Portland Business Alliance forum discusses ways to build more housing and cut scarcity pricing locals out of the market.
Portland house prices continue to rise, despite reports of the city losing its luster. In 2021 alone, the median home price in Portland increased more than 15 percent. But what can be done to reduce costs and supply more housing units before the locals are completely priced out?
That was the main topic at the Portland Business Alliance’s monthly breakfast discussion on March 16, held in person at the downtown Hilton Hotel. A panel consisting of Jesse Miller, Vice President, Board of Directors, Multifamily NW; Michele Holen, Chief Executive Officer, Portland Metropolitan Association of Realtors, and Amy Ruiz, Senior Vice President, Oregon, Strategies 360, was moderated by attorney Dana Krawczuk, a partner at Stoel Rives.
Krawczuk asked, why are home prices still rising?
Holen said, “To put it simply, it comes down to the supply and demand. Right now, we have less than three weeks of inventory on the market, when usually a healthy housing market is somewhere between four to six months of inventory.”
Holen said Portland has not kept up with housing starts going back to the Great Recession 10 years ago.
“Some of that had to do with restrictions on lending, and a lot of builders went out of business.” Interest rates remained low and Portland is still receiving strong in-migration, as Portland is still relatively the most affordable city on I-5.
“And the pandemic kept a lot of people in their homes who might have otherwise put their homes on the market. People didn’t really want to list their homes and have open houses with people wandering through.”
Holen added that Millennials are breeding and want yard space. “We have people that did the great migration, and the grid resignations, and are finding that ‘I can work from where I want,’ and that’s causing a lot of people to move around.”
Stuck in the basement
Jessie Miller of Multifamily Northwest said he is a millennial, “And I just moved out of my mom’s basement a couple years ago into a house!”
“Land restrictions are a big part of it. Since 1980, the tri-county population has increased by 74{3e92bdb61ecc35f2999ee2a63f1e687c788772421b16b0136989bbb6b4e89b73}, while their urban growth boundary has only increased by 15{3e92bdb61ecc35f2999ee2a63f1e687c788772421b16b0136989bbb6b4e89b73}, which is a massive restriction in actual land availability. And the cost to build a two-story wood frame housing unit is significantly less than building a five-story podium-style, with a concrete foundation. That costs about 50{3e92bdb61ecc35f2999ee2a63f1e687c788772421b16b0136989bbb6b4e89b73} more than building a two story.”
“Seattle has 26,000 units currently under construction, whereas Portland has a little over 7,000 units,” said Miller. According to the Urban Land Institute, Portland fell from being number 3 in the nation in terms of being a good place to invest in housing development, in 2017, to number 66 in 2020.
He added that Seattle’s housing development continues to skyrocket, whereas Portland’s boom fizzled after 2017 when the Inclusionary Housing law mandated that new buildings with 20 or more units must include 20 percent affordable housing (or pay a fee to have them built elsewhere).
This led to a scramble to beat the permitting deadline, followed by a lull, followed by a lot of new designs for apartments with only 19 units.
Noisy Banfield apartments
Amy Ruiz said that Oregon, Strategies 360 is a public affairs and communications firm that represents Oregon Smart Growth, which is a group of developers, investors and allied professionals who advocate for sustainable development across the state and particularly in Portland.
Ruiz said, “So many of my peers who are still renters are absolutely struggling. They’re looking Clark County, or having to give up the idea of renting a small house that has maybe a yard for a little gardening, and instead are going to end up with a small apartment right off the Banfield and is really noisy.”
However, things are worse in Florida.
“Portland is 35th out of the 49 biggest metropolitan areas for rent growth, a 9{3e92bdb61ecc35f2999ee2a63f1e687c788772421b16b0136989bbb6b4e89b73} revenue growth over this last year in the region where the national average is closer to 11{3e92bdb61ecc35f2999ee2a63f1e687c788772421b16b0136989bbb6b4e89b73}.”
Ruiz said she moved from Seattle to Portland 10 years ago because we are more affordable.
“And that’s changing too. Portland is really neck and neck when you look at the cost of housing and childcare costs to the transportation factors. It’s just about as expensive to live here as is live in Seattle.”
Rethink that move to Boise
Michele Holen of the Portland Metro Association of Realtors said cities like Denver, Boise and Seattle are similar to Portland for days on market and median home prices.
“Boise might be slightly more affordable when you’re looking at the price of homes versus income. But really, it’s a regional pinch.”
Holen said this was failing the lower and middle classes. “It is getting increasingly hard to get into homeownership, let alone move up. A lot of our first-time homebuyers are having to compete against cash offers. When you’re relying on financing, it’s hard to beat out a cash offer.”
And renting while between selling and buying a home is also getting hard, so people feel stuck in their homes.
Also, “if you’re on a fixed income and property taxes are rising, you might get priced out of the home that you’ve been living in for most of your life and where your support systems are.”
Another effect of unaffordable housing is it pushes service workers out to further areas. “Now they’re spending more time commuting that starts getting into some of the equity issues. So there’s a lot of work to be done to make sure that there’s housing available for people at every income level.”
Reed added that Portland now has many families occupying homes they can easily afford, preventing others below them on the housing ladder from moving up. “You might have someone who could afford a unit with 120{3e92bdb61ecc35f2999ee2a63f1e687c788772421b16b0136989bbb6b4e89b73} of median income, occupying a unit that could be affordable to family at 80{3e92bdb61ecc35f2999ee2a63f1e687c788772421b16b0136989bbb6b4e89b73} of medium income.”
Jessie Miller said “Long term, we need an additional 244,000 units from 2020 to 2040, that’s average is about 11,000 to 12,000 units a year. If we’re not keeping up with that production, then that deficit just continues to worsen. And the reason is the cost, right?” He cited the Metro housing bond report which said on average the cost to develop a unit is about $340,000. “So even if we just look at the 10,000 units that are needed, if the government were to try to finance that, it would be astronomical. It takes a public private partnership to resolve these things.”
Build more better
The decline in construction seems to have stabilized and permitting is back at pre-COVID levels. What next, the panel was asked?
Ruiz at Oregon Strategies 360 said the Portland Housing Bureau is laser-focused on affordable housing, which, she said, is fantastic.
“The thing that they don’t do, is track are we on course to meet the number of units needed. That is nobody’s charge in the city of Portland currently.”
So certain expensive planning ideas come by the City council and are adopted without seeing how they add to the cost of new housing. Such things as bike rooms, bird-friendly glass, green roofs and wider sidewalks for pedestrians and cyclists.
“We must take a look at how these things layer on top of each other.”
Ruiz added that former housing bureau head Nick Fish said to be cautious about the Inclusionary Housing law, but the city keeps saying it can’t do anything until a study has been done, and the study has been put off. The request for proposals for the study is out now, so it will be a while longer.
The last number was that just 235 affordable units had been built under the plan. Ruiz added “Certainly the development community knows Portland’s reputation for slow permitting. More of us have to hustle to get capital to come into the city and to invest here.
Do the hustle
Jessie Miller agreed: “I think it’s hustle in the formation of tens of thousands of units, just with a deficit that we’re at. I would challenge city leaders to take a look at the competitive marketplace and to see what money is building, and see which policies are working in developing thousands of units. In 1984, the state of Massachusetts ended rent control and permits shot up 600{3e92bdb61ecc35f2999ee2a63f1e687c788772421b16b0136989bbb6b4e89b73} in multifamily. I certainly wouldn’t want my grandma to get the 10{3e92bdb61ecc35f2999ee2a63f1e687c788772421b16b0136989bbb6b4e89b73} rent increases every year, but we need to ask why is we were number three on ULI and why are we number 66 now? Sustainability and affordability are good and are needed, but it comes at a cost. Now’s the time to really make that change. The longer we go, the more expensive and harder it is to recover.”
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