Portland revamps downtown zoning, office conversions in focus

The Portland Planning Commission voted unanimously on July 14 to send a package of zoning changes to City Council.

The package, called the Central City Code Amendments Project, could reach a Council vote this fall or winter. That timeline has already slipped once. Planners in January 2026 aimed to conclude Council hearings by fall. The project’s July update pushed that goal line to fall or winter instead.

The zoning rewrite is one piece of a broader push to address the city’s housing affordability. In downtown, city officials studied taxing property owners who leave space empty. Property owners also strongly opposed it, and the study found it wouldn’t work anyway.

A more consequential change came in March when Gov. Tina Kotek signed legislation to fix a Portland affordable housing mandate that had backfired. The mandate had come with no public incentives, resulting in developers building fewer housing units when Portland needed more.

Downtown’s vacancy problem

If eventually adopted, the zoning package would mark the most significant rewrite of downtown development rules since 2018. That’s when the city adopted its Central City 2035 plan, just before the pandemic upended office demand.

The Central City covers just 3% of Portland’s land. Planners expect it to absorb a quarter of the city’s residential and job growth through 2045.

Downtown office vacancy has stayed near historic highs for years. It stood at 29.6% in the second quarter of 2026, according to a report from commercial real estate firm Kidder Mathews. Direct vacancy has held roughly flat for two straight quarters.

What the draft changes

The latest draft directly targets housing production. It raises building heights in targeted parts of downtown. It opens Central Employment zones, currently reserved for commercial use, to housing.

The draft also removes housing bans in parts of Lower Albina and the Central Eastside. It loosens citywide limits on ground-floor apartments. New design standards aim to keep street-level units from deadening the sidewalk.

Developers building larger 2- and 3-bedroom units for families would receive incentives under the draft.

The biggest change lets residential projects exceed code height limits entirely. Projects qualify if they don’t cast new shadows on parks or nearby homes. The exemption applies outside historic districts and protected view corridors.

Planning commissioners also expanded where ground-floor housing can go. They cut the required setback along Governor Tom McCall Waterfront Park from 50 feet to 25 feet.

The height provision drew the most testimony at the Planning Commission stage. It will likely draw the sharpest fight at City Council.

Taxing empty space

Portland, so far, has largely skipped the direct-subsidy approach other cities use. But the city council commissioned a study on how a tax might work on commercial properties that had been vacant for six or more months.

The vacancy fee idea drew fierce opposition from Portland’s real estate industry. A Portland State University survey supported that resistance with data. Of more than 400 developers and property owners surveyed, 99% said they were not intentionally keeping space vacant.

Researchers concluded the fee probably wouldn’t work. Weak demand, safety concerns and high buildout costs drive Portland’s vacancy, not owner indifference, they found.

“I’m still trying to understand how a vacancy tax ever made it this far as a serious policy discussion in Portland,” Desiree Flanary, director of property and transaction tax services with commercial real estate firm CBRE, wrote on LinkedIn.

An affordability rule that backfired

Portland’s inclusionary housing program took effect in February 2017. It required buildings of 20 or more units to set aside affordable units. The rule aimed to build affordability directly into new construction.

Instead, multifamily construction collapsed. Portland issued just 1,709 multifamily permits in 2018, the program’s first full year. That marked a 64% drop from the roughly 3,915 units per year the city averaged from 2012 through 2017.

State Sen. Khanh Pham supported the 2017 mandate as a community activist, but led the charge to fix it this time. At the time, Pham expected developers to absorb the cost themselves.

“Contrary to what I blindly said 10 years ago, when inclusionary zoning is unfunded, we found that developers didn’t just let the cost come out of their own pockets,” Pham said when she introduced the new bill in February.

Fixing unintended consequences

Some developers built elsewhere instead, she said, choosing other cities or states over Portland. Those who did build in Portland often capped projects at 19 units specifically to dodge the mandate.

“That means that during a period of economic growth, many developers deliberately chose to build fewer homes,” Pham said, adding that the pattern likely cost the city hundreds of housing units that could have drawn more residents and eased rents through added supply.

Portland fixed the rental side of the program in 2024. The city added deeper property tax abatements, at an estimated public cost of $230,000 per unit.

That cost roughly matches what fully subsidized affordable buildings already cost to build. The fix appears to have worked.

The gap between small and large multifamily permit applications has since narrowed. That gap had signaled developers dodging the 20-unit threshold.

Pham’s legislation banned unfunded inclusionary zoning, while giving cities more flexibility to design their own affordability rules. Cities must cover those costs through cash payments, tax exemptions or fee waivers.

Portland already complies with the new rental housing standard. The city has until Jan. 1, 2029, to fix its still-underfunded condo mandate.

The bill drew an unusual coalition of supporters. Habitat for Humanity Portland Region and the Portland Metro Chamber both backed it.

Portland City Council President Jamie Dunphy called it “the most bizarre coalition of supporters I’ve ever seen” in a public hearing earlier this year.