Monday, February 24, 2020

Multifamily Marketwatch Podcast - February 24, 2020

This week: The Portland Business Alliance released its Housing Affordability 2020 report, which showed that the Portland region has built 23,500 fewer units than needed over the past decade; Oregon's Department of Revenue is still working out the details of the new $1 billion business activity tax, leaving business owners unable to predict what they will owe in April; in his new book, author and journalist Conor Dougherty asks whether YIMBY groups and older, more diverse tenants rights organizations can work together to advocate for more housing.

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As part of its ongoing Value of Jobs series, the Portland Business Alliance published a report on Housing Affordability in 2020. According to the report, the Portland metro area has built 23,500 fewer homes than were needed to meet demand over the past decade. Since 2010, approximately seven homes have been developed for every ten new households. As of February 2020, 46% of renter households and 25% of owner households are cost-burdened, meaning they pay more than 30% of income on housing each month. In 2016 and 2017, the average one-bedroom apartment in Portland was affordable only to those households making 100% of the median family income. At the beginning of the decade, households making 60-70% MFI could afford the average apartment in the city. Purchasing a house has also become more difficult for Portland area households, including those making 100% MFI. In the four-county metro area, the median household income is $89,700 – a household spending 30% of income on a mortgage can afford a $385,000 home, provided they have saved for a down payment. There are few parts of the metro where the median home price would be affordable to such a household. However – these areas include much of Vancouver, Gresham, the I-205 corridor, and some parts of Beaverton and Western Washington County. The Portland Business Alliance warns that these trends are set to continue – housing production is slowing, mainly due to increasing construction costs, but the region’s population continues to grow. The Alliance calls for a more aggressive approach to housing production, requiring collaboration between a variety of real estate industry stakeholders and community groups. Portland Business Alliance – Value of Jobs 2020: Housing Affordability

The Portland Business Journal reports that real estate professionals are expressing disagreement over whether to support Governor Brown’s proposed real estate transfer tax. Governor Brown’s proposal, House Joint Resolution 203, would charge a 1% tax on real estate transactions based on the taxable value of the property. The first $500,000 of a property’s profit would be exempt from the tax. If the state legislature approves the measure, it will go to residents for a vote. At a hearing at the Capitol on February 11th, a handful of real estate agents broke ranks with the Oregon Association of Realtors, which opposes the measure. Chris Bonner of Hasson Company argued that the proposal would improve the real estate market because it would increase the funding to build much needed affordable housing. Isaac Judd of Hearthstone Real Estate argued in favor of the bill, though he cautioned that in more expensive metro areas it could make some homes even less affordable, as it would mainly be added to the price of a home. A spokesman for Governor Brown said that it would be up to buyers and sellers to determine who would pay the tax – it will not be codified in the law that one party bears responsibility. Shaun Jillions of the Oregon Association of Realtors argued that for more significant commercial properties, the tax could be prohibitive. He points out that for some projects, the land value alone exceeds the $500,000 threshold. No further committee meetings or floor sessions have been scheduled for this bill, but it could still move forward before the end of the legislative session.Portland Business Journal – Real Estate Industry at Odds over Gov. Brown’s Transfer Fees Proposal

The Seattle Times reports that after initially welcoming new residents priced out of Seattle, the city of Tacoma is finding itself in the middle of a housing price boom that is beginning to impact some longtime residents. The median home price in Tacoma is $337,940 – well below Seattle’s median of $750,000 – but over the past five years, many Tacoma neighborhoods have seen home prices explode. In Central Tacoma, prices have increased by 115% during that time, bringing the median to $323,100. In South Tacoma, prices have grown 116% to $273,600. In the North End and Northeast Tacoma, the two most expensive Tacoma neighborhoods, prices have increased by 62% and 71%, respectively. According to the NW Multiple Listing Service, in some communities such as Hilltop, South Tacoma, and the Eastside, home prices have risen by almost a third each year since 2016. In 2017 alone, approximately 18,000 King County residents relocated to Pierce County. While some longtime Tacoma residents are seeing neighborhoods that were once primarily home to Black, Hispanic, and Native residents become increasingly white, some of the new residents are moving to Tacoma specifically because it is a more diverse city than Seattle. As more residents continue to pour in, bidding wars are becoming standard for homes listed at under $600,000.

In many cases, these homes remain on market for under a week. The city is also seeing an increase in house flipping activity – between 2016 and 2019 the number of medium- and large-scale remodels increased by 36%. As a result, longtime residents are finding it harder to keep track of who is moving in and out of the neighborhood. And with a large number of new residents still commuting to jobs in Seattle, many areas appear to empty during the day, with residents leaving early in the morning and not returning until after dark. Still, many of these Seattle transplants see Tacoma as a place they can rebuild communities they lost after being priced out of their previous neighborhoods. Seattle Times – As Seattleites and Their Money FlowSouth, Tacoma Residents Grapple with Changing Neighborhoods

The Oregonian/OregonLive reports that as businesses prepare to pay the state’s new corporate activity tax for the first time in April, the Oregon Department of Revenue has not finalized rules clarifying what the tax applies to. The tax, which was approved in the Spring of 2019, charges business owners 0.57% on in-state transactions. It is based on total revenue rather than net profit. But some business owners are unsure of which purchases count as being in-state. Ross Stock, manager of Western Cascade Industries, says that some of his company’s milled lumber sales take place in Oregon but go directly to builders in California. His accountants are unable to give him advice on whether these sales will be counted under the new state law. As a result, Stock is not able to estimate how much his company will owe at the end of April – the figure could vary by hundreds of thousands of dollars. No other state has a comparable tax, so companies are left wondering how the state will ultimately apply it. The Department of Revenue published 17 temporary rules in December but is not expecting to finalize them until later this year. A bill currently working through the state legislature would provide leniency to businesses that end up paying less than they owe while the rules are being written, but it is unclear whether that legislation will pass. Sandi McDonough, CEO of Oregon Business and Industry, predicts that the legislature will continue to see groups pushing for changes to the tax during future legislative sessions. She describes the questions about how the tax works as, quote, “a conversation that’s never going to end.” She believes that because the tax will end up applying differently to every business, it will continue generating confusion among those who are responsible for paying it. Oregonian – Oregon’s Unique, Billion-Dollar BusinessTax Greeted with Confusion, Consternation

According to newly released U.S. Census data, Oregon had the 10th highest rate of net migration between 2018 and 2019 of any state in the country. The state’s net migration rate was 6.9 per 1,000 residents, compared with 1.8 nationally. Just 12% of new Oregon residents were from other countries – the vast majority came from different parts of the US. Idaho, Nevada, Arizona, South Carolina, and Florida all saw net migration of over ten new residents per 1,000. Washington had the 6th highest net migration rate at 8.1 per 1,000 residents, while California lost 3.3. The most significant decreases in net migration occurred in Alaska, New York, Illinois, Hawaii, and Louisiana. Between 2010 and 2019, Oregon ranked 11th among US states for population growth, with a rate of over 10%. Three-quarters of the state’s population growth can be attributed to migration.

Meanwhile, the Eastern Washington city of Spokane was named one of the four metro areas primed for growth over the next decade by real estate company Redfin. Along with Spokane, Redfin predicts that Las Vegas, Charlotte, and Orlando will be the most attractive metros for home buyers over the next decade due to the affordability of land for new construction. Along with land prices, Redfin chose these metros because they have home price and sales growth over 4%, and searches from out-of-area home buyers over 40%. But Spokane’s attractiveness may depend on its ability to add more housing, with a variety of housing options including single-family homes, apartments, and condos. Year over year, home prices were up 16.3% in January, reaching $273,418. The city has the opportunity to expand its urban growth boundary in 2025, which could open up more opportunities for housing development. Oregonian – Oregon Insight: Inbound Migration Rate Is among the Nation’s Fastest and Seattle Times – Spokane among Four Metro Areas Primed for Growth in Next Decade, According to Redfin

According to Willamette Week, Metro miscalculated the potential revenue that would be generated by its homeless services measure. The measure would generate revenue from a 1% tax on households with incomes over $250,000, or individual taxpayers with incomes over $125,000. Staffers initially estimated that it would generate $175 million, but later corrected that figure to $135 million. The $175 million number was based on taxing all households earning over $125,000. Advocates had initially sought $250 million for homeless services – Katrina Holland, executive director of JOIN and chair of the Here Together advisory board, told the Willamette Week that Metro President Lynn Peterson had personally pledged to refer a ballot measure of at least that amount. A spokesman for Peterson declined to provide a statement on her position regarding how much Metro should be asking voters for.

Meanwhile, the Portland Business Alliance has come out against the income tax approach, pushing instead for a regional payroll tax that could generate $250 million per year over the course of 10 years. The Alliance argues that Oregon is already a high-income tax state, especially compared with Washington where there is no income tax. The organization cited a 2015 report by EcoNorthwest that suggested that high-income individuals may opt to move to Washington to avoid such a tax. While Metro is already considering a payroll tax for its transportation measure that will appear on the November ballot, the Portland Business Alliance letter indicates that the group would still support a payroll tax for that initiative in addition to the payroll tax it proposes to fund homeless services. Metro had planned to refer the measure at its meeting on February 20th but pulled the item from the agenda on Wednesday. Peterson has committed to continue working with the Here Together coalition on the measure. Portland Tribune – Business Leaders: Payroll Tax Better for Homeless Services and Willamette Week – Regional Government Metro Will Weigh Referring a Much Smaller Homeless Services Measure to Voters and Portland Tribune – Metro Postpones Homeless Services Measure Vote

The City of Portland released a progress report for the housing bond passed in 2016. The city faced criticism for its slow start to investment using bond funds, but over the past year has made significant progress toward meeting its goals. So far, two projects are open and occupied: the Ellington, which the city purchased and has kept affordable for low income and formerly homeless families, and the East Burnside Apartments, a newly constructed property also purchased by the city, with 51 apartments for formerly homeless families with children. An additional ten projects are in pre-development, with a total of 1,110 units. Of the 1,424 total units being funded by the bond, 600 are affordable at 0-30% AMI, 658 are family-sized units, and 313 are permanent supportive housing. Three projects are located on the West Side, one is in St Johns, and the rest are scattered across the East Side. Three are located East of 205. According to the city, 87% of the new units are in high opportunity areas. The city is partnering with local nonprofits on two-thirds of the 254 permanent supportive housing units the city approved in 2019. These groups include the Native American Rehabilitative Association, the Native American Youth and Family Center, and the Immigrant and Refugee Community Organization. So far, the two currently open properties house a diverse mix of residents including children, seniors, and people with disabilities. Portland Housing Bond – 2019 Progress Report

Finally, The Atlantic published an article adapted from a new book by author and New York Times economics reporter Conor Dougherty. In his book, Golden Gates: Fighting for Housing in America, Dougherty asks whether groups representing the predominantly white YIMBY movement can build a coalition with older, more diverse tenant and renter groups to advocate for more housing. Dougherty argues that housing shortages have been an issue in American cities since the late 1970s. He catalogs the experts who warned about the impacts of excessive land use regulations and NIMBY sentiment among local homeowners, including Lawrence Katz, Edward Glaeser, and Joseph Gyourko. He also gives credit to Sonja Trauss, who has built a reputation as a leading advocate for increasing the housing supply in the Bay Area. As many members of the Millennial generation find themselves priced out of housing, the Yes In My Backyard movement has gained steam. But an event at the 2018 YIMBYTown conference in Boston showed that the campaign could benefit from reaching out to groups that have been pushing for the same goals, but without the national spotlight. At the same time as the conference, a tenants rights group called City Life/Vida Urbana was hosting the Boston People’s Plan Assembly nearby. Two hundred members of the group marched to the YIMBYTown conference and demanded that the attendees listen to their concerns and ideas, and learn from community groups that have been on the front lines of these issues for decades. Dougherty argues that the success of groups advocating for more housing may require broader coalitions advocating together, rather than groups siloed in many cases by age and race as much as geography. The Atlantic – Victims of NIMBYism, Unite

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