Greater Portland's Real Estate Market

April 26, 2017
Authors: Greg Frick, HFO Investment Real Estate
Publishers: Western Real Estate Business

Multifamily development in the Portland/Vancouver metro area has reached a fascinating crossroads. Last year, 7,014 multifamily units* were permitted plus 7,709 additional residential units for a total of 14,723 units/homes. There are 100 new residents moving to the metro area every day, which experts say would require 34,162 new units/homes be built this year – more than twice as much as last year. This article explains why that doesn’t seem likely.

New Construction. Construction of single family homes is expected to remain flat due to high land costs and a 2015 decision not to expand the Urban Growth Boundary. Multifamily construction remains higher than single family, with 26,452 multifamily units in the (multi-year) construction pipeline. Of those, 31 percent are proposed for Portland’s close-in eastside, 21 percent in the close-in westside, 18 percent in Clark County, Washington and the remaining 30 percent in other submarkets.

New construction has largely consisted of Class A properties asking top-of-market rents and leaving a significant shortage of Class B and C units. This imbalance has led to slow lease-up and increased concessions for residents of newer, upscale apartments.

Affordable Housing Mandates. In March of 2016, the Oregon legislature ended a 17-year-old ban on affordable housing mandates and on February 1st the City of Portland began requiring 20 percent of all units in new multifamily projects be deemed affordable. Predictably, there was a last-minute rush by developers to obtain permits before the deadline. News outlets now report that local architectural firms have zero multifamily design projects on the drawing boards.

Rent Control. With rent growth of 11.7 percent in 2015 and six percent in 2016**, tenant groups are calling for Oregon legislators to end the state’s 1985 ban on rent control. The City of Portland, meanwhile, passed an emergency ordinance requiring landlords to compensate renters between $2,900-$4,500 as relocation assistance in cases of: no-cause evictions, annual rent increases above 10 percent or non-renewals. Landlords are currently litigating with the City, asserting relocation assistance is, in effect, rent control.

Simultaneous with their push for an end to the rent control ban, renter groups are seeking to stop no-cause evictions—something landlords see as a critical tool for maintaining safe and harmonious communities. Legislation to end the state ban on rent control and to eliminate no-cause evictions are actively being debated at the capitol.

Result. The added costs to developers under the City of Portland’s new inclusionary zoning requirements in conjunction with new regulations on rent control, relocation assistance, and the end of no-cause evictions will likely result in future development activity taking place outside the Portland city limits.  

Our Prediction. While greater Portland’s housing supply is still far below demand, elected leaders continue to press ahead with measures that discourage development. We expect low vacancy and high demand to continue for the foreseeable future.

Greg Frick is a partner with HFO Investment Real Estate, a Portland-based regional multifamily apartment brokerage. He can be reached at greg@hfore.com or (503) 241-5541. For additional information on the Portland apartment market, you’re invited to download the company’s latest newsletter at www.hfore.com

* Defined as buildings of five or more units. Source: U.S. Census Bureau
**Source: Axiometrics