Three years after Portland required developers to build housing that’s affordable to middle-income buyers and renters, the first such unit to be built is under contract to be sold.

But the demand for the three units put on the market has been so weak that the city is adjusting the program, effectively reducing the prices and offering additional financial assistance to entice more buyers into the so-called workforce housing units.

City councilors last Monday appropriated $36,000 from the city’s Housing Trust Fund to offer up to $12,000 in zero-interest, forgivable mortgages to people trying to buy any of the first three workforce housing units created under the city’s inclusionary zoning ordinance. That money would be coupled with $9,500 assistance from the developers to effectively lower the sales prices of the units.

Workforce housing units are the name given to homes or apartments with prices affordable to middle-income earners. The city is trying to encourage the development of more housing in that price range after a slew of housing developments for wealthy buyers.

The changes to the city’s inclusionary zoning program, which requires 10 percent of the units in new developments of 10 units or more to be affordable to middle-income earners, come after two developers have had trouble selling the first three qualifying units, all of which are a little more than 500-square-foot, one-bedroom units.

Jeff Levine, the city’s planning and urban development director, said the financial assistance is needed because Portland’s rules limited the pool of possible buyers, who needed to earn the maximum allowable income in order to qualify for a bank loan. Also, the people interested in the workforce units are typically first-time homebuyers who may not be able to come up with the necessary down payment.

Levine said details of the down payment assistance are still being worked out. “It would be either a grant or a fully forgivable loan, so there would be no payments required.”

The financial assistance is only for the three workforce units currently on the market, because other changes to the city’s inclusionary zoning program should make it easier for future units to be sold, he said.

Adopted in 2015, the program aims to increase housing for middle-income earners by creating housing that’s affordable – which means the monthly cost cannot exceed 30 percent of household income – for people or families earning up to 120 percent of the area median income, which in 2018 was $75,700 for an individual and $86,500 for a couple.

As originally designed, the program capped sales prices of the units at 30 percent of those income limits. But Levine said the Planning Board, which has the power to change the rules without council approval, has lowered that to 30 percent of 110 percent of area median income, which effectively lowers the maximum sales price and allows more potential buyers to qualify for mortgages.

The board also changed a provision that allows the seller to get out from under the restrictions on future sales prices if he or she can’t sell it.

Current rules say a unit created as workforce housing under the program can only be resold at prices that are affordable to middle-income earners, but a seller can petition the city for relief after six months of unsuccessful marketing. 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, the owner must pay the city the proceeds between the restricted sales price and the actual sales price.

The Planning Board has extended that marketing period to one year from when the unit is nearly complete.

Since the ordinance was adopted, most developers have taken advantage of a buyout option, paying roughly $105,000 for each unit not built, or found an off-site unit to make affordable through a deed restriction.

Todd Alexander of Renewal Housing Associates was the first developer in the city to actually build a new workforce unit, which comes with a deed restriction to maintain its affordability. He built one workforce unit at One Joy Place, a 12-unit project in the city’s West End, and it had been marketed unsuccessfully in Portland’s hot real estate market for over six months.

Alexander said 19 people have expressed interest in the unit, but some of them didn’t qualify based on income or didn’t move forward for other reasons, including the deed restriction, which limits the future sales prices.

“I generally support the idea of using the city’s Housing Trust Fund money to provide down payment assistance to income eligible buyers,” Alexander said. “Based on my limited experience, one of the significant impediments for middle-income buyers for IZ units seems to be the lack of savings for a down payment and closing costs.”

The unit at One Joy Place went under contract before the council’s approval or financial assistance. Levine said it was unclear whether that buyer would be able to take advantage of the city’s down-payment assistance program.

Developer Jack Soley included two workforce units at Parris Terraces, which is under construction in Bayside. He said that all of the 23 units are being priced to be affordable to middle-income earners, but only two units are subject to the deed restriction and income guidelines of the city’s inclusionary zoning program.

Soley said he hopes that the financial assistance and other program changes will make it easier to move the inclusionary zoning units, which so far have failed to gain traction.

In addition to the $12,000 being offered by the city for each unit, Soley said he will contribute an additional $8,000 and Norway Savings Bank will contribute $1,500 to cover the 10 percent down payment on the $215,000 units.

“Rental rates in Portland are now comparable to the costs (debt service, condo fee and taxes) a buyer would incur purchasing an IZ unit and building equity and possibly benefiting from appreciation,” Soley said. “The private/public partnership grant dramatically changes a buyer’s possible options.”

Randy Billings can be contacted at 791-6346 or at:

rbillings@pressherald.com

Twitter: randybillings