to 45 percent. Portland and Multnomah County also have agreed to spend an additional $30 million on affordable housing and homeless services next fiscal year. And, affordable housing advocates are working on a measure for the November 2016 general election ballot that could fund even more projects.

However, PHB Director Kurt Creager says direct comparisons between his agency’s projects and the ones built by Home First are not realistic. For starters, because the developers of the PHB-funded project must raise other financing, the city is only paying a fraction of the average unit costs — just around $10,000 to $118,000, for an overall average of $69,000 per unit.

The Home First project is being built for PHC Northwest, a nonprofit social service provider that has worked with it on previous projects. The city did not preselect the developers for the eight projects announced last month. They were chosen through a competitive process and include both nonprofit organizations and for-profit businesses.

In addition, Craeger says, some of the projects will be taller than the three-story apartment buildings being built by Home First, which makes them more expensive. A few include market-rate units that increase their overall costs, because they must offer amenities to compete for tenants who do not qualify for rent reductions.

On top of that, Creager says Portland only invests in affordable housing projects that will be around for 80 years to 100 years. That means the initial cost is amortized over a longer time than many other multifamily housing projects. Justus says his projects are designed for 60 to 80 years, although they may well last longer.

“Our goal is to provide long-term affordability taking the entire life cycle of a project into consideration,” Creager says.

PORTLAND TRIBUNE: JONATHAN HOUSE - Home First co-owner Rob Justus talks about his new low-income housing development in one of the new apartments.Best use of funds?

Justus thinks the city still could get more bang for its buck, however. He says any affordable housing developer who accepts city funds must comply with policies that add “social benefit costs” to the projects, such as paying union construction wages. Because of that, Home First does not seek or accept any city or other public funds for its projects.

Commissioner Dan Saltzman, who is in charge of the PHB, is concerned about the higher costs of city-funded projects. In March he convinced the council to authorize a study of some of the city policies that increase the cost of affordable housing projects. Last month’s PHB announcement came before the study was completed, however.

According to Creager, the eight projects were selected from 22 submissions in response to the PHB’s 2015 Notice of Funding Availability, which was released last October when the council declared the housing emergency. It made an unprecedented $61.6 million, 100 Project-Based Section 8 vouchers, and five publicly owned sites available for affordable housing proposals.

Creager says the projects were selected after reviews within the PHB and by committees that included city and country representatives. He said the process was more transparent than those used in the past, which frequently has involved one-on-one negotiations between the Portland Development Commission and individual developers. The PDC’s housing program was transferred to the PHB several years ago. Some projects with even higher average per-unit costs were rejected by the review committees, Creager says.

The city’s contributions to the project include a mix of city urban renewal funds and federal affordable housing dollars. Multnomah County also is contributing to some of the projects. The city and county also donated land for some of them.

“I commend the Housing Bureau for stretching itself and its resources to get here, and I commend our proposers for the creativity and resourcefulness they brought to meet the challenges we face,” Saltzman says.

The eight projects will barely scratch the need for more affordable housing, however. The council has said there currently is a need for around 24,000 more housing units that would not cost more than 30 percent of the earnings of a household making below 60 percent of the region’s median family income.

Perhaps significantly, Home First worked with Central City Concern on the design of the PHB project with the lowest per-unit cost, Stark I & II. Justus says he hopes its company will build it, too.

Costly policies?

Despite the benefits of the eight projects, Saltzman suspects future ones could be less expensive, allowing the PHB to fund even more units. On March 9, he convinced the City Council to authorize the PHB and the Bureau of Planning and Sustainability to study whether some city policies increase the cost of such projects.

One policy to be reviewed is the city’s green building standards, which Saltzman persuaded the council to first adopt in 2001 and then update in 2009 to increase the energy efficiency of buildings constructed in Portland. Although Saltzman said questions have been raised about whether the standards increase building costs, commissioners Nick Fish and Amanda Fritz were both uncomfortable reviewing them. They said the standards are an important part of the city’s commitment to sustainability, and questioned whether they should be waived on one class of housing.

Saltzman successfully argued in favor of including the standards in the study, however. It is scheduled to be presented to the council in October.

The study will not include every policy that could increase the cost of affordable housing projects, however. Last September, the council reviewed and agreed to retain a number of “social cost benefit” policies that increase the cost of affordable housing projects.

According to a Sept. 11, 2015, memo from PHB, in addition to the union wage requirement, the policies include land use, environmental quality, infrastructure services, design review, parking, and other related needs, all of which “significantly impact housing development costs.”

Justus says such decisions show the city is not doing everything within reason to reduce the cost of the affordable housing projects it helps finance. He says his company’s approach is attracting interest from outside Portland, including the Oregon Housing and Community Services department and the City of Bend, where Home First expects to build its first project this summer.

The eight partially city-funded projects

The chosen developers include both nonprofit organizations and for-profit corporations. The PHB describes the six new projects, their developers and its contributions:

72Foster (REACH) — $23 million total, city share $5 million to develop 108 new affordable units on a PDC-owned property in the Lents Town Center Urban Renewal Area with resident services provided by Asian Health & Services Center, plus commercial space to support and enhance neighborhood businesses.

N. Williams Center (Bridge Housing Corp) — $18 million total, city share $4.5 million to develop 61 new affordable units for low-income families on Multnomah County property in the Interstate Corridor Urban Renewal Area, plus supportive services for residents and a possible partnership with Albertina Kerr to provide programming for developmentally disabled residents.

The Creators Collective (Meta Housing Corp) — $24 million total, city share $9 million to develop 76 new affordable units complete with arts and entrepreneurship programming for very low-income families, seniors and veterans on the PHB-owned King/Parks site in the Interstate Corridor Urban Renewal Area.

Block 45 (Home Forward) — $$56 million total, city share $5.6 million for a mixed-income, mixed-use development with 127 affordable units on PHB-owned property in the Oregon Convention Center Urban Renewal Area, including units and supportive services for vulnerable populations such as the chronically homeless and survivors of domestic violence.

Interstate (Central City Concern) — $8 million total, city share $2.2 million to develop 51 new affordable units in the Interstate Corridor Urban Renewal Area providing culturally specific recovery and employment support services to residents.

Stark I & II (Central City Concern) — $18 million total, city share $7 million to develop 162 new units of low-barrier housing on two adjacent parcels in the Hazelwood neighborhood.

The Henry Building (Central City Concern) — $22 million total, city share $12.9 million for seismic and capital renovations to preserve 153 single-room occupancy units currently serving vulnerable populations in the Central City.

Gladstone Square/Multnomah Manor (Home Forward) — $18 million total, $1 million to renovate and preserve 102 affordable units serving low-income families in two Home Forward-owned projects in the Lents and Montavilla neighborhoods.

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