Wednesday, December 23, 2015

Should Oregon Thank California for its Current Growing Pains?


by Spencer Marona, Managing Director

Oregon’s historic campaign slogan of “Welcome to Oregon – Please Enjoy Your Visit” seemed to reappear recently—in a new and vitriolic form—as residential For Sale signs were tagged with “No Californians” stickers. For those who want economic expansion, it seems important to step back to ask ourselves: “Do we really want to bite the hand that feeds us?”

On September 22nd, Josh Lehner, with the Oregon Office of Economic Analysis (OEA), posted an online report which commented on Oregon’s economic outlook. His statement included this:

Migration is vital to Oregon’s economic health. It is one of the two primary reasons Oregon outperforms the typical state during an economic expansion…Americans want to live in and move to Oregon…our state’s ability to attract skilled, young working age households is a huge economic benefit.

True to Lehner’s statement, an estimated 128,000 new residents migrated to Oregon in 2014. The U.S. Census Bureau reports one out of four (roughly 32,000 people) are moving to Oregon from California. Low cost of living, a wider array of employment opportunities and superior quality of life are among the enticements that caused Oregon to lead the nation, in 2014, for in-migration. The arrival of Californians, among residents from other states, is nothing new.

According to Rich States, Poor States, published by The American Legislative Exchange Council (ALEC), $6.5 billion moved from California to Oregon between 2003 and 2013. This influx of capital, alongside growing in-migration, has impacted employment growth and the state’s booming multifamily market.

Portland continues to lead the nation in effective rent growth, at 14.3% year over year as of October, 2015 according to MPF Research. Driving heightened rents are a high level of sales transactions for multifamily properties.

Between the start of 2014 and September, 2015, almost one fifth of all multifamily properties of eight or more units were purchased by California buyers. According to CoStar, those buyers paid $1.25 billion in aggregate value for property in the greater Portland-Vancouver-Salem markets. New residents and multifamily investors from California have affected Oregon’s multifamily industry–and our economy as a whole–through these investments.

These investment funds might not be pouring into Oregon’s economy without an analysis of Oregon’s sustainable employment market. Companies like Apple, eBay, Google and Under Armour are claiming Oregon ground, as companies like Nike undergo significant expansions. These companies and others are gambling on the hope that newly created jobs will be filled. With increased employment opportunities comes new demand for living spaces.

Other industries, such as retail and education, also feel a positive effect from this growth. More employed workers spend more money–thus creating a flywheel effect.

The multifamily market has a less positive flipside. The impact of California capital and in-migration may become too much of a good thing. According to the Oregonian, potential residents have awaited 22,000 new apartment units to be delivered since 2012. As well, vacancies are practically non-existent. The demand for rental units is so strong that Portland’s City Council declared a housing state of emergency on October 7, 2015.

Rents in the Portland-Vancouver market have skyrocketed due to its extraordinary 97% occupancy rate. This has caused an increase in the homeless population. The Oregonian reporting an approximate 1,800 people live on the streets in Portland.

The ultimate impact of these stresses on the rental market remains to be seen. The Portland City Council recently increased the notice period to evict or raise rents from 30 to 90 days for rents over 5%.

As job growth continues, and Californians plant their money in Oregon, our golden age of apartment investments seems poised to continue, regardless of outside pressure.