UGH...Portland, Volume 5: Blowing Taxpayer Money and Using the Building Industry as A Bank

Hey Portlanders!  Remember when you passed that $258 million-dollar affordable housing measure back in 2016?  The City of Portland declaring a housing crisis, promised to come up with 1,300 new affordable housing units to help those struggling to afford rents on less than a median income secure housing.  It was a great idea right?  It’s going to help us solve homelessness in Portland and really do something for those in need.

Fast forward to the middle of June, 2018.  The City of Portland approved the purchase of a 52 unit, newly constructed apartment complex, using $14.4 million of the $258 million property tax increase voters approved in 2016.  The purchase and resulting report from the Portland Tribune’s Jim Redden includes several red flags:

  • The City of Portland spent approximately $277,000 per door for this property. That’s not a wholesale price for a multi-family project folks, that’s retail.  The whole point of passing these affordable housing measures is not just to give local government’s money to buy what a retail developer just built.  If they do that with the whole $258 million, they are only going to have 931 total units from a measure they promised would build 1,300 units.


  • By making a purchase like this, the city put additional pressure on future developments they build or purchases with bond money. Prior to this purchase, to make their target of 1,300 units, the city needed to build/purchase or rehab units at approximately $198,500 each.  Now, after yanking $14.4 million for 52 units, they have $195,000 per unit available to pay for the remaining 1,248 they need to deliver.  Given the massive increase in construction costs and land prices in the last 5 years, that doesn’t seem like a wise decision on their part.


  • Why did the City choose to buy this project? Because they panicked.  Post passage of the $258 million, the City of Portland realized they had a direct conflict with the Oregon State Constitution if they did not build or wholly own projects utilizing bond money.  It took time to establish this fact and when they finally figured out they had to change the Oregon Constitution to use the money efficiently, a year had passed.  Now, after 18 months, they had nothing to show for the bond.  Pressure turned to panic and the City chose to buy something outright as quickly as possible.  For that reason, they significantly overpaid THEIR budget (the developer did nothing wrong.  He built the complex to either own and run or sell for a retail price.  He found a customer, period.)


  • In response to criticism for spending so much on so few units, Mayor Ted Wheeler continued the foolish tradition of eschewing quantity for quality. “We should not just be counting doors,” said Mayor Wheeler, intimating that quality construction will hold up longer and therefore is worth the money.  Keep in mind Metro Regional Government believes we are currently 48,000 units short of meeting our affordability need.  It would seem Mayor Wheeler as well as the rest of the Council still don’t understand that having two units that helped 2 families for 10-20 years means more today than one unit that helps one family for 30 years.


Further complicating matters for the City of Portland, the bond is not selling on the open bond market as fast as the City of Portland hoped it would.  That means income from bond sales has not provided them with as many resources as they would like right away.  With added pressure to produce, especially when Portland might get ANOTHER $250 million from Metro’s Affordable Housing Measure in November, the City of Portland needs money quick to buy more projects.  If the bond isn’t spitting out money, they need to access cash quick in order to make an impression.  Where could the City of Portland possibly come up millions of dollars on a moment’s notice?


Remember about eight weeks ago when we wrote this article?


It seems the Mayor and City Council remembered they had $90 million in unused building permit fees to raid!  Keep in mind, this money was collected by Portland to cover the costs of administering building permits in Portland.  It’s supposed to pay for inspectors, people at the permit counter etc.  We noted back in late March that Portland had massively over collected these fees and despite calls from the building industry to refund at least a portion of the amount collected, Portland has been mum about what they intended to do with the money.

Apparently, Mayor Wheeler and the Council figured out a use for those funds.  On the same night they overpaid for an apartment complex, the council authorized taking a $48 million dollar “loan” from the fund for buying affordable housing.  The money will be paid back with bond money over time, so no harm no foul, right?

Wrong.  Those funds had a specific purpose.  Every builder, remodeler and developer in Portland paid those fees because the City of Portland said that’s what it cost them to 100% recover their costs for administering their programs.  Instead they are treating the building industry as a bank, over-charging their permit fees to create revenue for other programs.  We are not sure if that’s legal, but it’s certainly unethical and wrong.

Let’s not forget, The City of Portland has a history of doing this, getting caught in the past using System Development Charge funds for projects that were not infrastructure related.  Now, panicked because they are struggling to deliver on even the meager number of units they promised for $258 million dollars, the building industry is serving as their bailout program.