A progressive referendum aimed at increasing affordable rental housing and requiring environmental standards on publicly funded units in Maine’s largest city scared off some developers in its first year.
Portland’s “Green New Deal,” one of five referendums approved by voters in November 2020, requires new or substantially altered buildings with 10 or more units to make 25 percent of them affordable starting with plans filed in December 2020. The rent cannot be more than what someone making 80 percent of the area median income can afford.
The city is seeing a falloff in new plan submissions, and several proposed developments are smaller compared with last year. While it is unlikely that the rules account for the entire decrease as the COVID-19 pandemic and worker and supply shortages play a role, developers said the requirements are making it less affordable to build and recoup investments in an already expensive market that desperately needs new housing.
Ask Jonathan Culley, managing partner of Redfern Properties, a Portland-based real estate, architecture and construction firm that has more than 500 units under construction or about to start, including an 18-story project with 263 apartments that will be Maine’s tallest building when completed in 2023.
“I think the people who wrote this ordinance were very well-meaning,” Culley said. “But in the current environment with high construction costs, it’s impossible to build new rental housing given the inclusionary zoning requirements.”
That policy, which determines the top rent and income level for renters, lies at the heart of complaints. Portland became the first Maine city in 2015 to adopt inclusionary zoning, with a 10 percent threshold for units. It was bumped up to 25 percent under the 2020 changes, a threshold that is high compared to other regional cities like Cambridge and Somerville, Massachusetts, which have 20 percent requirements.
“That’s a pretty high percentage of the units to require to be affordable and still expect the developer to get the return they need to do the project,” Jeff Levine, Portland’s former city planner and a consultant, said.
The policy sets the maximum affordable rent for a one-bedroom apartment at $1,398 per month, including heat and utilities. But an apartment not under the restrictions could rent for $2,000 or more without heat and utilities, John Finegan, an associate at real estate firm The Boulos Co., said, making it hard for developers to make money on the cheaper units.
For Culley, that means his 263-unit building needs to have 27 affordable apartments, or 10 percent of all units, because it falls under the previous cap. But his 81-unit building on Forest Avenue that falls under the 25 percent rule would have to designate 21 units for affordable housing.
Developers have options to cope with the new rules. They can build the affordable units, decrease the project size to fewer than 10 units or pay $150,000 per unit to the city housing fund instead of offering them as affordable. Those smaller projects likely would create luxury apartments that wouldn’t help the affordable housing shortage, Finegan said.
The pipeline for new projects shrunk considerably since the Green New Deal went into effect. The number of total new housing units that developers proposed to the city under the new rules was down 82 percent compared to the units proposed in 2020, a recent Boulos report found.
At the same time, 2021 was a banner year for projects long in the works. Portland gave final approval to 921 total units, more than tripling the total from the previous year. The 129 new units falling under the Green New Deal requirements also produced one-third of the city’s 99 affordable housing units created in 2021.
Former Portland Mayor Ethan Strimling, a supporter of the Green New Deal, argued that developers rushed to get projects reviewed by the city before the new requirements for affordable housing went into effect, which appears to be the case for some.
Part of the increase in approved units also can be explained by some unusually large projects, like Culley’s 263-unit Federal Street project and a 171-unit project on Hanover Street, said Mary Davis, Portland’s interim housing and economic development director.
“I’m not sure we can determine that the inclusionary zoning changes are fully the cause of the change in the number of applications,” she said.
Other factors that could have affected the number of projects include pandemic-related workforce and materials shortages and the rent control rules in Portland, which are among the strictest in the country. No rent increases were allowed for existing tenants this year.
The hurdles come at a time when rents are at record highs and affordable housing is almost impossible to come by. Portland and its surrounding communities need to increase the existing 65,000 housing units of all types by 10 percent by 2025, according to the Greater Portland Council of Governments. The situation for affordable housing is even more dire, with the state having a shortfall of about 20,000 units, housing advocates said, with an average of only 230 units being added per year.
“We’ve got to be really cognizant as a community when we pass something that sounds good and all we’ve done is create another hurdle to creating much-needed housing,” Brit Vitalius, founder of Vitalius Real Estate Group in Portland, said.
Culley said he could afford his 81-unit project under the new ordinance only because he got historic tax credits from the state and local government to convert the old Consolidated Communications building on Forest Avenue. Those credits will save him up to 25 percent on construction costs.
Another developer for the Winchester Woods project in East Deering was able to push ahead under the new zoning because he bought the land inexpensively and got a 25 percent density bonus from the city to increase the number of units from 38 to 48, Finegan said.
But the extra conditions the zoning puts on developers may have some of them looking instead at neighboring towns like South Portland, Biddeford and Westbrook for multifamily development in Portland, Finegan said, and possibly even out of state. Saco has a project with 336 market rate apartments being built now, and a project in Biddeford’s Lincoln Lofts is nearing completion with 148 market rate units.
“Inclusionary zoning may be the catalyst that spreads the previously Portland-based development across the state,” Finegan said.
Without subsidies, Culley said it will be difficult to build in Portland under the ordinance. The ordinance will remain in effect for five years unless another referendum to change it is passed.
“We’re starting to look outside of Portland for opportunities,” he said. “We’re hopeful that at some point, these regulations will change when the unintended consequences become abundantly clear.”