Amend System Development Charge Exemptions Code to add a temporary exemption for residential housing projects (amend Code Section 17.14.070)
The City of Portland ordains.
Section 1. The Council finds:
- In 2015, the Council, through Ordinance 187371, declared a housing emergency, which has been renewed six times and was most recently renewed in September 2024 through Ordinance 191897.
- In 2023, more than a third of Portland households and about half of all renters in the city were cost-burdened, meaning they paid 30 percent or more of their income on housing costs and were at increased risk of housing instability, with homelessness as the worst manifestation.
- The 2023 State of Housing in Portland Report shows that housing affordability remains a challenge for most Portlanders, as rents and home sales prices have continued to climb and outpace incomes.
- The Council adopted the 2045 Housing Needs Analysis as a supporting document to the City's Comprehensive Plan on December 15, 2023, by Ordinance 191547, which found a need for more than 120,000 new housing units by 2045.
- As identified in multiple City reports and forums, including a July 25, 2023, Council Work Session on Housing Production and the 2023-2024 Inclusionary Housing Calibration Study, rising construction costs and other market conditions in recent years have increased the costs to build housing in Portland.
- In 2024, 818 units of market-rate housing were produced in Portland, the lowest level of production in over 10 years, with similar levels of new housing forecasted in each of the next three years, for a total of 2,500 new units.
- On January 10, 2023, Governor Kotek signed Executive Order 23-04 acknowledging a statewide housing shortage and affordable housing crisis, establishing an annual housing target statewide of 36,000 units.
- The City has been engaging in much-needed permit improvement work in earnest since 2021, resulting in the creation of a new organizational structure for the City’s permitting functions in July 2024 and ongoing work to improve technology systems and business processes, increase the use of data, reduce code barriers, and improve the customer experience.
- The City adopted a Housing Production Strategy in August 28, 2024 through Resolution 37673 to guide the City’s actions to increase housing production across all housing types and affordability levels.
- The Housing Production Strategy identifies a variety of ways that the City influences the amount and types of housing that is built within city limits, including but not limited to: a) requirements like zoning and permitting regulations and development charges for public infrastructure; b) financial resources to provide direct funding for new housing construction; and c) financial incentives, such as exemptions from property taxes and development charges and development bonuses.
- The City’s Inclusionary Housing program links the production of new private-sector development to the creation of new regulated, permanently-affordable housing units located in mixed-income buildings. Increasing private-sector development creates housing affordable to low- to moderate-income households through Inclusionary Housing.
- The City collects system development charges (SDCs) as part of the permit process for new residential and non-residential development, which provides resources to expand public infrastructure for sewer, water, parks, and transportation to accommodate the additional needs generated by the new development.
- The City establishes SDC rates across multiple bureaus in alignment with state law, and SDC rates are typically adjusted by the Council, or automatically adjusted for inflation by City Code, on an annual basis.
- Currently, SDCs total approximately $20,000 per new housing unit and can range from $15,000-$35,000 per unit.
- The City currently offers an exemption from SDCs for rental housing that is affordable to households earning up to 60 percent of area median income and for new homes available for sale that are affordable to households earning up to 100 percent of area median income, and qualifying Accessory Dwelling Units and office-to-housing conversations.
- In 2024, the City began offering a 24-month, no-interest deferral of SDC payments that is set to expire in August 2025.
- City Code requires Portland Parks & Recreation (PP&R) and the Bureau of Transportation (PBOT) to review and update their SDC methodology, rates, and project list every 10 years. The adopted Housing Production Strategy identifies the need to comprehensively study how SDCs affect development feasibility and adjust them accordingly to find the right balance between adequately serving new growth and minimizing adverse impacts to housing feasibility.
- PP&R will complete the 10-year review and update of their SDC methodology by summer 2026 and PBOT will start the process to update the fees, methodology, and list of transportation projects eligible to receive SDC funding in 2025 for adoption in late 2026. In alignment with the Housing Production Strategy, during these revision periods, bureaus will evaluate SDC fee structures and exemptions to incentivize housing with development types, affordability levels, and locations that better serve housing needs and equity goals.
- In March 2025, Mayor Wilson and Governor Kotek convened conversations with developers of multifamily housing with the intention of identifying opportunities to spur housing production at a time when high construction costs and market conditions present immense challenges to building homes in Portland and across Oregon, and on May 1st announced a city initiative to usher in the development of 5,000 new units of housing in Portland by waiving SDCs for three years.
- The City Code authorizes the City Administrator to adopt administrative rules and procedures necessary to implement adopted City Code and Charter provisions.
NOW, THEREFORE, the Council directs:
- Amend City Code Section 17.14.070 as shown in Exhibit A.
- The Community and Economic Development Service Area shall ensure that City Council receive written implementation reports every six months for the duration of the SDC waiver. Report discussion will include but not be limited to:
- Unit characteristics (e.g., total units, structure type, income category where known),
- Development trends (e.g., comparison of quarterly permit issuance volume over the last five years, up to and following the enactment of the SDC waiver and comparison of permitting volume with published construction cost indices and benchmark financing rates).
- Progress toward stated policy goal of 5,000 new units.
- Identification of any material changes in the rate or timing of permit issuance and construction starts following implementation of the waiver, including observed trends in project movement, activation of previously dormant applications, or other indicators of increased project viability.
- Total estimated value of SDCs waived to date by bureau.
Official Record (Efiles)
An ordinance when passed by the Council shall be signed by the Auditor. It shall be carefully filed and preserved
in the custody of the Auditor (City Charter Chapter 2 Article 1 Section 2-122)
Passed as amended by Council
Auditor of the City of Portland
Simone Rede
Impact Statement
Purpose of Proposed Legislation and Background Information
The purpose of this legislation is to waive system development charges for new housing in Portland for the next three years, to help create 5,000 units.
To be eligible for the temporary exemption proposed in Section 17.14.070 of Portland City Code, a development project must be creating new housing, including detached/single-family homes, duplexes and other types of middle housing, and apartments and congregate housing. Accessory dwelling units, which are already eligible for an SDC-waiver, will not be eligible. Dwelling units that are intended to be used as transient lodging facilities full-time will also not be eligible.
Development projects receiving the exemption are expected to have a building permit issued, initiate construction, and reach specific construction milestone/checkpoint by the appropriate date established in the code. If they do not reach the established construction milestone on schedule, the City has the authority to request that they pay the full value of the SDCs owed and may withhold their certificate of occupancy, which is typically one of the final actions at the end of construction.
The new housing can be located in a new building, or created as part of an addition to or a conversion of an existing building from office or other uses into housing. The exemption will be open to permit applications that are new after the effective date of the ordinance, or those that are under review or approved to issue but do not have their building permit issued as of the effective date of the ordinance.
The exemption will apply to all types of SDCs, including those collected for transportation, parks, water, sewer, and stormwater. For projects that contain a mix of housing and other uses, only the residential portions would receive the exemption – the non-residential areas would be expected to pay the appropriate SDCs, with two minor exceptions listed in the code.
If someone gets the exemption, then at a later date changes some portion of space to a different, non-housing use, the City will have the authority to require them to pay their exempted SDCs as part of the permit process for that change.
Financial and Budgetary Impacts
This legislation temporarily exempts new housing development from paying SDCs to the City as part of the permit process for the next three years.
In 2024 Portland reported the production of 818 units of market-rate housing, the lowest level of production in over 10 years, and is forecasted to produce similar levels of new housing in each of the next three years, for an estimated total of 2,559 new market-rate housing during the time period the legislation would be in effect.
The City has a complex structure for establishing system development charges across multiple bureaus. City Code requires Portland Parks & Recreation (PP&R) and the Portland Bureau of Transportation (PBOT) to review and update their SDC methodology, rates, and project list every 10 years. All City SDC fees are typically adjusted by Council, or automatically adjusted for inflation per City Code, on an annual basis. Currently SDCs total over $20,000 per new housing unit on average and can range from $15,000 per unit in a multi-unit project to $35,000 per unit for a single-family home. This costing includes currently planned SDC rate increases, and by the end of the three years the average per-unit SDC is over $25,000.
With this legislation, the City would forgo SDC revenue for those 2,559 forecasted housing units, resulting in reduced total revenues of $63 million over three years. Those resources would otherwise fund infrastructure for transportation, sewer, stormwater, water, and parks. Consistent with how SDC rates are charged, that estimated $63 million would break out to a reduction of: $27 million for parks, $22 million for sewer and stormwater, $10 million for transportation, and $4 million for water between FY 2025-26 and FY 2027-28. Notably, these fiscal impacts are based on a baseline forecast and do not include any units stimulated based on this policy change as bureaus would not have received that revenue during the forecast period but for the policy change.
If those housing units were converted to other non-housing uses in the future, the City would have the authority to have the exempted SDCs repaid at that time.
The City currently offers an exemption from SDCs for rental housing that is affordable to households earning up to 60 percent of area median income and for new homes available for sale that are affordable to households earning up to 100 percent of area median income. These homes are already eligible to receive an SDC waiver so this legislation would not impact any SDC revenues for these types of homes. This legislation will not impact the associated foregone revenue from SDC waivers for qualifying Accessory Dwelling Units.
By improving the financial feasibility of certain development and spurring housing production, this legislation is expected to increase the number of development projects moving through the permitting process, which would increase demands on permit review staff as well as associated permit review fees collected by Portland Permitting & Development (PP&D).
Economic and Real Estate Development Impacts
This legislation is intended to temporarily increase the feasibility of housing production in Portland by reducing development costs of approximately $20,000 per housing unit (average).
As shared above, in 2024 Portland reported the production of just over 800 units of market-rate housing, the lowest level of production in over 10 years, and is forecasted to produce similar levels of new housing in each of the next three years, for a total of just over 2,500 new market-rate housing.
The concept for this legislation was the result of conversations convened by the Governor and the Mayor with the developers of multi-unit housing in March 2025 with the intention of identifying opportunities to spur housing production at a time when high construction costs and market conditions present immense challenges to building homes in Portland and across Oregon.
In addition to the Mayor/Governor’s Multifamily Housing Workgroup, the concept was discussed with the City’s Development Review Advisory Committee on May 15, 2025, which is a volunteer body that advises PP&D on code, policy, permit process, and related issues. It was also presented to NAIOP (Commercial Real Estate Development Association and BOMA (Building Owners and Managers Association) on June 10, 2025.
Staff also conducted targeted outreach to a select number of developers with projects currently in PP&D’s pipeline to better understand the potential impacts of this incentive on their projects. Their feedback was generally consistent with the results of financial feasibility modeling conducted by City staff, which indicated that SDCs typically comprise 3-8% of the total development costs for a project, and that exempting residential development from these fees would likely be enough to help certain types of development become financially feasible.
While the exemption would be available to all types of buildings, the exemption will be most meaningful for apartment buildings up to 200 units in stronger (inner-ring) markets that are designed with wood-frame construction and lower-cost parking options, as well as 4-plexes which are a common type of middle housing. Other types of projects, with more expensive construction types or in lower-rent areas, would likely still have a large financial feasibility gap and remain reliant on improved market conditions.
As of May 2025, there were over 7,300 units in PP&D’s building permit pipeline as a part of a private development project – not including new publicly-financed affordable housing. Of these approximately 7,300 units, approximately 1,000 of them are lower-scale residential development (single dwelling/detached and middle housing), 3,100 are in proposed apartment buildings each with between 10-100 units, 1,200 are in proposed apartment buildings each with between 100-200 units, and 1,700 are in proposed apartment buildings each with 200+ units. These projects are at varying stages of permit review, and some have had the same permit status for many years waiting for broader market conditions to change.
This temporary exemption is intended to unlock units in our pipeline and attract investment for new projects. The three-year time period is anticipated to allow projects that are currently in the permit pipeline who proceed in earnest to qualify for the exemption, as well as projects that apply for their building permits in the months following adoption.
With this legislation, Portland could see over 4,000 new units over the three years, assuming current broader market conditions hold, in comparison to the ~2,500 units currently forecasted. The legislation sets a goal of achieving 5,000 new housing units during that time. Through the City’s Inclusionary Housing program, buildings with 20 or more units would provide 10-20% of units as permanently affordable. Due to the recent calibration of the Inclusionary Housing Program, applicants with buildings subject to the program are more likely to provide the more-affordable 60% AMI/MFI units.
This legislation builds on the City’s current SDC waiver programs for affordable and moderate-income housing, as well as current options for deferring SDC payments, including a 24-month interest-free deferral that is set to expire in August 2025. The City currently offers a waiver from SDCs for affordable housing rental housing up to 60% AMI/MFI, new homes available for sale up to 100% AMI/MFI (via the Portland Housing Bureau’s SDC Waiver for Affordable Homeownership), and qualifying Accessory Dwelling Units. It is anticipated that this legislation would reduce participation in the SDC Waiver program for homeownership, which offers an SDC Waiver to developers who offer to sell the home to an income-qualified buyer at a reduced rate. There are currently approximately 130 homes in PP&D’s pipeline enrolled in the program.
In addition to increased housing options available for Portlanders, spurring development in Portland right now will offer much needed stability to the construction and building industry and the related workforce.
Community Impacts and Community Involvement
As shared above, this proposed legislation is the result of conversations convened by the Governor and the Mayor with developers of multifamily housing in March 2025 with the intention of identifying opportunities to spur housing production at a time when high construction costs and market conditions present immense challenges to building homes in Portland and across Oregon.
The Portland Housing Bureau’s annual State of Housing report continues to show that housing affordability remains a challenge for most Portlanders, as rents and home sales prices have continued to climb and outpace incomes. Increasing housing costs, due in no small part to a shortage of available homes, is contributing to gentrification and displacement and increasing the number of Portlanders at risk of losing their housing.
In addition to the Mayor/Governor’s Multifamily Housing Workgroup, the concept was discussed with the City’s Development Review Advisory Committee in May 2025, which is a volunteer body that advises Portland Permitting & Development on code, policy, permit process, and related issues. It was also presented to NAIOP/BOMA on June 10, 2025.
Staff also conducted targeted outreach to a select number of developers with projects currently in PP&D’s pipeline to better understand the potential impacts of this incentive on their projects.
This legislation builds off of significant City work in recent years to spur housing production, in response to rising housing costs and the impacts on Portlanders. These efforts in include the City’s Housing Production Strategy, adopted in August 2024 which involved considerable community and developer engagement.
SDCs are a financial mechanism that the City leverages to expand public infrastructure to keep pace with growth and development. The loss of an estimated $63 million in SDC revenue, based on the estimated 2,559 forecasted housing units over the three-year exemption period, may have an impact on the delivery of existing and future capital projects. W hen SDC revenues collected are below forecasted levels, bureaus will, as needed, review planned projects lists and, in coordination with the City Administrator, consider any adjustments needed to align investments with available resources, which may include reprioritizing investments or adjusting the completion schedule for planned capital projects. SDC expenditures on specific projects are typically authorized by City Council as part of the annual budget process.
100% Renewable Goal
Not applicable.
Economic and Real Estate Development Analysis
Analysis provided by Prosper Portland
Prosper Portland staff has reviewed the Economic and Real Estate Development Impact Analysis submitted for this action and finds that it satisfies the requirements set forth in City Council Resolution 37664. The analysis is sufficiently detailed and complete to be considered a final statement for purposes of this action.
Financial and Budget Analysis
Analysis provided by City Budget Office
Document History
Document number: 2025-243
President's referral: Finance Committee