Consultant tells Portland committee inclusionary zoning is strained by higher land, construction and financing costs

A consultant told Portland’s HEDC Committee that the city’s inclusionary zoning (IZ) requirement has become difficult to support under current market conditions and that external subsidy is now often required for developers to deliver affordable units. "For IZ to work, either market conditions have to absorb the net effective cost of compliance, or there has to be offsetting subsidy," said consultant Charles Buki.

Buki, a partner at the consulting firm working on the state-funded study, said preliminary analysis used two datasets: a database of roughly 185 projects tracked from site-plan approval toward certificates of occupancy and a 16-year market dataset including interest rates, materials and land transactions. He said Portland’s market is tight — a roughly 2.9% vacancy rate with average multifamily rents near $1,800 — and described sharp increases in three cost drivers: financing, construction and land. "Land that traded for about $175,000 an acre in 2010 now consistently trades north of $1,500,000," he said.

The consultant presented period-by-period comparisons and said effective compliance costs per unit have risen substantially. He reported that the first IZ period produced about 118 inclusionary units and nearly $3.5 million in in-lieu fees; in the most recent period the study counted 43 IZ units so far. Completion-rate metrics in the presentation showed the first two five-year periods with completion rates near 17–18% and the current five-year period at about 9.9% — a decline of roughly 44% in completion pace, according to the slides.

Council members pressed for more granular counts separating units that exist because of IZ from those produced through other subsidized tools, such as low-income housing tax credits. "I need the actual numbers: what did we build or what is in the pipeline for affordable units because of IZ?" Councilor Sykes said, adding that the committee needs that breakdown before considering policy adjustments.

Staff and the consultant said the final report will include finer-grained tallies and narrative case studies. Buki flagged projects whose affordable components are tied to complex master-plan financing — for example, the 89 Elm Street plan that envisions 200 affordable units but depends on a mix of IZ, tax credits and other subsidies — and staff said the study will clarify how such projects are counted.

Several councilors cautioned that pandemic-era shocks, high inflation and labor shortages make recent years an atypical comparison period. Committee members asked staff to provide additional datasets and requested a second, more detailed presentation before the analysis is finalized. Kevin Craft, the city’s planning/urban development staff lead on the project, said staff will work with the consultant to incorporate the committee’s questions into the final report.

The committee did not take policy action at the meeting; staff said the presentation was an opportunity for early feedback and that a final report and a subsequent council presentation will follow.