Out of touch: Federal market rental rates
Have you seen a one-bedroom apartment in Bend going for $733?
What about a two-bedroom apartment for $857?
“Show me where you can find me one of those,” says Jeanine Soelek, “because they don’t exist.” Soelek has been searching for a permanent place to live for over a year, without success. The grocery clerk, who works full time and makes $10.25 an hour, has spent the last few months sleeping on cramped couches and conforming to kids’ bunkbeds, living a transient lifestyle, moving when she feels she’s worn out her welcome. “It’s an uphill battle. Between the $1,200 rents, security deposits, application fees and waiting lists, I can’t seem to get it together. My friends have been so accommodating, but how long can I do this for?” According to the U.S. Department of Housing and Urban Development, Bend has a 1 percent rental vacancy rate, so finding any sort of rental—affordable or otherwise—is a difficult feat.
A quick scan of the Bend Craigslist site yields just two results for one-bedroom apartments near the $750 mark. Taking the average from 40 available one-bedroom units listed on the site between May 9 and May 14, the average asking rate was $1,098.50. That’s 52 percent higher—or $365 more—than what the Department of Housing and Urban Development deems “fair market value” for Deschutes County. HUD uses that rate as a benchmark for its Section 8 Housing Choice Voucher system, one of the low-income housing subsidy programs available in the U.S.
“We received about 2,500 applications for the program this year, which is pretty constant to the prior years,” says Patty Holmes, housing services director at Housing Works, the nonprofit, local housing authority for Deschutes, Crook and Jefferson counties. Each year, the program serves approximately 1,200 participants in the tri-county area and pulls about 600 new applicants who are awarded a voucher through a lottery process. “We currently have 505 landlords receiving Housing Assistance Payments for this program,” says Holmes. “Our current success rate is 53 percent, so if we issue 100 vouchers, 53 families will ultimately find housing where we can assist them with their rent.”
The voucher is only for the amount determined by HUD as fair market value, so provided a landlord accepts the voucher, tenants will need to make up any additional lag in rent. The 1,900 or more people left without any assistance can look to other options, such as the federal Low Income Housing Tax Credit (LIHTC) Program or the Oregon Affordable Housing Tax Credit Program (OAHTC) which provides private owners with an incentive to create and maintain affordable housing.
Help is out there, but it’s hard to get
“It’s an extremely complicated system,” says John Gilbert, co-owner of Pacific Crest Affordable Housing. “It can be really hard to wade through and most people don’t understand it.” The LIHTC was devised by the Internal Revenue Service (IRS) and grants income tax credits to vetted properties or developers, which reduces the cost of running and building affordable housing properties. Developers throughout the state vie for these competitive tax breaks, and if granted, agree to rent out a specific number of units to qualified individuals at or below fair market rates (and usually far below actual market rental rates). Developers agree to do this for an average of anywhere from 20 to 60 years, depending on whether it’s a state or federal program, although there are loopholes to exit the program early. The received tax credits can be “sold” to free up cash flow – mostly to corporations looking to benefit from the tax breaks, which can be as high as 9 percent. The investors benefit from the tax credits while the developer benefits from the cash infusion received from selling credits to investors.
Limited federal funding, however, stifles the program. “There’s too much demand and not enough supply,” says Gilbert, noting that his company is competing against federal funding for affordable housing projects that is in part already allocated to the Portland Metro area and the Willamette Valley, locations also struggling with increased growth and wages that haven’t kept up with inflation. Central Oregon affordable housing projects compete for an already smaller piece of the pie, the “Balance of the State” applications.
Holmes, who administers the Housing Choice voucher program, says: “Except for 89 VASH (Vouchers for Homeless Vets) there has (been) no new voucher funding in Central Oregon in the past 13 years. This is pretty constant for the entire country, not just Central Oregon.”
Gilbert, pointing to the new administration and its promise of slashing the corporate tax from 35 percent to 20 percent, says that investment in affordable housing has slowed since the November election. Since investors claim these credits for tax-liability benefits over a 10- and 11-year return period, investors are pushing the pause button and waiting to see if those tax breaks will be necessary in the future. “It’s simple economics, when you start talking about lowering corporate tax rates, investors pause and wait to see what happens.”
Humanizing the issue
The stories of affordability are seemingly endless in Central Oregon and across the state. As communities grapple with the problem and special housing advisories are created, Leah Miller* sees first-hand the cause and effect of the low-income housing in the area. Miller has worked for a low-income property that has used the LIHTC program for a number of years.
“Story after story, you realize that every single person here has one and you’ll find parallels to your own life,” says Miller. “A lot of my current tenants started off pretty well off, it’s just one thing or another that brought them here. I reflect on that a lot, how it can be just one thing—a loss of a job, a death, one bad mistake—and all of a sudden you can’t afford a home or have a place to live.” Her waiting list is “hundreds deep” and applicants usually wait years before a spot opens up. “I get phone calls every day from people checking in on their application status. Every day, I have to say ‘no, not yet.'”
Miller likes to focus on the success stories, however; the entrepreneur who had a setback but is now making it big or the family of four who saved up enough to buy their own home—albeit out of the area—making room for another family. “Yes, there are sad stories,” she says. “I’ve got women who are escaping from domestic violence or veterans who came back so damaged that they can’t hold down a job anymore. It’s heartbreaking because those veterans joined up with the service to pay for college education that they now can’t use.”
But she’s adamant that in her line of work, “not a single person is here because they don’t feel like working.” She continues, “People think that once in, people will just rob the system and take advantage of low rent. That’s not the case. Sure, you have seniors or those with disabilities who probably won’t make it out, but because of the stigma attached to low-income housing, most people want to leave that stigma behind. Once they find their feet and can go, most go.”
She continues, “Many new buildings face obstacles for development from the existing community because neighbors fear that bringing affordable housing into their area will attract a bad element into their midst, when really the people accessing these programs are already here, working on it. Even if you are well connected in your area, you might not know that the people you see everyday are struggling because they actively hide it for fear of being ashamed.”
One low-income housing resident, agreed with the stigma surrounding low-income housing and spoke to the Source anonymously, precisely for this reason. She described the hopelessness she felt while languishing on multiple waiting lists for two and a half years. A service industry employee with a family of four, she simply can’t afford the rental rates without the assistance of a LIHTC property. She describes a lack of hope and the stress and anxiety that comes with living paycheck to paycheck. Today, she’s grateful that she persisted, calling the day she moved into the low-income housing complex the best day of her life, after the births of her kids. Because of the stigmas attached to low-income housing, neither this person nor any other residents of low-income housing we contacted were willing to offer their names for this story.
Affordable housing: Not just a niche
“This is not a niche market anymore,” says Miller, “Low-income and affordable housing is most of our reality now. That’s what I want to push, that this could be you. You might need to benefit from these resources someday.”
Miller’s solution is to entice more property developers into the area. Surprisingly, she opposes House Bill 2004—a bill currently before the Oregon Senate that would lift the ban on statewide rent control. “It would drive nervous developers out of the state,” she predicts. Instead, she tries to share the benefits of the tax breaks to private landlords, telling them, “You never have to market your space, you’ll have waiting lists for years, building permits move faster and the City is willing to work with you.”
The City of Bend implements a 1/3 of 1 percent Affordable Housing Fee on all new building permits, which yields approximately $2.5 million annually and is used to develop affordable housing for families at or below 80 percent of the median $59,400 income. “We actually have to pay this Affordable Housing Fee on all of our projects,” says Rob Roy, co-owner of Pacific Crest Affordable Housing. “It’s seems kind of counterproductive, doesn’t it?”
The City of Bend works with new affordable housing projects that receive local, state or federal funding and expedites planning permits faster than conventional developments—usually within two weeks. Additionally, low-income rental housing projects receive a city property tax exemption for a 20-year period.
Out-of-the-box solutions thought up by other groups include having larger Central Oregon employers subsidize or provide housing options for their employees, especially those recruited from out of state. Other ideas include allowing for taller, multi-story apartments along Third Street or in the Maker’s District, yielding high-density housing solutions that move away from the single family home—which, although desirable, take up much-needed space inside Bend’s Urban Growth Boundary.
One hundred units have been added in Bend over a three-year period, and more are slated for completion soon, with Pacific Crest slated to build 50 affordable units and Housing Works planning to build 24 by the end of 2019. Housing Works says its units east of Pilot Butte will be offered at no more than $720 for a one-bedroom and $843 for a two-bedroom—in line with HUD fair market rates.
System Development Charges, the fees collected during new development to fund city streets, parks and recreation and water and sewer projects, can also be waived for affordable housing and are used to stimulate and encourage investment. The City has waived SDCs for affordable housing units and has gone as far as eventually donating the land to Pacific Crest’s 26-unit project. “One major player that isn’t currently participating is Bend Parks and Recreation,” notes Gilbert, “They voted no on waiving SDCs for affordable housing projects. That may be something they need to revisit soon.”
Miller pushes for private landlords to get into the mix and help aid the problem. “Many conventional property managers find the program requirements to be daunting,” she says, “But if you are currently managing property and looking for a new challenge, affordable housing can be extremely rewarding on so many levels.”
But is it enough? Once you crunch the numbers, building units is extremely expensive, and as such, only a handful of developers are willing to build affordable units. A proposed 2 percent increase in the fee for building permits and other planning and engineering services by the Bend Community Development Department also means costs will increase, unless they are waived.
Gilbert, from Pacific Crest, says in addition to waiving SDCs and donating land, the City could pitch in for infrastructure builds such as sidewalks and water access for their builds that can amount to millions of dollars. Out-of-the-box solutions thought up by other groups include having larger Central Oregon employers subsidize or provide housing options for their employees, especially those recruited from out of state. Other ideas include allowing for taller, multi-story apartments along Third Street or in the Maker’s District, yielding high-density housing solutions that move away from the single family home—which, although desirable, take up much-needed space inside Bend’s Urban Growth Boundary. Ideas such as these can find resistance with locals who aren’t used to “city-like” attributes in what used to be a small town. Long-time resident John Howard echoes this worry, noting, it will take away from the “…Bend aesthetic. We moved here to be surrounded by trees, not high-rises.”
Shifting people’s mentalities, finding balance and workable solutions and realizing the issue relates to the entire community, not just a niche segment, are high hurdles. But they’re hurdles worth mounting, because as the National Realtors Association continues to lament, right now, millennials can’t afford to buy houses, homeownership in general has declined and property developers are building to rent, not sell—whether affordable or otherwise.
Gilbert reflects, “There’s no silver-bullet solution. It will take a village—at local, state and federal levels—to find creative solutions to solve this issue.”
*name changed for privacy
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This article appears in May 17-24, 2017.
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All points taken…. But the big picture reason that here and across the country, affordable housing is so crazy is…. Real estate has become a ‘casino mentality’ in the last few decades. Portfolios and investment opportunities drives up the market prices for people that just want a place to live. And then throw in the vacation rentals in Bend and you have what we have now. Sometimes it seems that we talk about affordable housing as though it’s just a thing to talk about. When in fact we are a society bent on making a profit at the expense of everyone…no matter the consequences to the greater. Nothing illegal going on…”but I just can’t get enough properties in my portfolio to feel safe and secure.” How many houses in Bend sit empty from out of state owners…again, no crime. MacMansions filled with empty space so that when I visit I feel like I’m the king of the world. Again, no crimes. So we plug along with noble solutions, thinking that if we could just get enough inventory the problem would be eased some. But then some rich person from ‘anywhere’ pops into town and buys the new apartment complex and turns it into condos and townhouses. Good for them and their investment…no crime committed…it’s the American way. What if a really rich person swooped into town and bought lots of houses and apartments and then rented them out for below market value…and you had to prove your worthiness? It would help, but we all want to capitalize on opportunities. And there just doesn’t seem to be a profitable opportunity when it comes to low income affordable housing? We just haven’t gotten hungry enough or creative enough to solve this. Maybe check out what Barcelona, Spain is doing with their city blocks….Awesome. But that’s Europe…didn’t we leave that place a couple of centuries ago because of oppression? ‘Build it and they will come’… Bend Real estate interests have been promoting Bend to the world for decades. The Bend Theme Park is alive and well…enjoy the ride! Because like it or not…Bend is going upward in building size so that those that work the low end jobs can support those that come to the theme park for fun.
One thing is missing from this article: if people cannot afford the cost of living in Bend, which is a highly desirable and expensive place to live, then why not move to a cheaper town?
Thank you so much Doug for your informed and logical response to this issue. To quote George Bush, freedom aint free, and for all the liberties we are able to enjoy with the current real estate casino mentality, it is truly at the expense of middle and low income folks that want to live and work in this community.
Our right to freedom came up a lot during the vacation rental fiasco, where property rights were likely the main reason the City didn’t put a moratorium on applications as the vacation rental committee worked towards a compromise, resulting in 100s of more permits, (the City was basically afraid of being sued), and it was used as the justification for allowing permits to stay with the house if it sold (congratulations real estate agent lobbyists). This law makes our current vacation rental situation irreversible, though not worse. Horray? So its our right to profiteer off tourism, and turn our house into a hotel. Lets turn the whole block (NW Federal) into a hotel chain, actually, those run down mill houses are an eyesore, right? Using this property rights logic, Im not really sure why it stops there. Why shouldnt I be able to turn my house into a brothel or a methlab? Its my property, my freedom.
I think you make your own point beautifully when you say we havent gotten hungry enough or creative enough to solve this. This is exactly the kind of situation where government intervening for the greater good is necessary, because the people who are hungry and creative have a very unrepresented voice now and they are leaving Bend. It means the government is going to have to make some controversial decisions that will piss people off. Increasing the transient room tax, or siphoning money from Visit Bend’s marketing budget (they receive 40% of an 8% room tax) and Bend Parks & Rec’s exorbitant budget (they receive 11% of our property tax, plus a % of the taxes that are paid when a new house is built) are a few places we could start.
Both organizations get millions of dollars as a result of tourism and real estate development, the two main drivers of unaffordable housing. The way that Bend Parks and Rec is able to act so autonomously is particularly disturbing, given that they have been denying applications by affordable housing developers to wave their portion of the development tax, and getting away with it, but claiming that without the tax, they wont be able to do their work. As in Maslows hierarchy of needs, I’d say a roof over one’s head wins over a sandbox and a slide.
There is a very tromped down path laid out for us by other ridiculously oversold tourism communities like Aspen, Colorado, where medium rent per month for an apartment is currently $10,000 (yes, that is per month.) That is exactly where we are headed when the City claims their hands are tied as things change exponentially due to technology like Air B&B and when we have a law in place that propels our tourism bureau forward in an unmitigated cycle of growth (more tourists, more money for VB, more marketing, more tourists, more money for VB, more marketing.)
I worked incredibly hard to get the Bond Measure for Parks and Rec passed four years ago, I’ve worked for Visit Bend, and I’ve worked in tourism for ten years, so I’m really just trying to see the big picture as someone who is part of this community. Bend has done radical and incredible things in both tourism and recreation, and I’m proud to live here and have participated in these amazing developments. But, we might have to lay off the celebratory microbrews for a night, let the pot smoke clear, and start putting our energy towards a situation that is a little less sexy.
The tiny house movement is not only a creative solution, but an incredibly empowering one, because people would actually own their own structure and not be dependent on the government till the end of time. (How American is that!?) I would encourage the city government to start thinking radically and get behind proposals for tiny house development projects with tax breaks for System Development Charges, and subsidies or loans for down payments on individual structures.
We are literally making waves on an international level because of all the amazing things that are happening here. How else can we use this creative energy and entrepreneurial spirit to solve the housing crisis? As we saw with Obamacare, there is plenty of money to be made in the private sector when the government gets behind something. It just takes more work, a commitment to develop a very clear picture of what we want our community to look like, and a desire to stand behind something has more meaning than a profit margin.