PORTLAND, Me. –After Heidi and William Wood moved into a two-bedroom rental apartment in Unity Village last fall, they baked cookies and knocked on the doors of every neighbor in the 33-unit development. They encountered young professionals like themselves who were looking for a well-managed building and reasonable market rate rents in one of New England’s hot small cities. They also met Somali immigrants, single mothers with toddlers and teenagers, and adults so down on their luck they had just moved out of the shelter up the street.

The college-educated couple and their neighbors reflect the economic, cultural, and racial diversity that not only distinguishes Unity Village, which opened six years ago, but also the Bayside Neighborhood, one of Portland’s oldest, still its poorest, and becoming its most curious.

It’s possible on the same Bayside block to eat a $100 meal at one of the city’s fine seafood restaurants, or get one for free at a soup kitchen, which feeds 500 people a day. Residents here sleep in historic 19^th century homes, some worth $350,000 or more, while transients can get a free bed at overnight shelters, one for men and the other for women. On Bayside’s south end are worn convenience stores with metal grates on the windows selling cigarettes and beer. On the north end is a brand new 47,000-square-foot Whole Foods Market.

All across the country, and in the towns and small cities of northern Michigan, housing costs are often cited as the reason that working families can’t afford to live in town. The typical trade is a working couple’s time in exchange for a comfortable home. But as gas prices continue to remain high, and working wages are stagnant or even declining, a new fact of life is emerging in northern Michigan and countless other places. People can’t afford to live that far out of town either.

The question is what are community leaders willing to do to fill this growing space. The answers say a lot about a region’s conviction about the quality of its workforce, the beauty of its geography, and personal and public costs. In northern Michigan, communities wave their hands at the problem, asserting they do not have enough money to do more than build a couple more affordable homes every year while the number of families that need good places to live escalates.

Portland, Maine, though chose a different path that has put much more of the city’s tax revenue and community spirit into solving a genuine problem that threatened its neighborhoods and its economy. The revival of the Bayside Neighborhood is a case in point and provides ample lessons for any community in Michigan willing to seriously address the affordability crisis in housing.

A Neighborhood Transformed
A century ago Bayside was a densely packed community of stout homes that sheltered perhaps 5,000 residents. Urban renewal, though, scraped away many of the homes, replacing them with parking lots. Others were abandoned. The homeless shelters were established in the 1970s. The number of residents dropped to below 1,000.

Then in the 1990s, Portland joined other New England cities in experiencing an economic and cultural revival. Upwardly mobile young professionals resettled the city’s seaside neighborhoods. Artists colonized lofts and old homes in other neighborhoods. Bayside, with its ample open spaces and old homes ready to be rehabilitated, was seen by city planners as a place of metropolitan opportunity. With the help of Bayside residents, the city developed a plan to turn Bayside into Portland’s "urban gateway."

"A lot of people didn’t think it could happen," said Alex Jaegerman, the director of Portland’s planning department. "Piece by piece, it’s happening."

To some of the area’s long-time residents, the Bayside Neighborhood’s transformation over the last decade has been anticipated, but is nevertheless still striking.

"This was the horrendously ugly part of town. The scrap yards are here. Buildings weren’t being used. Houses were empty." said Ron Spinella, an artist and gallery owner who is president of the Bayside Neighborhood Association, and has lived in the community since 1996. "But we also had more vacant and unused property than any neighborhood in a city that was revitalizing very fast. So you just knew that the city’s deteriorated back door could become its handsome front door."

Condos Rise Alongside Affordable Housing
The Bayside Neighborhood is not there yet, but it appears to be on the way. The question facing developers and the city, which adopted a Bayside redevelopment plan in 1999, was this: Would people with means, particularly college-educated professionals just getting started, be willing to settle in a neighborhood known for its soup kitchen, shelters, and transients?

The construction boom taking place in Bayside neighborhood seems to have answered the question: Market rate condominiums are rising alongside mixed-income housing developments. A new 37-unit loft-style condominium is under construction on Chestnut Street. Avesta Housing, a Portland-based non-profit developer of affordable housing, will open a 60-unit apartment building later this year on the corner of Pearl and Oxford streets. A building that will house 400 students will start construction in the spring.

And it’s not just housing that’s on the rebound: The city is extending a recreational walking and biking trail through Bayside, constructed a new street with a center island, and convinced one of the two metal scrapyard owners in the district to relocate, freeing up land for mixed use retail, business, and housing projects. A privately developed office building will get underway in the spring,

City officials and residents point to Unity Village, which cost $5.25 million and opened in 2001, as an example of the neighborhood’s newfound diversity and prosperity. This development, and others like it, has served as an economic catalyst that has helped to stabilize the neighborhood by providing shelter and a sense of community for those with rising fortunes, like the Woods, and those less fortunate. By offering affordable apartments in attractive townhouse-style buildings just blocks from City Hall, and the arts, central business, and entertainment districts of the city, it has coaxed people of different incomes and backgrounds and races to live side by side.

Housing for a New Demographic Reality
Developments like Unity Village have also helped stabilize Portland’s rental market, which has been overwhelmed by the rapid growth of one and two-person households. Vacancy rates have hovered at a very tight 2 percent for almost a decade, driving rents steadily up.

Private developers have found a strong market for new condominiums for the upwardly mobile. But in a city where roughly 58 percent of residents rent, according to the U.S. Census Bureau, affordable rental housing is a necessity.

That is why the city’s housing department is busy working with private developers to build affordable housing for those with lower incomes, including recent college graduates and working families. Thirteen new city-sponsored projects, valued at $50 million and built in partnership with private developers, have provided almost 300 new apartments since 2000, including those in Unity Village.

The extra housing, along with a slowdown in New England’s economy, appears to have influenced rental rates, which were climbing 10 percent annually earlier this decade and are now rising about 5 percent a year, according to a city housing study.

Attracting the Creative Class—and Future Families
The diverse, affordable housing options in Bayside Neighborhood also help Portland attract creative people who will stay and perhaps raise families here.

Mr. and Mrs. Wood, who arrived at Unity Village last September after she completed a graduate degree in social work from Smith College in western Massachusetts, said they are more than satisfied with their new home.

"We specifically chose Bayside," said Mrs. Wood, who is 31, and paying $850 a month for her two-bedroom unit. "We were looking for a city that was close to the ocean, and a neighborhood that was as diverse as possible."

Jennifer Guptill, a 32-year-old property manager and single mother, has lived in Unity Village since October 2005 with her four young children in a three-bedroom market rate apartment that rents for $1,000 a month. That is hundreds of dollars a month less than similar apartments in the tonier neighborhoods to the north and west that overlook Casco Bay and the Atlantic. Ms. Guptil said she can’t afford much more and if she hadn’t found Unity Village, she would have had to move to a distant suburb or small town where rents were more reasonable. But that would have pressed her time, and significantly increased her monthly expenses, principally in fuel and maintenance costs for all the extra travel in her car. Living in downtown Portland means that groceries and other things she needs are in closer proximity.

"Outside of the fact that the homeless shelter is around the corner, it seems like they are making Bayside better," said Ms. Guptill. "My vision is to stay here as long as I need, as long as it is safe, and it continues to get cleaned up. The neighborhood’s improving."

Unity Village, the first project completed under the gateway plan, was developed by Jim Hatch, a non-profit housing consultant, and Richard Berman, the principal of Berman Associates, a local builder. Both men responded to the city’s request to build on three city-owned lots that make up the Unity Village site. Winton Scott Architects designed the four, three-story buildings. One-bedroom apartments are on the ground floor. The two- and three-bedroom units are above. Each unit has a front door and a stoop that faces the street. Because the project is in the central city, the designers minimized the number of parking spaces and maximized the development’s density.

Seven apartments are reserved for families and couples capable of paying market rents of $850 monthly for a two-bedroom unit, a relative bargain compared to rents in Portland’s tonier neighborhoods to the north and west overlooking Casco Bay and the Atlantic.

Seven more apartments are reserved as transitional homes for people moving out of shelters. The remaining 19 units are subsidized housing for single men and women, and working families, many of them with young children and teens who often are found in Unity Village’s community room during the winter, or on the Oxford Street playground when it’s warm.

Unity Village has attracted national notice among public housing agencies for its novel layout and design. In 2005, the U.S. Environmental Protection Agency awarded Berman Associates the Environmental Merit Award for significant contributions to environmental awareness and problem solving.

"These projects take stamina, patience, and creativity," said the award citation.

Keith Schneider, a journalist, is editor and director of program development at the Michigan Land Use Institute. A version of this article was published in the March 4, 2007 edition of the New York Times.