Six years ago, Portland adopted strict development regulations in an effort to boost affordable housing production in a city grappling with high rents and low inventory.

A new report suggests the policy may have done the opposite, and city councilors are now moving toward rolling back or amending the changes to the inclusionary zoning policy approved by voters in 2020. 

And while at least one councilor argues that a “blunt reset” is a mistake, developers haven’t minced words over the policy, calling it untenable, impossible, ineffective, even tragic. The report, they said, confirms this. 

“It’s just not working,” said Jonathan Culley, managing partner at Portland’s Redfern Properties. “It’s dampened our housing supply at a time when we desperately need new housing.”

WHAT IS INCLUSIONARY ZONING?

The inclusionary zoning rules, first approved by the City Council in 2015, originally required 10% of units in new housing developments to be affordable to households earning at or below 100% of the area median income. Under this version of the policy, referred to as IZ 1.0, developers could elect to pay a $100,000 per unit fee in place of the affordable units that would go toward a city-run housing fund.

Five years later, in 2020, Portland voters passed a slate of ordinance changes known as the Green New Deal, which raised the requirements to 25% of units and 80% of the area median income. The opt-out fee also increased and has been rising each year to its current $186,077 per unit.

All but two members of the council at the time opposed the changes, as did several affordable housing developers, but after the new measures were approved, the council could not amend or repeal the ordinance for five years.

Late last year, Portland hired national consulting firm CZB LLC to complete a study of the city’s policy. The results, outlined in a 40-page report released last week, don’t paint a glowing picture of the changes.

FEWER UNITS BEING BUILT

In the decade since the city first instituted inclusionary zoning, the policy has applied to 58 projects, creating 161 affordable units and adding almost $3.5 million to the Jill C. Duson Housing Trust Fund, with some additional units and funds still pending, according to the report.

But that success has not been spread equally throughout the 10 years.

When IZ 2.0 was approved in 2020, the construction market simultaneously went haywire. Construction, land, labor and lending costs all shot up. Developers, contending with stricter regulations under worse market conditions, hit the brakes.

In the first five years, under IZ 1.0, there were 40 projects that triggered the ordinance, promising 164 affordable units. Developers pledged roughly $6 million to the housing trust fund. 

In the second half, under IZ 2.0, there were fewer than half as many projects (18) but almost twice as many planned affordable units (326). About $8.4 million of in-lieu contributions were earmarked for the trust fund. 

But the actual completions tell a different story.

Developers have completed far fewer units approved under IZ 2.0 (43) than under IZ 1.0 (118).

And while only $3.5 million of the promised $6 million from the first iteration has actually made it to the trust fund, the city hasn’t received a cent of the money promised under the current policy.

For a more direct comparison, the report analyzed the first 62 months of each IZ version and found similar results. With IZ 1.0, 17.8% of the approved units were completed. With IZ 2.0, that fell to 8.6%. 

HIGHER COSTS, SMALLER UNITS

Requiring more affordable units for people with lower incomes in a more expensive environment has increased prices for both developers and renters. 

According to the report, in order to break even on a unit under IZ 1.0, an apartment needed to rent for $1,498 a month. Under IZ 2.0, it was $3,113 a month. 

The current ordinance requires apartments to be affordable for someone making 80% of the area median income, which according to the city, is about $74,000. That means the maximum rent allowed for a one-bedroom apartment is $1,870.

“Portland not being a market that will bear this cost … the only way to absorb the cost of the inclusionary zoning requirement is to shrink the units to the 250-350-square-foot range,” the report said. 

The authors laid out three options for the city: recalibrate the percentages, find ways to bridge the gaps with city-assets like land and community-generated capital, or simply do nothing. 

Councilors and several local developers seem inclined to support recalibration.

A ‘VIGOROUS CONVERSATION’

The city’s Housing and Economic Development Committee will discuss the report May 19, and Councilor Ben Grant has already said he plans to bring a proposal to the committee to revert to the first iteration.

He said the recent report confirmed what councilors had been hearing anecdotally for months.

“It seems clear to me that right now it’s out of balance,” he said. 

Grant said his proposal is just a starting point for the committee to consider, and that he plans to suggest looking at lower ratios as well. Any changes would need full council approval.

Mayor Mark Dion said there is some interest among councilors to support returning to IZ 1.0. 

“I expect a vigorous conversation on what IZ brought us,” he said. “Did it incentivize the kind of development we were hoping for, and by amending the ordinance, what can we expect moving forward?”

Councilor Kate Sykes, who campaigned for the Green New Deal in 2020, has remained in support of inclusionary zoning. Sykes said she’d rather see the council take a nuanced approach to changes, rather than simply reverting to IZ 1.0. 

“It’s a blunt reset that risks losing affordable units we will never get back,” she said.

She argued that IZ policies work best when paired with public subsidy, and that if Portland is serious about creating new affordable housing, it should combine IZ with investment into publicly controlled social housing. 

UNITS HANG IN THE BALANCE

Developers say the council’s decision could make or break hundreds of units in the pipeline. 

Culley, at Redfern, has been outspoken about the fact that one of his projects, a 325-unit building on Washington Ave, is stalled until the city either amends or abandons the policy. The building, named “Tavata,” aims to add units that are affordable for those making below 100% of the area median income ($97,000 for a single person in Portland, according to the city). 

More than a year after the planning board approved the project, Culley is facing a June deadline to pull everything together. 

He encouraged the city to do away with inclusionary zoning and embrace social housing, or city-owned properties of various affordability levels. 

Chris Marshall, co-founder of GreenMars Real Estate, is also counting on a policy change. 

GreenMars is hoping to soon start work on Stroudwater Commons, a 156-unit condo development near the Portland International Jetport. 

That’s just a sliver of the roughly 1,500 units Marshall said he and business partner Nate Green have at various stages in the pipeline. All those units are contingent on a more development-friendly policy.

“And if not, we’ll have to find another town to develop in,” he said. 

‘A BRIDGE TOO FAR’

The intent behind inclusionary zoning was good, but in practice it’s “gotten a little bit out of balance,” and is slowing down the very thing the ordinance was designed to increase, said Laura Mitchell, executive director of the Maine Affordable Housing Coalition. 

Mitchell has asked the council to pare back the policy to its first iteration, at least for the summer, so developers can push out the roughly 1,000 units (including 100 affordable ones) that are otherwise ready to go. 

Jennifer Hawkins, executive director of Avesta Housing, called the policy “just a bridge too far.” 

The nonprofit agency partnered with Reveler Development on a building with 201 affordable units in Bayside to meet the developer’s 25% requirement on its sweeping 800-unit Bayside Master Development Plan. But that project was only possible with over $100 million in subsidies.

Marshall, at GreenMars, hopes the committee can reach an agreement quickly. 

“We sacrificed five years of housing production with this particular miscalculation,” he said. “We do not want to sit on this … and let another year of housing production go by.”