The year of living expensively

Rents soared in 2000. Will a cooling economy bring some stability to Portland’s housing market?

By Noah Bruce

Donna Galluzzo is stuck. The West End native feels her tiny two-room attic apartment is not big enough for her and her partner, but with rents in Portland soaring, she can’t afford to move into anything better.

“Our place is very small,” she says. “There are just two rooms and the door between them has a space above it so there is no sound proofing. My partner teaches violin for a living. What happens if she wants to give a lesson in our apartment and I am at home?”

Lack of breathing room isn’t the only problem Galluzzo has with her apartment. Her rent is $500 and it doesn’t include any utilities, save water.

She’s forced to heat her small home with her gas stove — a dangerous but necessary practice considering the price of using the electric heat installed in her apartment.

Galluzzo wants to stay in the West End, but to move to a two-bedroom unit in the neighborhood she would have to shell out $750 a month, with no utilities included. Despite working a total of five jobs, Galluzzo and her partner already find it difficult to come up with their current rent, so moving is out of the question.

With surging rents, scarce availability, and two major residential construction projects begun in 2000, housing has been the story of the year in Portland. And with the snail’s pace of progress on the issue, it could very well be the story of 2001.

In the last three years the average rent in the city has gone up between 40 and 65 percent, according to Mike Finnegan, director of the Maine State Housing Authority. This increase is far higher than the average Portland resident’s gain in income, meaning they have less money to spend on things like food, vacation, and clothes. Finnegan says vacancy rates are around two percent; a healthy rate is considered between five percent and seven percent.

At a Portland West community meeting on December 12 focusing on housing concerns, Ethan Strimling, the social service agency’s executive director, said the housing situation in the West End has become an “absolute crises.” His agency manages 44 affordable housing units and receives 20 to 25 calls a week from perspective tenants, but vacancies are rare.

It’s not just the West End, either.

Roger lives with his girlfriend on outer Congress Street. Two months ago, his landlord sold the building. The new landlord promptly raised the rent from $550 to $850.

After talking to the new landlords, Roger (who is using an alias out of fear of angering his landlords) was able to get the rent down to $750 in exchange for helping them with their business.

Like Galluzzo, Roger and his girlfriend would like to move but after looking around for a new place, found there were “no apartments for what [they] were paying before.”

Ruth Brennan, an owner of Apartment Locator, a business that helps renters find housing, says that a two-bedroom apartment on Park Avenue that rented for $600 a year and a half ago now rents for $750. A small, simple, two-bedroom townhouse in South Portland that Brennan lists has jumped in rent from $600 to $800 in two years.

According to Karen Geraghty, chair of the City Council Committee on Housing, some landlords have been taking unfair advantage of the tight market.

---

“I’ve heard of tenants getting a 25 or a 50 percent rent increase over a two-year period,” she says. “That is clearly gouging. Some people are jacking up their rents with no relation to their costs.”

Just about everyone agrees the root cause of the high rent problem is simple supply and demand. There are not enough apartments to go around, and the problem won’t be solved until more housing is built.

Since the 1980s there has been virtually no housing development in Portland. At the time, the economy was booming, and developers were constructing residential units all over the city. In fact, they created so much housing that when the economy cooled off in the early ’90s, there was a four- or five-year period when landlords couldn’t find tenants.

Bob Duranleau, Director of Social Services for Portland, remembers a time when landlords would scour the city’s shelters looking for potential tenants. Now the situation is reversed, and employees at the Oxford Street Shelter coach homeless people on how to successfully approach landlords.

In the mid-’90s the economy bounced back, but unlike the boom in the late ’80s, there was no construction of housing in Portland. In fact, the number of rentals actually decreased in the last decade as many single-room occupancies either burned down or were converted into larger units.

The lack of boom-time residential construction was primarily due to price constraints. According to Dana Totman, president of the York-Cumberland Housing Development Corporation, a non-profit that builds and manages affordable rentals, “The numbers just don’t add up.” Since the 1980s, the cost of construction has shot up as labor and raw materials have become more expensive and the amount of required paperwork has increased.

According to Totman, a developer needs to spend between $120,000 and $150,000 per unit to construct an apartment building in Portland. With construction prices so high, he would need to charge between $1500 and $1600 to pay back the loans he took out from the bank. Clearly, there is not a large enough market in Portland for apartments in that price range to justify any construction.

This is where state and federal money comes in. Though federal funding for housing has decreased in the last 15 years, cities still receive some money from Washington. Responding to the acute housing situation in February of 2000, the city gave $200,000 to developer Richard Berman to build Unity Village, a 33-unit development in Bayside behind city hall, and $400,000 to Roger Gendron to build Island View, a 72-unit project on Munjoy Hill at North and Walnut streets. In exchange for the city’s money, the developers agreed to keep the rents for a percentage of the units below market rate.

In addition to city money, both developers received millions of dollars in tax credits and financing from the state and non-profit investment capital funds like the Maine Housing Investment Fund.

Thing is, even when developments work out, as in the case of Bayside, (we’ll get to the Munjoy Hill mess later) the process for securing all the different money and financing sources is, according to Berman, “very frustrating.”

“I was about to throw up my hands and say shove it,” says Berman. “What kept me in it were the people in the community. I was ready to walk away from a quarter of a million dollars.”

Berman claims that the process is so complicated and there are so many forms that the attorneys end up making a killing.

“Simplify [the process], and get rid of the attorneys,” he says.

Berman’s other major beef was, according to him, besides the city of Portland, no one would assume part of the financial risk involved in the project.

“Everybody talks the talk of affordable housing, but few walk the walk,” he says. “No one was willing to be a true partner and take the risk except the city — not the investors, not Maine State Housing Authority.”

Another problem is that before a developer can even begin to find a way out of the labyrinth that is funding for a residential construction job he has to find a location where he can build. According to John Anton, president of the Maine Housing Investment Fund, appropriately zoned land is rare and expensive. The scarcity is due in large part to NIMBYism (not in my backyard-ism). Often residents lobby for local zoning laws that make it tough for developers to find a suitable sight to build.

“Every single development is just a dogfight to get done. And that adds to the cost,” says Anton.

The state could step in by passing an inclusionary zoning law — a law that gives financial incentives to cities with zoning friendly to affordable housing projects. However, Anton says, it is “extremely unlikely” that such a law would be passed in Maine, a state known for its philosophy of local rather than state control.

The NIMBY label has been used to describe the Campaign for a Comprehensive Plan, a movement on Munjoy Hill. After the city gave Gendron and his company, Silver Street Development, $400,000 to construct Island View, a number of Munjoy Hill residents were outraged. They were concerned about the design of the building, traffic, possible property value changes, and environmental impacts. Most of all, they felt they were not properly informed about the coming development.

Attempting to halt the project, the group asked the city council to take back the money it had given to Gendron. The council refused. So began the campaign and its petition calling for a referendum banning not only the Munjoy Hill project but most large-scale construction in Portland until the city completes the Comprehensive Plan for development. The citizens also want greater public input in any development project. Though the petition has yet to be filed, the issue has quickly become a hot media topic and a tense local political issue.

The Munjoy Hill group’s main gripe is that they were not informed about the project early enough. While the city had worked with the Bayside Neighborhood Organization on prospective housing for two years before granting money for Unity Village, most of the opponents of the Munjoy Hill project say they found out about Island View only after the city had already given Gendron federal money. Though the meeting where the council gave the money was open to the public, residents feel there should be a better notification process when major neighborhood changes are at stake.

Both the city council and Silver Street Development plan to meet with the Munjoy Hill residents to see if a compromise can be worked out. According to City Councilor and Housing Committee Member Nathan Smith and Janet Ham, spokeswoman for the Munjoy Hill group, the city is receptive to the demand of notifying residents sooner about prospective changes, but the restriction on building will be a sticking point in any negotiations.

---

It’s easy to understand why there have not been any developments in the city in the last decade with obstacles ranging from profitability issues, to securing government funding, to risking neighborhood backlash.

The Bayside and Munjoy Hill developments are attempts to end the housing draught and are steps in the right direction. However, they are two small steps on a long path. The Bayside development will have 33 units with 26 renting at below market rate. Some of the units are scheduled to open in early summer of 2001. The Munjoy Hill development (which may never be built) will have 72 units with 29 renting below market rate. In the best case scenario, this equals only 105 units, 55 with low rents, to be completed sometime in the nebulous future.

But there are other signs of potential progress. In December, the Maine Legislature voted to increase the amount of money allocated to assist developers building affordable housing.

According to Portland City Councilor James Cloutier, the city has plans to use the girl’s school at St. Dominic’s on State Street — which the city voted to purchase this month — as a mix of affordable and market rate housing.

In addition, the city has another $600,000 of federal money that it plans to use to entice more development in the city. According to Mark Swann, director of the Preble Street Resource Center and an affordable housing advocate, the most obvious choice for the location of future projects would be Bayside.

“The stars seemed to be lined up,” he says. “The city has housing on its agenda. There are interested investors like John Anton [president of the Maine Housing Investment Fund], there is interest in the state agencies, and you even have a neighborhood in Bayside that wants development. Its almost unprecedented.”

Totman says that his non-profit, the York-Cumberland Housing Agency, is talking to the city and state with an eye toward building in Bayside.

However, even if private or non-profit developers decide to take on the daunting and cumbersome task of residential construction, it is a slow procedure according to Councilor Geraghty.

“We can create more units but it happens at such a slow pace,” she said at the recent Portland West meeting on housing. “We concentrate on it very hard and we get 100 units and we say, ‘Hey great!’ But this is only the tip of the iceberg.”

Additional housing is the best answer to the housing crunch, but its not the only solution. A better transportation system could ease the situation by allowing people who live in Portland the option of living in outlying areas like North Deering or Stroudwater. According to Councilor Cloutier, the city is exploring the possibility of a trolley system. While potentially exciting, the project doesn’t look to be in Portland’s near future.

A more probable solution would be the creation of a tenant organization. Portland currently has no such groups, but in other cities these organizations act as powerful advocates on issues like rent control, better apartment quality, and the development of affordable housing.

According to Mike Foley, executive director of the Cleveland Tenants Organization, an influential group that has been around for 25 years, these groups “act much like a labor union to bargain collectively” for tenant rights.”

“A tenant organization takes the individual voices of tenants and puts them together to speak out against the powers that be,” he says. “There is strength in numbers.”

A tenant organization in Portland would probably be particularly concerned with persuading city government to adopt rent control — a potentially effective means of preserving affordable rents.

Steve Fahrer, ex-director of a tenant organization in Boston, explains that rent control in states like Massachusetts and California was enabled by state law that allowed city governments to choose to use it or not. Rent control only affected some apartments in each city, usually those that were in buildings with three or more units. Landlords of these buildings were allowed to raise rent by a small amount every year, say five percent, provided a tenant did not move. When a tenant did move, the landlord could price the rent as high as she wanted for the next renter. In 1994 rent control was outlawed in Massachusetts after helping to protect affordable housing for over 20 years.

But that doesn’t mean it couldn’t happen in Maine. At the Portland West meeting, Councilor Geraghty urged community members to become politically active and pursue the issue.

“I’ve been on the city council for four years and there has been no groundswell, nobody, no group has come forward and said this is what [a rent-control plan] should look like,” she said. “It’s going to take a concentrated effort from people who say, ‘I’ve had enough. This is it.’ ”

The participants at the meeting discussed several housing issues, but agreed to devote the next Portland West meeting, on January 9, to forming a tenant organization that could fight for rent control and other renter’s issues.

More housing, better transportation, and a burgeoning rent control movement are good long-term solutions for the housing crunch, but what about citizens who can’t pay their rents right now?

Most sources agree that one benefit of a cooled-off economy would be a lowering, or at least a leveling off, of rent prices. Since the end of August 2000, the Dow Jones Industrial Average has fallen roughly 700 points. If the stock market does not rebound, the country could face a recession that will be felt in the housing market with lower rents and greater vacancies.

According to Councilor Smith, during the recession in the early ‘90s, rent prices fell because their were fewer jobs and people left Portland, freeing up apartment space.

But Valarie Lamont, director of the University of Southern Maine Institute for Real Estate Research and Education, says she doesn’t see a recession like this in Portland’s near future.

“I don’t see that happening right away, quite frankly,” says Lamont. “Portland’s economy is still very strong. You would need a real recession not just a minor slowdown like we have right now . . . It could happen in another two months, however, but I don’t see anything on the horizon right now.”

While she does not see rents falling anytime soon, Lamont believes they will stay “fairly stable.”

“I’ve heard anecdotally from property owners that they may be getting slightly less calls when they list an apartment. But there is still a lot of demand. Instead of 50 calls they only get 45,” she says.

According to Peter Wovkonish, president of the Greater Portland Housing Association, the housing market peaked three months ago and landlords in his group have more vacancies than they did in the fall. He says his group is beginning to see “doubling-up” — when two couples rent one apartment. According to Wovkonish, this phenomenon means that renters are unwilling to pay current rates and signals a leveling off of rent prices.

John Anton has also heard “anecdotal evidence from property owners that rents are leveling off.”

But Anton doesn’t believe that’s any cause for celebration.

“If it’s true that’s rents are leveling off, what it means is not that rents are cheap,” he says. “It means they’ve gone as high as they can go. The problem is still supply . . . I’ve heard anecdotally that they’re leveling off but they’re not leveling off at a level that’s affordable to most people.”

Noah Bruce can be reached at nbruce@phx.com.