Apartment construction is declining in Portland and its suburbs
The Portland area’s housing crisis is expected to get worse in the coming months, with a decline in the number of apartments under construction and rising interest rates pushing new construction down even further.
That will make it more difficult for Oregon to meet Gov. Tina Kotick’s ambitious goal of building 36,000 homes every year for a decade, a lofty number that would double the recent pace of construction.
While apartment construction in Portland city limits has remained steady over the past two years, the city has never seen a post-pandemic construction rebound as other parts of the metro area have, according to data from CoStar and Portland economic firm ECONorthwest. The number of buildings under construction in the city, 28, has halved compared to last year, which forecasters say portends a sharp slowdown in the coming months.
Meanwhile, across the four-county Portland metro area, the number of apartments already under construction is down 27% since this time in 2022.
Blame high interest rates. The high cost of borrowing has increased the cost of financing new housing construction.
This has led to a “dumping effect” in apartment construction, said economist Mike Wilkerson, who tracks the regional housing market for ECONorthwest.
Those who invest don’t want to commit to projects in Portland because of the “stigma” associated with the city’s struggle to address homelessness and crime, Wilkerson said.
But rising interest rates, at this point, are a much bigger problem than Portland’s livability issues, according to Wilkerson. Cities everywhere are facing a slowdown in housing construction, he said.
The question, Wilkerson said, is what happens when interest rates eventually come down and real estate investors start thinking about where to put their money: “And then, does the Portland-specific factor become more important?”
Portland’s rental market is a bit soft right now, Wilkerson said, partly because fewer people are moving in the fall and partly because new apartments that were in the pipeline before the pandemic have recently opened.
But that pipeline is now almost empty. So Wilkerson expects rents to spike around mid-2024, a period when fewer people are moving and fewer new apartments are coming. This means that wealthier renters who tend to choose newer construction will compete for older rents, resulting in higher rental costs across a wider range of apartments.
“In the late spring and early summer, you see that period of escalating rents,” Wilkerson said.
Portland’s population is declining, but Wilkerson said it will take many years of sustained exodus to balance the region’s housing supply unless housing construction picks up.
Therefore, the city and state should consider revolving loan funds or other tools to make it more accessible for housing developers to borrow money and build in the city, he said.
Portland has begun exploring that possibility, but Wilkerson said the state has far more tools at its disposal. He said the Oregon Legislature must now work on solutions to address the construction funding gap during its short session next year.
In a press conference on Monday, Gov. Kotick acknowledged that interest rates are making it more difficult to address the state’s housing shortage.
“However, the No. 1 focus of the 2024 legislative session is housing production,” Kotick said. The governor said the Housing Production Advisory Board she convened early this year is working on funding proposals to encourage more housing development.
“We will be pushing hard on the Legislature to get resources to make up for some of those gaps that are currently impediments in the development system,” Kotick said.
This is the Oregonian’s weekly Oregon Insight look at the numbers behind the state’s economy. View past installments here.
–Mike Rogoway | firstname.lastname@example.org |
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