Oregon notches record gains toward taming housing shortage

On her first week in office, Gov. Tina Kotek issued a bold plan: The state should aim to build 36,000 new housing units each year for the next decade, nearly doubling housing production in an effort to rein in housing costs.

Lawmakers moved urgently to clear the way, passing big spending and policy bills before partisan divides halted progress on many fronts.

Then, after a compromise ended a six-week walkout by Republican senators, legislators scrambled again to finish the job, considering a slew of housing and land use bills that could help homebuilders and local governments meet that goal.

Lawmakers approved $650 million in state-backed bond debt to build affordable homes for Oregon renters and first-time homebuyers of modest means. That’s $120 million short of what Kotek sought. But they topped her $130 million request for emergency housing and homelessness prevention funding, approving $200 million early in the session.

And legislators signed off on a plan to hold cities accountable to meet homebuilding targets based on population forecasts. Those that fail to meet their targets will face state pressure to cut red tape, reconsider onerous regulations or otherwise boost production.

As the tumultuous session neared a close, land-use advocates, housing experts and developers said Oregon is better positioned to address the housing shortage than it has been in decades.

“Given all the chaos and drama at the Capitol this session, it’s still looking like we’re going to come out of it with some long-term housing supply changes,” said Cameron Herrington, policy and advocacy director at the Oregon Housing Alliance, a housing policy group. “Oregon is going to have historic funding levels for building new affordable homes right away.”

Divides remain on where all those homes should be built and how to keep costs down and promote more development.

Jodi Hack, a former lawmaker and the chief executive of the Oregon Home Builders Association, said this session offered long-term changes that those in the homebuilding industry have sought for years.

“However, our constituents are still looking for immediate change to boost production on the ground now,” Hack said in an email.

BUILDING AND PRESERVING HOUSING

As the session began, lawmakers swiftly got behind the governor’s plan.

Kotek’s biggest win in addressing homelessness was the $200 million bipartisan housing package she signed March 29 — just months after she was sworn in. It will bolster rent assistance, expand shelters, protect homeless youth and catalyze housing development, among other initiatives.

The package also made several policy changes intended to minimize the affordable housing crisis, including giving tenants more time to pay overdue rent and holding local jurisdictions accountable for producing more housing.

Millions became available to communities immediately, with $30 million pushed out in the spring for eviction prevention and rent assistance. The remaining $170 million will become available July 1.

The largest chunk of that money, $55 million, will be used to quickly move people without housing into apartments. That funding will go to nonprofits and landlords to help 1,200 unsheltered people become housed, largely by paying the rent for them to live in privately owned apartments.

The next largest portion, $34 million, will go toward rent assistance aimed at preventing evictions, an amount lawmakers later raised to $81 million.

The walkout largely stalled progress until June 15, when frenzied lawmaking resumed. With only 11 days before the constitutionally mandated conclusion to the session, legislators took up a series of bills they hoped would build on earlier progress.

Among them were bills to rezone commercial buildings for housing, clear the path for funding new mobile home parks and permit duplexes to be built on single-family lots in all but the smallest Oregon cities.

Another bill will allow local governments to give developers five-year tax breaks for constructing “middle housing” — accessory dwelling units, duplexes and other units that are smaller and less expensive than houses — as long as they serve as a primary residence, not a vacation rental.

The Legislature also passed House Bill 2984 to make it easier to convert commercial buildings — like office buildings vacated by people working from home — into homes.

Gary Fisher, the deputy executive director of Multifamily NW, the state’s largest apartment industry group, said his organization is happy with the steps lawmakers have taken to address Oregon’s underproduction of rental housing.

But he said developers and landlords may be deterred by Senate Bill 611, which would impose a strict cap on rent increases. The bill, which passed the Legislature on Saturday, would limit rent increases to 10% or 7% plus inflation, whichever is lower. That came largely in response to landlords being allowed, given high inflation, to raise rents as much as 14.6% in 2023. Buildings constructed within the last 15 years will not be subject to the rent cap.

“We also need our elected officials to understand that increasing housing supply starts with preserving existing rental housing,” he wrote in an email. “Passing additional rent control this year is certainly going to force many housing providers out of the market, like we have seen in Portland.”

Measures that would have funded some specific types of affordable housing faltered early on.

Two bills stalled out that would have established a revolving fund for developers who want to build duplexes and other units that don’t qualify for typical subsidies but are smaller and more affordable than a house.

A bill that would have funded more than $50 million to develop and preserve mobile home parks died early.

Peter Hainley, executive director of CASA of Oregon, a nonprofit that focuses on housing agricultural workers and mobile home residents, said Oregon appears to be in a good position to fund affordable housing despite the failures of those bills. The state’s budget will devote millions to preserving existing affordable housing, including funds that could be used for mobile homes.

“If I look at the numbers for preservation, I think they look pretty good,” he said. “What we’d like to do is some different types of development that are hopefully more effective than stick-built houses.”

Lawmakers also passed House Bill 3042, aimed at expanding protections for tenants living in regulated affordable housing. The bill limits rent increases for renters in affordable housing for a few years after the subsidies expire and requires more notice for such tenants that their rent may soon go up.

Some affordable housing builders said they’re worried dollars set aside for affordable housing will leave out key programs and housing strategies.

Shannon Vilhauer, executive director of Habitat for Humanity of Oregon, said a Department of Justice rule limits how much bond revenue can go toward affordable housing that’s for homeownership rather than rentals.

As a result, developers like Habitat that build affordable homes for purchase rely on a bigger allocation of general funds to help subsidize construction.

But the Legislature set aside only $5 million that homeownership programs like Habitat could tap, Vilhauer said.

“Clearly the $5 million will be put to good use,” she said, “but there’s so much more we could be doing.”

Vilhauer said other bills this session will remove barriers to first-time home ownership, including one that will fund $12.5 million in down payment assistance to be distributed by culturally specific organizations.

LAND USE CHANGES

If Oregon is to build more than half a million homes by 2040, housing and land use experts say the state’s next big challenge will be figuring out where all those units will go.

The last time Oregon built more than 36,000 homes a year was in the mid-1970s, before the state established urban growth boundaries — the state’s strict land-use control policy to control urban sprawl and preserve farmland. All cities have a growth boundary, outside of which urban development is prohibited, and the Portland metro area’s 24 cities share one.

It’s been a polarizing law, with land-use advocates praising it for preserving the natural landscape and developers criticizing it as one of the reasons Oregon is behind on housing production.

Kotek did not propose wholesale changes to the land use system, but did support some tweaks that proved politically divisive in the final hours of the session.

A bill introduced at her request would speed along small additions to urban growth boundaries, up to 150 acres or less for smaller cities, if there were a plan for affordable housing that met minimum density requirements.

She primarily, however, opted to rely on on carrots and sticks to increase homebuilding within city limits.

The Oregon Home Builders Association “continues to work with lawmakers and constituents alike so that we may see more focused planning and permitting processes, and modest expansions of urban growth boundaries into pre-designated urban reserves,” said Hack, the association’s leader.

Mary Kyle McCurdy, the deputy director of the planning group 1000 Friends of Oregon, said expanding an urban growth boundary commits cities to expensive infrastructure projects and doesn’t make use of land and resources available within the existing boundaries.

“The city of Bend has 2,000 acres it brought into the urban growth boundary since 2016, which are not developed yet,” she said. “It needs an estimated $100 million in transportation improvements alone. Raw land is expensive to develop.”

Instead, she said, the state should focus on policies that allow for the redevelopment of land within current boundaries, such as parking lots or land zoned for commercial use.

Provisions of House Bill 2001 aim to compel local governments to do exactly that, requiring the state to annually estimate the amount of new housing at various price points needed in each city with more than 10,000 residents and holding the cities accountable if they don’t act to meet housing needs.

The law could allow the state to override city ordinances or expedite permit approval in cases where cities “show recalcitrance in addressing their housing gaps,” a chief sponsor of the bill, Rep. Maxine Dexter, D-Portland, told colleagues in March.

Despite their policy disagreements, developers and housing advocates say the state is finally moving in the right direction to meet its housing needs.

“Frankly, how we got to where we are didn’t happen overnight. It happened over decades,” said McCurdy. “No one thinks we’re going to meet these numbers tomorrow, but (the bills) will help us meet that goal and make sure we don’t fall back in those patterns.”

—Jayati Ramakrishnan; jramakrishnan@oregonian.com; Nicole Hayden; nhayden@oregonian.com; @Nicole_A_Hayden