Over seven years after the city created the Inclusionary Housing, or IH, program to address Portland’s housing affordability crisis, the program’s parameters skew away from low-income Portlanders.
Created in 2017 and administered by the Portland Housing Bureau, or PHB, the program’s stated goal is to contribute to the city’s identified need for 23,000 housing units to serve low and moderate-income households — particularly those making 60% and 80% of Portland’s federally determined Median Family Income, or MFI. The program requires all new developments with 20 or more units to include either 10% of units affordable at 60% MFI or 20% of units affordable at 80% MFI.
A renter can qualify for an affordable IH unit if their income reaches but does not exceed a 60% or 80% MFI threshold, depending on the unit.
However, 60% and 80% MFI is often substantially higher than Portland’s average renter wage and minimum wage.
PHB basing maximum rent and income eligibility on MFI calculations results in maximum ‘affordable’ rents that don’t always diverge substantially from fair market rates and routinely exclude low-income individuals and families.
Case in point: Of the 1,760 affordable IH units created since the program’s inception, landlords can rent nearly 30%, or 515 units, within $6 of the local fair market rate, a Street Roots analysis found.
The city uses U.S. Department of Housing and Urban Development, or HUD, MFI calculations, which incorporate all incomes in a given metropolitan area — including those vastly higher than most of the population — to calculate maximum rents and income eligibility. The resulting calculations for a single person: 60% MFI = $49,560 and 80% MFI = $66,080, or 149% and 199% of full-time minimum wage, respectively.
As a result, federal affordability standards consider every maximum rent for an ‘affordable’ IH unit unaffordable for a Portlander earning full-time minimum wage in a single-income household. Even two people earning full-time minimum wage couldn’t afford maximum rent on a one-bedroom IH unit at 80% MFI, though they would make too much to qualify for a one-bedroom IH unit at 60% MFI.
The program also allows developers and landlords to save millions of dollars through a 10-year property tax exemption, construction excise tax exemptions and waived system development charges for affordable units. Cost reduction efforts are intended to offset the lost revenue from lower rents and incentivize affordable housing construction.
In some circumstances — particularly in the Central City Plan District, which includes all of inner-city Portland on both sides of the river, Lloyd, Lower Albina, South Waterfront and Goose Hollow — developers can claim exemptions for all residential units, including market-rate units, if the development includes the required 10% or 20% of ‘affordable’ units under IH regulations.
For projects outside of the Central City Plan District, but still within medium- and high-rent areas, the 10-year property tax exemption applies to all units in an IH project, including those at market rate, if affordability is set to 60% MFI.
PHB’s maximum monthly rent for an 80% MFI studio is $1,652, which is $2 above HUD’s fair market rent for a Portland studio apartment. IH currently boasts 261 units of this type, according to data PHB submitted to the Portland City Auditor’s office.
PHB’s maximum monthly rent for an 80% MFI one-bedroom is $1,770 — a mere $6 less than HUD’s fair market rent for a Portland one-bedroom apartment. The city subsidized 254 units of this type under IH, according to the same PHB data.
In practice, this means a Central City Plan District development with 20 studio apartments could include exactly zero apartments rented below fair market rate and still qualify for a decade of no property taxes, construction excise tax exemptions and waived system development charges. And, it’s all in the name of building more affordable housing.
But why?
Commissioner Carmen Rubio oversaw PHB until Wheeler consolidated all bureaus under his oversight in July as part of the city government transition. When asked why the city offers tax breaks and exemptions for developers to produce market-rate housing, Christina Ghan, Rubio’s policy director, referred Street Roots to a November 2023 calibration study on the IH program.
The study, conducted by BAE Urban Economics, found the city over-incentivizes 60% MFI development in low- and medium-rent markets within the Central City Plan District and 80% MFI development in low-rent markets throughout the city, including portions of the Central City Plan District.
The city under-incentivized development outside the Central City Plan District in both medium-rent and high-rent markets at 60% and 80% MFI, the study found.
Despite the study finding IH over-incentivizes development in numerous cases and the city auditor’s office finding numerous problems with oversight and enforcement, City Council voted unanimously Jan. 31 to expand the property tax exemptions effective March 1.
The expanded incentives also suspended the program’s previous rolling five-year, $15 million foregone property tax revenue cap until 2029, meaning there’s now no limit to how much tax and system development charge money developers can keep from public coffers.
“We studied the various ways we could expand the incentives to help make those projects — on average — whole in regard to IH, and offering a deeper property tax exemption was the only one that was significant enough to do the trick,” Ghan, who works with Rubio’s support team to oversee PHB, said. “So we expanded the property tax exemption, and now we can confidently say that the IH program is paying for itself. As a result, we’re now seeing projects move forward that otherwise would have likely stalled out for the next few years.
“Meaning that we will now actually see those affordable IH units (and the rest of the housing in those buildings) get built.”
Ghan said the numbers reflect the location of some IH units where the market rate is likely higher than the citywide market rate. Ghan also noted IH units regulated at 80% and 60% MFI will remain at 80% and 60% MFI for 99 years. The calculation — and maximum rents — fluctuate each year depending on the MFI.
“It is important to ensure that programs like IH are designed to wisely and responsibly use public resources,” Ghan said. “Which is why the recent changes to IH help ensure that our incentives are appropriately calibrated by adjusting our incentives to further encourage 60% (MFI) units in much more of the city.”
PHB data provided to the city auditor’s office shows 1,159 out of 1,760 IH units are regulated at 60% MFI. However, over half of those units are studios and one-bedroom units.
Dan Emmanuel, National Low Income Housing Coalition research manager, said this could potentially exclude low-income renters with more than one person in their household.
“The program is at risk of underserving larger families,” Emmanuel said. “This is particularly troubling because larger families often have difficulty finding larger units. Larger families also typically have higher non-housing costs, so, relatively speaking, they suffer disproportionately from housing cost burdens since they have greater expenses to cover beyond rent compared to smaller families (all else being equal).”
The city auditor’s report found the program fell short of its goal to build affordable housing for low-income renters, often renters of color.
The numbers
HUD considers housing affordable if a household spends less than 30% of its gross income on housing expenses, including utilities.
Many incomes don’t rise at the same rate as an area’s MFI, making the program increasingly less accessible over time. As an area grows richer, the program’s income limits and maximum allowable rents rise. The parameters have already priced out many low-income renters.
For instance, a full-time minimum wage worker in Portland earns about $33,175 a year before taxes. They can spend up to $9,952.50 of their annual income on rent and utilities and have their housing qualify as affordable. An IH studio at 60% MFI — the most affordable option in the program — is about $14,868 a year.
Although the program requires IH units to meet MFI percentage limits for 99 years, city auditors flagged this as a potential compliance risk as buildings take on new owners and staff.
PHB is two years behind on reviewing and testing compliance data reported by property managers, according to the audit.
MFI-based rents can also pose a challenge for lower-income households with fixed incomes, Emmanuel said. If the rate of family income growth for the area exceeds inflation adjustments to income supports like Social Security or Supplemental Security Income, individuals or families who receive support may face greater challenges affording rent.
“We see it happen in federal programs that tie rents to MFI rather than to tenants’ actual incomes,” Emmanuel said. “Basing rents on 30% of 60% of MFI, instead of 30% of the occupying tenant’s income, means that any tenant earning less than the 60% of MFI threshold will pay more than 30% of their income in rent; they’ll be housing cost-burdened.”
When asked if the city was considering changing the affordability thresholds for Portlanders, Ghan acknowledged the need for more affordable units but said the IH program may not be suitable for meeting that need despite its central goal of creating affordable housing for low-income renters.
“We currently already do track and set data-driven production goals for the full spectrum of affordability needs, ranging from 0-30% AMI to 120% AMI and above,” Ghan said in an email. “We know that the units with the deepest affordability require the deepest level of City support and subsidy, and that there is also considerable need for those types of units. While IH may not be the best-suited to create those units, we have other tools, like Bond and TIF resources, that are very good at it, and there is broad understanding that we need to continue, and scale up, those programs if we’re going to meet the needs of our residents.”
Priced out or left out
Only 375 of the 1,760 IH units had two or more bedrooms, what PHB considers “family-sized.” There are also no program controls to keep more affluent small households from renting family-sized apartments, according to the IH city audit report.
City-wide, there are no affordable housing options for a three-person household with extremely low income or low income, according to PHB’s 2023 State of Housing in Portland. Yet, those families may struggle the most, data suggests.
“There is nothing inherently wrong with using 60% and 80% of MFI as thresholds for household income-eligibility, but the problem with setting affordability rents for households at 60% or 80% of MFI is that these units aren’t affordable to renters with extremely low incomes — who have the greatest challenge in finding affordable housing,” Emmanuel said.
In 2022, of the 1.7 million households in Oregon, 764,160 — 45% — were either below the poverty level or barely making the minimum average income that a household needs to afford housing, child care, food, transportation, health care and a smartphone plan, plus taxes, according to United For ALICE, a nonprofit that researches policies for low-income families.
Poverty rates are inextricably linked to homelessness. In 2023, Multnomah County family households frequently experienced unsheltered homelessness, according to the 2023 Point-in-Time, or PIT, count. Families of color in Multnomah County also disproportionately experience homelessness in relation to their total population; 46% of families experiencing homelessness identified as families of color.
Editor’s note: The following sentence was updated to clarify the IH foregone revenue cap applies only to property tax exemptions. “The expanded incentives also suspended the program’s previous rolling five-year, $15 million foregone property tax revenue cap until 2029, meaning there’s now no limit to how much tax and system development charge money developers can keep from public coffers.” The following sentence was updated to clarify full property tax exemption outside the Central City Plan District applies only in medium- and high-rent areas. “For projects outside of the Central City Plan District, but still within medium- and high-rent areas, the 10-year property tax exemption applies to all units in an IH project, including those at market rate, if affordability is set to 60% MFI.”
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This article appears in August 7, 2024.