This is Oregon Insight, The Oregonian’s weekly look at the numbers behind the state’s economy. View past installments here.
The number of apartments under construction in the Portland area fell spectacularly during the pandemic, dropping by 55% across the metro region to the lowest point in a decade.
In the fourth quarter of last year, commercial real estate firm CoStar counted just 4,800 apartments under construction across the four counties around Portland. That’s down from around 12,000 as recently as the start of 2020.
That steep decline sounds awful, given that the region is already suffering a severe housing shortage that has produced rising rents, straining household budgets while forcing others onto the streets. But Michael Wilkerson, director of analytics at Portland research firm ECONorthwest, said the construction pipeline is much healthier than those numbers suggest.
“Although it’s down by more than half, when I look at the data I see a stabilization now,” Wilkerson said.
The Portland area experienced an unprecedented building boom near the end of the last decade. Rents began to stagnate as those new apartments opened up and landlords began to offer move-in bonuses and other concessions to fill their buildings.
That spooked developers, Wilkerson said, who decided to “pause and see how that shakes out.” The initial indicators weren’t encouraging.
Portland’s “inclusionary housing” policy required developers to set aside apartments in large developments for low-income tenants, reducing investors’ return on their money. (The policy offers density bonuses and tax exemptions to partially offset the costs.) Then Portland was hit by a national wave of bad publicity following the unrest downturn during the summer of 2020, and the ongoing spike in deadly shootings and homelessness.
While those issues remain in play, Wilkerson said developers are ultimately focused on the bottom line. And with rents rising steeply, and apartment vacancy rates very low, he said it’s clear there’s plenty of money to be made in Portland.
“We’re basically starting a new cycle,” Wilkerson said. Portland is again fielding hundreds of permitting requests each month, suggesting that the city is on pace to add between 4,000 and 5,000 apartments on an annual basis.
And while the severe drop in apartment construction was worrying, Wilkerson notes that it appeared to bottom out well above the trough that followed the dot-com bust and the Great Recession, when there were essentially no new apartments being built in Portland.
“The fact that the bottom is now much, much higher than in previous cycles, that’s the good news,” Wilkerson said.
Apartment construction is key to the region’s economic and social health because the housing shortage produces rising rents. That, in turn, contributes to all manner of crises from families’ financial instability to homelessness. Wilkerson said adding housing supply is one sure way to reduce that pressure.
“The reason we have a housing affordability crisis,” Wilkerson said, “is because prices and rents are more than people can afford.”
— Mike Rogoway | mrogoway@oregonian.com | Twitter: @rogoway | 503-294-7699
