How Portland’s Inclusionary Zoning Policy Makes Development Less Affordable

By Lydia White

The City of Portland’s inclusionary zoning* requirements have turned a once-gushing housing development market into sludge. This was predicted by nearly everyone outside the central planning bureaucratic bubble.

In a rush to beat a February 1st deadline, developers submitted permits for 7,000 units in less than two months. Since then, that number has dropped by 1033%. Combined with other onerous mandates, inclusionary zoning has pushed developers to build in Portland’s surrounding suburbs. Developers aren’t doing so out of greed; they cannot feasibly finance projects within city limits.

Incentives provided by the city aren’t enough to supplement the costs of inclusionary zoning units. Portland-based Urban Development + Partners estimates that an “affordable rate” building costs over $300,000 more than its value, which is the primary number banks and investors use to determine a project’s viability. Eric Cress, a principal with Urban Development + Partners, says, “You can’t finance that [inclusionary zoning projects]. The financing world does not accept anything that costs more than its value.”

The unfortunate, yet not unforeseen, consequence of inclusionary zoning is that some low-income households benefit, while the policy serves as an informal gentrification program suffered by other residents. If Portland’s city planners want to help people afford housing, they should repeal inclusionary zoning requirements and let developers increase housing supply in a free and open housing market.

*Portland’s inclusionary zoning policy requires developers with 20 units or more to make 20% of units “affordable” at 80% of median family income, or 10% “affordable” at 60% median family income.

Lydia White is a Research Associate at Cascade Policy Institute, Oregon’s free market public policy research organization.

  • Bob Clark

    Creativity is something the government is very bad at. Because creativity to be successful is best performed in individual experiments so as to experience what works and what doesn’t work without risks of large default. With large government such as Portland with teams of bureaucrats the experiment results have no bearing on the well being of the bureaucrats as they have job security and good benefits/pay regardless of the outcome of their actions. In fact, bad performance actually gives government the perverse incentive to enlarge government in the spiral of solving the so-called problems.
    Usually, government can get some check on its bad decisions as it competes for people and business among different local jurisdictions. But this is somewhat muted in Oregon by state land use law and a insidious regional planning and transportation bureaucracy named Metro. So, instead in Oregon you have mistakes spread across the state without competitive check. This exacerbated when the likes of an Obama Administration shower the state with a welfare expansion where non-productiveness is rewarded; even giving the facade of the state being successful even as its ranks of food stamp and Medicaid balloon.
    For those who can see the end of this party not ending very well, maybe all you can do is either move out of state to a more public finance prudent and stable government situation (if family permits) or try to preserve wealth from a very intrusive government apparatus.

  • Oregon Engineer

    another great example of how government mandates, laws, regulations always result in malinvestment. The free markets will determine where and how many new residential units will be built. In Portland, zero.