This story was produced by the Oregon Journalism Project, a nonprofit investigative newsroom for the state of Oregon.
The Oregon Court of Appeals this week paved the way for the widespread conversion of existing buildings into affordable housing.
That’s a big deal in a state with the second-highest rate of homelessness in the country (trailing only New York) and that has failed to even come close to meeting the ambitious housing goals Gov. Tina Kotek set when she took office.
Affordable housing—the term given to subsidized developments reserved for low-income tenants—is in short supply across the state, in part because the combination of limited rents and high construction costs make it economically difficult to build.
Traditionally, affordable housing developments have been exempt from laws that require developers who use public funds to pay prevailing—that is, union—wages.
Oregon law exempts developments from paying prevailing wages if they are “projects for residential construction that are privately owned and predominantly provide affordable housing.” But in recent years, the Oregon Bureau of Labor and Industries, now led by elected Labor Commissioner Christina Stephenson, has ruled that housing developments that repurpose old buildings must also pay prevailing wages.
That matters because prevailing wages can add significantly to the cost of a project—as much as 20%, some developers say. That extra cost, of course, may reduce the number of affordable units that get built or, in some cases, stall or kill a project altogether.
OJP looked at just such an instance last year in Astoria, where developers seeking to repurpose an old single-room occupancy hotel have been stymied by BOLI’s determination that the project does not qualify for the affordable housing exemption from prevailing wage, even though it would provide badly needed low-income housing on the North Oregon Coast.
In the case before the court of appeals, DevNW, an affordable housing developer based in Springfield, purchased Evergreen Presbyterian Church, a century-old, unused property in Northeast Salem. DevNW planned to gut the structure but preserve the foundation and exterior walls and build 17 new affordable apartments inside the building’s shell.
As is customary for affordable housing developers, DevNW requested a determination from BOLI as to whether it would have to pay prevailing wages to construction workers on the project.
DevNW’s Evergreen Apartments would be privately owned and predominantly provide affordable housing—which would seem to qualify for an exemption.
Nonetheless, BOLI told DevNW in an Aug. 30, 2022, letter that the project would have to pay prevailing wages because it “does not meet the definition of ‘residential construction’ because the project includes the renovation of a church building which is neither an apartment building or a single-family home.”
Despite the ruling, DevNW proceeded with the project. The organization’s CEO, Emily Reiman, told OJP that BOLI’s decision added about $50,000 per unit in additional expense. That equated to a 13% increase in overall costs. At the same time, DevNW sought a formal reconsideration from BOLI and lost.
It then took its case to the Oregon Court of Appeals and, in a decision issued Sept. 16, won. “The Legislature intended for the exemption to cover affordable housing, regardless of whether it uses some materials from a previous building,” the court wrote. “BOLI's interpretation is contrary to the Legislature's intent.”
The court determined that lawmakers created the affordable housing exemption from prevailing wages to promote the creation of more such housing and never meant to discriminate against the use of preexisting buildings.
“The legislative history supports a broad exemption from the general prevailing wage law and supports an interpretation of ‘construction’ that is not limited to construction on bare land,” the court explained in its decision.
“We are really pleased that there is now clarity on how this exemption should be applied for repurposed buildings,” Reiman told OJP. “BOLI’s original determination left us baffled: We could get an exemption for constructing a brand-new building but couldn’t reuse an existing part of a structure even though the end result would have been the same.”
Reiman added that her organization cares about the wages that construction workers earn, but it challenged BOLI’s ruling because it stood in the way of getting people housed.
“Our primary mission is helping families build financial security and opportunity; affordable housing is one key building block of that,” Reiman said. “If we, as a state, have said that affordable housing projects are a priority, need to be built cost-effectively, and are exempt from prevailing wage, we don’t think BOLI should get to arbitrarily decide that this doesn’t apply to projects that repurpose the shell or other materials of a formerly commercial building.”
Dina Alexander, a Portland lawyer who represents affordable housing developers and often advises local governments in Oregon on how to increase housing production, cheered the court’s decision. Alexander has argued that BOLI misinterprets prevailing wage laws in ways that reduce the amount of housing that gets built.
“It was so refreshing to see the court apply the law properly,” Alexander said. She and her clients have told lawmakers and Gov. Kotek that BOLI’s determinations on prevailing wage have slowed the production of affordable housing. But the trade unions whose members are a key Democratic constituency and contribute generously to the election campaigns of both the governor and BOLI Commissioner Stephenson are powerful advocates for their members.
Although the court’s ruling is not retroactive and DevNW is stuck with the higher costs for its church conversion, Reiman says the court’s decision will, in future, have an impact in a state with high rates of office vacancies, underused churches, and empty school buildings.
“We are pleased for affordable housing developers around the state,” Reiman said. “This decision creates a lot of opportunity.”
BOLI declined to comment on the decision or whether the agency will appeal.
