CITY OF PORTLAND, OREGON PORTLAND HOUSING BUREAU

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1 Date CITY OF PORTLAND, OREGON PORTLAND HOUSING BUREAU Dan Saltzman, Commissioner Traci Manning, Director 421 SW 6 th Avenue, Suite 500 Portland OR (503) Fax (503) MEMORANDUM DATE: October 28, 2014 TO: NMAC URAC Housing Subgroup Portland Development Commission: Lisa Abuaf, Justin Douglas Portland Housing Bureau: Karl Dinkelspiel, Barbara Shaw Portland State University: Dan Zalkow Oregon Health and Sciences University: Brian Newman League of Women Voters: Debbie Aiona, Kathleen Hersh Central City Concern/ Central City 2035 West Quadrant: Sean Hubert Central East Side Industrial District: Peter Finley Fry Ball Janik: Damien Hall FROM: Javier Mena, Assistant Director Portland Housing Bureau RE: Recommendations for Affordable Housing Goals in the NMAC URA As amendments to the North Macadam Urban Renewal Area Plan are being considered, PHB recommends revision to district housing goals. Those recommendations are summarized in the following section. The rationale for the recommendations is provided as an attachment to this document. This document also addresses housing implementation strategies for meeting goals, highlights two opportunity sites in the URA, and addresses the two development agreements being negotiated between the Portland Development Commission (PDC) and ZRZ Realty (ZRZ) and Portland State University (PSU). In forming recommendations, PHB consulted historic documents including the 2003 NMAC Housing Development Strategy (NMAC Strategy) and the Memorandum from the NMAC Interim Housing Committee dated 1/12/11 (IHC Memorandum). Both of those documents are also attached for reference.

2 RECOMMENDATIONS: URA Goals: PHB recommends the current NMAC housing goals as shown in the NMAC Strategy be modified as follows: The affordable housing goals should be simplified by consolidating the original separate income tiers of 31 50% MFI and 51%-60% MFI into a single tier: 31%- 60% MFI. The separate goals for ownership and rental should be eliminated for all income levels due to the zoning, building typologies, changing market conditions and available PHB programs. Income tiers over 60% MFI (61-80%, %, %) should be removed from the definition of affordable housing which requires long term affordability restrictions under the NMAC Strategy and is generally under the purview of the Portland Housing Bureau. Instead, goals for this income level will depend on additional tools being developed by a broader range of stakeholders including the City Council, Portland Development Commission and the Bureau of Planning and Sustainability and the Portland Housing Bureau. The remaining affordable housing goals for the district should be reduced to 225 units under 60% MFI with 30 of these units at or below 30% MFI reflecting projected actual resources and costs. 2

3 The following table illustrates how the proposed goals contrast with the goals as articulated in the 2003 Strategy, consolidating goals for ownership and rental, and consolidating income tiers between 30 and 60% MFI. Original Strategy Goal 2003 Achieved to Date +/- Original Goal Achieved to Date Proposed Goal (additional units after 2014) Proposed Total (includes achieved to date) Proposed +/- Original Plan Goal 0-30% MFI %MFI Subtotal Long term Affordable 0-60% MFI 61-80% MFI % MFI % MFI Subtotal % MFI* Total * 61+% MFI rental units achieved to date were developed without direct public investment and thus without long term affordability requirements per the original Housing Strategy. Information received from CoStar Market Data as of 10/24/2014 Development Agreements (DA): The ZRZ and the PSU DAs should address the following concepts. The DA parties acknowledge that commercial development within the DA areas will create jobs at all income levels and that ZRZ/PSU will work with PHB and PDC to support solutions to the resulting housing needs to the extent that they are not met by the market. The DA parties have a shared goal of ensuring that housing opportunities in the NMAC URA are available to a full spectrum of income groups. The primary manner in which this will be accomplished is by the generation of tax increment proceeds within the DA-governed area, a portion of which will be targeted for affordable housing development in the URA. 3

4 Additionally, each DA should include language providing PHB the ability to require affordable housing units (0-60% MFI) be built within the DA-governed area subject to the availability of financial assistance from PHB. Under this obligation, ZRZ/PSU will negotiate in good faith and will prepare and submit market based housing development proposals to PHB as such projects are identified and with adequate notice for inclusion of affordable housing units, giving PHB the opportunity to commit tax increment financing, tax abatements, and/or other City, State or Federal public subsidy funds, needed to include affordable units in such projects. As 60%+ MFI housing units are planned for in the DA areas, ZRZ/PSU will contact PHB and discuss the use of any financial or regulatory tools available to increase affordability based on the % MFI targets above. This communication will take place sufficiently early in the development process to allow necessary time for discussion and inclusion of any public tools available. ZRZ/PSU will negotiate in good faith should PHB identify tools/resources that will provide this range of housing units in the proposed development. Following completion of said projects, ZRZ/PSU will provide the PHB a summary of unit size and lease/sale rate within six months of Certificate of Occupancy. Special Opportunity Sites Harbor-Naito One publicly-owned development site in the district is the land owned by the Portland Bureau of Transportation and the Oregon Department of Transportation between Harbor and Naito ( Harbor-Naito ). Its public ownership and proximity to amenities such as the downtown commercial core, the river, and the streetcar makes this a potentially desirable site for affordable housing development. PHB recommends further analysis of this site for development of affordable housing. Parcel 3 Another publicly-owned development site close to valuable public amenities is Parcel 3 near RiverPlace. A variety of uses, including a grocery store, have been contemplated for this site. The PDC-owned site is likely to be developed as a mixed-use project and staff from PHB and PDC have agreed to work together to identify partnership opportunities that might further district housing goals. 4

5 Implementation strategies for affordable housing (0-60% MFI) 0-30% MFI: To reach the goal of 30 new units for households below 30% MFI, an appropriate portion of future TIF resources will be used for direct financial assistance from PHB to developers and/owners of housing. Generally, units at this income level will be a component or a tier of affordability within a housing development that includes other income levels. To achieve this goal, non-profit developers will require continued availability of the City s System Development Charge exemption program and the property tax exemption available under Section of the Portland City Code. It is anticipated that all units developed for this income level will be in facilities or will be rental units. If rental units, the project may take advantage of the federal low income housing tax credit (LIHTC) program to decrease the need for debt financing. PHB has the systems in place to monitor the income and rents levels, housing quality and the operating costs of projects. All housing developed with direct financial assistance from the City is subject to a 60-year regulatory agreement. During the extended life of the district, PHB anticipates that 1-2 projects serving incomes at 0-30% MFI will be developed % MFI: To reach the goal of 195 new units for households between 31 and 60% MFI, the same tools are required as described for the 0-30% housing including direct financial assistance, property tax exemptions and exemptions from the City s System Development Charges. It is anticipated that all units developed for this income level will be rental units. Rental housing developed for this income level may utilize federal LIHTCs to reduce debt by increasing the equity contribution from private investors. All housing developed is subject to a 60-year regulatory agreement and will be monitored long-term by PHB for regulatory compliance including income and rent, housing quality and operating costs. A project serving this income tier may also include housing at other income levels. During the extended life of the district, PHB anticipates that 1-2 projects serving incomes at 30-60% MFI will be developed. Implementation approach for housing at 61%-120% MFI To address the goal of 309 long term affordable units for households between 61 and 120% MFI established in the original North Macadam Housing Plan together with the lack of resources to subsidize and require long term affordability, the Portland Housing Bureau will inventory current units within the North Macadam URA to determine the existing affordability mix and establish an updated goal. In establishing the existing affordability mix, PHB will only take into account current rents and not the corresponding tenant income. Following this analysis, PHB will convene BPS, PDC and other partners to determine which tools may be available to ensure that new residential developments include moderate-income at the time they are first occupied. 5

6 Implementation Schedule If the NMAC URA is expanded and the life of the district is extended by five years, PDC financial modeling currently predicts that the total amount available through the housing set aside is approximately $31 million as shown below. Fiscal Year annual cumulative ,000 80, , , , , ,100,000 1,470, ,000,000 3,470, ,500,000 5,970, ,100,000 10,070, ,300,000 14,370, ,500,000 18,870, ,700,000 23,570, ,400,000 30,970,000 30,970,000 Given this predicted revenue stream, PHB assumes development will only occur after 2018 when sufficient resources first become available, although interim steps such as land acquisition might occur sooner. Over the life of the district, it is likely that the TIF investment will result in from 1-3 projects developed to meet the NMAC affordable housing goals. Attachments: Background for Recommendations NMAC Housing Development Strategy, summer 2003 NMAC Interim Housing Committee Memorandum dated 1/12/11 6

7 Attachment #1 Background for Recommendations Production Currently, all City-regulated affordable housing units in the NMAC URA are at Gray s Landing (the former Block 49) located at 0650 SW Lowell St. The project contains 42 very low income (0-30%) units and 167 at 31-60% MFI. Resources and Goals PDC reports that the amended NMAC URA is projected to generate a total of $31 million for the Affordable Housing Set-Aside. In considering what can be developed with this level of public subsidy, there are three initial issues to consider: (i) costs associated with administering the funds and assets, (ii) the time value of money, i.e. a discount rate should be applied since most of the funds are anticipated to be generated in later years ( ) of the URA; and (iii) what will be the effect of cost inflation (land, construction materials). Based on historic experience, for purposes of determining how much housing can be supported in 2014 dollars, the projected subsidy is discounted to $15 million. PHB s experience with actual projects shows that a typical PHB-allocated subsidy for development of a new affordable unit in 2013/2014 is $60,000-$100,000 depending on the cost of the unit and other financing sources available. That subsidy amount per unit assumes that 95% of the units will be for households at 31-60% MFI with 5% targeted at households earning below 30% MFI. Using this ratio and cost, approximately 190 units could be developed 31-60% and 0-30%) with projected TIF. Without a rent subsidy, units affordable to those with incomes at 0-30% MFI are more expensive per unit and the total number of units developed with currently projected resources would be reduced. Current Goal: Achieved (Grays Landing) Remaining 0-30% MFI % MFI TOTAL Proposed Goal: Achieved (Grays Landing) Remaining 0-30% MFI % MFI TOTAL

8 If some units are created through the renovation of existing structures rather than new construction, the subsidy requirement per unit may be less. Although the URA boundary changes now include additional land with existing residential structures, it is anticipated that most, if not all, of the affordable housing production in the amended URA will be new construction. The costs used in this analysis are based on current experience. Unanticipated, significant increases in construction (or land) costs and/or decreases in non-city sources of funding would put downward pressure on the number of units PHB could achieve with the anticipated subsidy. Eliminating Housing over 60% MFI from URA Affordable Housing Goals The City offers the Multi-Unit Limited Tax Exemption (the MULTE) which can support housing up to 80% MFI in the Central City. This tool has a number of important limitations particularly in the context of establishing unit production goals. Currently the MULTE provides only a 10 year tax exemption. The exemption is for improvements only, not land. In comparison to PHB s direct financial subsidy, the MULTE offers a relatively shallow subsidy and therefore a much more limited inducement to developers. Currently the tool is also limited to $1 million in foregone revenue city wide. For these reasons it is hard to predict the number of units that might be developed in the NMAC URA using the tool. Future Regulatory Tools/Resources Incentive zoning may become a tool to address a range housing needs. Currently, PHB is working with the Bureau of Planning and Sustainability to update the central city bonus and transfer provisions of the zoning code to better support affordable housing. Members of the Central City 2035 West Quadrant Committee and others advocate for revised incentive zoning tools to support low- and middle-income housing. When new tools become available, housing projections for all income levels should be revisited. Regulating Units at 61% - 120% MFI The NMAC Strategy currently includes units affordable up to 120% MFI in the definition of affordable housing and requires that affordability restrictions control the occupancy of these units for the long term (e.g. land lease, covenants). However, there is no current mechanism in place to regulate units at these income levels. There is no incentive or financial support for development of units above 60% MFI. The issue of how to count, monitor and regulate these units need to be addressed by a broader stakeholder group. 8

9 Within the NMAC URA a number of condominiums were sold at prices affordable to households from % MFI during the economic downturn. However, there is no evidence that the units were occupied by households within this income level and there is no expectation that the units will be resold at affordable prices. For this reason these units are not shown as meeting the goals at any income level in this document. Similarly, there are some rental units created by the market with rents between % MFI that have been included, but there is no mechanism for determining the income of households in those units or their long-term affordability. Student Housing There are several educational institutions within the district including PSU and OHSU and the expanded district will include considerably more PSU-owned sites. There is no doubt that student housing will be built in the URA. PHB does not include housing directed solely at students as a form of affordable housing eligible for the expenditure of TIF resources. Although the development of new student housing likely supports the availability of existing affordable housing by moving students out of some lower cost privately-owned rental units, PHB does not currently anticipate any change to this policy given other pressing housing needs. Development Agreements PDC is currently negotiating Development Agreements (DAs) with ZRZ Realty (ZRZ) and Portland State University (PSU). The DA for ZRZ contemplates an iterative development approach whereby new development on the ZRZ properties would generate additional tax increment financing that would in turn accumulate for use on site and on other projects within the district including affordable housing. Portland State University also has plans to redevelop a number of its properties during the life of the URA. Through a separate DA, PDC and PSU will outline what PSU might develop and how PDC might support this growth. The Bureau will continue to pursue working with ZRZ and PSU to determine how to meet both their goals and the housing goals of the district for the provision of a vibrant, diverse community that includes housing for faculty, staff, employees, citizens, students, families and individuals at all income levels. 9

10 North Macadam Urban Renewal Area H O U S I N G D E V E L O P M E N T S T R A T E G Y Summer 2003 Prepared By: Portland Development Commission 1900 SW Fourth Avenue, Suite 7000 Portland, Oregon

11 North Macadam Housing Development Strategy EXECUTIVE SUMMARY Comprehensive Plan Housing Policy establishes a balancing goal for housing production in new redevelopment areas to match the citywide income profile (Comp Plan Housing Policy 4.7, Objective 1). Since the build-out projection of the area is 3,000 housing units, this would equate to 2,175 units under 120% MFI (both subsidized and non-subsidized). Currently there are not enough resources available to achieve this profile and the adopted housing goals of the District reflect the funding realities. Yet, as development takes place, this Comp Plan policy should remain a guiding principle for adjustments to the affordable unit goals. It is recommended herein that an evaluation of the housing production and affordable goals in the District be undertaken in three years. This review will include data on residential build-out, actual and projected, and available resources. The evaluation will include a community process. The intent is that once production climbs to the 3,000 unit level, affordable housing goals shall be based on Comprehensive Plan Policy from that point forward. The Adopted South Waterfront Plan, as well as the North Macadam District Framework Plan, contains the goal to develop, at minimum, 788 affordable rental and ownership units across a range of income categories based on build out projection of 3,000 units. This goal contributes to the overall vision of the District as a vibrant urban neighborhood with unique transit-oriented housing that supports Oregon Health Sciences University and related employment needs for all income levels. The Plan seeks to support unique opportunity for expanded greenway, open spaces, and multimodal transportation system. There is significant momentum towards developing partnerships with landowners and developers in creation of a multifaceted district. There are also significant challenges in achieving this vision. The foremost challenge is identifying sufficient resources for funding the broad range of priorities in the district. Twentyfive million dollars of tax increment funding was in the 1999 North Macadam URA Funding Strategy for affordable housing. The 788 affordable unit targets was derived from committee work during the North Macadam Framework planning process, as the schedule of housing that could be developed using $25 million of projected TIF funding. This financial forecast was based on constructing wood frame buildings for affordable units. In 1999, the anticipated subsidy range was from $23,000 per unit to $43,000 per unit. Current per unit averages are included in Appendix A. The South Waterfront Plan is an updated vision for the district and has brought new financial expectations. The Plan has changed the development environment of the district. Height limitations and FAR allowances have increased dramatically as well as there being multiple FAR incentive bonuses available. If affordable units are included in concrete buildings, the construction cost will increase by 20-25%. If land is acquired for affordable housing after the infrastructure improvements in the district are significantly underway, the land cost may be 3 or 4 times higher than at present. The current 2003 North Macadam URA Funding Strategy has increased the projected funding for housing from $25 million to $36 million while projected TIF available for capital projects through 2020 has dropped from $150 million to $130 million. In order to meet identified needs for housing, economic development activities, transit, street improvements, parks, and the greenway improvements. The current funding strategy includes 7/30/03 1

12 funding from federal, state, local and other sources to assist with public infrastructure and programs. Additional funding in any one priority area will allow tax increment funding to be rebalanced among various priorities. The projections in this document are based on housing build-out of 3,000 units. The zoning changes in the adopted South Waterfront Plan will increase the total capacity for housing. However, a market and capacity analysis has yet to be done. When it becomes apparent that the total build-out of housing is going to exceed the 3,000 units, then the affordable unit goals will need to be increased and this increase will be based on the comprehensive plan housing objective for achieving a distribution of household incomes similar to the distribution of household incomes found citywide. Adopted affordable housing unit production targets are separated into five MFI categories. In this document it is recommended that the MFI targets be separated into six categories splitting the 51% to 80% MFI range into 51 to 60% MFI (low income) and 61 to 80% MFI (moderate income). This is based on the City s experience with financing affordable units, the financing tools available, and consistency with City policy targets such as the Central City No Net Loss. For instance, it would be unfortunate if a majority of the units designated 51-80% MFI ended up being affordable to families at 80% MFI, and therefore not contributing to the CCNNL goals. Since the range of targeted affordability extends from 0-30% MFI to % MFI, it will be important to not only have available funding to support the lower end of this spectrum but also to have owners/developers stretch the affordability range within their market rate production. A fair share assignment of affordable units to major landowners is one of the key recommendations in this document. The targets can be calculated based upon the amount of land owned by a landowner and whether this land is located in the area with the residential housing overlay. Actual housing targets will be established in Development Agreements with the major landowners at the time they are ready to proceed with a development master plan and seek infrastructure support from PDC and other city bureaus. River Campus Investors (RCI), North Macadam Investors (NMI), and Oregon Health Sciences University (OHSU) are the first major landowners to create a development schedule. In development agreement currently under negotiation, NMI is proposing development of up to 2,700 units of housing. This includes production of affordable units across a range of income categories. It is significant to note that NMI is proposing to develop more than half of the 788 affordable units targeted for the entire district. Since there are currently no publicly owned parcels suitable for housing within the South Waterfront Area, acquisition of site/sites suitable for housing is a recommendation critical to accomplishing the development of the affordable units, particularly those targeted to the very low and low income categories. Now that development activity appears to be imminent and that much of this activity will generate tax increment, PDC should immediately pursue property acquisition across the North Macadam Urban Renewal Area for purposes of developing projects that include low income units serving those most in need as well as moderate to middle income units. This acquisition strategy should rely on use of Smart Growth Funds or other non-tax increment funds recognizing that tax increment will be available in the future to take out these other resources. 7/30/03 2

13 It is important to match housing production to types of jobs developed in the district and nearby job centers. OHSU is the City s largest employer and plans to add 5000 jobs in the South Waterfront Area and at its Marquam Hill campus by Future residents will be attracted to the district by the ease of access to this adjacent employment center as well as by proximity to retail services and green spaces. It will help to minimize transit impacts lessening the need for travel into and out of a district with constrained transportation facilities. Housing availability for a variety of income levels improves recruitment efforts by creating a near-by available labor pool. In addition, public support of the urban renewal investment can be gained and maintained by creating a balanced community that enhances and complements the adjacent neighborhoods. It will be vital to protect the affordability of the units that are produced to ensure this balance. Affordability agreements will be attached to each designated affordable rental unit and each ownership unit will have a mechanism for long term affordability. 7/30/03 3

14 BACKGROUND During the Framework Planning process, five subcommittees were created to assist the Steering Committee with technical and policy analyses and recommendations. One of these subcommittees, the Housing/Jobs Group, met actively between The following are highlights of this process. I. Scope The scope of work included but was not limited to the following: Creation of housing goals consistent with Comprehensive Plan Housing Policy Market, development capacity, financial feasibility, and return on investment analyses Consensus on targeted housing (3,000 units) and affordability goals (minimum of 788 units) through public outreach and meetings with property owners, public agencies, affordable housing advocates, and the general public Jobs/Housing Balance that acknowledged the transportation constraints Study of potential residential capture of North Macadam District workers Sustainable housing development models II. III. IV. Housing Supply Housing development in North Macadam supports Portland s participation in the Metro 2040 framework plan goal of ensuring that an adequate supply of housing is available. In 1999, it was estimated that there were approximately 140 total acres in the District with 40 going for housing. Build-out of 3,000 units was calculated using the availability of 40 acres and the projection of 80 dwelling units per acre. Housing Opportunity Comprehensive Plan Housing Policy establishes a balancing goal for housing production in new redevelopment areas to match the citywide income profile (Comp Plan Housing Policy 4.7, Objective 1). The Jobs/Housing Committee felt that obtaining a profile of affordability was essential to gaining citywide support of the urban renewal investment and would allay fears that the district would become an exclusive high-income enclave. Affordability Compromise - The Subcommittee projected that $61 million of urban renewal funds would be required to achieve the City-wide income distribution within the 3,000 unit build-out goal, based on the 1990 citywide income profile. The 1999 Framework Plan Strategy allocated $25 million of projected future tax increment revenue for affordable housing production, which in turn was projected to achieve 788 units according to the distribution indicated below. In order to increase the number of affordable units, it was assumed that there would be cross-subsidized mixed-income projects that would be able to reach lower income levels while still providing a reasonable return to owners/developers. The Committee cited multiple examples of successfully cross-subsidized projects. 7/30/03 4

15 1999 Framework Plan Summary of Income Distribution of Proposed Build-out Scenarios as compared to Citywide MFI Ranges Citywide City Policy Constrained Funding Model Profile Profile %byincome Total Units Affordable 0-30% 13.50% 405 6% % 17.20% 516 7% % 16.70% 501 7% % 14.10% 423 6% % 11.10% % % 21.70% % % 5.80% % 346 Totals As a means to offset the lack of cash flow on units serving households at 30% of median income, it was assumed that these units would likely be included in mixed-income projects. The following subsidy assumptions are from the Framework Plan dated August 11, A careful reader might note that the % per unit funding is higher than the 51-80% per unit funding. This is due to the fact that housing in the 51-80% range is eligible for a variety of other state and federal subsidies which lowers the amount of tax increment funding needed. Although the amount of per unit funding for homeownership is high, public benefit is gained through long term affordability mechanisms such as Share Appreciation Mortgages and land trust ground leases. This table provided as part of the background information and is not meant to represent current subsidy averages. Current per unit averages are in Appendix A Framework Plan Subsidy Assumptions for Affordable Units % of MFI Affordable Affordable Total Subsidy Projections Per Unit Funding* Rental Ownership 0-30% $7,140,461 $43, % $8,019,828 $38, % $4,703,592 $22, % $2,977,374 & $1,208,2100 $23,080 & $28, % $950,535 $27,957 TOTAL $25,000,000 *Based on analysis of PDC s housing portfolio V. Housing Types To develop the affordable housing, it was anticipated that units would be developed through partnerships between owners and for profit and non-profit developers familiar with this segment. Another assumption was that housing developed at lower densities (e.g., wood frame construction without structured parking) is less costly to develop, and might require less subsidy. In some locations, it might be appropriate to emphasize affordability over density. 7/30/03 5

16 RECOMMENDATIONS The housing in the North Macadam District should serve a variety of household incomes which will reflect the diversity of the City of Portland as a whole. To accomplish this, specific targets have been created to guide public investment. However, these adopted targets reflect funding constraints. An annual report will be created to review the progress being made in achieving the goals. This annual report will become the basis for public and community review. Further, there will be a more in depth evaluation of the housing production and affordable goals in the District. This review will include data on residential build-out, production projections, and available resources. Adjustments to the affordable housing goals will be based on these findings and on the intent that once production climbs to the 3,000 unit level, affordable housing goals will be based on Comprehensive Plan Housing Policy goal for housing production in new redevelopment areas to match the citywide income profile. In striving to meet this balancing goal, a periodic inventory of the District s total housing production will be compared to the city wide income profile and adjustment to the targets will be made based on total build out, not just on build out after the first 3,000 units. Inventories should be conducted every three to five years. This section outlines recommendations to achieve the housing goals. There is a strong commitment to achieving housing production that does reflect the diversity of the City as a whole. Because of the funding constraints of the district, further decisions may need to be made in prioritizing production within the six median family income categories defined in the recommendations. Guidance for these decisions will come from priorities outlined in the Comprehensive Housing Plan Policy and in the Consolidated Plan. As stated earlier in the document, the foremost challenge is identifying sufficient resources for funding the broad range of priorities in the district. The current funding strategy includes funding from federal, state, local and other sources to assist with public priorities. Additional funding in any one priority area will allow tax increment funding to be rebalanced among various priorities. Meeting the affordable housing agenda of this District is and will remain a high priority. In the event that new resources become available, consideration will be given to achieving unfunded priorities in the District including unfunded affordable housing production goals. 1. Establish targets for new housing using the following six categories: 0-30% MFI, 31-50% MFI, 51-60% MFI, 61-80% MFI, % MFI, and % MFI. These allocations vary from what is in both the Framework Plan and the South Waterfront Plan, as 51-80% was grouped into one category. The rationale behind splitting this into two categories is twofold. First, the Central City No Net Loss Policy has established specific production goals for units at and below 60% MFI. Second, the ability to access federal, state, 7/30/03 6

17 and local funding for projects is tied to the development of units at or below 60% MFI. The adjusted targets are listed in Recommendation For the purposes of establishing housing targets, assume that there will be approximately 3,000 housing units in the District at full build-out. During the Framework Plan discussion, it was projected that the total district housing production would be between 1,500 and 3,000 units. The development potential of the district has increased since the Council adoption of the South Waterfront Plan and the Zoning Code For South Waterfront. One of the Land Use and Urban Form Objectives from the South Waterfront Plan is to provide for 10,000 jobs and at least 3,000 housing units by Further, one of the projects listed under the Land Use and Urban Form Action Chart is to analyze the implications on district infrastructure of providing an additional 2,000 housing units by Exceeding the stated target of 3,000 housing units is a real possibility, given that North Macadam Investors (NMI) are exploring the possibility of creating up to 2,700 residential units on their developable acres. Once it becomes clear that the total build-out of housing units will exceed the 3,000 unit target, then the affordable unit goals will need to be increased. Increasing the targets would help to assure the livability of the district through providing housing that is attractive and affordable to a broad range of households and incomes. The current target of creating, at minimum, 788 units of affordable housing was a compromise shaped by district funding constraints during the creation of the Framework Plan. 3. Establish the following targets for new housing development as updated from the Framework Plan and South Waterfront Plan by moving from five to six MFI categories. Affordable Unit Goals for South Waterfront Area % of MFI Affordable Affordable Total MFI Category Rental Ownership 0-30% Extremely Low 31-50% Very Low Income 51-60% Low Income 61-80% Moderate Income % Middle Income % Middle Income TOTAL All affordable rental units will have sixty year affordability agreements and affordable ownership units will have a mechanism for long term affordability. The table above is based on the constrained funding model that was developed during the committee work completed during the Framework Plan process. The table below, from the Framework Plan process, is inserted to show perspective on what the development profile for the entire District would look like if there were adequate resources to match development to the citywide income profile. 7/30/03 7

18 1999 Framework Plan Summary of Income Distribution of Proposed Build-out Scenarios as compared to Citywide MFI Ranges Citywide City Policy Constrained Funding Model Profile Profile %byincome Total Units Affordable 0-30% 13.50% 405 6% % 17.20% 516 7% % 16.70% 501 7% % 14.10% 423 6% % 11.10% % % 21.70% % % 5.80% % 346 Totals Please note that in this development profile, not all of these units would have affordability agreements. 4. Implement a consistent methodology for establishing fair share housing targets in the district. It is likely that major landowners will seek a Development Agreement with the city. Currently four land owners own 53 out of the 80 developable acres in the district (exact acreage is subject to final greenway configuration). In negotiating housing targets, consideration must be given to whether the property being master planned is inside of the Required Housing area or not. Thus, three fair share target categories are established: 1) land within the Required Housing area likely to be master planned; 2) land outside of the Required Housing area likely to be master planned; and 3) a consolidated target for the small parcels in the district not likely to be included in any development agreement. The targets are established using the six income categories indicated in Recommendation #3. The table at the end of this section summarizes the fair share delineation for each of these three categories. The fair share target for the small parcels is likely to be achieved through PDC purchase of property and subsequent RFP process. The targets serve the purpose of ensuring that the City meets, at minimum, 788 units of affordable housing in the district based on projected build out of 3000 units. The intent is that once production climbs to the 3,000 unit level, affordable housing goals shall be based on Comprehensive Plan Policy from that point forward. As stated above, it is anticipated that there will be a development agreement negotiated with major landowners in the District for specific redevelopment programs in exchange for City investment in infrastructure improvements. A range of public goals and objectives, including housing development targets should be included in these negotiations. Development agreements with land owners are to include unit targets which contribute to achieving housing production targets and affordable housing targets across the range of incomes for both rental and ownership tenure. Currently, four property owners control 66% of the 80 acres of developable land in the District. 7/30/03 8

19 In order to establish fair share targets for housing that could be included in a development agreement, it is necessary to look at the zoning environment and make assumptions as to location of residential uses. The adopted South Waterfront Plan provides guidance. It states residential uses are expected to cluster east of Bond and south of Gibbs. This area is in the Required Housing Overlay. It is assumed that 70% of the housing production will be in this area which is 31% of the buildable land in the District. Based on these assumptions, 2,100 units out of the 3,000 projected units would be in this area. The projected housing build-out for the balance of the district would be 900 units. Since there are approximately 31 acres in the Required Residential area and assuming 2,100 projected units, this equates to 67 units per acre. As stated above, the housing production for the area outside of the Required Housing area would be 900 units in 49 buildable acres equating to 18 units per acre. This unit per acre number is low, not because the residential projects will be of such low density, but because there will likely be a mix of office, institutional and retail emphasis along with residential development. It must be stressed that these are theoretical targets to be used to ensure meeting the numeric affordable housing goals. These targets are a starting place for development agreement negotiation with the major landowners. Actual goals negotiated will depend on the development profile and schedule undertaken by each landowner. The remaining 34% of the District s buildable land is owned by a variety of entities in smaller parcels. These parcels offer opportunities for acquisition and development of housing projects with affordable units within the context of District funding constraints. Note that Recommendation 9 is to target acquisition of land for affordable housing. Schedule of Goals for Affordable Housing Units Based on Prorat 3,000 1, % % of MFI Affordable Goal Land w/ Required Housing - Likely Master Planning (67 units/acre) % Land Outside Required Housing Likely Master Planning (18 units/acre) % Small Property Consolidated Target 0-30% % % % % % Affordable Total The South Waterfront Central District Project Development Agreement among PDC, Oregon Health and Science University, River Campus Investors, and North Macadam Investors is being finalized. As part of this 32-acre project including OHSU institutional, research, and other commercial uses, NMI is expected to develop up to 2,700 units of housing. If NMI were to develop based on the projected density of 67 units per acre for the Required Housing 7/30/03 9

20 area, their build-out would be 1,348 units. As stated above they are scheduled to exceed this forecast with 2,700 residential units or 135 units per acre. Their development profile contains both residential and non-residential projects. The 135 units per acre is a residential average for their whole development schedule. It must be recognized that while 90% of the affordable housing production goals are targeted to rental housing, the anticipated ownership/rental tenure profile for NMI shows more ownership than rental tenure. There is importance of early condominium development to generate tax increment funding in order to achieve our affordable housing and other public goals. This exact mix is unknown, but the projected cost of development in high-rise buildings is driving the residential profile towards ownership housing because the market absorption of rental units at that development profile is uncertain. Based on underlying assumptions that 1) as housing production increases so should the fair share number of affordable units, and 2) recognizing the dominance of rental production over ownership production in the affordable targets; the negotiated targets with RCI/NMI appear in the table following this section. The distribution between categories is drawn from the distribution recommendations coming from the Framework Plan. Given the City s high infrastructure commitment in the first years of development and the fact that all residential units developed for rental by NMI in the central district are projected to be concrete construction, the decision was made to collapse two MFI ranges into one. The 0-30% MFI unit programming and the 31-50% unit programming are proposed as 0-50% in the current development agreement. PDC participation in these units is subject to available funding and financial feasibility as a condition of the affordable housing production. If project-based Section 8 vouchers become available or if additional resources become available, then the feasibility of creating a greater number of extremely low income units increases. It is significant that more than half of the 788 targeted affordable units are likely to be achieved under the terms of this first development agreement. Summary of Affordable Housing Goals for NMI In South Waterfront Central District Project Development Agreement % of MFI Affordable Rental Affordable Ownership Totals 0-50% % % % % Affordable Totals /30/03 10

21 Summary of South Waterfront Central District Project Development Agreement Terms Concerning Housing A minimum of 430 units of affordable housing will be developed A minimum 230 units of affordable housing will be developed in Phase 1 with additional 200 rental units developed in Phase 3. Goal is for 1350 market rate condominium units and 700 market rate apartments. There may be up to 250 units of student housing. If development of more than 2,660 residential units occurs, additional affordable units will be developed that equal 36% of the total number of additional residential housing units and at least 20% of these additional affordable apartments shall be affordable to households below 30% MFI. If development of more than 3,000 residential units occurs, additional affordable units will be developed that match the city wide income profile. All PDC financing is subject to availability of sufficient gap financing. All PDC financing will be subject to applicable loan program criteria, underwriting requirements, and consistent with historical PDC per unit gap financing for affordable housing. NMI will produce residential units at no less than 125 residential units per net acre. Future development agreements will be consistent with this Strategy. 5. Target market-rate housing in the District to as wide a market as possible. Housing should be developed at various sizes and affordable to households of all income levels including a cross section of those employed in the district and nearby job centers, empty nesters, students (including OHSU residents and interns), retirees, and families. Projects should include as great a range of income levels as possible in each housing project. Encourage developers to cross-subsidize units within their projects in order to achieve inclusion of as wide a market as possible within market-rate housing while providing a reasonable return to owners/developers. Developers can achieve this range by designing units in condo or apartment complexes that will sell or rent at more affordable levels due to such factors as: smaller unit size, less expensive amenities, and less desirable location within the building. 6. Encourage housing opportunities for those employed in the district and nearby job centers. Future residents will be attracted to the District by the ease of access to nearby employment centers, downtown cultural and service amenities, neighborhood retail services and restaurants, green spaces, and health care facilities on Marquam Hill. The anticipated residential profile for the District includes: workers in or near the district or employed downtown; younger, professional couples; empty-nesters who have downsized from larger homes; families including single-parent head of household; seniors; and Marquam Hill employees. Housing for this residential profile needs to contain a mix of unit sizes. Attracting residents who work in or near South Waterfront will help to minimize transit impacts 7/30/03 11

22 lessening the need for travel into and out of a district with constrained transportation facilities. Housing availability for families of various sizes and across a range of income levels improves recruitment efforts by creating a near-by available labor pool. Developers should be encouraged to implement marketing outreach to reach employees of major employers such as OHSU as residential projects come on line. Linkage should be made with employers and workforce development agencies to facilitate hiring and professional advancement strategies for residents of the affordable units in the District. 7. Promote both ownership and rental housing options. In addition to the subsidized units mentioned above, further rental and ownership opportunities in the District are encouraged. It is anticipated that the market will respond by producing both rental and ownership units serving the mid-to-upper income categories. These units will produce tax increment necessary for pursuing public benefits in the district. Recent market analysis indicates that at this time, there is more feasibility for development of ownership housing than for rental housing. This is due to the high development cost of the high-rise development guided by the South Waterfront Plan. The Framework Plan committee recommended that the City should create programs to assist employees working in the North Macadam Urban Renewal District to purchase housing in the area. These programs should include programs providing direct assistance to employees as well as programs to encourage employers to provide housing assistance benefits to their employees who choose to buy housing in the area. The primary issue for the implementation of this action item is how strongly the City wishes to encourage the jobs/housing link and therefore what level of financial assistance/incentive the City wishes to make available. Infrastructure investment creates a market for higher income affordable units. 8. Acknowledge that the funding strategies and amount of subsidy needed varies significantly between the categories 0-30%, 31-50%, 51-60% MFI (low-income units) and the categories 61-80%, %, and % (moderate to middle income units). All affordable units will have affordability agreements and in the case of ownership units, a mechanism for long term affordability. The low income units are eligible for federal, state and local subsidies, and while the units in the moderate and middle income categories may need public subsidies they also lend themselves much more to being included in market-rate housing projects. The subtotal for low-income affordable units is 479. The subtotal for moderate to middle income affordable units is 309. While urban renewal funds will be a primary tool for financing the affordable housing units, other resources will be needed to meet the housing goals. In striving to meet established targets for production of low-income affordable units, PDC has looked to maximize leverage of tax increment funding through private equity, private contributions and state and federal funds. Notable sources of leverage are: Risk Share Program, Low Income Housing Tax 7/30/03 12

23 Credit, Oregon Affordable Housing Tax Credit, State of Oregon Housing Trust Fund, local tax abatement programs, the emerging Portland Communities Fund, the Federal Home Loan Bank s Affordable Housing Program, Project-Based Section 8 Assistance, Federal, state and local sources for mixed-use projects like the Economic Development Initiative (EDI), and Oregon Economic Development Department loans that fund commercial space. As a general rule, CDBG and HOME are not used inside URAs because of the availability of TIF in those areas. It is not anticipated that these sources will be used in North Macadam. Sources for leverage of tax increment funding for moderate and middle-income affordable units are limited. Projects that are mixed-income, in that they contain both low-income units and higher income units, may be subsidized by any of the above. The Portland Communities Fund (PCF) is a construction financing loan program designed to decrease the tax increment funding needed in all types of projects. The fund will be capitalized by a loan from the Fannie Mae American Communities Fund. Key financing points include lower interest rates, a maximum 7 year construction/ mini-perm term, and collateralization by PDC resources. Many moderate to middle income projects currently proforma with a financing gap. With PCF, these same projects are able to enter into private financing without or with reduced long term gap financing needs. Another source of leverage for projects is tax abatement. Projects in the South Waterfront Area may be eligible for tax abatement under the Nonprofit or New Multi-Family abatements. 9. Target acquisition of land for creation of affordable housing. Now that development activity appears to be imminent and that much of this activity will generate tax increment, PDC should immediately pursue property acquisition across the North Macadam Urban Renewal Area for purposes of developing projects that include low income units serving those most in need as well as moderate to middle income units. This acquisition strategy should rely on use of Smart Growth Funds or other non-tax increment funds recognizing that tax increment will be available in the future to take out these other resources. The use of condemnation should be considered. Delaying acquisition of land for affordable housing development will significantly increase the per unit subsidy as the cost of this land is projected to be 3 to 4 times as expensive once the infrastructure improvements are in place. Affordable units in the district are targeted to a very broad range of incomes from 0-30% to 100% MFI for rental housing and from % MFI for ownership. As stated earlier, housing projects should be targeted to as wide a market as possible. Since a third of the developable acres in the South Waterfront Area are held by a variety of land owners in a collection of small parcels, the District acquisition strategy should include acquiring one or more of these smaller parcels in order to ensure meeting the affordable goals. These parcels could be either in the South Waterfront Area or in the section of the North Macadam Urban Renewal Area that extends north and west of the South Waterfront Area. Rental projects built on these parcels will contain a mix of the targeted low income units (0-30%, 31-50%, 51-60% MFI) as well as a mix of moderate and middle income units (61-80% and %), recognizing there are considerations that affect the range of incomes considered feasible. These include the size and FAR of the site, funding restrictions of other 7/30/03 13

24 sources being used to maximize leverage of tax increment funding (such as tax credit regulations), the market rents in surrounding projects, compatibility of different market segments (both within the project and within the area), and recent market information on the area. The construction type on these parcels may be wood frame construction thus providing greater financial feasibility. The Housing Authority of Portland, other non-profit housing agencies, and for profit developers familiar with this market segment are expected to be key partners in achieving the goals for affordable housing projects.. The Smart Growth Fund (Real Estate Fund) is a source of funding for acquisition of key parcels in the short term. These parcels could be held for several years while available tax increment financing grows and is sufficient for financing the development of the sites. When financing and scheduling of build-out of these units becomes feasible, request for proposals can be solicited from key development partners. When public funds in North Macadam are invested in infrastructure improvements that directly impact the value of the land a developer is making available for development, PDC will purchase land at a fair market value that is discounted by the value of publicly funded portions of the infrastructure improvements made. This means the purchase price will not be based on the appraised value after the improvements have been placed. Acquisition of property enables PDC to have more control over the unit mix than in traditional development agreement negotiations. PDC anticipates achieving the affordable mix through individual building mix as well as a mix in geographic focus areas within the District. 10. Conduct an evaluation of the housing production and affordable goals in the District in three years. This review will include data on residential build-out projections and available resources. The evaluation will include a community process. Progress report in achieving housing production and affordable goals will be produced annually. As stated several places in this document, the housing goals established in the Framework Plan were a compromise. The Comprehensive Plan Housing Policy establishes a balancing goal for housing production in new redevelopment areas to match the citywide income profile (Comp Plan Housing Policy 4.7, Objective 1). The current goals for North Macadam do not align with this city policy objective. The goals established through lengthy community process in the Framework Plan and validated in the South Waterfront Plan reflect available resources in the District. The District continues to have financial constraints in funding the full range of planned projects including housing, the greenway, parks, economic development activities, transit, and street improvements. The current funding strategy distributes resources in a way that essential elements of all these projects are moving forward concurrently. There will continue to be adjustments in all areas as potential funding sources become available. There will be an annual report showing unit production by income level and housing type. In three years, there will be an evaluation of both the total build-out projection for the district and the availability of additional resources. Adjustments to the affordable housing goals will be based on these findings. 7/30/03 14

25 Although current projections for the Central District indicate production of around 2,700 housing units, it is too soon to determine actual production as all projects are in the conceptual stage. In the later years of the District s twenty year life span, a greater proportion of TIF resources are likely to be available for housing after basic infrastructure improvements are completed. This infrastructure is being funded through partnership of PDC, other city and state agencies, and land owners and developers. In addition, it is still unknown how much increment will be generated over time. In the recent past, city general fund dollars were dedicated to the Housing Investment Fund. In the four year period from June 1996 to June 2000, these Housing Investment Funds combined with federal dollars, TIF resources, and local incentives assisted over 11,700 housing units. In the current economic climate, there are no new Housing Investment Funds being budgeted. However, new initiatives are underway to bring new housing resources to Portland, and a portion of these could be targeted to North Macadam. Therefore, since there is uncertainty about future build-out and future resources, the recommendation is for there to be a community process to evaluate the housing production and affordable goals of the District in three years when more data is available. The intent is that once production climbs to the 3,000 unit level, affordable housing goals shall be based on Comprehensive Plan Policy from that point forward. 7/30/03 15

26 Role of the Public and Private Sector in Development of New Housing in the South Waterfront Area Location of Housing within the District The Land Use and Urban Form Concept section of the Adopted South Waterfront Plan addresses Anticipated Land Uses. It states that residential uses are expected to cluster east of Bond and south of Gibbs. This area has many attributes, including its views of Mt. Hood, Ross Island, the West Hills, and downtown and its distance from the noise-generating I-5 and Macadam. This is the area that is subject to the Required Residential Development Areas overlay (extends south to Lowell). The requirement is imposed as an alternative to the creation of exclusively residential zoning. In the South Waterfront Required Residential overlay area, new development must include at least 1 dwelling unit per 1,000 square feet of net site area (43 units per acre). Housing units may be transferred to another site. These factors suggest that the area within the required housing overlay will serve as the prime location for the district s residential core. The above discussion is the basis for estimating that approximately 70% of the district s housing will occur in the Required Residential Development Area. This assumption was used for development of the methodology for fair share housing targets. The second major assumption used for this analysis was that district housing build-out will be 3,000 units. Housing Build-out As described in the Background Section above, in 1999 it was estimated that 40 acres would be developed with housing. Build-out of 3,000 units was calculated using this 40 acres and the projection of 80 dwelling units per acre. This assumption also appears in the Adopted South Waterfront Plan, even though developers have now been given increased height restrictions and higher FAR options. Until further build-out analysis is completed and adopted by stakeholders, policy goals and objectives will continue to be based on a build-out of 3,000 housing units. Further analysis will be done at the time of the three year evaluation of housing production and progress on affordability goals. River District is an example of where city goals drastically underestimated the real build-out potential of the district and where development agreement benchmarks on density became a nonissue for developers. An example of the increased development potential in South Waterfront can be examined by looking at the potential of one site. Using the following assumptions on our sample site/block: site dimensions of 200 ft by 200 ft (.93 acre), not adjacent to the greenway, with bonuses extending the FAR to 9:1 with 15% of the project dedicated to retail/parking uses, with unit size averaging 920 sq. ft. and with tower width of 125 ft., it would be feasible to build 300 housing units on the site. This equates to 322 units per acre. The potential of our sample site is greater than those sites adjacent to the greenway and adjacent to Macadam/I-5. However, this example does indicate that the 3,000 build-out projection based on 80 dwelling units per acre is probably too low knowing that developers will seek to maximize potential on their sites to the extent that they believe market absorption is feasible. 7/30/03 16

27 As an example, in River District, an analysis of recent development shows an average density of 144 units per acre. In the previous section, it was estimated that 70% of the district s housing would be built in Required Residential area. This area is approximately 31 buildable acres. At a density comparable to new construction in the River district, this would result in 4,464 housing units. However, it is very unlikely that all blocks will have housing especially since the section of Required Residential area from Grover to Whitaker is planned with Institutional Emphasis. It can be noted that transfer of the required 43 housing units per acre to another site within the Required Residential area can easily be met given the likely density on housing sites. Projected Subsidy Need The Portland Development Commission anticipates that construction of the middle and upper income housing (those units that are not defined as affordable) will be privately financed. Assumptions of the direct financial investment subsidy required to accomplish the affordability targets in District are dependent on the structural type of each new project. The two structural types that are likely to be constructed are either wood frame construction or concrete high rise. At this time it is unknown what percentage of each is likely. Recent analysis shows that the subsidy assumptions for wood frame construction from the Framework Plan continue to be valid. The 70 projects used in the 1999 analysis were various types of wood frame construction including stick frame, 4 over 1, and 5 over 1 construction. PDC is now or has recently participated in 5 concrete high rise projects. This is not a large enough sampling to make new subsidy assumptions for this type of construction due to the uniqueness of each of these projects. However, it is clear that construction costs are 20-25% higher for concrete high rise. All PDC financing is subject to applicable loan program criteria, underwriting criteria, and consistent with historical PDC per unit gap financing for affordable housing. Appendix A shows PDC per unit averages for the time period from 1999 to the present. Per unit averages in this chart are broken down by family and non-family units and by tax credit and non-tax credit properties since consideration is given to type and location of project being developed and other subsidies available. In addition, if land is acquired for affordable housing after the infrastructure improvements in the district are significantly underway, the land cost may be 3 or 4 times higher than at present. This could add $10,000 to $20,000 per unit to the project development cost. The current District Funding Strategy indicates $36 million for affordable housing, up from the $25 million in the 1999 Funding Strategy. Role of Development Agreements in Affordable Housing Development One of the real challenges in the North Macadam District is to create a balanced housing program. It is important to create a district that has opportunities for citizens/workers of all income levels. Both PDC and the developers/landowners need to be committed to creating the 479 units targeted for low income families at or below 60% MFI as well as the 309 units targeted to moderate and middle income families at or below 120% MFI. It is likely that a portion of the moderate and most of the middle income units will be owned by a variety of for-profit entities. PDC and the city need to commit to finding the resources necessary to subsidize a balanced housing program in the district over the next 20 years. Because the targeted number of affordable units in the district is below the number of units needed to achieve the kind of citywide income distribution that is being strived for in the River District, it is important to successfully negotiate for the development of these units in locations 7/30/03 17

28 throughout the district and a proportional share to each of the major landowners. For owners who are willing to sell land for affordable housing, it will be key to establish a sales price at a fair market value at time of election, rather than time of transfer. The benefit of facilitating this transfer in the early years of the district is obvious. The Smart Growth Fund is a potential source of funding for these acquisitions. There is significant benefit being gained by the owners through city funded infrastructure improvements, thus important to negotiate provisions for the development of affordable housing that benefits both the developers and the city. Again, because of the conservative targeting of affordable units, it is essential that each affordable unit created be preserved over time. Homeownership units can be preserved through a long term affordability mechanism. Rental units that are designated affordable units will be subject to sixty year affordability agreements. It is precedent setting to place affordability agreements on all 129 of the targeted units in the % MFI category. It is likely that only a few of these units will be in any one project, but spread across ownership and throughout the District. Since there is little projected need for subsidy of these units especially as they are absorbed within market rate projects, the responsibility for creation of these units lies with the private sector. PDC s role is to help designate these units and assure that they stay affordable over time. Workforce Linkage The addition of the tram to OHSU opens up housing opportunities specifically related to the following groups: workers (nurses, maintenance, administrative, medical technicians, and support personnel); students at the medical and dental schools; medical residents and interns; and clinically related housing for seniors. A 1999 demographic survey of OHSU employees showed the following annual salary data. Annual Salary Count Percent less than $20, % $20,000-49, % $50,000-79, % $80,000-99, % Total % Of those employees counted in the less than $20,000 range approximately 10% are full time employees with the balance being part-time employees, faculty and students. In addition, annual salary information does not include differential, bonus and overtime pay. While it is not possible to get to household income from the above, this data does indicate that to create housing for employees that work nearby, market rate housing will to need to be targeted to as wide a market as possible. Successful capture rates will depend upon creating a match between income levels of prospective residents and housing choices including incentives such as employer-assisted housing. Helping to facilitate this linkage will require updated and ongoing data analysis. 7/30/03 18

29 Appendix A PDC Subsidy Averages New Construction Projects by Income Level Projects Closed from 1/1/99 To 7/1/03 Location: Citywide 1. All Sample Size: 41 projects Median Family Income # Units Per Unit Per Person Per Square Foot (est.) 0-30% 477 $53,443 $32,167 $ % 605 $35,958 $16,443 $ % 636 $17,057 $7,523 $ % 183 $20,985 $12,448 $31 81+% 520 $7,380 $3,079 $9 2. Family Sample Size: 16 projects Median Family Income # Units Per Unit Per Person Per Square Foot (est.) 0-30% 50 $60,920 $14,402 $ % 94 $48,977 $10,769 $ % 96 $11,002 $2,657 $11 3. Non Family Sample Size: 3 projects Median Family Income # Units Per Unit Per Person Per Square Foot (est.) 0-30% 130 $61,188 $60,261 $ % 60 $37,876 $37,876 $ % 30 $18,000 $18,000 $35 4. Tax Credits Sample Size: 18 projects Median Family Income # Units Per Unit Per Person Per Square Foot (est.) 0-30% 414 $52,166 $36,205 $ % 443 $36,233 $17,390 $ % 460 $14,831 $6,174 $ % 124 $18,655 $10,168 $26 81+% 172 $3,212 $1,689 $5 5. Non-Tax Credits Sample Size: 23 projects Median Family Income # Units Per Unit Per Person Per Square Foot (est.) 0-30% 63 $61,842 $19,878 $ % 162 $35,203 $14,257 $ % 176 $22,875 $11,947 $ % 59 $25,880 $18,851 $45 81+% 348 $9,441 $3,573 $11 Includes Rental Production and Condominium Financing only. The above dollar amounts are Financial Assistance only. Capital Outlays, Fee Waivers and other sources not included. Per Person calculation based on number of bedrooms. Square Foot estimates used in projects where information is not available. Definitions: Family = 2 or more bedrooms, Non-Family = SRO, Studio or 1 bedroom (Mixed Family and Non-Family projects not included in breakout) Tax Credit = Projects that have LIHTC as a source Sample Size = Number of projects 7/30/03 19

30 M EMORANDUM To: Bruce Warner (PDC) and Margaret Van Vliet (PHB) CC: Lisa Abuaf, Andy Miller, Dan Zalkow, Bobby Weinstock, Brian Lord, Debbie Aiona, Brian Newman, From: Marilynn Considine, Dike Dame, Maxine Fitzpatrick, Mark Gregory, Susan Emmons, Eric Saito, Kim McCarty (PHB), and Juan Carlos Ocaria-Chiu (PDC) Date: 1/12/11 Re: Recommendations from the North Macadam Interim Housing Committee The North Macadam Urban Renewal Advisory Committee (URAC) affirmed the creation of an Interim Housing Committee (IHC) to evaluate how the current production of housing has met the goals of the North Macadam Urban Renewal Area (URA) Plan and the North Macadam Housing Strategy. It is an interim committee because the Portland Housing Bureau (PHB) is creating its own public engagement process, which will include feedback from stakeholders in the North Macadam URA. Once the IHC makes its recommendations it will cease to exist, and all future public engagement efforts related to housing in the URA will be led by PHB. The IHC met five times between May 2010 and December The group agreed upon a charter which included a review of housing production to date, review of the North Macadam Urban Renewal Area Housing Development Strategy (Housing Strategy), the history and intent of the affordable housing strategies, and the creation of a memorandum with their findings and recommendations to PDC and PHB. Provided below is a summary of recommendations from the IHC. Following the recommendations is a report on the status of housing production in the North Macadam URA in relation to the URA Plan and the Housing Strategy. The IHC is asking PDC and PHB to review these recommendations and respond to the North Macadam Urban Renewal Advisory Committee with suggested next steps. List of Recommendations After careful consideration of the URA's Housing Strategy, its goals and actual housing production, and after discussion of a number of housing-related issues in the URA, the 1HC members have made the following recommendations which are categorized into the following groups:

31 1) Affirmation of the 2003 North Macadam Housing Development Strategy 2) Recognition of budget constraints: declining Tax Increment Financing (TIF) revenue and unavailability of TIF resources until after ) Creation of new strategies to address the needs of emerging populations, including low income households, seniors, students, and families. 4) Utilization of strategies to improve community design and livability issues. And 5) Planning for opportunities 1) Affirmation of the 2003 North Macadam Housing Development Strategy The IHC recommends the affirmation of the 2003 North Macadam Housing Development Strategy because it is responsive to the set of policies that guide housing investments in the URA, such as the North Macadam Housing Urban Renewal Plan, the Comprehensive Plan, and the 30% TIF Set-Aside for Affordable Housing City policy. Recommended actions include: Refine the housing development strategies to achieve the goals Create an investment action plan when resources become available. 2) Recognition of Budget Constraints Due to significant investment in Block 49 over the next three years, there are no additional TIF resources available for housing projects until after FY , at the earliest. The current downturn in the real estate market decreases total TIF resources, and therefore extends the time necessary to generate additional housing investment dollars. New development that could increase T1F revenue is anticipated to happen slowly. Comprehensive planning for new development could happen where several acres are owned by one owner, as is the case on the land owned by ZRZ Realty (a Zidell company), and Oregon Health and Science University (OHSU). PDC is currently developing the FY budget and forecast for the North Macadam URA, including the latest projections of available resources. The Requested Budget will be provided to City Council no later than January 31, Budget information will be posted on the PDC website. Recommended actions include: Evaluate the best location for housing in the district and maintain a plan for acquiring or assisting developers to develop those sites. Joint planning with multiple jurisdictions, especially with the Oregon Department of Transportation (ODOT), the Portland Bureau of Transportation (PBOT), and 2

32 Tri-met. Meet or increase demand for public benefits such as affordable housing units, family-sized units, density, green spaces, and a reduced carbon footprint in exchange for public investments. Allow for less dense development on some sites to reduce costs and increase affordability. Focusing land banking strategies to property outside of the central district because the land may be less expensive. Evaluate the effectiveness of the codes to direct the desired form of the community in terms of diverse household types, unit sizes, community space and affordability. Examine whether the 30% TIF Set-Aside Policy guidelines can be improved to achieve the unit production goals by income categories outlined in the 2003 Strategy. 3) Creation of Strategies to Address the Needs of Emerging Populations Housing development strategies should be enhanced to acknowledge and address the needs of new populations in need of housing assistance in the district. Specifically, four types of populations (low income/ senior, workforce, students, and families) need specific strategies because their housing needs are not always met by the market and because the institutions and employers in the district would benefit from dense proximal housing of these populations. Affordable housing with supportive services and senior housing (0-60% of MFI) The district is a well suited location for housing with supportive services and senior housing due to the proximity to healthcare services, public transportation, parks and other amenities planned for the district. Recommended actions include: Encourage collaborations between service providers and housing developers. Ask the Housing Authority of Portland to reserve at least 124 Section 8 vouchers for permanent supportive housing opportunities. This strategy would support the Federal Housing and Urban Development Department (HUD)'s strategic directive to encourage housing opportunities for low income households in amenity-rich areas. Encourage senior housing affordable to a range of incomes. Workforce Housing (60%-120`)/0 of MF1) The district is growing its employment and institutional base. As stated in the 2003 Strategy, the district should provide housing opportunities for people that want to work in the area. Many of these employees earn below 120% of MFI. These households include 3

33 administrative, custodial, food service, maintenance and other support staff and their families whose housing needs are grouped under the "workforce housing" category. Having workforce housing in the district is important to growing the employment base of the district, meeting city carbon reduction goals, and reducing competition for the limited supply of land with uses like parking and street connectivity for commuters. Recommended actions include: Identify locations, and building techniques that could result in more affordably priced housing. Work with employers to create employer-assisted housing programs. Support cross subsidization. Fully utilize available financial tools, such as height bonuses and tax exemptions, to improve affordability. Student Housing (0-80% of MFI) There are a significant number of educational institutions within the district that own land. OHSU, Portland State University (PSU), and the National College of Natural Medicine (NCNM) form an "education triangle" in the district. Housing can increase enrollment. improve the students' "campus experience," learning outcomes and the economic health of these institutions. Not all higher education institutions have the capacity to encourage student housing as part of their growth. Housing competes with other capitol demands and there is a growing gap between what students can afford and the true cost of building student housing. Another issue for students and student housing developers is the fact that most affordable housing funding streams exclude students as beneficiaries. Some coordination among the higher education institutions may be beneficial to create housing that is affordable to students, and meets other criteria desirable to both students and their institutions. Recommended actions include: Support the efforts of OHSU, PSU, and NCNM to explore opportunities to collaborate on student housing that serves multiple campuses. Explore ways for low income students to access affordable housing in the district. Examine the cost-benefit of a tax exemption for student housing not owned by a nonprofit institution. Transportation planning, mixed-use developments and collaboration are seen as strategies to support the development of student housing. Current investments in the streetcar, tram, and planned light rail are well placed for serving the transportation needs of students. Building affordable workforce housing may meet the needs of local educational institutions and their students. Investigate the need and benefit of developing family-sized housing units for students. Identify the number of student housing units needed in the URA. Then, create a community plan to meet the need, including the consideration of possible impacts 4

34 on the community as a whole. Integrate student housing into the urban fabric and mitigate possible competition with other residents for affordable housing. Family Housing: Rental and Ownership (60-150% of MFI) The 2003 Strategy envisioned a complete community with people of all ages. Current development is not creating the three or more bedroom housing units that are more attractive to families. Additionally, the units that are large enough for families are typically too expensive to attract a family with average income. The kinds of families that seem more interested in living in the district are the families in graduate education programs at OHSU, PSU, or NCNM. Recommended actions include: Encourage investments in amenities such as schools, pre-schools, parks, and groceries that attract families. Offer incentives for bui lding family-sized units affordable to a range of incomes. 4) Utilization of Strategies to Improve Community Design and Livability Issues North Macadam is a completely new community. To be successful it needs a balance of housing, employment and transportation options. Additionally, to make the community livable and attractive to investment, it needs parks, retail, education, childcare, healthcare and other amenities. Recommended actions include: Encourage Eco-districts, including shared energy generation. Support building design that approaches net zero for carbon emissions. Encourage development of the greenway, schools, daycare, a grocery store and other amenities. Continue to use development agreements and height bonuses as an incentive to obtain public benefits such as affordable housing units, family sized units, green spaces, and a reduced carbon foot print. 5) Planning for Opportunities The limited resources available over the next five years will greatly shape the strategies and scope of housing projects in the North Macadam URA. The deep subsidies, necessary for recent affordable housing projects will not be available for over five years. In the 2003 Strategy, land banking was considered the most prudent strategy to preserve a range of opportunities for when the URA had developed enough TIF to invest in a redevelopment. While the tax increment generated has been significant, it is not sufficient to complete all of the public benefit projects such as more affordable units, open space, and transportation improvements. Without additional development that generates tax increment, the district will not have enough TIF to pay for projects that 5

35 benefit the public but do not generate increment. The strategies below address planning for opportunities when resources become available, and for development that will generate future TIF resources. Also listed below are foreseeable opportunities and related issues: Tax exemptions to incent mixed-income developments Land swaps and other exchanges for locations desirable for housing, such as clean-up of sites, increased floor-area ratios (FAR) bonuses in exchange for public benefits such as family sized units, resolving right-of-way issues, and longterm or free leases. Cross subsidization for increasing the number of units affordable to low- and moderate-income households. Site preparation such as environmental clean-up and establishing access for pedestrians and cars because some roads and sidewalks have not been built yet. Infrastructure investments such as transportation stations, street improvements, structured parking, and district-wide energy. Collaborations or mixed-use developments that attract a variety of investors. Sites outside of the Central District, where building less densely would be acceptable, are desirable due to reduced construction costs. Larger property owners such as OHSU and ZRZ may want to partner with housing developers as part of their long term redevelopment plans. Known Opportunities The IHC and staff identified several potential sites for housing development in the North Macadam URA: Portland State's University Hotel - This site, currently under a development agreement with PDC, is desirable because of the reduced cost of land. potential for additional investment partners, and proximity to a light rail station. The site is large enough to meet multiple housing objectives of affordable housing, family housing, student housing and a hotel. Inclusion of affordable housing will depend upon whether there has been sufficient TIF generation by the time PSU chooses to redevelop the site. Lot 3 PDC is currently in negotiations for redevelopment of the site as a TIF generating project. In the past, PDC solicited development proposals for this site, including redevelopment of the site with housing or student housing, if feasible. This site also has expense issues related to environmental clean-up. The timing of redevelopment of this site may not meet the timeline for additional TIF availability. 6

36 Lot 8 The location and available height bonuses at this site make it more desirable as a site to sell for revenue and to generate future TIF. This site is encumbered with environmental clean-up expenses. Harbor-Naito - Planning has been conducted for the creation of development scenarios for the lots owned by the Portland Bureau of Transportation (PBOT) and the Oregon Department of Transportation (ODOT) between Harbor and Naito, known as "Harbor-Naito." This site could be a financially desirable for affordable housing, if the owners are willing to discount the purchase price. The sites may have some expense issues related to rights-of-way, or environmental clean-up. Due to current uses of the area, the delayed readiness for redevelopment may coincide with the generation of new TIF resources. Greyhound Station The Greyhound Station, owned by Portland General Electric (PGE), is not a desirable site for housing due to access issues and proximity to the freeway, but PGE may see some benefit to granting or discounting the land. Report on the 2003 Housing Strategy The 2003 North Macadam Urban Renewal Area Housing Development Strategy (2003 Strategy) had the following goals and strategies: 1) Establish six Median Family Income (MFI) targets. 2) Establish an initial 3000 unit production goal for the purpose of setting housing targets. 3) Develop at least 430 affordable units in the Central District, out of a total 788 affordable units in the entire URA. 4) Implement a methodology for unit production goals based on land available for master planning and ownership called "fair share." 5) Develop market rate housing for a number of populations including employees, students, retirees, and families. 6) Encourage the development of housing for those employed in the district or nearby. 7) Promote a mix of homeownership and rental housing options. 8) Acknowledge that the funding strategies and amount of subsidy varies significantly by income category. 9) Target the acquisition of land for the development of affordable housing. 10) Evaluate housing production to determine adjustments to the goals. 7

37 2003 Housing Strategy Assumptions Initial development of condos will be necessary to generate TIF. Recognize that the goals for the 0-30% MF I category are likely to be met, and increased, with Section 8 vouchers. Cross subsidization is one of the most important development strategies for achieving a mixed income community. Cross subsidization or some kind of subsidy will likely also be needed to develop housing affordable to households up to 120% MFI. At the beginning of the URA there will not be enough TIF or other resources to assist in meeting the Comprehensive Plan goal of developing housing in proportion to the city wide income profile. More than 3000 units are likely to be built if the market is favorable for developers to maximize the buildings' FAR. Tax exemptions will be available for workforce housing development. As housing production increases, so should the number of affordable units. In some locations it may be appropriate to emphasize affordability over density by encouraging wood frame construction. Most of the overall housing development and affordable housing will be rental units. Most of the affordable units will be identified in the first development agreement. Costs for concrete high rise construction are 20-25% higher than 5-over-1 wood frame construction. Land banking will make affordable housing more financially feasible. Production Report The Comprehensive Plan Housing Policy establishes a goal for housing production in new redevelopment areas to match the citywide income profile. Based on this model, if build-out in North Macadam meets projections of 3000 units, this would equate to 2,175 units below 120% MFI. This URA however started with no taxable improvements to support public investments in development projects. In response, the North Macadam housing unit production and income percentage goals are based on a constrained model of the Comprehensive Plan goal of making new housing production proportional to the income mix of the city as a whole. Using a model that acknowledged constrained resources, the goals for housing affordable to households between 0% MFI and 100% MFI were reduced by more than half to 788 units. The 2003 Housing Strategy assumed that when the initial production of housing reached 3000 units, TIF revenue would become less constrained and able to support the Comprehensive Plan Housing Policy goals. The chart below shows what median family income categories current and anticipated housing production achieves. 8

38 MF1* Rent or Mortgage based on 30% of income Total Unit Production Goal Total Rental Units Total Owner Units Total Units Built % of unit goal Status (planned) unmet 0-30% $0-$ **42 25% 31-50% $375-$ OcYo unmet (planned) exceeded 51-60% $624-$ ** % 61-80% $749-$ % unmet % $999-$ % exceeded c /0 $1248-$ c1/0 unmet c /0 $1498-$1871 1, % unmet 150% + $ , % exceeded Totals 3,000 1,161 1,415 2,576 86% *The 2010 median family income (MF1) for a single person in the greater Portland area is $49,900. The Department of Housing and Urban Development (HUD) defines affordable housing as housing costs which consume no more than 30% of household (I IH) income. ** Planned units refer to the 209 Block 49 units in South Waterfront scheduled to start construction in Summary of Production Report The production report table above shows that the URA has not met the 2003 Strategy production goals for low income rental households (0-50% MFI) and moderate income rental households (60-80% MFI): The majority of units built were targeted to households with incomes between 100% and 150% MFI. While production in this income category has fallen short, it is interesting to note that more units than anticipated were built priced for higher income households, so overall unit production is very close to projections. The affordable homeownership goal of 77 units affordable to households between % MFI was exceeded by 96 units. Twenty-five percent (25%) of the unit goal for the 0-30% MFI category is projected to be met with completion of the Block 49 project scheduled to start construction in the spring of None of the 31-50% MF1 unit goals have been met. The 50-60% MFI low income unit goal will be exceeded by 164% with completion of the Block 49 project. The goal of building workforce rental units affordable to a household that can pay up to $999/month in rent (61-80% MFI) has only been partially achieved. There is a gap between what can be charged in the market vs. the true cost of development and payment of the debt. 9

39 The goal for rental units affordable to households 80% to 100% MFI has currently been exceeded. Housing production for households between 101% MFI to 150% MFI has only reached 32% of expected production. Development of primarily ownership units affordable to households above 150% MFI has exceeded the goal by 409 %. Analysis Housing production was supposed to have the following outcomes: new development of 3000 units; significant TIF generation; and a percentage of units restricted to low-income households. New development has approached expectations; TIF generation is significant but not increasing as hoped; and the goals set for affordable low- and moderate-income households have not been met. Market conditions and declining resources explain in part why the URA has not fully achieved its affordable housing goals. Low Income Housing Tax Credits historically provide only enough subsidies to achieve rents between 50-60% MFI. Households below 50% MFI typically have required a deeper subsidy in the form of a Section 8 vouchers or other resources. These subsidy resources are not available for rental housing targeted to households making 61-80% MFI which may explain why the affordable housing unit production goal is not being met in this category. Unit production priced to be affordable to households between % MFI exceeded the goal by 59%. The 2003 Strategy unit production goals assumed that most rental housing would be priced in the category of % MF1 and % MFI, but this production goal was not met. The proportion of rental housing in these categories would be even lower if there had not been some conversions of condos to rentals. Meeting the rental unit production goals for 61-80% MFI and % MFI presumably did not take place because there is a mismatch between what the renters are willing or able to spend and rents charged to meet the costs of development and operations. A review of actual sales prices showed more condos priced to be affordable to households % MFI, than the expected 77 units, however, the majority of ownership housing production was priced over 150% MFI and more ownership housing than rental housing was built. In rental housing and affordable homeownership, there is a gap between what can be charged in the market vs. the true cost of development and payment of the debt. There may be a need to provide subsidy or other incentives to fill the gap to make this type of market-rate housing more attractive to developers. Given the dominance of ownership units in the URA, presumably the production of ownership housing units was of more value to the developers and investors than the production of rental housing. 10

40 Committee Evaluation of Production Goals The completion of the "Block 49" project will meet 25% of the extremely low income affordable housing goal (0-30% MFI) and 44% of the overall goal for all income categories up to 60% MFI. This project is scheduled for completion in The goal of generating a new tax base to support infrastructure and other community improvements has worked. Construction costs were sometimes even higher than anticipated. Significant TIF resources to develop additional affordable housing are not anticipated until after Although rental housing was anticipated to be the dominant feature, in fact more ownership housing was developed. The ownership housing is typically affordable only to households above 150% of MFI. Exceeding the affordable ownership housing production goal was not expected. It is speculated that with the downturn in the market, some condos were discounted to prices that a household % MFI could afford. Rental units that were initially advertised at a price point only affordable to higher income households have offered significant discounts in Some strategies such as land banking may not be supported if resources to pursue purchasing land for housing are not available. Block 49 used more of Tax Increment Financing (TIF) resources than anticipated, leaving less money to develop new affordable housing in the future. The largest gaps for unit production by household income category include the 0-50% MFI, 61-80% MEI and the % MFI category. In each of these categories, rents in this area typically will not meet operating costs without some kind of gap financing, tax exemption or other subsidy. This district is well positioned to be attractive to seniors in terms of access to transportation, urban amenities, and healthcare. Resources may be available for senior housing, which might not be available for other niche populations. Production of up to 250 units of student housing was contemplated in the 2003 Housing Strategy. PSU, OHSU, and NCNM do not have immediate student housing plans or projected investments in the district. However, PSU anticipates adding student housing to a mixed-use, mixed-income redevelopment of the University Hotel site by as early has Development of student housing, especially family student housing, costs more than what an average student can pay and requires subsidy resources, which are