Opportunity abounds with abatement: A conversation with PDC's John Warner about workforce housing

Imagine if there was a way to put the Portland area's countless unemployed architects and construction workers back to work. And while you're imagining, suppose this plan stemmed from an already-existing city program that has simply been shelved for the last four years. And finally, imagine that this endeavor would not cost the city money but in fact do the opposite: create a long-term revenue stream.

This isn't mere architectural pixie dust or pie-in-the-sky optimism. It comes from a conversation I had recently with John Warner, who manages housing development and workforce housing policy for the Portland Development Commission. Warner met me at a coffee house near PDC with a binder full of stats and graphics, but the message was more emotionally resonant: that we can do more to stimulate housing and jobs as well as great architecture without exhausting city coffers.

For thirty years until a 2005 moratorium was put in place, the city utilized the New Multiple Unit Housing Property Tax Exemption program to stimulate multifamily housing in the central city. It was geared towards residents too well off to qualify for low-income housing but not affluent enough to be able to afford to live here. Exemplified by projects such as the Sitka Apartments in the Pearl District (pictured at right) or Shaver Green in North Portland (apologies - these turned out to be affordable housing projects) these programs help create close-in housing for working people like cops, teachers, social workers and firefighters.

Prior to the 2005 moratorium, both the New Multiple-Unit Housing program and the Transit Supportive and Residential Development programs provided a 10-year tax exemption on the improvement value of a new multifamily or mixed-use project in the central city and in PDC-designated urban renewal areas as well as light rail station areas outside the central city. They were intended to provide an incentive for high-density residential and mixed-use development in Portland’s centers and other transit-oriented areas so that the city can accommodate new population growth, improve the housing-jobs balance, and support public transit, particularly the regional light rail system.

Tax abatement programs such as these not only help make the central city a viable destination for more than just the richest and poorest populations, but also lead to increased tax revenue by growing the overall tax base. It's worth it to offer discounts to projects that bring more middle income people into the heart of the city.

But because these workforce housing programs have in the past been used in relatively tony areas like the Pearl District, there is also a stigma: that people already well off are getting tax breaks they don't deserve, while some granny in Lents or a minimum-wage worker in Parkrose is having to pay their property taxes in full.

This misleading appearance of unfairness seems to be why the moratorium was placed on the New Multiple Unit Housing and Transit Supportive development programs in 2005. The tax exemption, heretofore intended for middle class/workforce housing, was re-directed to low-income housing projects.

It may sound fairer for the city to devote its limited housing funds to the neediest people, and build all low-income housing. Why give tax breaks for fancy condo towers?

But it's not that simple; in fact, such a notion is misleading. Nationwide, low-income housing already receives vastly more funds than workforce housing. Certainly I'm not arguing that there shouldn't be strict attention to providing low-income housing. It's just that if low-income housing is already relatively stable in its funding mechanisms, why cut off workforce housing when it's the neediest and most neglected in terms of city financial support?

It's also middle-income housing that can have the most impact on the places where it is built. Healthy urban areas are places where people from a variety of income levels live and work in a manner that promotes the overall economic growth. I mean, it's great to help a homeless person get off the streets into a single-room-occupancy residence. That's our responsibility as a caring society. However, it's workforce housing projects that will bring people into the central city to patronize restaurants and shops, reduce crime and traffic, contribute to the tax base and make the whole economy prosper.

Now, Warner says, the city is preparing to re-evaluate these tax-abatement programs. Over the next year, we could see them made active again. And that's a good thing.

“The tool is sitting in the tool shed," Warner explains. "All we have to do is pick it up. We could have the design and construction communities back to work. It’s a catalyst.”

Warner and PDC are proposing a 15-year fund that is contributed to by employers, foundations, and the city. The goal is 20 projects (with 3,400 households) built during that time. All of the money would be paid back but in the meantime it would induce $1.1 billion in total development.

Portland has enjoyed a relatively low cost of living compared to other West Coast cities, which have experienced greater crisis of affordability in their centers. In places like San Francisco, for example, you have to be J.R. Ewing to live within five miles of the Transamerica building or the COIT tower. That's not quite the case in Portland, but things are changing here.  Simply in order to stay even with the current standard of living, you'd need annual income growth of 4.7 percent. Most people I know get a 3 percent annual cost-of-living raise at most.

“A rational consumer will not choose to live here," Warner says. "So you have to trade on people’s irrational exuberance.” It's a good thing we have all that beautiful scenery and all those yummy food carts. Otherwise Portland could become a lot more like Cleveland than we're prepared to admit.

Recently I wrote a blog post about the proposed workforce housing project envisioned by Works Partnership and developer Randy Rapaport. The project, which won an unbuilt-design award from the American Institute of Architects last month, would require the kind of workforce-housing funds the city previously provided (before the 2005 moratorium) in order to get built. And this is true with countless projects across the city that haven't even been conceived of yet. Tax abatement could be putting architects and building-industry workers back on the job.

PDC owns many land parcels around Portland that could be turned into workforce housing projects if the abatement moratorium were to end. And again, this wouldn't be a strain to the city's tax coffers, but would actually increase them over time by growing the tax base to include more taxpayers. Wouldn't it be nice to see more construction cranes in the air next year? It could happen if we bring the abatement program (which was on the books for 30 years) back.

If the city's tax abatement programs for workforce housing are re-instated, there's only one more thing I'd like to see done: the instigation of a design excellence program at PDC that helps assure commissions are given to the city's most talented architects, and not simply those who have the most experience or have an inside track with the agency. Part of what was exciting about seeing the Works-Rapaport project was that it combined affordability and location with superlative architecture. That hasn't always been the case with PDC-oriented projects. Some of them are outright ugly. So while the economic and social factors are more than enough to make workforce housing programs worthwhile, we also needn't give up the opportunity to direct such projects to the best designers.

Even so, in such a devastating economy for the design and building community, there may be a growing sense of urgency about putting workforce housing programs back on city books. Of course we have to be protective of the city budget, but I'd do this in a heartbeat.

Comments

[Alexander Craghead]

While an abatement may work to stimulate certain kinds of development, it's important to note that this sort of program is not necessarily wise to enact in combination with urban renewal districts. Depending on the kind and size of abatement, the incremental tax value increases in a URD could be cancelled out by an abatement, thus robbing a district of money against which to bond.

For Portland, especially in the Pearl, this may not be a problem. For satellite and suburban locations, however, there is a great danger to abatements for higher density housing. Town centers -- the ideal places for higher density development -- tend to be urban renewal districts in the metro area and thus a bad place to locate abatement projects.

Certainly this is an idea worth investigating, so long as other jurisdictions remember that what works in central Portland doesn't necessarily automatically work elsewhere. For that matter, what works in central Portland may not work on the east side either, depending on the specific contexts of place.

[tt]

Good to see you coming around on tax abatement Brian. It has been the most misunderstood and misreported program the City has had at its disposal for the last decade. City hall has used it as a political ploy to disparage local developers on a regular basis. It would be great to see it resurrected and may help get some projects going at some point. However, given the current collapse of commercial real estate values, its not something that by itself suddenly will cause projects to start. The gap between costs and values has never been larger, and tax abatement alone cannot fill the gulf. It is probably goign to take years for the market to recover. Additionally, the program has been so burdened by special interest add-ons by City hall (contracting requirements, green requirements, prevailing wage, etc. etc) that is relative value to deveopment is far less than it used to be. Adding on some design standard restriction will just further erode its benefit. It would be great to see young designers step up, but they need to demonstrate they know how to build on a real budget. Pretty pictures are just pretty pictures. The Works design is case in point... how on earth is that building going to provide affordable workforce housing at develoment costs that will certainly well exceed normal market-rate rental housing.?? High rise "affordable" housing is an oxymoron... anyone with an understanding of real world costs will tell you that.

[Steve L.]

It is more than an “appearance of unfairness,” it is unfair that poorer areas of the city are still paying additional taxes to make up for the lack of taxes for “tony” buyers in the Pearl. Is Mr. Warner proposing rule changes so this doesn’t happen again?

If “a rational consumer will not choose to live here” without a tax abatement, what about the rest of the neighborhoods without the abatement, wouldn’t this make the burden even worse on them?

I am fine with subsidizing low-income housing, not “tony” housing.

[Brian Libby]

Steve,

I must not have expressed myself as clearly as I'd have preferred, because the whole point of this post is that workforce housing is not merely "tony" housing. It's an investment in central-city density that will benefit the whole metro area. It's not making the burden any worse for people in the rest of the city. In fact, it's lowering their burden by growing the overall tax base.

You say you're fine with subsidizing low-income housing. That's great, because it's well funded. Subsidizing workforce housing does not impact subsidies for low-income housing. It's merely giving a developer a dollar now so a dollar-fifty will be put into the tax coffers over time, while also having a positive impact on the overall economy by bringing more taxpayers in.

I appreciate your support for poorer areas of the city, but they simply are not being negatively impacted by an investment in workforce housing - not at all. Instead, the overall economic health of the area will be improved, which in turn ought to benefit the poor of this city along with everyone else.

[TT]

Just so everyone is very clear, tax abatement has never applied to condo towers (unless you are talking about historic tax abatement which is a State program). The abatement program applies to rental housing only. That is always the way it has been, but the media and City council repeatedly and intentionally (it seem) misreprent the facts. So, "tony" Pearl condo owners are not receiving tax abatement. Period.

Brian is exactly right that workforce housing is what falls through the cracks. There is no funding available for it. It's been that way for a long, long time. And lastly, abating taxes on improvements does not change the taxes the land was paying pre-development. The City is giving nothing, only deferring taxes for 10 years to incite new development to happen. In the long run, its a no brainer for the City.

[Steve L.]

Is there any type of an income cap on who can take advantage of this tax abatement?

How much money would come from the city to fund this? Since Portlanders don't have an unlimited ability to be taxed, wouldn't there be an impact of other programs for at least 10 years?

Who placed the moratorium on this type of development in 2005 and why did they think it was unfair?

Is the fifty-cents on the dollar return guaranteed and bankable?

[Steve L.]

I think I could support this if program I was sure it was really helping struggling families and was doing the best with our limited resources. I want to attract middle-income families to all areas of Portland, not just downtown and if this program can’t do that, maybe there is a better program.

The tony “Workforce Housing Project” doesn’t look like child friendly housing, despite the “playground.” Maybe 200 smaller projects all over the city would be better and less risky than 20 large projects.

Are we talking about 300 thousand per rental unit?

[ws]

New buildings offering affordable workforce housing that's close to where people work is a great idea. Downtown could use some of it...so could the Pearl and other areas in the Portland area as well, including suburbs. What I'm not seeing discussed here, is the idea of making that type housing...mixed income housing...available in the same building...for example, towers...as upper income housing.

If tax abatement programs could provide money to help build centrally located workforce housing, so could the sale of upper income, luxury or 'tony' housing available within the same building. For that matter, a percentage of a building's space could be assigned to provide low income housing as well.

Making housing 'exclusively luxury', or 'exclusively workforce' or 'exclusively low income', creates an unrealistic, disproportionate sense of the costs involved in making housing available to everyone.

[Ed McNamara]

Hi Brian - This is a good topic for discussion. However there are a few factual errors in your post. One is about the nature of the Sitka and Shaver Green. One is about the historical use of the abatement program.

First - The Sitka Apartments and Shaver Green are "affordable housing" that have the same income limits for tenants and the same rent restrictions as housing developed by many nonprofits. Those restrictions are in place for 60 years.

If nonprofits had developed these buildings, they would qualify for a tax abatement in perpetuity based on the percentage of the building that is dedicated to income-restricted apartments. For example, if the building had 5% of its gross SF in retail and another 5% used by market rate apartments, it would receive an abatement of 90% of the taxes on land and improvements. (Many nonprofits developing in the central city also apply for the NMUH abatement so that they don't pay any taxes for 10 years even on mixed-used and/or mixed-income buildings.)

However, the Sitka and Shaver Green were developed by for-profit developers. To get any abatement, the Sitka had to use the NMUH program and Shaver Green used the TOD abatement.

For the Sitka, this means paying taxes on the land for 10 years and then paying taxes on the whole building after that. This means higher operating expenses now - and much higher expenses later - than nearby buildings that pay little or no property tax.

Second - The NMUH abatement began in the early '70s as part of the Downtown Plan. It was used in the central city for about 30 years for a variety of buildings - from McCormick Pier to Lloyd Place Apartments - without much fanfare until it began to be used for buildings in the Pearl District. Of the 33 buildings that used the abatement in the first 30 or so years, 11 were affordable housing, mostly developed by for-profits.

I think you are correct that the use of the NMUH program in the Pearl led to the moratorium. But it is not correct to state or imply that it was used exclusively in "tony" areas.

Sorry for the long post and thanks again for your article.

[Earl]

Since the "workforce housing" in the Pearl was the alleged cause for the moratorium, what are the names of these Pearl developments that are receiving NMUH abatement?