For more than six months, Chris Lavoie has tried to sell a condominium in Portland’s West End, a desirable neighborhood with historic buildings and a short walk from award-winning restaurants, coffee shops, art galleries, breweries and shops.

At 515 square feet, the one-bedroom condo under construction at Onejoy, a 12-unit development off Brackett Street, qualifies as micro-housing – a hot trend among some buyers, particularly young professionals or empty-nesters. The price – $208,700 – is actually lower than what comparable condos have sold for in the neighborhood, even in the same building. And it’s being marketed at a time when the real estate market in Maine’s largest city appears to be firing on all cylinders.

“I can’t get traction on it,” said Lavoie, who created a separate web page for the unit.

Such is the plight of the real estate agent tasked with selling Portland’s first newly built price-restricted housing unit to result from a 2015 affordable housing ordinance.

Portland’s so-called inclusionary zoning ordinance was intended to promote the construction of housing affordable to middle-income workers. The city has seen a flood of luxury condos being built since 2015, but those developers have opted to pay the city hundreds of thousands of dollars in fees rather than put units on the market that qualified as affordable under the ordinance. That money has gone into a fund used to help finance other affordable housing projects.

Now, three years after the ordinance passed, the first unit is under construction as part of an unusual condo project aimed at less affluent buyers.

Portland’s ordinance requires 10 percent of units in projects of 10 or more units to be affordable to middle-income earners. Such programs, known as inclusionary zoning, are being used by cities across the country to preserve and produce affordable housing for the middle class.

The sale price must be affordable for a household earning 20 percent more than the area median income for Greater Portland. The income level depends on the size of the household that fits into a unit. A three-bedroom unit, for example, could be priced for a family of four earning $108,000. The price is then based on what that family can afford if it spends 30 percent of that income on rent or a mortgage.

Developer Todd Alexander, whose Renewal Housing company is doing the Onejoy condo project in Portland’s West End.

So, in the case of this small one-bedroom unit at Onejoy, the city’s target buyer is a single adult earning as much as $75,600, which results in a maximum price of $208,700.

Under the city’s rules, future resales of so-called workforce housing units also must comply with the pricing limits. A 99-year deed restriction is attached to each unit to ensure that it remains relatively affordable to future workers.

The sticking point in the effort to sell the unit at Onejoy doesn’t seem to be the unit size, finishes or price, Lavoie said.

Two other 515-square-foot units in the same building, with hardwood floors and quartz countertops, are already under contract for sales prices between $215,000 to $260,000. The so-called workforce unit has the same finishes and is listed for less money – $208,700. Lavoie said that is about half the average sales price for condos sold on the Portland peninsula in the last year.

“The only thing I can go back to is the deed restriction,” Lavoie said. “People buy the real estate to get the upside of it. If they’re realizing in the process that they’re being handicapped in selling it, they look for something else.”

Portland adopted its inclusionary zoning ordinance in late 2015. At the time, rents in Portland had risen 40 percent in the preceding five years and policymakers were looking for ways to create and preserve workforce housing for people like teachers, firefighters and young professionals.

So far, 16 approved projects have triggered the ordinance and four more are under review. But most developers have provided the city a fee rather than actually building the units. That fee is currently set at about $105,000 for every workforce unit not built. So far, developers have paid just over $976,000 into the city’s housing trust, according to city data. Some developers with projects in the pipeline have yet to decide whether to provide the housing or pay the fee.

The fact that most developers would rather pay the fee doesn’t bother Jeff Levine, the city’s urban planning and development director. Levine said the city can leverage every $100,000 payment into six or more units of housing by working with affordable housing developers such as Avesta Housing and the Portland Housing Authority. But he also said he would like to see more workforce housing like Onejoy being built.

“I expect as the market matures, more people will be building these units,” Levine said.

Some city officials have proposed strengthening the ordinance. Mayor Ethan Strimling and City Councilor Brian Batson have proposed requiring a higher percentage of workforce units in new developments. And Strimling has proposed higher fees for developers opting out of the program and lower income guidelines, which would reduce the price of the units. But the council has not moved forward with those proposals.

Cape Elizabeth has required that low- and middle-income units be included in subdivisions with more than five units since 1992. Its program also has a fee, but it’s the difference between the restricted sales price and the actual sales price, which can be much more than $100,000. Most developers end up building the units, according to Town Planner Maureen O’Meara, who said the program has created 14 affordable units.

O’Meara said the fee in some cases can be $200,000 or more. “Nobody takes that option, because it’s a really expensive fee,” she said. “The fee encourages actually constructing the affordable housing, which is what we prefer.”

Kevin Donoghue, the former Portland city councilor behind Portland’s ordinance, said the fact that developers are paying the fee instead of building the units tells him one thing.

“The ordinance could certainly be strengthened,” Donoghue said. “As most developers choose to pay the fee in lieu of building inclusive housing developments, the current fee is clearly set far too low. The fee proceeds certainly allow the city to help create new permanent homes.”

Some developers have found another way to comply with Portland’s ordinance without building workforce units or paying the fee. They provide price- or rent-restricted units off site, typically by purchasing a housing unit and attaching the price restriction.

The ordinance allows the practice as long as those units are located within 1,500 feet of the project, or within the same U.S. Census tract, or when a case can be made that it is in the same neighborhood, Levine said.

That’s how the NewHeight group met the city’s requirement to build two workforce units as part of the high-end Luminato condos on Franklin Street. They’re also using that strategy to provide one of three workforce units required in the Verdante at Lincoln Park, which was recently approved by planners.

NewHeight provided the required housing at 42 Hampshire St., a three-unit building that the company already owned nearby. The developer sold the three-unit apartment building to Community Housing of Maine for a discounted price and CHOM deed-restricted two two-bedroom units so that the 24-unit Luminato project would comply with the ordinance, said Erin Cooperrider, who holds positions at both NewHeight and CHOM. The third unit will help the nearby 30-unit Verdante project comply with the ordinance.

“It has the same impact,” Cooperrider said. “It preserves a unit at an affordable rent or affordable sales price for a period of time.”

Cooperrider said they will pay a nearly $210,000 fee to the city for the remaining two workforce units required at Verdante only if they cannot find another apartment building to buy, or find a landlord to provide the deed-restricted rentals on their behalf. “We’d like to find another small building for sale that’s on the peninsula, but nothing’s for sale,” she said.

While more developers have indicated an intent to build workforce units, only two others have actually begun construction and marketing of those units. In addition to Onejoy, the 23-unit Parris Terraces project in Bayside is building two deed-restricted workforce units.

Developer Todd Alexander, whose Renewal Housing company is doing the Onejoy project, said he decided to include the workforce unit at Onejoy because the price was not all that different from the market-rate units. He also supports the mission behind the city policy, because his company primarily does affordable rental housing development out of state, he said.

“The city is doing the right thing by having this policy,” Alexander said.

Jack Soley, the developer behind Parris Terraces in Bayside, also included deed-restricted workforce units because their sales prices are expected to be comparable to similarly sized units within the project. His two workforce units are about 500 square feet and are listed at $215,000, whereas the other 23 units are priced as high as $229,000.

Soley also has not seen much demand for his deed-restricted workforce units over the four months they have been listed, but he’s not sure the deed restriction is to blame. People are generally interested in the units on the upper floors.

“All the units on the fourth floor went within the first week of being on the market,” Soley said. “People simply want the views.”

Portland did build in an escape clause for the deed restrictions, which could help developers or future owners sell the units.

If a unit has been marketed for six months and no buyer can be found, the seller can ask the city for relief from those requirements. The city can then either purchase the unit, or it can allow the owner to sell the unit at market rate to any buyer, regardless of income. If the latter occurs, however, the owner must pay the city the proceeds between the restricted sales price and the actual sales price.

Levine said staff may ask the council to extend the marketing period, based on similar programs in other communities. “One specific change we are looking at is a longer marketing time, since we have learned that buyers of affordable units want to see a completed unit,” Levine said.

The city is also taking some steps to help developers market their workforce units. City officials are working with Avesta’s Homeownership Program to find qualified buyers, Levine said. And the city has created a website and list-serve for prospective buyers to keep them informed when units become available.

Strimling said he thinks Portland should reconsider the provision that allows people to get out of the program if they have marketed the property for six months without a buyer.

“That is definitely a loophole we need to look at,” Strimling said. “That seems like an opportunity for someone to put it on the market for six months and not put in the effort it needs and sell it for more money to get around it.”

Soley, the developer of the Parris Terraces, said he’s not sure if he will ask the city to drop the deed restriction if his units haven’t sold after two more months. “We’ll cross that bridge when we get there,” he said.

Although the unit at Onejoy has already been marketed for over six months, Alexander, the owner, said he’s going to keep trying – at least for now.

“Our intent right now is to keep the inclusionary zoning restriction in place and keep marketing it,” Alexander said. “I’m not sure we will do it forever.”

 

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