What's The Real Reason For RIP? Part 2. (Hint: Its Not To Produce Affordable Housing.)
In Part 1 we saw that RIP isn't needed to accommodate Portland's growth.
"What is very clear, from the city's own reports, is that even if we did want Portland to grow so hugely, the city has enough buildable land to add all the housing necessary without RIP-ing down its historic single family residential neighborhoods."
Turning to the next story that is being used to sell RIP: "affordable housing".
Few disagree that Portland needs more housing that is affordable to families with below-median income. In our city, the median-income household makes about $54,000/year. If they spend 30% of income on housing, this median household would pay about $1,400/month for rent or buy a house or condo for about $350,000. Half of Portland's households earn less than the median income, and are less able to save a down payment or get a mortgage. For lower-income households, affordable rents must be less than $1,400/month and affordable house prices must be much less than $350,000 purchase price.
The reality is that most housing in Portland costs more than households with below-median income can afford, which makes "affordable housing" a potent story to sell everything from residential infill to public bond measures.
But RIP will not produce "affordable housing". That is a undeniable fact, and again we don't have to look further than the city's own reports for the proof.
Along with the RIP Report to the City Council, staff submitted a report by Johnson Economics, titled "Economic Analysis of Proposed Changes to the Single Dwelling Zone Development Standard". This report examines the economics of a 2,500 sq ft duplex (1,250 sq ft per unit) development for sale and concludes:
Construction cost will be $567,500 ($283,750 per unit at $227/sq ft),
Johnson assumes the duplex is sold for $862,500 ($431,250 per unit),
After financing and about 5% developer profit, this leaves just $165,625 to acquire a 5,000 sq ft lot in close-in Portland.
Developable 5,000 sq ft vacant lots in close-in Portland that sell for $165,000 are, if not imaginary, then very rare. One might be skeptical that a developer with such a lot would use it to make only 5% profit, which won't even cover the developer's overhead costs. But even assuming a lucky and kind-hearted developer, the Johnson Economics report makes the situation clear. Even in this unrealistically hopeful scenario, RIP style duplexes will sell for over $430,000 per unit, which is not "affordable" housing.
Now consider the realistic scenario, where the developer buys an existing house and tears it down to build the RIP duplex. This duplex replacing an existing house will be sold for much more than $430,000 per unit, because the existing house will cost more than the vacant lot that the Johnson Economics report assumed. In fact, the new duplex will cost more than the existing house did. Affordable housing will have been demolished to build expensive, not-affordable housing.
And if the duplex is built in Laurelhurst, it will be sold for even more, because property in our neighborhood costs more and because developers can get far higher prices here. In neighborhoods like ours, RIP will produce expensive "luxury infill" houses that are completely unaffordable to median-income or lower-income households.
A good example of what RIP will produce in Laurelhurst are the two infill row-type houses that Everett Custom Homes built after demolishing the 1917 house at 115 NE 39th St. Each house sold for over $900,000. We wrote about this in Q&A On Demolitions and you can see the selling price here and here on PortlandMaps.
So, we again come back to: since RIP won't produce affordable housing, why exactly is it being forced on us? Stay tuned for part 3.