Underfunded inclusionary zoning programs, which likely slowed housing production in the City of Portland from 2017 to 2024, are on track to be illegal in the Portland area.
A bill that cleared Oregon's legislature on March 4 requires jurisdictions in the area to regularly self-evaluate these mandatory affordability programs, if they have them, and to keep them fully funded.
The legislation gained bipartisan support, passing the House 32–21, following a 21–6 vote in the state Senate in February.
The bill's lead champion, Sen. Khanh Pham (D-Portland), wrote:
"Senate Bill 1521 is the Oregon legislature's attempt to ensure that any inclusionary zoning program cost-effectively empowers communities to build both market-rate and affordable homes."
So-called "inclusionary zoning" programs require a share of homes in all new buildings to be available below market rates. But when Portland imposed such a price control on new apartment buildings without fully offsetting the cost of those mandates, it contributed to a sharp drop in homebuilding, something that tends to drive up prices for every tenant and first-time homebuyer.
That led the state's largest city to reverse course in 2024, using deeper property tax abatements to fully fund its program for rental buildings. Before that, the share of applications for small multifamily buildings had risen sharply, a sign that the program's costs outweighed its benefits and that homebuilders were deliberately avoiding the program's 20-unit threshold—or worse, avoiding building anything at all. Since the 2024 funding increase, that ratio has returned to normal, a sign that Portland's program is no longer accidentally damping production of the projects it aims to encourage.
In Portland, the tax break for new buildings ends after the first ten years of a building's life, sending those future taxes back into state and local budgets. The city's 2023 economic study estimated the total cost of public incentives at about $230,000, a bit less than the average public subsidy for each similarly priced home in a 100 percent affordable apartment building.
Pham, who also chairs Oregon's Senate housing committee, wrote:
"I'm grateful we passed a bill that learns from Portland's experience with inclusionary zoning over the past decade. [...] I believe in inclusionary zoning as a mechanism to economically integrate neighborhoods, not as a tax on all new housing."
The Oregon bill does not affect jurisdictions outside Multnomah, Washington, Clackamas, Columbia, and Yamhill counties; outside those areas, underfunded affordability mandates remain legal, though tightly constrained in their design.
Nor does it immediately affect any jurisdiction other than Portland, because so far only Portland has created a mandatory affordability program.
Even Portland is largely in compliance with the bill. It gives Portland until 2029 to bring its currently underfunded mandate on condo buildings into balance, and also provides an option for the city to qualify by waiving infrastructure fees specifically for mixed-income condo buildings.
In exchange for the funding requirement, the bill gives Portland-area jurisdictions more flexibility in program design. For example, a city can now set lower price targets for homes in new buildings, or a variety of price targets within a building. But the city must use some combination of tax breaks, fee breaks, or grants to keep the mandate's costs and benefits, whatever they are, roughly in balance for the prototypical project.
"If you're going to have an inclusionary zoning program, you should fund it,"
said Portland City Councilor Mitch Green, a Democratic Socialists of America-affiliated member of the city's housing and permitting committee. [...] Otherwise, you get perverse outcomes such as 19 units instead of 20. You get a lot of uncertainty. You get into kind of a production-cycle lag that we can't really afford. [...] I think dollar for dollar, it's probably one of the most cost-effecti...