Greater Portland came roaring out of the Great Recession. In less than 10 years, the region grew its economy and added high-wage jobs at higher rates than almost any other large U.S. metro area. Median incomes went up. The poverty rate went down. And thousands of young, educated workers migrated to the region drawn by the high quality of life and the opportunity of a booming economy.
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This influx of new affluence and new people was both a blessing and a curse, changing the dynamics of our housing market and shifting the geography of affordability in a very short period of time.
But longer-term trends also shaped our housing supply and those trends continue to challenge our ability to create housing choices that meet the needs of our changing region.
Here are some things to know about housing affordability in our region – and how we’re responding.
1. The good news: the pace of unaffordability is slowing down.
In 2009, Greater Portland had a high quality of life, an economy poised to ascend, and a steady stream of new people flocking to the region in search of both. But it didn't have nearly enough homes to accommodate them.
Housing construction grounded to a halt during the recession but migration into the region proceeded at a steady pace. As the population continued to grow, demand intensified and housing prices rose – slowly at first, but gaining momentum with each passing year. Rent and home price increases were among the highest in the nation; vacancy rates, the share of unoccupied rental units, were among the lowest.
Long-term residents found themselves priced out of their neighborhoods, while would-be homebuyers struggled to save for down payments that seemed to double overnight.
This good news isn’t great news, of course – rents and home prices are not going down. They are still rising, but not as quickly. Portland-area home values this summer were up 7.6 percent over last year, according to the Case-Shiller Index – well above the 5.9 percent national average and the second-highest in the nation behind Seattle. Still, that’s better than last year’s 12.4 percent spike.
And compared to 2015's staggering 12.5 percent average rental increase, this past year's modest year-over-year 2.9 percent increase, from September 2016 to September 2017, seems like a gift.
Finding home
Our housing stories may be different, but we all share the desire to live in a safe and affordable home. Six Oregonians share their housing stories at different stages of life. Learn more.
2. New homes are being built – here, there, almost everywhere.
To what do we owe this small relief? To a few factors, but mainly construction. Housing construction is filling the deficit built up during the recession.
The majority of these new homes, particularly apartments and condominiums, are in key town and regional centers as a response to a growing demand for walkable neighborhoods close to amenities.
CoStar, a national real estate and marketing research firm, tracked construction of more than 20,000 new units of multifamily housing completed in the Portland metropolitan area since 2010. More than half of those units were built in the past two and a half years.
Data from Construction Monitor indicate that since 2015 developers submitted 25,000 permits for future multifamily buildings in greater Portland, meaning more apartments are in the pipeline.
The increased available supply loosened regional vacancy rates from a tight 4.6 percent in 2014 to a somewhat more comfortable 5.5 percent in 2017's current quarter, according to CoStar. This growing availability of housing gives apartment-seekers more choices, generating competition among property managers who have moderated their asking rents accordingly.
Construction Monitor data also show that nearly 30,000 permits for new single-family units, including duplexes and triplexes, were submitted between 2010 and mid-2017.
Map of residential permits between 2010 and 2017
Most newer homes have been built as infill development in existing urban areas. But in another positive sign, development is picking up in the urban growth boundary expansion areas.
Those areas make up 42 square miles of undeveloped land on the region's edges. Regional leaders added them to the urban growth boundary over the past 19 years to make room for housing and employment. (For context, that’s an area the about the size of two Beavertons, or 420 Oregon Zoos.)
Leaders hope to avoid these kinds of delays in future UGB expansions. Going forward, Metro will focus its attention on only expanding the UGB in urban reserves that have well-considered infrastructure funding strategies in place for funding and building what’s needed for a neighborhood.
New construction in these undeveloped expansion areas is a challenge. In addition to overcoming the normal financing and permitting hurdles, a city or developer must first build streets, sidewalks, sewers and other basic infrastructure to support a neighborhood. Infrastructure easily costs hundreds of millions of dollars.
Since they were brought into the UGB, these areas have seen fewer than 11,000 approved (or pending) residential permits out of the expected 67,000. A number of areas still sit nearly vacant years after their addition.
Interactive map: Urban Growth Boundary expansion areas
Source: Construction Monitor 2017
So it is promising to see development take off in some of these areas, such as the Villebois community in Wilsonville and Washington County's North Bethany area. About 3,500 new units were permitted in UGB expansion areas from early 2015 through 2017's second quarter.
Project entitlements, a preliminary step in the development process, are underway in other areas. That development helps fill in the housing backlog created during the recession.
Finding home
Our housing stories may be different, but we all share the desire to live in a safe and affordable home. Six Oregonians share their housing stories at different stages of life. Learn more.
3. New construction is helping, but there’s more to the story.
New development helped slow the pace of rising home prices from an all-out sprint back to a steady jog. But business-as-usual building won't be enough to address our affordability challenges even though builders in the region will likely continue to add more housing.
For single-family homes, the general model of market-rate affordability goes something like this: New, expensive housing is generally built with higher-income households in mind. These new units should draw wealthier people away from the slightly older housing stock, freeing up those units for the households in the next-lowest income bracket.
As homes lose value over time, they filter down the market and become affordable to first-time homebuyers and middle-income households. Lower-income households occupy the oldest homes. Adding supply at the top, according to this model, ensures a steady housing pipeline for every income bracket over time.
It’s not a perfect pipeline, though. For decades, single-family homes have gotten bigger and bigger, with more square footage, more bedrooms, more bathrooms, and more room for parking. Bigger homes take longer to become more affordable.
Problems exist at the other end of this pipeline, too.
Home value isn’t determined by the value of the structure alone. Where that structure sits matters tremendously.
In greater Portland, the oldest housing was built near our urban centers during an era when development was organized around walking and transit. Newer neighborhoods were built increasingly further from the centers, following car-oriented development patterns after World War II.
In recent years the demand for walkable, “complete” neighborhoods surged. Prices in these areas skyrocketed. Larger or more luxurious units replaced some older homes and apartments. Lower-income households, particularly households of color, were pushed to less expensive neighborhoods, many at the edges of the metro area.
As a result, the value of place bent the low end of the housing pipeline into a “U” shape, as many of the oldest neighborhoods that should in theory be sanctuaries of deeply affordable housing are the epicenters of regional demand.
Brand-new housing is typically expensive due to the value of the home, but much of the Portland metro area's older housing is now expensive due to the value of the place.
In the long term, new home construction won’t significantly reduce demand across the income spectrum if it only creates big homes with little chance of filtering downmarket within a reasonable timeframe. And it won’t help ease demand in the short term if we don’t create new housing where people want it most.
Finding home
Our housing stories may be different, but we all share the desire to live in a safe and affordable home. Six Oregonians share their housing stories at different stages of life. Learn more.
4. Building for an affordable future? Look to the past.
The good news is that we have strategies to address both of the long- and short-term demands. Building smaller-scale homes may reduce the cost of new housing from the top of the pipeline on down. And building more homes in the highest-demand areas of the region may help relax exorbitant land prices by dividing that cost among more people. Luckily, we have experience doing both.
Earlier in our region’s history, developers had more options for what they could build to maximize their profit on a given lot. For example, they could build one large home and sell it for $100,000 – or they could build several mid-sized units and sell them for $60,000 apiece, depending on what they thought would sell best in the area.
Middle housing enables more people to live in an area while maintaining the look and feel of a residential neighborhood. That, in turn, creates areas with enough people to support more frequent transit and local businesses, such as coffee shops, restaurants, and small grocery stores. It creates the kind of neighborhood where lots of people want to live nowadays.
That’s because in most residential areas, small-scale multifamily structures, such as duplexes, triplexes, fourplexes, townhomes, row houses, cottage clusters, and bungalow courts, were legal in addition to single-family structures. This type of “middle housing” provided a mix of housing to fit a variety of incomes and household sizes.
But laws changed around the middle of the 20th century. New zoning regulations and code restrictions effectively limited developers to two basic building options in most areas: single-family homes or large, multistory buildings. Today over 70 percent of our region’s homes are single-family units.
Even in many of the neighborhoods where most people want to live, the zoning restricts housing to allow about six to 15 homes per block.
By contrast, a neighborhood with middle housing mixed alongside single-family homes may allow two to three times as many households (about 25 to 50) to live in the same amount of space without considerably changing the neighborhood's character.
Reintroducing this middle housing into our neighborhoods may help meet the region's demand for housing, increasing the supply of available homes where people want it most. And since these housing types tend to be smaller and less expensive, they help make these amenity-rich places accessible to more people.
Changing zoning laws and building codes to allow middle housing won’t transform neighborhoods – or housing prices – overnight. The transition to more diverse places to live may take decades. But it is an important step to provide for the region's long-term affordability.
Finding home
Our housing stories may be different, but we all share the desire to live in a safe and affordable home. Six Oregonians share their housing stories at different stages of life. Learn more.
5. The region needs to work towards long-term solutions - but we also need to take action to help people who are struggling right now.
While we work to ensure that people have more access to neighborhoods of their choice, we can’t lose sight of the fact that many others are fighting to stay in neighborhoods in which they’ve lived for years.
The price surges of previous years left a lot of people in our region feeling left in the dust, with little hope of catching up again. Although local incomes increased in recent years, those increases weren't nearly enough to keep up with housing prices.
Housing prices hit renters the hardest. Between 2010 and 2015, renters saw their median household incomes increase about 12 percent. Native Americans and African-Americans, who had the lowest median incomes, saw income gains of just three and four percent over that same time period, respectively.
CoStar data for that same time period show the metro area's rental prices increasing by an average of 34 percent. Some areas, however, were affected much harder than others.
Some people may scrimp and save, or find more affordable housing farther out. But the hard truth is that others are not faring well. Multnomah, Clackamas, and Washington Counties’ 2016 Point-In-Time counts recorded the first increase in the number of homeless people in six years.
This year's count shows an even sharper increase. HUD data indicate that nearly 300 people found themselves newly homeless this past year.
Homelessness affects children, too. School districts in the tri-county area recorded more than 7,600 children who were either unsheltered or living in shelters, staying in a motel or in doubled-up situations during the 2015-2016 school year. That number of children would fill the Arlene Schnitzer Concert Hall over two and half times.
6. There isn’t enough affordable housing for everyone who needs it.
Local governments and nonprofits provide some regulated affordable housing for people who make below the area median income. Often this is made possible through subsidies – for example, a household that makes 60 percent of the area median income might pay 60 percent of the total rent for an apartment and the county would cover the remaining 40 percent.
The less income a household brings to the table, the bigger the subsidy needs to be to cover the gap. For this reason, it’s especially hard to provide enough regulated housing for people and families with the lowest incomes.
As the Urban Land Institute’s interactive map illustrates, most counties in the nation have a shortage of housing units available to people with extremely low incomes.
Housing authorities are looking for ways to preserve below-market rate housing that exists in some parts of the region and prevent the displacement of people who have homes there. These areas tend to be farther out from town and regional centers in less amenity-rich, walkable areas.
Still, they provide a sanctuary of affordability for thousands of lower-income households.
7. We’re taking action.
The good news is that our region isn’t sitting on the sidelines. Through grants from Metro’s new Equitable Housing Initiative, cities and counties are developing strategies to address what they see as the most viable solutions for their communities. In addition to city and county initiatives, the regional government is considering the part it should play in making sure that low-income households have access to quality places to live.
Greater Portland is on a road that other regions, such as San Francisco and Seattle, have already walked. We face many of the same challenges that these places faced years ago as their economies began upward trajectories that brought rents and home prices with them. But what happens in our future depends on how we respond to these challenges.
Our response is our choice and this is still our story to write.
Cartography by Matthew Hampton, a transportation planner at Metro.
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Learn. Learn more about Metro's Equitable Housing Initiative and its role in housing.
Read our housing overview:
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