Seven months ago, Bend scrapped a program intended to encourage multistory, mixed-use developments by offering an exemption on property taxes.

The city adopted a new tax-incentive program Wednesday — this time with a focus on creating lower rents and higher-paying jobs.

“This is a core goal — affordable housing,” said Bend Mayor Melanie Kebler. “In a tough development environment we need to pull every lever we can.”

Instead of giving developers a clean break from property taxes on buildings, the city will offer a rebate using an unconventional tool: urban renewal, or tax increment financing.

Typically, cities use urban renewal to spur redevelopment in blighted areas by funneling property taxes from new development back to public and private projects in the same district.

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Bend crafts policy to lower rents with urban renewal incentives

With the new program, the city will create mini urban renewal areas to capture property taxes from only one development and send them back to the builders, as long as they provide a certain level of affordability.

Bend is the second city in the state, behind Salem, to use the tax tool to incentivize affordable housing, according to Jonathan Taylor, urban renewal manager with the city.

Lower rents, higher wages

The program will offer an 80% property tax reimbursement over a minimum of 12 years. To get the tax exemption, developers need to meet two requirements: set at least 15% of units at a rental rate affordable to people making 90% or less of the median income and keep rental increases lower than the maximum allowed by the state.

The Bend City Council, seated as the Bend Urban Renewal Agency, approved after some debate additional criteria around energy efficiency, diversity standards and greater affordability that developers can choose to pursue should they want to extend the tax reimbursement beyond 12 years.

The urban renewal board will decide whether to grant tax rebates on a case-by-case basis.

Alternatively, the tax break could go to new businesses, from breweries to bioscience firms, that provide at least five new jobs that pay at least $72,000 — the salary required for renters in Bend to avoid a cost burden, according to a report from the city’s urban renewal agency.

People who spent a third or more of their income on rent are considered cost-burdened. For individuals or households making 90% of the area median income, spending more than $1,800 would put them in that category.

The minimum threshold of affordability set by the policy does not fall into the category of what the city considers affordable housing, which is attainable to those making 80% of the median income.

Rather, the types of lower-cost units required through incentives are on the lower end of middle-income housing.

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Affordable housing grant is a ‘game-changer’ for Bend

Still, low vacancy rates show a pressing need for housing within that range, according to Lynne McConnell, housing director for the city of Bend. An analysis by the city shows that 40% of multifamily units and 12% of single-family units in Bend are within reach of individuals or households with housing budgets under $1,800 a month.

Out with old, in with new

Mayor Kebler said the focus on lower rents and higher-paying jobs is the biggest difference between the program adopted Wednesday and the retired tax incentive policy, the Multiple Use Property Tax Exemption program, or MUPTE.

The old program required developments to be multiple stories and provide at least three public benefits from a long list that included affordable or middle-income housing, public plazas, energy-efficient buildings, transportation amenities, enhanced landscaping and more.

Four developments received exemptions through the program, which was suspended shortly after public scrutiny and confusion over a $10.6 million tax exemption awarded to the 313-unit, seven story Jackstraw apartments near the Box Factory.

Aside from the confusion and backlash it created from the public, the old program was difficult and time-consuming for developers, who had to seek approval from each relevant taxing district, Kebler said.

The mayor disagreed with the council Wednesday about adding optional criteria not related to affordable housing, arguing the city should keep the policy focused on that important goal.

Still, the new policy is simpler than the city’s last attempt, Kebler said.

But whether or not it will actually help build lower-cost housing in the city is the question both the city and developers are chewing on.

High costs still a hurdle

The tax refund alone won’t be enough to make most low-cost housing projects pencil, said Ryan Andrews, a partner at Hiatus Homes, a developer that builds smaller, more affordable housing in Bend. Factors beyond control of the city government — inflation and interest rates — will also need to come down, Andrews said.

He was encouraged to see the Federal Reserve reduce lending rates Wednesday, the same day the city passed the new tax incentives.

High costs of construction and borrowing put a 59-unit shovel-ready apartment project by Hiatus Homes on hold, even after it received a tax exemption in April through the previous program.

“What’s happened with interest rates over the last two years has been so significant in the development industry that it’s dominated everything, and almost no amount of tax incentives will be enough to overcome the really high interest rates and really high inflation of construction costs,” Andrews said.

Andrews said the complexity of the new tax program might slow down his financial analysis of whether to apply for the program. But he believes the city is now more flexible to help projects with the right level of affordability.

“That’s a big positive on it,” he said. “I think it will work.”