Portland in 2017: What Comes Next in the Affordable Housing Debate

The Oregonian took a look back at how housing became the central issue for Portland in 2016, and discussed what may be coming in 2017. With rents in the metro area up 30% since 2012 and many workers getting pushed further away from jobs in the city's core, businesses, activists, and lawmakers are all increasingly concerned with the issue of affordability. Margot Black, head of Portland Tenants United, states that more people are becoming emboldened by state lawmakers' calls to end the ban on rent control. Marion Haynes, vice president for government affairs and economic development for the Portland Business Alliance, sees affordable housing as stemming from a supply issue, and suggests that the PBA will not support measures that could restrict housing supply. Tensions between the two groups appear to be building with the next legislative session fast approaching. Read more.

Oregon Housing Providers Propose $25 Million in Renter Subsidies

Willamette Week reports today on Oregon housing providers' proposal to create a $25 million renter assistance program.

A Look Back at Hales' Responses to Homelessness, Housing Affordability

As Mayor Hales' term is coming to an end, the Portland Mercury is taking a look back at how he has dealt with the issues of homelessness and housing affordability over the past few years. Although the Mayor started his tenure with a conservative policy of sweeps and arrests that did not have much effect on the underlying causes of homelessness, he signaled a shift in tone when he declared a housing state of emergency in the Fall of 2015. Many of the programs he launched have been controversial, and there is some debate about how successful he has been at reducing homelessness or improving affordability, but there is no denying that housing has been a defining issue of his administration. Read more.

Inclusionary Zoning Approved by Unanimous Vote in Portland

The Portland City Council voted on Wednesday to approve the inclusionary zoning proposal it has put forward in recent weeks.  The policy requires apartment and condo developments with more than 20 units to set aside 20% of units for households making less than 80% median family income (MFI). In 2016, area MFI was $58,650 for a family of 4. During discussions over the past few weeks, economists and developers have expressed concern that this policy will slow development of new units and restrict supply at a time when the city's population continues to grow at a strong pace. Read more.

State of Oregon Continues Strong Population Growth Trend

The U.S. Census Bureau reported that the state of Oregon grew by 70,000 people since 2015. At a growth rate of 1.71%, Oregon is the 6th fastest growing state in the nation. The West was the fastest growing region over the past year, with Washington, Idaho, Nevada, Utah, Colorado, and Arizona also seeing high levels of growth. Read more.

Portland Sees Strong Job Creation and Rising Incomes, But There Is Still Room for Improvement

EconNW published its sixth "Check-up on the Portland Region's Economic Health" report last week, and found that 169,950 jobs have been created in Portland since the great recession, and earnings are growing at a faster rate than in comparable cities. The report does warn, however, that minorities are not seeing a proportional share of these economic benefits. Furthermore, affordability issues in the city of Portland make the cost of living higher than in the cities in its peer group. The report calls for an increase in the supply of housing, as well as a focus on creating more middle income jobs. Read more.

Increased Construction Beginning to Ease Apartment Affordability

According to a new report put out by Apartment List, median rent for a two-bedroom apartment in Portland is down 0.6% from the same time last year. In fact, 55 of the top 100 cities have seen three consecutive months of decreasing rents. Portland still ranks #21 on the list, indicating that rents are still strong in the metro area. Andrew Woo, director of data science for Apartment List, attributes the slowing growth rate for rents in Portland to an increase in supply due to construction activity. He also notes that Portland has more room to grow than other cities such as New York or San Francisco. The study also found that renter income in Portland has increased by 8.7% this year, a much higher rate than the typical 4-6% seen on a national level. Read more.

American Apartment Owners Association Mold Remediation Guide for Landlords

The American Apartment Owners Association recently put together the infographic below for landlords regarding mold remediation as well as mold prevention. While the weather is wet and grey in the Portland metro area, these are great tips to keep in mind!

Mold Remediation Guide from American Apartment Owners Association

Decreasing Regulations, Increasing Supply of Market Rate Housing Critical to Affordability

In an opinion piece on Bloomberg View, Stony Brook University professor Noah Smith writes that in order to increase affordability, cities should do away with regulations that decrease density and require developers to build subsidized housing. Smith acknowledges the reality of "induced demand" where building more units could attract more people to a city, but he argues that in established cities like San Francisco this phenomenon is relatively muted. He points to studies done in 1987 and 2005 that suggest housing prices are higher in cities with more restrictions on development. Read more.

New Census Data: 49.5% of Portland Metro Area Renters Are Cost-Burdened

According to new data from the Census Bureau, 37.3% of Portland Metro Area renters spend more than 30% of their income on housing. While that figure is down 2.6% from 2010, the data also shows that cost-burdened renters are being pushed into outlying areas, where there are fewer services for struggling families. Furthermore, 49.5% of renters are cost-burdened, compared with 29.2% of owners. The Portland City Council is likely to take this information into account when they meet to discuss Inclusionary Zoning next week (the original hearing scheduled for December 8th was postponed due to snow). Read more.

Opinion: Providing Enough Benefits to Builders Is Crucial for Inclusionary Zoning to Work

In an opinion in the Oregonian, Dan Bertolet, senior researcher at Sightline Institute, encourages the City of Portland to make sure they are planning to provide enough incentives to builders in their inclusionary zoning plan. He emphasizes that poorly constructed inclusionary zoning requirements exacerbate issues of affordability by discouraging investment in new developments. Decreasing risks to investors and allowing them to make a return are crucial to ensuring that new units will continue to be built. Read more.

Oregon Leadership Summit Attendees Tackle Housing Affordability

At Sunday's Oregon Leadership Summit, a breakout session to discuss housing affordability highlighted the challenges the state is facing when it comes to mitigating costs to homeowners and renters. The Portland Business Journal reported that ECONorthwest Senior Economist Mike Wilkerson was prepared with "stacks of data" showing that Portland has under-built residential units, a fact that has contributed greatly to the affordability crisis. He also pointed out that 90% of economists agree that rent control is not a solution for issues of access and affordability. Read more.

Willamette Week Profile of Margot Black, Head of Portland Tenants United

The Willamette Week published a profile of Margot Black this morning, detailing her connection with newly elected Commissioner Chloe Eudaly, as well as her history as a tenant and activist in Portland. It also highlights her successes in shaming landlords and her goal of enacting an immediate rent freeze in Portland. At the end of the article, Black declares her intention to challenge Commissioner Fish in 2018. Read more.

State Audit Finds Oregon Housing and Community Services Suffers from Lack of Communication, Data Management, Written Policies

While it is no secret that rents and home values in Oregon have been rising sharply, a State audit of the Oregon Housing and Community Services (OHCS) department finds that the agency has not been effective at preserving or adding housing units. Despite using an award-winning system for collecting financial data on public housing projects until 2012, currently the data is woefully incomplete and inaccurate. Furthermore, despite state law requiring a housing plan, OHCS has failed to keep track of the need for or supply level of affordable housing. With many cities feeling the effects of a housing crunch and state and local leaders seeking to introduce new rules to solve affordability issues, the results of the audit are not likely to inspire confidence among Oregon residents. Read more.

Opinion: Portland Landlord Landon Marsh Discusses Rent Increases

Portland landlord Landon Marsh wrote an editorial opinion for the Rental Housing Journal discussing the action taken against him by Tenants United since he raised rents at his 12-unit apartment building on SE Ash Street a few months ago. He explains that he raised rents to market value after making upgrades to the property that had been requested by tenants, and goes on to discuss the issues faced by smaller operators who make up 80% of the owners of Portland rental properties. Read more.

Rent Control in Berlin Mostly Benefiting Upper Income Households

Economist Joe Cortright has written on the City Commentary blog about a new study that evaluates the effects of rent control in Berlin since it was enacted in 2015. Berlin's rent control system is more complex and nuanced than others that have been put into effect in cities such as New York and San Francisco, but the study finds that the new rules are not working as intended. The rent controlled apartments are seeing rent reductions compared to non-rent controlled units, but the benefits have been greatest for residents of large, expensive apartments.

Read Joe Cortright's article on City Observatory

Read the working paper on rent controls in Berlin

Saltzman Recommends Softening Inclusionary Zoning Requirements for First 2 Years

The Portland Tribune reports that Commissioner Dan Saltzman has responded to requests from LOCUS to ease inclusionary zoning requirements for developers by lowering the required percentage of affordable units until 2019. Previously, developers would have been required to set aside 20% of units for residents making 80% MFI, or 10% of units for residents making 60% MFI. Under the new changes, developers will only be asked to set aside 15% and 8%, respectively, until the law goes into full effect in 2019. Read more.

ABODO Report Indicates Portland Is Not Growing As Fast As Residents Think

A new study put out by ABODO, a residential research organization, suggests that Portland is not growing as rapidly as is frequently reported. While the number of people moving to the Portland-Vancouver-Hillsboro metro area equaled 7.28% of the population in 2015, 6.6% of the population actually moved out of the area, resulting in a net gain of only .91%. The report ranks Portland 13th in the country for net migration. Read more.

Developers Rushing to Get Projects Approved Before Inclusionary Zoning Takes Effect

With the inclusionary zoning proposal going before Portland City Council in December, many developers are trying to get projects approved prior to February, when the new requirements will go into effect if passed. Currently there are more than 14,000 units in the approval pipeline in Portland, a significant increase even from recent years. Many investors and developers are concerned due to a lack of transparency - though there has been some discussion of what the policy could look like, the specifics have not been nailed down. The Oregonian reports that developers will likely be required to set aside 20% of units for households making less than 80% median family income, but the incentives the city will ultimately be willing to provide are less clear. Incentives will likely include some combination of tax breaks, increased density, and waived parking requirements, but without specific details investors are wary of funding projects that might not be feasible. Read more.

Sold! 46 Units in Cornelius, Oregon

The Davis Street Apartments (circa 2004) was purchased in 2013 and efficiently managed by investors as they upgraded the property and brought rents to market. When listed with HFO, the property was near 100% occupancy with stabilized rents. HFO was able to quickly locate a buyer wanting a well-maintained asset with solid cash flow.

Oregonian Editorial Board Reacts to Eudaly's Proposed "Municipal Disobedience"

In a post published Sunday, the Oregonian Editorial Board chastised newly elected City Council member Chloe Eudaly for her suggestion last week that Portland should enact rent control prior to the removal of the statewide ban. They have cautioned Eudaly that she will need to shift from activism to governing, which will require coalition building and reaching out to constituents who may not have voted for her. The Editorial Board also pointed out that rent control is not a panacea, and it does not address many of the underlying causes of high housing costs. Read More.

Sold! 19 Units in Corvallis, Oregon

Rarely does an investment property come up for sale in the City of Corvallis, and when it does, it gets snapped up quickly, as was the case with the Beverly Ann. Built in 1977, the property was convenient to both downtown and Oregon State University. Through implementation of its comprehensive marketing platform, HFO generated multiple offers on this listing and the property closed over asking price within 45 days. The Beverly Ann sold for $1.205 million.

Sold! 8 Units in Milwaukie, Oregon

This 8-unit 4-duplex property on four separate tax lots is located in Milwaukie less than a mile from the Willamette River and a short walk from the Orange Line MAX terminus. HFO was able to promote the listing through its network of investors and achieve multiple offers on the property. Arista's buyer was in a 1031 exchange out of a single family home in California and the transaction closed quickly. The Arista sold for $1.275 million.

Sold! 22 Units in Rainier, Oregon

Vance Terrace was an older (1971) apartment building in the tertiary market of Rainier, Oregon. The location was a challenge for many investors, but pricing was also considerably lower than for properties in the Portland metro area. HFO was able to demonstrate the superior cash flow opportunity presented by the asset, and to facilitate the sale of the building to a Portland-based investor.

Sold! 16 Units in Gresham, Oregon

In the case of Cascade Firs (1971), the HFO broker team utilized the power of the HFO platform to connect buyer and seller, who were both participating in 1031 exchanges. Cascade Firs sold for $1,662,500 in an off-market transaction.

Sold! 36 Units in NE Portland, Oregon

With both buyer and seller participating in 1031 exchanges, HFO helped maneuver the intricacies required to ensure Shenandoah Garden got to the finish line on time. Shenandoah Garden sold for $3.7 million.

Sold! 18 Units in SE Portland, Oregon

HFO is pleased to announce the sale of Calico Townhomes. The buyer of this 2008-vintage asset was participating in a 1031 exchange and came to HFO in search of a a high-quality building. HFO connected the investor with this condo-quality property, which was a perfect fit for their needs. Calico Townhomes sold for $4.15 million.

Eudaly Urging City of Portland to Enact Rent Control without State Approval

While Tina Kotek has proposed overturning Oregon's rent control ban in order to let cities across the state create their own policies, recently elected Portland City Council member Chloe Eudaly does not think Portland should have to wait until next year to begin a city-wide rent freeze. She is urging what she refers to as "municipal disobedience," or in other words enacting rent control now in Portland and fighting the lawsuits later. Read more.

Op-Ed: "Portland is at a crossroads on its way to becoming a true metropolis"

Jean-Pierre Veillet, founder of Siteworks Design | Build penned an op-ed asking for "a permitting process designed to encourage good development," and asking city bureaus to "align on their policy requirements." Read the op-ed here. 

Jean-Pierre was a recent featured guest in an installment of HFO-TV.

Illegal Short-Term Rentals Could Face Hefty Fines from the Bureau of Development Services

Portland's Bureau of Development Services is looking to remove the 30-day grace period for owners who have failed to get the proper permits before renting their homes or apartments on a short-term basis. Additionally, the BDS proposes fines ranging from $1,000 to $5,000 per day depending on whether the owner has been charged with a previous violation.  This is a sharp increase from the $707-$1,414 monthly fine that currently exists under Portland's rules governing short-term rentals. Read more.

HFO Exclusive: Washington State DOH Recommends Mandating Lead Testing For All Rentals Built Before 1960

In response to a directive issued on May 2nd by Washington State Governor Jay Inslee, the Washington State Department of Health yesterday provided the governor with a report of their recommendations. In addition to recommending testing for schools, and child care facilities the program includes the following recommendation for rental housing.

Directive:
“Determine the viability and potential policy changes associated with developing a Lead Rental  Inspection and Registry Program, to require residential rental properties built before 1978 to register and complete a lead inspection and demonstrate safety at each change of occupancy.”

Recommendations
DOH concluded creating a statewide rental registry and inspection program is not viable based on the indeterminate costs to the public health system. However, lead in older homes poses the greatest risk of exposure to children; therefore, DOH recommends the primary prevention approach of assessing pre-1960 rental units for lead hazards. Municipalities are positioned to adopt comprehensive rental inspection programs that address not only lead, but also other health risks found in homes.

Based on U.S. Census data, the Washington Department of Health estimated there are about 225,000 pre-1960 rental homes in Washington. According to its report, research on lead hazards in homes indicates estimates that 55 percent of those -- 123,522 units -- would have lead hazards.

In Rochester, New York, the average cost of complying with policies to reduce lead in rental housing was $1,700. In Washington, the total cost for landlord compliance would be approximately $382 million.

DOH recommends the Legislature:

• Amend the Residential Landlord-Tenant Act to require lead assessment of all rental units built before 1960 to determine if there are lead hazards present, and to require remediation if a hazard is identified.
• Direct DOH to work with municipalities and stakeholders to explore development of a state-supported training program for cities to increase participation in rental inspection programs.
• Create a remediation fund for landlords providing low-income housing.

Download the report and its executive summary here. 

Tigard Voters Authorize Design & Construction of Light Rail

In an extremely close vote, it appears that the City of Tigard has voted to authorize the municipal government to go ahead with plans for light rail connecting Tigard, Tualatin, and Portland. As of 4pm Monday, 50.28% of voters had approved the measure. The city is continuing to count votes, and another update is expected Thursday afternoon. Read more.

Life To the South of Us: California Cities Confront Housing Crisis

In a NY Times article, Google's hometown of Mountain View and its housing crisis is explored. According to the article, "Everyone [in California] knows housing costs are unsustainable and unfair, and that they pose a threat to the state’s economy. Yet every city seems to be counting on its neighbors to step up and fix it." Interestingly, instead of adding more housing for the thousands of workers at Google and Facebook, the mayor calls the pace of job growth there "unhealthy." Read more.

Portland City Council Holding Additional Evening Hearing on Residential Infill Project

The Portland City Council will be holding an additional public hearing on the controversial Residential Infill initiative on Wednesday, November 16th at 6:00 pm. The proposal limits the size of single family houses that can be built on a lot, and allows small multifamily developments to be built on two thirds of parcels currently zone for single family residential buildings. The new meeting is being held due to a large number of people who were unable to testify at the first meeting because of a loss of quorum after 3 hours of testimony. Read more.

National Survey: 1 of 10 Multifamily Executives Say They Would Allow Renters to Airbnb

A feature story in this month's Multi-Housing News indicates that while 74% of apartment execs fear home sharing could affect the quality of life in their communities, a full 10% would allow it if it were allowed in their jurisdictions. Read more.

Chloe Eudaly, Running on Rent Control Platform, Defeats Steve Novick in Surprise Upset

The Oregonian reports that in a City Council race that ended up being tighter than anticipated, newcomer Chloe Eudaly has defeated incumbent Steve Novick.  Novick had bested Eudaly in the primary by 28 percentage points, but conceded last night when the polls closed at 8 pm, at which point it was clear that Eudaly had received enough votes to win the race. Eudaly's signature platform is rent control and tenant protections, and she has written and spoken extensively about Portland's affordability crisis. Read more.

Will City's Inclusionary Zoning Ordinance Halt Apartment Construction in Portland?

HFO broker Lee Fehrenbacher discusses the current status of multifamily development in Portland and the potential impact of the City's proposed inclusionary zoning ordinance.

HFO Recognized as Top Corporate Philanthropist

The Portland Business Journal has named HFO Investment Real Estate among Portland's top philanthropic corporations for the eighth straight year. The recognition was announced recently at the Business Journal's annual celebratory banquet at the Hilton Hotel.  HFO ranked 12th in its category overall. Total cash contributions for HFO and its 17 full time workers was $36,750. HFO is pleased to support numerous charities throughout the year, including Big Brothers/Big Sisters, Oregon Food Bank and Habitat for Humanity, among others.

"We're grateful to our clients for putting their trust in us," said HFO marketing director Aaron Kirk Douglas. "Their ongoing support of our business makes it possible for us to continue growing our philanthropic contributions in the communities we serve."

Developers Deterred by Inclusionary Zoning Proposal in Portland

Developers are starting to react to Portland's proposed Inclusionary Zoning law, with some starting to turn away from the Portland market despite the fact that the law has yet to pass. Vanessa Sturgeon of TMT Development estimates that to off-set costs, developments would have to be bigger than anything previously seen in the Portland area. Read more.

Landlord/Tenant Coalition & Manufactured Housing Groups Gearing Up for Fight Against Rent Control, No-Cause Evictions

The Portland Tribune reports that Landlord/Tenant coalitions representing both apartment buildings and manufactured housing parks are at an impasse as a result of proposals to end the ban on rent control and stop no-cause evictions. Landlords advocating for a stronger voice in the debate have selected John DiLorenzo as their representative, and made it clear that they are against eliminating no-cause evictions. As a result, tenant representatives have walked out of both groups. Read more.

News Roundup: Portland Examiner & Tribune on Housing Zoning, Density Issues

The Portland Tribune reports on 'The Rezoning Struggle' on the cover of today's paper, setting the stage for upcoming public hearings on the issue on November 9th and November 16th.

The Southeast Examiner has two articles, one arguing "Mid Scale Housing Needed in Portland" and another "Dramatic Density Increase Proposed for Eastside."

Census: Portland Vacancy Rate Estimated at 5.6%

The U.S. Census Bureau has released it's 3rd quarter rental vacancy report for 2016. Its Portland MSA vacancy rates are as follows:

Quarter 1: 6.6%
Quarter 2: 4.9%
Quarter 3: 5.6%

Of the top 75 U.S. metros, Greater Portland's vacancy rate was ranked 20th, in a tie with Detroit and Nashville. The cities stood at roughly the mid point of all cities ranked, which ranged from 1.0% in Cape Coral-Fort Myers, Florida to 17.1% in Birmingham-Hoover, Alabama.

The Census Bureau's vacancy estimate is higher than both the recent MultifamilyNW estimate, which placed Greater Portland's multifamily vacancies at 3.71%, and other recent third-party estimates of around 4.5%.

Census estimated the average U.S. rental vacancy rate at 6.8%.

Metro: 100 New Residents a Day - Where Housing is Happening in Portland & Why

The population of our area is increasing by 100 new residents each day. Where are they living? Metro staffers Crag Beebe and Nick Christensen explore expansions in the Central Eastside, North Bethany, Villebois, Happy Valley, and South Hillsboro in this in-depth, engaging look at today's housing growth.

Prepare for Inspection: Portland Housing Bureau Proposes Landlord Registry; May Seek Moving Costs for "No Cause" Evictions

Willamette week reports on two issues of interest to multifamily owners in a story this week:

1. The Portland Housing Bureau has a budget for next year that includes funding for setting up a landlord registry, in anticipation of mandatory inspections;
2. Oregon state legislative counsel has issued a legal opinion stating that landlords could be billed for tenants' moving costs for tenants evicted without cause on month-to-month leases. Read more.

Zillow: Portland's Popularity Driving Up Rents

The Portland Tribune reports that the online rental and research service Zillow has data indicating something we already knew: Portland's rents are growing because we're popular. Read more.

Portland Moves Up to #3 Spot on PwC US and Urban Land Institute Emerging Trends in Real Estate Report

The Portland Business Journal reports that after first making the top 10 list last year, Portland has risen to third place, after Austin (#1) and Dallas/Fort Worth (#2). According to the report, "niche neighborhoods" and "economic diversity" contributed to Portland's rise.  This is the 38th year PwC US and ULI have produced the Emerging Trends report, and the ranking is based on a survey of 2,000 investors, fund managers, developers, brokers, and lenders. Read more.

World's Largest Travel Guide Book Publisher Names Portland a Top 10 Best City to Visit in 2017

Lonely Planet has named Portland as the #10 city in their Best in Travel 2017 guidebook.  Portland is one of only two U.S. cities on the list - Los Angeles comes in at #3. The guide cites remote working, backpacking, sustainable travel, and micro-distilleries as top trends in travel, which may contribute to Portland's high ranking. Topping the list of cities to visit is Bordeaux, France. Read more.

Residential Infill Project to Go Before City Council in November

Portland's Residential Infill Project will go before City Council November 9th and 16th. The project aims to address concerns about the size of new houses as well as the rising cost of housing.  The goal is to limit the construction of "McMansions" while expanding the ability to build duplexes and triplexes. The plan would also rezone narrow lots to R2.5 in some areas. An article about the proposal appeared on the Portland-based Open: Housing blog, here, and a summary report by the city can be found here.

Portland Tribune: "How Far Did The City's Housing Efforts Go" Since Declaring Emergency?

The Portland Tribune summarizes accomplishments by the City of Portland since declaring a housing state of emergency a year ago. New city-backed affordable housing units opened: 335. Temporary shelters opened: two (since closed). Multnomah county offset the temporary housing shelters by opening two permanent shelters with 250 beds. The City says that with the $258.4 million affordable housing measure on the Nov. 8 ballot, they have 1,995 units in development. Read more.

68-Unit Plaza Townhomes in Humboldt Neighborhood Will be Rehabilitated, Remain Affordable

Home Forward has sold the Plaza Townhomes to Community Preservation Partners (CPP), which is rehabilitating 68 Units of affordable housing at a cost of $50,000 per unit. CPP says a federal tax credit will allow it to save the 68 units as affordable housing for another 30 years. Read more in the Portland Tribune.

New Mixed-Use Housing Project in Lents Town Center Breaking Ground Sunday

The Portland Business Journal reports that a 54-unit mixed-use market-rate development will be having an official groundbreaking 12 to 1 pm on Sunday, October 23rd. The project, called 9101 Foster, is one of four highly anticipated new developments intended to revitalize the Lents neighborhood. The Portland Development Commission took ownership of the property from Williams & Dame Development in June 2016. Construction is expected to be completed by Fall 2017. Read More.

MultifamilyNW Apartment Report: Portland Area Rents Climb; Vacancies Increase

Yesterday, Multifamily NW released its Fall 2016 Apartment Report.

The survey includes data from nearly 73,000 units in Portland/Vancouver metro area's 20 submarkets, along with units in the Salem, Eugene/Springfield and Bend/Redmond areas.

The data reflect an increase in the overall market vacancy rate and an average year-over-year rent increase of 10.5%.

A summary of year-over-year vacancy rates:

West Coast Markets Are Q3 Rent Growth Leaders: Portland Ranks 4th in U.S.

West Coast metros continue to dominate the U.S. rent growth leaderboard in 3rd quarter 2016. Sacramento led the nation for the second straight quarter, with an 11.4% rent hike in the past year. The top 10 also had some surprises, including a very full Riverside/San Bernardino market, construction heavy Dallas and Florida’s new rent growth leader, Tampa/St. Petersburg.

Portland's Economic Outlook Changed as Economy Reaches Full Employment

by Josh Lehner, Economist, State of Oregon Office of Economic Analysis

The Portland metropolitan area’s job growth and wage gains continue to outpace the typical metro across the nation. Such gains are also on par with growth seen during the height of the housing boom last decade. Importantly, the expansion has now reached the lowest income households and broader measures of well-being like the poverty rate. However, the outlook for an economy approaching full employment differs in important respects from one that is digging out from a recession. The tighter labor market brings good news for workers in the form of rising wages, different challenges for businesses looking to expand and shifts the calculus for households looking to buy or rent.

First the good news. Economic growth in recent years is finally impacting broader measures of economic well-being. Median household income in the Portland region increased six percent in 2015, the largest gain in a decade. However, after taking inflation into account, local incomes remain about one percent below their pre-Great Recession levels. That said, median household income in the typical large metro nationwide remains six percent below pre-Great Recession levels.

Even as the lowest income households have suffered the largest declines in the past decade, the recovery is finally starting to reach them. Nationally and across Oregon, such households saw the largest income gains last year, at least in percentage terms. This welcome news resulted in a correspondingly large decline in the poverty rate. These improvements are seen in the Portland region among households in deep poverty, those with incomes less than half the official poverty level. Furthermore, poverty in Portland has improved proportionately for both whites and people of color alike.

The driving force behind these improvements is the strong labor market. Employment in the Portland region is not only considerably higher than back in 2008, but it has fully caught back up with population growth over the same period. The labor market is getting tight. As the pool of available workers shrinks, businesses must compete more on price to attract and retain the best employees. This is great news for workers as wages rise. Given that wages make up the majority of income for households at the bottom, such wage gains are pulling workers and families out of poverty today. Higher-income households have a wider variety of income sources besides wages, such as capital gains, dividends and the like.

The tight labor market does mean businesses looking to expand must cast a wider net to find workers. This includes potential hires that may not have been looking in the first place. Examples include stay-at-home parents, early retirees or discouraged workers who have previously given up looking. With the right opportunity, such workers move directly into employment, bypassing the job search phase entirely. Additionally, businesses can no longer be as picky in hiring the perfect candidate. Firms must take chances on workers without the ideal experience or a potentially incomplete skill set. On-the-job training becomes considerably more important.

The outlook for an economy at full employment differs in that net growth rates are expected to slow, but for a good reason. Statewide, job gains in recent years are more than twice as much needed to keep pace with the growing population. This is welcome news during a recovery and the large gains eat up the economic slack. However, such gains are not sustainable over the long-term; they are peak growth rates. As the economy approaches and reaches full employment, job growth is expected to slow to a sustainable rate, more in line with the working-age population.

Finally, the combination of a strong regional economy and the Millennials beginning to age into their mid- and late-20s, does mean the Portland metro is at peak renter. Homeownership across the region increased in 2015 with the largest gains among the 20- and 30-something households. While expectations are not for a return to mid-2000s ownership rates, the large shift into rentals over the past decade is likely finished. That said, in a growing metropolitan area like Portland, the overall number of renters and owners will both increase. The challenge is ensuring the housing supply keeps pace with demand. This has not happened in recent years and affordability has eroded.

Josh Lehner is a Senior Economist with the State of Oregon’s Office of Economic Analysis. He develops the quarterly Oregon Economic forecast, including outlooks for employment, income and housing. Additional responsibilities include the Oregon Index of Leading Indicators, tracking international developments in Oregon’s export markets and forecasting revenues for the Oregon Lottery, Oregon Judicial Department and state tobacco taxes. Mr. Lehner earned a B.A. in Economics from the University of Colorado and an M.S. in Economics from Portland State University.

Read more updates on the Office of Economic Analysis blog.