The Oregon State Hospital North Campus, pictured in April, where Mountain West Investment Corp. aims to build more than 40 homes and a 246-unit apartment. It could also be where the city of Salem uses its new incentive for affordable apartments. (Troy Brynelson/Salem Reporter)

It may not electrify the housing market, but Salem officials are experimenting with a new way to encourage developers to build apartments that offer affordable rents.

Officials are considering “mini” urban renewal areas – special taxing districts usually encompassing entire neighborhoods – to lasso a single property whose owner plans to build lower-income multifamily housing.

Under the plan, chunks of property taxes would go to the special district instead of to the general tax collection and eventually be refunded to the developer, said Urban Development Director Kristin Retherford.

“They pay their property taxes and we rebate it back to them. In exchange for that… we get a certain number of units at a certain level of affordability,” she said. “If it works, it can be replicated pretty much anywhere.”

Retherford said there’s already an early contender for the incentive: Mountain West Investment Corp., and its plans for the Oregon State Hospital North Campus.

The Salem firm wants to build 45 houses and an apartment with 246 units at the site, at the intersection of Northeast Park Avenue and D Street, on what are now park-like grounds just east of the main state hospital complex.

Mountain West wants to provide affordable apartments alongside market rate units, according to Richard Berger, the company’s project manager, and is receptive to the city’s idea – if it happens.

“Salem is looking at incentivizing it through a mechanism and I think this is a good opportunity for this location,” Berger said.

Still, he and Retherford both stressed that the conversations are early.

According to Retherford, the program still has details to work out, like the amount of the rebates. The city hired a consultant and staff plan to take the idea to Salem City Council next month, she said.

If passed, the city would have another carrot for developers to build sorely needed housing.

A 2015 analysis found the city needs about 200 more acres developed into multifamily housing to keep pace with population growth for the next two decades.

Yet building affordable housing has only gotten more expensive in recent years. As the economy has boomed, so, too, have costs of construction and real estate, developers say.

“Anecdotally, the construction costs of an apartment unit has basically doubled since 2012,” Berger said. “So, trying to create something new that’s affordable is not easy with construction costs going up that much. Add to that, with an improving economy, people feel their land is worth more. You can’t find deals on land like you could in 2012. It’s tough to make it work.”

Mountain West opened two affordable housing projects in recent years: the 180-unit Cornerstone Apartments and the 168-unit Fruitland Meadows in east Salem.

Berger said both projects leaned on government grants to offer affordable rents. He said those grants, which require greater reporting, come with their own complications.

“Everyone has to make sure it’s being done properly and so it’s very cumbersome and very expensive,” he said. “There are developers who just do that because it’s so complicated.”

Affordable housing is housing that can be afforded by people or households that earn less than the median income.

Latest guidelines from the U.S. Department of Housing and Urban Development say a single person earning less than $38,880 — $18.70 per hour — in Marion or Polk counties would qualify.

In recent decades, housing costs around the country have risen faster than incomes and wages, said Jimmy Jones, executive director of the Mid-Willamette Community Action Agency, often leading to a host of problems for people with less money.

“They start making really uncomfortable choices – whether to buy gas (to get to work) or buy better quality foods or better clothes for their kids for schools,” he said. “They spend more money on rent and less on things they need in their lives.”

Retherford is optimistic the mini-urban renewal areas can work. She said she has done similar projects in Wilsonville, but those were for industrial properties.

The city of Salem already has other incentives it can use to spur development, but they don’t always apply.

Enterprise zones, for example, don’t apply to homes – only projects that create jobs. And the city’s multi-unit housing tax incentive program can give multifamily projects a 10-year break from property taxes, but the project must be in the downtown core.

Likewise, current urban renewal areas can give big grants to help pay for construction – such as the $750,000 checks going to downtown micro-apartments and Union Gospel Mission of Salem’s new men’s mission – as long as the project is within the area.

A project near the state hospital wouldn’t qualify for any of those incentives, Retherford noted. She is hopeful that if the mini-urban renewal idea works out that it can be used around Salem.

“If it works, it can be replicated pretty much anywhere in the city,” she said.

NOTE: Mountain West’s president, Larry Tokarski, is a co-founder of Salem Reporter.

Have a tip? Contact reporter Troy Brynelson at 503-575-9930, troy@salemreporter.com or @TroyWB.

CORRECTION: A previous version of this article misstated how many units the Cornerstone Apartmetns and Fruitland Meadows had.