Portland’s ‘IZ fee’ has put hundreds of housing units on hold

four people on stage for a panel discusssion

PHOTO / TINA FISCHER Quincy Hentzel, left, president and CEO of the Portland Regional Chamber of Commerce moderated the Nov. 6 Eggs & Issues discussion with panelists Jonathan Culley; principal with Redfern Properties; Kevin Kraft, planning director for Portland; and Todd Morse, president, Urbanist Coalition of Portland.

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By Tina Fischer

Multiple developers have approvals on the books for housing developments in Portland, but hundreds of potential units are going unbuilt thanks to rising construction costs and the city’s inclusionary zoning ordinance.

Approved by voter referendum in 2020, the rule requires all housing projects with 10 units or more to commit 25% of the units to lower- to middle-income households or pay an in-lieu fee of $182,830 per unit.

When combined with rising construction and financing costs, the IZ fee has made many projects entirely unaffordable for developers.

The conundrum was the subject of an Eggs & Issues panel discussion Nov. 6 hosted by the Portland Regional Chamber of Commerce and held in Hannaford Hall at the University of Southern Maine’s Portland campus.

City planning director Kevin Kraft; Todd Morse, president of Urbanist Coalition of Portland; and Redfern Properties’ principal Jonathan Culley weighed in on why housing construction has stalled.

Culley, who was a Mainebiz Business Leader of the Year for 2024, said Redfern alone has close to 800 units sitting on the drawing board — Tavata, a 327-unit apartment complex approved for 165 Washington Ave., and the Kennebec Block, a 500-plus apartment project planned for a vacant lot on Kennebec Street, across from Whole Foods.

Redfern has developed close to 800 apartment and condominium complexes across the Portland peninsula since 2013. The company’s last project was the 13-story Casco, a 263-apartment, mixed-use building on the corner of Federal and Temple Streets, finished in 2024.

But neither of the developer’s newest projects will happen until the city alters the IZ ordinance, Culley said. “We can’t do [Tavata] because of inclusionary zoning. It would cost us $15 million to the city right off the bat.”

A proposed apartment building in Portland

RENDERING / COURTESY REDFERN PROPERTIES

A 327-unit apartment building planned for Washington Ave. would be one of the largest in Portland.

Since 2020, the city has approved over 45 separate housing projects. This year alone go-aheads have been issued for a total of 1,300 units.

Kraft said zoning easements under ReCode now allow for more density, more multifamily housing and ADUs, and increased height allowances.

“So ReCode has unlocked a lot of potential,” Kraft said.

Despite expanded opportunities, Culley predicted that without changes to the IZ ordinance, few projects will be built in 2026 and 2027.

Other cost challenges

Culley cited other factors stalling building, with construction costs one of the biggest impediments.

Financing costs too have ballooned. “When we closed on the Casco, we had a loan at 3.5% for 12 years. Now the interest rate is over 6%.

“So that’s over a million dollars a year just in interest rate costs,” Culley said, which would necessitate a monthly per unit rent increase of $350.

Land costs, he said “are not too bad in Portland: about $20,000 per apartment unit; 8% to 9% of project cost.”

Culley added that regulatory costs add “millions” to a project.

“But the city can deal with regulatory costs. Interest rates I’m not particularly hopeful on.”

Building codes are also to blame

Todd Morse noted that other barriers to more housing need to be addressed. “Building codes need to allow for more single-stair design and mass timber can bring costs down. The state is working on regulations.

“There’s also community pressure; a lot of people don’t like more housing, and there’s been a lot of backlash. People need to understand that housing is a good thing.”

Culley is a member of Portland’s recently created Social Housing Task Force. He said there needs to be more private investment. “We need to let the private market do more of the heavy lifting.”

Kraft said the IZ ordinance will be looked at thoroughly in early 2026, which is the earliest it could be altered, as a condition of the 2020 referendum vote.

“We got a state grant to study that and that will bring us some data driven analysis,” he said.

Culley said, “We’ve got to do things that are expensive and hard to deal with our housing crisis.

“Demand in Portland is tremendous and is going to continue to be, with climate migration and the Roux Institute. We need to house these people.”

He added, “Our housing shortage is a humanitarian issue. We have people sleeping outside. And it’s affecting our downtown business community.”

“We’re actually hurting the people we’re trying to help.”