New Home Construction Down in Portland – 2019 Update

Portland’s economy is booming and our rate of commercial construction is grabbing national attention. In fact, the number of construction cranes over downtown Portland — 26 — was tied with Chicago this winter, despite the fact that Chicago (proper) has a population of 2.7 million while Portland (proper) rings in at 630,000.

It follows that if there are new commercial buildings being built and expanded, that Portland is creating jobs and bringing in new people fill them. And, in fact, we still have one of the lowest unemployment rates in the country, even with a growing population.

So, where is the residential construction to house these workers? The number of new building permits issued for single family homes in Portland has stalled again this year. Home shoppers looking for new construction homes within Portland city limits will find next to nothing. While there are areas of new home construction happening out in the ‘burbs, the lack of new housing in Portland itself is drawing the concern of prominent economists. What will it take for Portland housing to keep up with demand?

Quick Note: Apartment Construction in Portland is Booming

This article is looking at homes in Portland you can go out and buy, be it a condo, townhome, or single detached home. There is a huge lack of “housing” in this case, but in terms of rentals and new apartments going up for sale – new Portland residents can have their pick. In fact, apartment construction is so high, monthly rent amounts have been dropping for a while in Portland and are expected to continue to drop.

Portland Residential Construction Permit Data

Portland’s Bureau of Development Services publishes up-to-the-minute data on the number of building permits it gives out. Maps and graphs can be accessed via portlandmaps.com/advanced. We’ve compiled the most relevant numbers here. A “finaled” permit is one that has resulted in a new home being constructed. “Under review” means the city is reviewing the application to build. “Issued” means that the city has approved the permit and the builder just needs to complete the job. In some cases, such as during the housing crash of 2008-09, many issued permits were not completed. However, in recent years it’s the rare exception that a home doesn’t get built once the permit has been issued and fees are paid.

Portland residential construction permit highs and lows:

2014 (peak year this decade): 717 permits finaled
2016 (most recent low): 577 permits finaled, with 33 issued and 15 under review
2010 (lowest year this decade): 278 permits finaled

Recent Portland residential construction permit activity:

2017 and 2018 were very similar in terms of total numbers of permits: 681 and 699, which makes 2018 the year with new most permits applied for since 2014
But, over half of 2018’s permits are still under review, and only 47 have been finaled.
So far, as of March 2019, 47 permits are in the review process.

State Economist: Lack of New Housing is an Oregon-wide Issue

As we can see from the BDS permit numbers, new home construction permit applications have remained relatively low. State economists testifying before the state’s new Senate Committee on Housing in January emphasized that it’s not just whether homes are being built — it’s whether the rate of new construction is keeping up with demand. Building 700 new homes in Portland might have been adequate at the turn of the century, but is it enough by today’s numbers?

To compare today’s new construction rates with historic ones, Oregon state economist Josh Lehner looked at the average number of new permits between 1983 and 2003. We’ll call this the “control” period because it establishes a baseline. Then he adjusted those numbers for population growth. Comparing these numbers with the new construction happening today, he found that new construction is lagging statewide. Specifically,

The Columbia Gorge region east of Portland has seen the biggest decline in new construction. Because of a surge in population, the adjusted rate of new construction between 2013 and 2017 was 73% lower than it was in the control period.
New construction in the Willamette Valley, south of Portland, is down 29% based on the control time period
The Portland Metro area is actually faring better than most of the state, with “just” 18% less new construction between 2013-17 than in the control period

These numbers are troubling, Lehner emphasized in a recent blog post. The lack of new housing, along with high home prices overall, could have a long-term negative impact on the economy — in Portland and in all of Oregon.

Will the situation change anytime soon?

It’s not just the Oregon Senate worried about the lack of new home construction in Portland. Business leaders are also concerned about the impact on the ability for housing to support growth. To address some of these concerns, John Tapogna, head of the economic consulting firm ECONorthwest, gave a presentation to the Portland Business Alliance in February 2019. He highlighted some of the trends in residential new construction that concern him as an economist:

Portland residents can afford to buy homes if they’re available: Median household incomes in Portland have increased from the 32nd highest to the 16th highest in the country since 2015
Since the end of the last recession, only seven new homes have been built for every 10 households that have been formed.
East Multnomah county is especially hard-hit: It has nearly as many jobs as Portland’s Central City, but nearly 70% of its workers have to live elsewhere.

To explain the lack of new housing, ECONorthwest points to the increase in construction costs over the past few years. However, as we’ve written about on this real estate blog, the problem is more widespread than that. Contributing factors to the lack of new construction include:

Zoning restrictions that prevent multi-family and “missing middle” housing in single-family neighborhoods (these could be alleviated with new legislation, but the problem has existed for a long time)
A lack of available lots for residential construction, and new restrictions on demolitions
Now, a “rebalancing” Portland housing market, which is showing an increase in inventory and a reduction in home prices. This means people might buy more existing homes instead of new homes.
Mortgage rates going up, meaning people are more likely to be able to afford an existing home than a new home, which tend to be the most expensive.
Nationwide, we may be seeing a trend away from consumer demand for new construction homes. Zillow found that only 11% of buyers opted to buy a new construction home in 2018. They also reported recently on price cuts for new construction becoming more prevalent.

Buying a New Home in Portland

Don’t despair – if you have your heart set on a new home somewhere in the Portland area, our real estate buyers’ team can help you out. Give us a call, or check out our blog posts on new condos and construction happening across the Portland metro.