HBA staff recently completed the below primer on housing affordability that details specific ways local jurisdictions can lower cost and promote expediency through their policies. This will be available to the public on our website, but will also be used in conversations with elected officials and candidates curious about how they can encourage production during the housing shortage. In addition to using this to help shape conversations about affordability in the region, we plan to use this during the election cycle as a tool to inform candidates throughout our endorsement process.
Tools for Promoting Housing Affordability
As housing prices continue to outpace incomes, providing an affordable supply of housing is the most pressing challenge we face as a region. Facing unprecedented growth over the next 20 years, the issue is one that will continue well into the future.
Housing impacts everyone, across all income levels. The Home Builders Association of Metro Portland (HBA) is a partner with local jurisdictions to ensure the necessary production of new and existing homes that are attainable, especially in amenity-rich neighborhoods and areas adjacent to employment opportunities.
In the pursuit of attainable, market-rate housing, there are key areas where the HBA and local jurisdictions can work to eliminate or reduce barriers to development that contribute to the cost and timeliness of housing. These barriers can arise at the city, state or national level and have the potential to inflate the prices of homes and inhibit buyers’ ability to afford them.
Challenge: Uncertain and lengthy permitting processes – Identified by builders as their biggest hurdle, complex and constantly changing regulations restrict a jurisdiction’s ability to quickly respond to housing demand and discourage builders from operating in that locality. Lack of staff capacity and consistency, as well as competing regulatory priorities from different branches of local government (I.E. transportation, development, permitting, etc.), are key contributors causing delays as well. What should take weeks or a couple of months can take six months to a few years, significantly adding to internal carry costs, design review, and permit fees, and impacting market timing of the product – all factors that add significantly to housing costs.
Solutions: HBA and jurisdictions can partner to lower the cost and increase the speed of housing development by ensuring efficient land use, permit, and design review processes. The City of Portland recently released a report titled Strategies for Accelerating Housing Development which analyzed obstacles and costs throughout the building process. They found that the City making improvements to the building process that enhanced certainty and timeliness in the process would have the most impact on increasing the speed of housing production and decreasing the overall cost of housing.
Senate Bill 1051, passed during the 2017 legislative session, is an encouraging step to resolve some of these issues. This legislation creates a new, faster process for affordable housing, restricts design or other discretionary review processes from being used to reduce density, and emphasizes the clear and objective standard requirement. This is an important first step in acknowledging the problem, but its success will be determined by how effective local jurisdictions are at implementation.
Many jurisdictions are also leveraging advances in technology to streamline the permitting processes by implementing software programs that improve communication and processes between staff and with the applicant.
Challenge: Lack of buildable land supply – Arbitrary or antiquated preservation regulations can limit the flexibility our region has to service areas and respond to increased housing demand. The Portland Metro region’s unique Urban Growth Boundary (UGB) can be a complicated process producing limited increases in the buildable land supply. In the past, this has been due to the amount of land added, as well as the poor quality or location of the land included in the expansion areas. This leads to unbalanced growth, which ultimately contributes to higher prices, leapfrog communities, and worsening congestion.
Solutions: According to the Obama Administration’s 2016 Housing Development Toolkit, “housing regulation that allows supply to respond elastically to demand helps cities protect homeowners and home values while maintaining housing affordability.” To promote elasticity in the housing supply process in the Portland Metro:
- Encourage a regional approach that plans for balanced growth and ensures appropriate land supply is available
- Include expansion areas that allow for a wide variety of housing options and types based on consumer preference and market performance
- Support programs and policies that encourage infill and redevelopment
- Promote awareness that individual communities in the region have different needs, especially when it comes to density
- Work to ensure expansion areas are adjacent to employment opportunities
House Bill 2095, passed during the 2017 legislative session, allows for mid-cycle expansions in between the standard six-year cycle of the growth management decision process. These decisions are capped at a total of 1,000 gross acres per mid cycle decision, but the new law is an important step in allowing cities to more quickly accommodate for their growth needs.
Challenge: Restrictions on density and infill development – Barriers to infill development can range from complex code requirements to neighborhood resistance.
Solutions: When the buildable land supply is limited, it’s important that cities and counties support policies that encourage infill development. Infill is generally characterized by building upon existing vacant lots in already urbanized areas and it’s an efficient way to increase the supply of both single family detached and multifamily developments, as well as middle housing options overall. A wide array of housing options means more families and individuals can find attainable housing for their incomes. While portions of Senate Bill 1051 will help remove those barriers, local jurisdictions can modernize code requirements to help promote a range of infill housing types.
Challenge: Ensuring predictable and appropriate impact fees – Local governments and service districts have become largely dependent on impact fees and excise taxes to cover the cost of infrastructure and services. As a result, added fees serve as an additional cost to home buyers and renters that can raise the price of housing beyond the reach of working families and first-time homebuyers. A report recently released by the City of Portland found that fees contributed 13% to the overall cost of housing. While the market often acts as a regulation device for rising home prices, there is no mechanism for controlling the cost of fees that accumulate at the local level. Currently, there is no certainty or predictability in the escalation of impact fee rates because they are mostly tied to local improvement projects. This can often lead to steep, unpredictable rate hikes that cause budget challenges for builders and developers for individual projects.
Impact fees: what builders and developers pay when jurisdictions allocate capital costs associated with development onto new homes. Jurisdictions account for infrastructure costs differently through policy choices.
Solutions: Impact fees will always play a role in the funding of needed infrastructure, but that should not be the only funding source for a given project. For UGB expansion areas or large scale redevelopment projects, Special Service Districts and/or Tax Increment Financing should be considered to address substantial transportation improvements or other major infrastructure needs. Public/private partnerships can be developed on the basis of common goals to fund large-scale infrastructure.
Recognizing that certain residential projects are in various planning stages, with pro forma statements incorporating a set of costs, when local jurisdictions do increase impact fees, they should delay implementation so builders have ample time to move forward on projects already planned and underway, and incorporate the new rates into future projects. Additionally, jurisdictions should phase the implementation in over a period of time so the impact is less severe. It is also helpful to index impact fee increases annually for inflation, preventing larger one time cost increases.
As our region works to accommodate expected growth, there are clear pathways to ensure local jurisdictions can respond elastically to an increased demand for housing. The HBA is committed to expanding the amount of attainable housing across the region by partnering with local jurisdictions on smart policies that speed production and address the factors contributing to the cost of housing.