Portland Needs to Build Thousands of Affordable Apartments. Here's Why It Keeps Coming Up Short.

City officials have paid little attention to delivering the most housing for the money spent.

If there's anything Portlanders can agree on in a fractious election year, it's that residents of this city—especially those with low incomes—need more housing.

That's why a ribbon-cutting ceremony held this summer at one of downtown's stateliest apartment buildings felt like Christmas in July.

In a sun-dappled courtyard, City Commissioner Dan Saltzman basked in the applause of developers and dozens of residents.

The crowd was celebrating the reopening of the Bronaugh, a 50-unit apartment building at Southwest 14th Avenue and Morrison Street. The city had financed REACH Community Development's $14.65 million purchase and renovation of the building to house those who make less than $15,400 a year.

"In Portland, we strongly believe that downtown should be a place where people of all incomes can live," Saltzman said.

Not up for discussion that day: Whether the city had gotten the most housing possible for its investment.

The renovation of those 50 apartments had cost $514 per square foot. That's twice as much as the new construction of market-rate apartments springing up all over the inner eastside without public subsidy.

In other words, the city could have built 100 new units for the amount of money it spent restoring 50.

Today, state and city elected officials are rushing to respond to Portland's housing crisis. Salem will consider aggressive legislation next year. And the City Council voted in June to put on the November ballot a first-of-its-kind, $258 million housing bond for Portland.

The quarter-billion dollars would be in addition to the record $153 million the Portland Housing Bureau will spend this year to help find or build housing for low-income Portlanders.

Dozens of interviews and an examination of bid documents, contracts and other public records reveal patterns in that spending. First, although Portland has deployed enormous resources to house people, city officials have paid little attention to delivering the most housing for the money spent.

And second—rather than private, for-profit developers, those benefiting from the city's largesse are nonprofits.

"The Housing Bureau isn't interested in economic efficiency or helping the greatest number of tenants," says Portland State University professor Gerard Mildner, who once served on the board of REACH, the Bronaugh redeveloper. "They are trying to help a constituent community of nonprofits and advocates."

Housing Bureau documents are clear: "Increasing the availability of affordable rental housing is priority one."

In the past decade, the Housing Bureau has spent $735 million. The city doesn't have annual figures on how many units it created during that time—but government-subsidized housing in Portland increased over the past 10 years by 9,363 units.

If increasing the supply of affordable housing were in fact the top priority, by one calculation the bureau could have added at least 1,000 additional units—enough to house as many as half the people currently sleeping on the city's streets. (See "How to Build 1,000 Units," below.)

"Our government is so caught up in efforts to appease so many interests that they step right over that guy on the sidewalk to accomplish other goals," says Tom Brenneke, who develops market-rate and affordable housing. "We've spent a ton on homelessness and haven't moved the needle."

Bronaugh Apartments Bronaugh Apartments (Joe Riedl)

Last year, housing developer Rob Justus presented Portland Mayor Charlie Hales with a proposal: If the city could come up with $20 million, Justus could combine it with other financing to produce 1,000 units of new, low-income housing.

The approach of Justus' company, Home First Development, offered a partial solution to the worsening housing crunch. Hales praised Home First in his 2015 State of the City address.

"They're not building Cadillac spaces, but building small, quickly and well," Hales said. "We need these types of creative solutions because we need housing stock now."

Blunt and intense, Justus is a veteran of the city's struggle to address homelessness. He founded a nonprofit called JOIN in 1991 and spent the next 16 years helping people living on the street find housing.

Justus became a housing developer in 2007. "I was frustrated with what wasn't happening," he says. "There just weren't enough units being built."

Home First Development has now built 213 apartments, with 207 under construction, but the company still doesn't have an office. Justus holds meetings in coffee shops and at the Green Dragon pub on Southeast 9th Avenue.

Justus says after Hales' speech, communication from the mayor's office stopped. A Hales aide, Jillian Detweiler, says the city approached two charitable foundations about funding Justus' idea but couldn't pull together the money.

Dave Carboneau and Rob Justus of Home First Dave Carboneau and Rob Justus (right) of Home First

Fast-forward 18 months. The City Council is now asking voters for $258 million to build, buy or renovate 1,300 units. That's nearly $200,000 of public money per unit—10 times the subsidy Home First requested.

That cost difference may seem like a misprint. But Justus says it's characteristic of the city's approach.

"The focus of the affordable-housing industry in Portland has not been on serving people," he says. "The industry and the funders have not looked at efficiency—they've done 'cool' projects with lots of expensive bells and whistles."

The Housing Bureau was created in 2009 at the urging of City Commissioner Nick Fish. From the day he won election in 2008, Fish pushed to combine all of the city's housing efforts in one place—and to beef up funding. He succeeded on both fronts.

Fish rejects Justus' criticism of the Housing Bureau. He says Home First Development performs an important function but does so on projects of lower quality and less durability far from the central city.

Fish says focusing on low costs is "penny-wise and pound-foolish."

"You could reduce the expense of our projects—but at what cost?" Fish says. "We do high-quality work in neighborhoods where people want to live. I'm not going to compromise on those values—we should celebrate them."

City Commissioner Nick Fish (center left) in the St. Johns Parade. (Courtesy of Multnomah County) City Commissioner Nick Fish (center left) in the St. Johns Parade. (Courtesy of Multnomah County)

"Affordable housing" is publicly subsidized and usually built by developers who agree to limit rents in exchange for public financing. In Portland, as in many cities, developers rather than the Housing Bureau own the finished buildings.

Affordable-housing units constitute 13,000 of the 250,000 households in Portland: about 5 percent.

The Housing Bureau has spent an average of $73.5 million annually in the past decade on housing and homeless services. Much of the money has gone to nonprofit developers such as Home Forward (formerly the Housing Authority of Portland), Central City Concern, and REACH Community Development. (Some of the Housing Bureau's spending goes to shelters, rent subsidies, foreclosure avoidance and programs other than construction.)

Unlike public services such as police, parks and streets, which are available to everybody, housing dollars are rationed. City officials say there is a shortage of 25,000 affordable-housing units in Portland.

"There are many more people who are eligible for subsidized housing than can be served," says Mildner, the PSU professor.

That scarcity raises the stakes for how the city spends its affordable-housing funds. Given the shortage of affordable units, you might expect the city to try to build the greatest number of apartments for available money by awarding funds to the lowest bidder.

In fact, the opposite often happens: The city shows little regard for the cost per square foot of publicly subsidized housing.

Even beyond safety and design requirements, the projects the city subsidizes often include an array of expensive features—high-end architects, wraparound social services, and LEED Platinum environmental certification—to help win funding competitions that are effectively beauty contests.

Here's how a 2015 report from the Meyer Memorial Trust examining the cost of affordable housing diagnosed the problem:

"There is pressure to bring in design ideas that go above and beyond the simplest, most basic housing," the report said. "This pursuit of additional points tends to drive up costs in the absence of strong incentive for cost efficiency."

Greenview Terrace (Courtesy Cascade Management) Greenview Terrace (Courtesy Cascade Management)

Part of the reason the Housing Bureau's deals deliver fewer apartments than might be possible is that the bureau regularly violates its own guidelines for keeping costs low.

Consider Greenview Terrace, a 31-unit project at Southeast 148th Avenue, just south of Stark Street.

The Housing Bureau often loans money to nonprofits to build affordable housing. The loan is interest-free and has no repayment schedule—it is, in effect, a gift. That was the arrangement with Rose Community Development, which in 2013 purchased and renovated Greenview Terrace. (Established in 1991, Rose owns 331 apartment units in outer-Southeast Portland and has a $2.6 million budget.)

City guidelines limit Housing Bureau loans to 100 percent of appraised value. Records show, however, that the bureau loaned Rose $2.82 million for Greenview Terrace, almost three times the project's appraised value.

Rose used the money to rehab Greenview Terrace, but at the end of the project, rent restrictions made its value a fraction of the city's investment. Financial projections show Rose is unlikely to pay back the loan.

Rose acquired and renovated Greenview Terrace for $172,000 a unit, twice what Justus was spending to build a new project at the time in a nearby neighborhood. And contrary to city guidelines, which require developers to use their own money to invest at least 2 percent of a project's value, Rose did not spend a dime of its own money on the project.

Housing Bureau director Kurt Creager, who arrived in 2015, says he is tightening the rules. Rose executive director Nick Sauvie says very low tenant incomes required the large subsidy.

The beneficiaries of the city's generous subsidies are almost always, like Rose, nonprofit developers.

In the past two years, the city has agreed to put $61 million into 13 affordable-housing projects. All but one of them are being developed by nonprofits. Only $4.5 million of the $61 million is going to a for-profit developer.

To his credit, City Commissioner Saltzman, who oversees the Housing Bureau, in 2014 implemented maximum-cost-per-unit standards for projects financed by the city. (According to standards, one-bedroom apartments should cost less than $243,750, and two-bedroom units less than $337,000.)

The problem is, the limits don't necessarily mean anything.

This year, for instance, the Housing Bureau and Saltzman awarded Portland Community Reinvestment Initiatives the funds to develop a project on land near the intersection of Northeast Martin Luther King Jr. Boulevard and Rosa Parks Way, even though it included fewer units and required more subsidy per unit than a competing project.

PCRI, which manages 700 units of affordable housing, has struggled financially. In 2013, records show, the city gave PCRI an $8 million bailout.

PCRI's cost for the current project will be $335,000 per unit—about twice the cost of typical new market-rate developments on the eastside, and above the maximum costs allowed by city guidelines. Yet it won funding anyway. (Saltzman told The Oregonian last week that he reversed the decision in response to concerns from PCRI and black community leaders.)

Saltzman acknowledges the Housing Bureau has put other priorities ahead of efficiency. "We haven't paid a lot of attention to costs in the past," he says. "We need to do better."

The Housing Bureau's willingness to bend its own rules when doing business with Rose Community Development and PCRI is evidence of the significant influence nonprofit developers exert at City Hall.

When the city solicits proposals from developers, panels of city and county officials make recommendations. The written comment of a panel member about the challenges faced by a developer competing with PCRI was telling: "For-profit developer," the panelist wrote as a criticism, records show.

Creager acknowledges that nonprofit housing developers wield substantial clout at City Hall. "They all have boards, and all the boards are politically connected," he says. "That's about 350 politically connected people associated with them."

Portland Housing Commissioner Dan Saltzman (Courtesy of Multnomah County Portland Housing Commissioner Dan Saltzman (Courtesy of Multnomah County)

In addition to funding new apartments, the Housing Bureau spends heavily to renovate existing buildings.

Of the 901 affordable-housing units the city agreed to fund this year, only 646 will actually be new units—apartments that don't currently exist. The rest are existing units that will be renovated. (The proposed bond has a similar structure: Only about 975 of the planned 1,300 units will be new construction.)

That sometimes makes sense because all buildings eventually need renovation. But records show that rather than financing construction or purchasing relatively inexpensive buildings, the city has poured money into buildings that are small, old and located in the most expensive parts of Portland.

In 2008, the City Council voted to renovate 11 affordable-housing properties in the central city by 2013 to preserve aging buildings and the federal rent subsidies attached to them.

"If we hadn't stepped in, those units would all be condos today," Fish says. "Instead, we preserved 700 deeply affordable units in the most desirable parts of the city for 60 years."

From 2013 to 2015, the city subsidized the completion of just 773 new units, while renovating 638 units.

One current city-financed renovation deal with an eye-catching price tag is Central City Concern's renovation of downtown's Henry Building.

The Henry consists of 153 studio apartments of 150 square feet each, with shared bathrooms. It serves people who make far less than 30 percent of median family income.

The Henry will soon undergo a top-to-bottom rehab that will cost nearly $1,000 per square foot of actual living space—four times the cost of new development.

Records show a panelist in the city's recent affordable-housing funding decision said the project made no sense.

"It is more expensive to rehab this building than it would be to build a new building," the panelist said.

Sean Hubert, Central City Concern's housing director, says seismic repair accounts for much of the cost. He says at-risk residents would be difficult to relocate if Central City were to sell the building.

"What we're doing is cost-effective," Hubert says.

Critics say renovations are often inefficient.

"Rehabs eat up too much money," says Tom Kemper, a longtime developer of affordable housing in Portland who now runs Housing Works, a Central Oregon public-housing agency. "That's a really significant issue."

Dan Valliere, executive director of REACH Community Development, which renovated the Bronaugh and manages more than 2,000 units of affordable housing, says critics miss the maze of expensive state and city requirements, spiraling costs and challenging tenants.

"How can we make affordable housing more efficient? That's the right question," Valliere says. "But what we do is really frickin' hard, and it's not valued."

The Henry (Joe Riedl) The Henry (Joe Riedl)

The $258 million general obligation bond measure city officials put on the November ballot contains no cost-containment measures. But it is a change from the status quo.

It's even less cost-effective.

Currently, developers combine city subsidies with money from the state and other sources to fund their projects. Every city dollar leverages as many as five outside dollars.

But the Oregon Constitution limits the use of general obligation bonds in a way that requires the city to own 100 percent of the projects built with bond money. That restriction means the city cannot leverage outside funding with the bond.

That's why the city is budgeting nearly $200,000 in bond money per unit, far more of a subsidy than it spends on current projects.

On Sept. 19, Denver, facing a housing crunch similar to Portland's, approved a $150 million tax increase that will generate or preserve 6,000 units of affordable housing. That's $25,000 a unit.

Justus declined to comment on Portland's bond. He's busy working on a project in Bend, where, unlike in Portland, the public-housing agency welcomed him.

Fish is no longer Portland's housing commissioner, but he's spending every spare moment raising money for the bond.

"It's not a perfect vehicle," Fish says, "but it will make a difference."

People classified as homeless on Portland's streets—at least 3,801 by last count, but probably a lot more—are banking on the city spending the money wisely.

Mayor-elect Ted Wheeler says that must happen.

"You can't just declare a housing emergency and keep doing the same thing," Wheeler says. "We've added a lot of programs to affordable housing that may be socially desirable. But when the goal is to create the maximum number of new doors, we have to reduce costs and get more supply on the market as quickly as possible."


The Wages of Fear

REACH Community Development director Dan Valliere and other nonprofit developers say the best way to save on housing is scrapping a state law requiring payment of commercial-scale union wages for most affordable-housing projects.

"Lowering the cost of construction would be big," Valliere says.

That wage law arose from a dispute a decade ago between the city of Portland and trade-union workers. But the political giveaway was so rich that the union leader who won it tried to give it back.

Bob Shiprack, head of the Oregon State Building and Construction Trades Council and the man who led the fight for union wages on publicly funded commercial projects, told WW in 2008 it was never his intention that affordable-housing projects pay commercial-scale union wages, a decision he called "illogical."

House Speaker Tina Kotek (D-Portland) is pursuing a variety of housing reforms, including rent control. But not this one.

"While labor contributes to the costs of a project," she said in a statement, "I don't believe the prevailing wage is the major cost driver." —NJ

Hacidenda CDC headquarters Hacienda CDC headquarters (Joe Riedl)

No Housing in Hacienda

The new headquarters of the Hacienda Community Development Corporation in Northeast Portland is a 11,200-square-foot, concrete-and-glass building with offices for the nonprofit's employees.

It was completed last year with a $2.4 million Housing Bureau loan. City Commissioner Dan Saltzman, who oversees the Housing Bureau, initially rejected the request because it conflicted with a 2009 council ordinance that dedicated the requested funds to "affordable-housing projects that meet citywide housing-preservation policy goals."

City Commissioner Nick Fish and other Hacienda supporters pushed for the loan. Fish says the city policy was ambiguous and the funds could have been forfeited if they weren't allocated to Hacienda. "We had the opportunity to put the money to good use when nothing else was getting done," Fish says.

Under pressure from Hacienda's allies, Saltzman changed his mind. "I relented on the basis that the money will be repaid," he says.

The office building does not include a single unit of housing.—NJ


How to Build 1,000 Units

Observers offer divergent estimates of how many apartments the city of Portland could finance if its goal were producing the most units for the lowest cost.

Home First Development's Rob Justus says the city could build for half the cost. Portland State University professor Gerard Mildner says the city could save one-third of the cost. City Commissioner Nick Fish says it might save 15 percent, although he thinks that would sacrifice housing durability and city priorities.

Let's be conservative and say it's 10 percent. In the past decade, the Housing Bureau spent $735 million. Ten percent of that is $73.5 million.

In April, the Housing Bureau said it would generate 901 affordable-housing units from a city investment of $47 million. It was able to do so because housing developers leveraged the city's contribution, generating a unit for each $52,000 of subsidy. If the city were to leverage the 10 percent savings—$73.5 million—in similar fashion, it could have generated 1,394 additional units.—NJ

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