Portland City Council doubles inclusionary zone fee for future hotels

File photo / Tina Fischer Hotels approved prior to implementation of the IZ fee, including the one under construction at Thompson's Point, would not be affected by a fee increase.

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By Tina Fischer

The cost of building a new hotel in the city of Portland got significantly more expensive Monday night with the City Council’s approval of an increase in the inclusionary zoning fee.

Council voted unanimously to nearly double the so-called IZ fee that developers are assessed in lieu of building affordable housing, from $4,831 to $9,520 per guest room.

The ordinance also now stipulates that developers of new and expanding hospitality builds must create one unit of affordable housing for every 19 rooms in a project, an increase over the existing threshold of one unit for every 28 hotel rooms in a project. (Properties with fewer than 10 rooms are excluded.)

The per-room fee is assessed only if a developer chooses to opt out of the requirement. The money goes into the city’s housing trust fund to be used to help finance affordable housing projects.

Since the ordinance was enacted in 2019, no developers have built affordable housing units, choosing instead to pay the fee. Those fees have totaled $920,976.

The IZ fee increase was recommended by the Council’s Housing and Economic Development Committee, but failed to get the Portland Planning Board’s blessing at a Sept. 23 meeting.

Moratorium on new projects

There is currently a moratorium on new hotel construction, which will be up for review at the end of this month. The newly adjusted per-room fee will apply only to projects that were not approved prior to the moratorium, which took effect in December 2024.

Fifteen projects were granted approvals prior to the suspension, some of which are under construction now.

Reaction from a hotel developer

Portland-based Fathom Cos.’ hotel under development at 465 Congress St. on Monument Square is one of the projects that will be paying the IZ fee, but at the $4,832 rate in place when the hotel was approved, prior to the moratorium.

Fathom Cos. developed the Press Hotel and Canopy by Hilton, both in Portland.

"Since we have site plan approvals for our projects, we are not subject to the new fees, only the ones in place when we applied for site plan approval," Fathom President Jim Brady told Mainebiz Tuesday morning.

“So our project at Monument Square [for 92 rooms] will contribute nearly half a million dollars into the affordable housing trust fund," Brady added. "The real issue here has been that the [separate] IZ fee for housing is too burdensome and is limiting the supply of new housing units coming to the market."

(The city's separate inclusionary zoning fee on housing developments, approved by Portland voters in 2020, has sidelined a number of projects.)

Brady predicted a chilling effect on future hotel development.

“What this higher fee will do is likely slow down new hotel developments, which are not already under the previous IZ ordinances," he said.

"Once the moratorium was announced, many projects submitted applications [to get under the existing fee structure], so there is a fair amount of future hotel projects which could be developed prior to the new fees being enacted. Meaning it will be years down the road before this is felt in the market.”