The Arithmetic of Downtown Housing

1055 Willamette (Rowell Brokaw Architects)

After years of vacancy, developers deChase Miksis and Edlen & Co. are set to start construction this fall on a six-story building on the former Lane Community College Downtown Center site at 1055 Willamette Street, across from Eugene Station. The design by Rowell Brokaw Architects will bring 133 mixed-income apartments and ground-floor shops downtown. With help from the City of Eugene, the project promises to transform a long moribund site into active, useful housing. This is good news. That said, its lengthy gestation highlights the challenging economics of building housing in our downtown core.

When the City and its partners outlined the project in 2021, they estimated a total cost of about $30 million. The expectation then was that the city's contribution (primarily urban renewal funding) would total about $1.1 million, roughly four percent of the cost.

Fast forward to this year: the budgeted project cost is now $38.7 million, and the required public contribution increased to $10.5 million, more than 27 percent of the total. The design's scope barely changed; what changed was the math. Construction cost inflation, higher interest rates, financing risk, and prevailing wage requirements all contributed to the shift. None of these factors is unique to Eugene. What is distinctive is the local market in which they operate. New housing can command only the rents and sale prices local households can afford. When the costs of development rise faster than the value the completed project can generate, the gap between investment and return steadily widens.

Public debate has focused largely on the City's Multi-Unit Property Tax Exemption (MUPTE). It is important to understand what the program does. MUPTE does not eliminate property taxes; instead, it exempts for up to ten years only the taxes on new residential construction, while the underlying land remains taxable. Rather than surrendering existing tax revenue, the program temporarily exempts value that would not exist unless the building were constructed. Nor is the exemption automatic. Projects must satisfy the city's Public Benefit Criteria, which include above-code energy performance, moderate-income housing contributions, compatible urban design, and a local economic impact plan. City staff reviews every application, as does an independent panel with neighborhood representatives, developers, and design professionals. The program exchanges a temporary tax benefit for measurable public benefits.

Even with MUPTE, the 1055 Willamette project still needed a one-dollar land sale, millions in urban renewal funding, multiple rounds of financial restructuring, a City Council extension of deadlines while the developers assembled additional financing, and, ultimately, a return trip for further assistance before the remaining gap could be closed—a sequence that, on its own, might read as a story about one stubborn incentive program rather than about the market underneath it. The Lookout Eugene-Springfield editorial board recently asked the sharper version of the question: if one 133-unit building required nearly $9 million more public assistance than anticipated, what does that imply for the rest of the downtown housing pipeline? The Downtown Riverfront affordable housing project, a planned 75-unit community by Atkins Dame and Homes for Good, ran into the same wall earlier this year, requiring additional urban renewal funding after rising costs reopened its financing gap. Projects that once appeared feasible are no longer penciling out without additional assistance.

The Station House, the Obie Companies' proposed 124-unit development at Fifth Avenue and Oak Street, received a ten-year MUPTE exemption and substantial fee waivers. It cleared the city's entitlement process and later amendments. Yet construction has not begun, and the developer's website still describes the project as "Coming Soon." I don't know why, and perhaps no one outside the development team does. Public incentives are often necessary, but they're not always sufficient. A project can receive every approval the city can grant and still fail to move forward because the underlying economics aren't working.

Rendering of The Station House (Obie Companies)

Today's discussions differ from those contested over Capstone Communities, the out-of-state developer that proposed 1,234 student beds downtown in 2012. That dispute was mostly about scale, not subsidy, about whether one project should reshape so much of downtown at once, with unease that most profit would flow to a Birmingham, Alabama company. Some version of that unease persists. It's easy to read the widening subsidy figures at 1059 Willamette the same way, as evidence that developers are extracting value from a weak market.

I don't think the numbers support that reading. A developer angling for a subsidy does not spend years assembling financing, absorb round after round of cost escalation, and return twice for more assistance before breaking ground. Nor does one sit on a fully entitled, fully incentivized project for the better part of a year, as appears to be happening at The Station House, if incentives alone were the point. MUPTE's public benefit requirements cut against the extraction story too. A developer either meets them or gets nothing. Whatever any developer's motives, the risk runs in both directions, and lately the private side hasn't been walking away with an easy win.

The pressing question is whether existing incentive programs can bridge a financing gap now substantially larger than they were designed to address. My impression is that the City created MUPTE to close modest gaps between development costs and market feasibility, like the four percent delta 1055 Willamette originally faced. It wasn't intended to compensate for a market in which production costs have pulled far ahead of the value finished housing can support. As that disparity grows, incentives become less capable of closing the gap. Increasingly, projects require direct public investment just to reach the starting line.

Abandoning incentives is not the answer. There's no evidence suggesting downtown housing will appear on its own once assistance disappears. The more likely outcome is that vacant buildings remain vacant while everyone waits for conditions to improve. And I don't think MUPTE is the central issue. The program has become the focus largely because "tax exemption" sounds like a giveaway. The structural mismatch behind it is less visible, but far more consequential. If development costs continue to rise faster than Eugene's market can support, every downtown housing project will face essentially the same arithmetic, and most won't clear it without help. No incentive program, by itself, can erase that reality.

None of this settles what, if anything, the city can do about the underlying arithmetic itself—whether through system development charges, permitting timelines, zoning capacity, or something else entirely. That's a harder question than whether any single incentive is fair, and it deserves its own accounting.

For now, I'm happy to hear that 1055 Willamette is moving forward. After standing empty for more than a decade, the old LCC Downtown Center is finally about to become something else. I hope the projects that follow will do the same. Whether they can will depend less on any single incentive than on whether that gap begins to narrow.