Inclusionary Zoning Didn't Build 200 Units of Affordable Housing. Our Public Dollars Did.
In our last blog post, we made the case that high numbers of approvals don’t show that Portland’s Inclusionary Zoning policy is working. A big part of that analysis was separating out projects that were made possible through public financing or subsidy. The biggest of these subsidized projects by far is 89 Elm Street. When completed, this project will provide 201 income-restricted affordable homes, and enable the construction of 603 more homes at later stages of its master development plan. While this project was highlighted in the City of Portland’s Inclusionary Zoning Analysis, we feel the analysis doesn’t capture the full significance of this project. Even using numbers from the City’s report (which includes units we argue should not be included), if completed, this single project will represent more affordable units than the entire decade-long history of Portland’s inclusionary zoning program has completed so far (161 units).
In many ways, this project is a triumph. It will provide 201 affordable homes to individuals and families and these homes will be affordable to people who make 60% of the area median income, even less than the 80% level required by inclusionary zoning. These homes are walking distance to jobs, places of worship, parks, grocery stores, doctor’s offices, restaurants, cafes, playgrounds, community gardens, car rental, and everything our downtown has to offer. But it is not a triumph for Portland’s inclusionary zoning policy. Instead, it is a testament to the power, and necessity of public financing for affordable housing.
The city’s Inclusionary Zoning Analysis mentions that the project received public subsidy, but it is important to point out that 89 Elm did not merely receive public subsidies. Its entire funding stack comes from publicly subsidized sources. The total development cost of the project is $87.8 million. When a development project happens, typically developers get a construction loan before they build the project. This is a short-term loan at a high interest rate because construction can go wrong and the physical asset that would otherwise secure the loan – the building – doesn’t exist yet. Once the project is finished, the developer can refinance and get a longer-term loan with a lower interest rate. Through MaineHousing, the developer was able to get a $54 million construction loan at a lower interest rate than the market would offer. They were able to secure the long-term funding for the remaining cost of the project from publicly subsidized financing programs such as:
$35.5 million in 4% Low Income Housing Tax Credit (LIHTC) equity from WNC & Associates, a company that invests in affordable housing projects in exchange for federal tax credits
$21.73 million long-term MaineHousing loan
$23.72 million MaineHousing “soft” loan (0% interest, 30-year term)
$2.14 million Brownfield Revolving Loan Fund (RLF) loan
$1.04 million loan from Avesta Development comprised of Efficiency Maine funds
This leaves a small gap of $3.67 million that isn’t itemized in the press release. Something like a deferred developer fee is a common way projects fill gaps like this.
If the idea behind inclusionary zoning is that the developer’s profit on the market-rate units will pay for the below-market-rate units, that is not what is happening here. Reveler has a Master Development Plan to build 804 units in Bayside. Based on the 2026 fee-in-lieu, they would have had to pay over $37 million into the Jill Duson Housing Trust Fund in order to build them. Instead, they have received over $84 million in public financing. Not only have they been awarded subsidized loans so they can satisfy Portland’s IZ requirement, but part of the formula for project budgets under LIHTC is a developer fee. Rather than the developer’s profit paying for affordable housing, public financing dollars are going towards the developer’s fee. Reveler is developing this project in partnership with Avesta so presumably this fee will be shared, but the breakdown is not included in the press release.
This funding model may sound strange and confusing, but this is how affordable development works. Every time Avesta, CHOM (Community Housing of Maine), or any affordable developer builds a project, they draw from the same funding sources with the same formulas and fees. This project, or several smaller cheaper projects that add up to this many units, could happen today without all of the market-rate construction.
In fact, this project did compete for funds against those very projects. The “soft” loan from MaineHousing comes from a one-off program made possible in 2022 by ARPA money from COVID relief as well as a small amount of funding from other sources. Affordable developers could agree to enter project labor agreements (PLAs) that emphasized workforce diversity in order to secure 0% interest 30-year loans. This financing was available on a first-come, first-served basis, and 89 Elm quickly applied for all of it (page 63). Five other projects also applied, totalling 222 units requesting $24,679,000 that could have been built around Maine with this money, but those 5 other projects were rejected (subsequent MaineHousing board meetings show only 89 Elm with this funding type):
3iHoME at the Downs, Scarborough: 51 units, requesting $6,018,000
Essex View, Bangor: 40 units, requesting $5,680,000
Ledgewood 2, Damariscotta: 32 units, requesting $4,544,000
Mousam River Commons, Sanford: 44 units, requesting $5,192,000
White Rock Terrace, Cumberland: 55 units, requesting $3,245,000
This is not to say that 89 Elm was not deserving of the funding. It will provide a lot of affordable housing in a place where it is desperately needed. But this money would have been spent on building a similar amount of affordable units with or without Portland’s inclusionary zoning policy. In fact, 89 Elm ultimately received more from this source: $23.72 million, approximately $118,000 per unit, which is just a hair above the per-unit average requested by the other projects (it is not a coincidence that they were all so close; the program had per-unit funding caps). Fortunately, some of these other projects were only delayed and will move forward with other public funding sources, but others seem to be stalled indefinitely.
This is why counting those 201 units paints a misleading picture of the effects of Portland’s inclusionary zoning policy. What is even more worrying is that the ARPA money was not a recurring program and we are not going to see another project like this any time soon. This is discouraging, but in some ways it shows us our potential.
Reveler did not make this project possible. We did, with our public dollars. Twenty million dollars is a lot of money, but at the level of a state budget – or even a city budget – it is a quantity that is realistic to loan out via government or municipal bonding. Twenty million dollars is what it took, combined with other financing, to start construction on more units of affordable housing than Portland’s entire inclusionary zoning program has produced so far. If we want to make change, we have to invest in it, literally, with our public dollars.
