Urban Renewal Agency uses Middle Housing Incentive to stimulate higher density developments

Norris hopes that this marketing campaign will help make builders and developers on the west side aware of the program. Norris and the URA are trying to build a “bench of developers who work in town” and want them to know that “we are committed to growing the housing supply, working to incentivize smaller modest housing types more likely to be in the reach of the workforce.”

The Middle Housing Incentive is one of the many strategies the URA is using to help make housing in Hood River affordable for a diversity of income levels. The strategy incentivizes for-profit developers to build higher density, market-rate housing. It does this by capping development burdens for middle housing and multifamily housing, such as apartments, at 7% of the project’s permit valuation. This means that all development fees, such as system development charges (SDCs), construction excise tax, structural/mechanical permit fees, or departmental review fees that exceed 7% of the project’s permit valuation will be rebated to the developer by the URA.

The city defines middle housing as 1,200 square feet or less per unit; this includes townhouses, cottage clusters, or duplexes. Middle housing development fees generally take up a greater percent of the project’s value, up to 14%, than larger, single-family homes. This incentive balances the costs of building higher density housing by bringing down the relative costs of development fees to the level of most 3,000 square foot homes. After an eligible builder applies for the Middle Housing Incentive, they are provided with an incentive estimate. Following this, the builder will have one year to secure building permits and 2 years to receive certificate of occupancy, certifying that the unit is habitable; once received, the builder will be provided with the direct incentive payment by the URA. This direct incentive will be used to pay the costs of the development fees that exceed 7% of project value.

To finance this program, the URA obtained approval for up to $1 million in loans from the City of Hood River and the Oregon Investment Board which is administered by the Mid-Columbia Economic Development District. However, the program is engineered to pay for itself. Norris estimates that the additional property tax revenue that the agency receives from each new unit will pay off the incentive costs in 5-15 years. There is no risk of loss as the incentive is only delivered after the certificate of occupancy is received, ensuring the unit will be paying property tax. This funding strategy is “infinitely scalable,” risk free and ensures that the program won’t require that the city raise taxes to pay for it, Norris said.

Though Norris admits that the Middle Housing Incentive is unlikely to significantly lower housing costs, he argues that the program will work to incrementally make more affordable housing in two main ways. First, an increase in supply will work to lower costs by combating demand. Norris points to a 2024 ECOnorthwest analysis of Portland’s Urban Renewal Districts to illustrate that the construction of additional units works to slow rent growth even in small scales.

Unfortunately, Hood River faces unique hurdles that make its situation different than Portland’s. Norris said that, due to Hood River’s desirability, some argue there is unlimited demand that supply couldn’t reasonably fulfill. Despite this, he said that the laws of supply and demand generally work.

Second, by promoting smaller houses, there’s an incentive for developers to build less expensive houses. Norris compared the price and size of new houses in Hood River to show that smaller homes tend to be less expensive than larger homes. Further, a report of zoning changes in Portland presented that middle housing sold on average for $250,000 to $300,000 less, down to an average close price of $614,000, than new houses in single dwelling zones.

Additionally, as these units get older, they are likely to become more affordable relative to newer supply, Norris said, and he’s hopeful that the Middle Housing Incentive can help slow the rise in housing prices. Norris points out that if Hood River can slow the growth in housing prices to be below income growth, then incomes will have a chance to catch up to housing costs.

This program represents only one of the many strategies the city is using to make Hood River a more affordable place to live. Norris and the URA are working towards a Hood River where people who work here can live here. Norris wants developers interested in building in Hood River to know that he has an open door and is eager to respond to any questions and ideas.

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Riley McNamara is a 2025 Hood River Valley High School graduate and will attend Oregon State University this fall. McNamara is working at Columbia Gorge News this summer as an intern; an introduction article will appear in an upcoming edition.