Politics Around Portland's Rental Market - In One Graph

Anyone familiar with the Portland apartment market is well aware of the friction between tenants and building owners that arose in recent years. There are many underlying factors that contributed to these tensions that I will not dive in to. But, I believe this one graph perfectly sums up when and why the tension began.

The chart below from CoStar tracks Portland Rent Growth vs. Income Growth. From 2006 to mid-2014, rent growth and income growth moved mostly  in tandem. However, starting in mid-2014 things changed and rent growth increased much faster than income growth. The graph shows an obvious divergence from mid-2014 though mid-2016. When looking at this graph, the anger felt by tenants in understandable. 

According to CoStar, as of mid-2016 the trend appears to have reversed itself with rent growth dipping below income growth. However, the damage has been done and the tension between tenants and building owners doesn't appear to be going away anytime soon. 

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Portland Metro Effective Rent By County

For a period of time during 2014 through 2016, Portland was making lists of cities with the highest rent growth. Portland saw limited apartment construction from 2008 to 2013, despite steady increases in population. Developers answered the call for new construction in a big way. Now as we enter our fifth year of sustained apartment construction, the impact is finally being seen in rents. 

Based on information from CoStar, 2017 rents have decreased or remained flat for all unit types across Multnomah, Washington, Clackamas, and Clark County. It's worth noting that Multnomah County, which has seen the highest rates of construction, shows limited rent increases since late 2015/early 2016. 

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In addition, effective rent growth across the entire Portland MSA has dropped 1% according to CoStar. This is a drastic change from year over year increases of +10% during portions of 2015 and 2016. 

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These 6 Cities Are Smarter Than Portland About Housing - Willamette Week Article

Very interesting article about how other cities are making housing more affordable and encouraging development. Portland could probably steal an idea or two from this list.

These 6 Cities Are Smarter Than Portland About Housing

Berkadia Apartment Construction Map - Portland

In the process of completing some appraisals for proposed apartments, I stumbled upon a great map from Berkadia that I thought was worth sharing. This map shows apartment projects across the Portland MSA which are in lease-up, under construction, and planned. The detail is pretty incredible. However, this map appears to exclude projects under about 50 units, which make up a large cross-section of current construction. 

URM Report - November 2017

The City of Portland has issued their draft Unreinforced Masonry (URM) Building Policy Report. Preliminary city cost estimates range from $20 to $112 per SF of gross building area, based on the extent of retrofitting required. The requirements in this report will be considered by the Portland City Council in early 2018.

URM Building Policy Committee Report - November 2017

These are huge costs and could have a major impact on apartment owners if passed. While incentives are being finalized, most owners say the available incentives aren't close to covering the costs. See if your building is on the list.

Full Report Here

Portland Vacancy Rates Creep Up

Last week, Multifamily Northwest published their Fall 2017 Apartment Report. This report includes a very detailed vacancy and rent survey which covers 20 sub-markets and seven unit types. The Fall 2017 survey includes 52,500 units across more than 750 properties. The findings of this report include an increase in vacancies from 4.01 percent in the Spring of 2017 up to 4.37 percent as of Fall 2017. This survey also reports that rents increased from $1.50 to $1.57, or 4.7 percent, from spring to fall of 2017. However, it should be noted that properties less than two years old are not included in this report. 

Portland Metro vacancies bottomed out in Fall 2015 at 2.9 percent and since that point have slowly crept up. At 4.4 vacancy rate, the market is shifting from a landlords market, to a market in balance. If you're interested in any information on specific sub-markets or unit types, don't hesitate to reach out. 

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Portland Apartment Construction Update - Fall 2017

We recently wrote an article for the fall 2017 edition of the Multifamily NW Apartment Report, which is available here. While apartment permit activity has slowed down, there are an incredible number of projects in the pipeline with pre-IZ entitlements. 2017 will likely be a record year in apartment construction and there are few signs of slowing in the near term. 

2017-2018 Multnomah County Property Taxes Released

Multnomah County just released property taxes for the 2017-2018 tax year. The property taxes include the increase from the $790 million bond measure passed in May.  In general, properties taxes are up between 9 and 10 percent. Use the "Guest Login" at the link below to see your new taxes.

Multnomah County Property Taxes - 2017-2018

This Time Is Different...

There is no question that apartment values have seen incredible increases since 2013. The increases are unprecedented in Portland. The annual value increases since 2013 are by no means sustainable, but have the underlying fundamentals of the Portland rental market shifted, and maybe THIS TIME IS DIFFERENT.

It's a difficult question to answer. Real estate is a cyclical industry and most of the time, a reversion to the mean is a predictable outcome. But to many, Portland feels different this time around. However, quantifiable data to help support this shift in underlying fundamentals has been hard to come by. 

Josh Lehner, an economist with the State of Oregon, recently published an article which helps support this notion. In the process of looking around the country for cities that may be the "Next Portland", he has revealed a shift in the underlying fundamentals which impact the Portland rental market. He notes the following major changes.

•  Since 2007, Portland moved from 32nd to 19th in highest median household income among large metros
• Portland has a unique ability to attract and retain talent. Our migration rates among young college graduates now compares with San Francisco, Denver, Raleigh, DC and Seattle
• Since 2007, Portland moved from 27th to 16th in highest share of working age residents with a college degree (34% in 2007 vs. 40% today)
• Since 2007, Portland high wage jobs have increased 35%, or 5th best in the nation
• The college educated migrants coming to Portland have STEM degrees, which is a shift from arts/humanities degrees

If you're interested in the full report (2 pages) and accompanying slides, they are included at the link below.

Portland in Transition: 
The region is far from over; there is no “Next Portland."
Josh Lehner
Oregon Office of Economic Analysis
September 28, 2017