HBA Staff recently reviewed and summarized a report released by the City of Portland that analyzed the impacts of city regulations on the cost and certainty of building in Portland. The report emphasizes the need for more certainty and expediency in the process and considers multiple possible proposals to do that.
The City of Portland recently completed a review of the impact of government imposed fees on the cost of housing. The goal of the report was to identify ways to alleviate costs to encourage the faster production of housing, as well as propose a strategy to reduce development review timelines.
The report acknowledged that System Development Charges (SDCs) represent the majority of government imposed costs – from 50%+ for a single family home to 70%+ on multifamily projects. It also acknowledges that SDCs in desirable jurisdictions, such as Portland, can be passed on to the consumer – which contributes to rising housing prices.
The report also concluded that government imposed fees (including city fees, SDCs, CET, regional imposed costs, and other costs) represent roughly 13% of the total cost of housing development projects. This matches a recent analysis completed by HBA staff based on receipts from building in the City of Portland which determined that all regulatory costs culminated to 12.18% of the total cost of a single family home.
One point the report notes is that each bureau in the City of Portland sets their own fees independently and with little to no communication with other bureaus. In addition, the City adopted SDCs for different bureaus at different times after the state law was adopted in 1989, ultimately creating a disparate process. Through conversations with Mayor Wheeler, HBA is encouraged to hear that he plans to instruct bureaus to prepare any proposed changes in conjunction with the annual budget approval process so Council can consider the impacts on housing supply and affordability collectively.
In addition to regulatory costs, certainty in the process and timeliness is very important to HBA and our members. Members of the development community, including HBA member Justin Wood (Fish Construction), were interviewed during the compiling of this report, and the report states that while this specific “conversation may focus on fees and charges – and developers state that costs do play a role in developer decision-making – it is the underlying regulatory environment and development process that more significantly drives developer decision-making.” Key obstacles noted by developers were: rental ceilings, inclusionary zoning, the design review process, national competition with lenders looking at the ease and cost of housing, lack of staff capacity and consistency leading to delays, and competing regulatory priorities reflected in conflicting bureau requirements.
The report focuses on the ways the City directly and indirectly impacts the pace in which housing is produced. It is encouraging to see the City complete this type of analysis to determine where delays are occurring and what can be done to improve timeliness.
In the fiscal year 2015-16, the City waived $9.68M in SDC revenue for affordable housing projects. Their recent analysis found that “while additional fee waivers or SDC exemptions will result in a marginal benefit to development projects, it is unlikely that the benefits will be sufficient to encourage faster or more prolific housing supply, and the cost of such reductions would be disproportionately burdensome for City operations.” The anticipated additional foregone revenue would fall somewhere between $6M and $16M. In some cases, such as for the Bureau of Development Services, analysis concluded that the expected revenue loss from additional SDCs being waived would negatively impact staffing levels and therefore lead to an increase in review delays. The report concluded that reducing SDCs by 10% would save developers approximately 1% on the total cost for each project, and reducing SDCs by 25% would save developers approximately 3% on the total cost for each project. The report also concluded that affordable housing developments should not be expedited over other projects for land use and permit review, as it would negatively impact the timeliness of all other projects.
The report states that “In isolation, SDCs and their reduction have a negligible effect on housing supply; however, the regulatory environment adds additional challenges making developers more sensitive than they otherwise would be to all other costs, direct and indirect.” It also posits that developers will “likely continue to charge what the market will bear despite cost reductions because this both increases profit and ROI which has the potential to reduce interest rates.”
Instead of an increase to the amount of SDCs being waived, the report instead suggests that the City focus on improvements to the process which would provide more certainty and timeliness. Through their analysis and interviews with developers, they found that “complex and evolving regulations” are more significantly contributing to the speed and cost of housing development.
In advance of this report, staff from multiple bureaus provided feedback on what strategies they believed would be most effective in increasing certainty and timeliness in the process. The top two suggestions were prioritization of recruitment and hiring of key positions, and implementation of an electronic plan review. Other options considered were to use existing leadership forums to manage the City’s development review goals, build employee capacity at the front lines of BDS, expand online payment options and make minor process changes.
HBA is encouraged to see that under Mayor Wheeler’s leadership, the City of Portland has completed such a thorough analysis, including developer input, and is working to develop and implement ways to provide more certainty and timeliness in the process. If you are interested in reading the full report, it is available here.