Surprise! Portland New Home Construction Down

2016 was a banner year in the Portland residential real estate market. So you’d think new home construction would be up! As we move into the winter real estate market in Portland, let’s take a look at new home construction in 2016 and try to figure out why it went down.

Portlandmaps.com has issued some new maps that make it easy to sift through the data.

You would think that with all of the demand for housing in Portland, new construction would be happening like crazy. When I pulled up the new residential construction map, however, I was a bit disappointed. Let’s take a look at what’s happening in the Portland housing scene.

Demand Higher Than Ever

By now, everyone knows the story — the Portland housing market is hot.
How hot? According to United Van Lines, Oregon has been the number-one moving destination in the United States for the past three years. Metro, Portland’s regional planning agency, also tracks housing and population trends for the region. They reported that in 2015, we added more than 100 residents per day.

Home prices, meanwhile, grew over 11% year-over-year from 2014 to 2015, and similarly (so far) from 2015 to 2016 according to the latest RMLS report. The median, year-to-date home sale price in Portland is now $345,000. That’s $40,000 more than in the same month last year. Inventory just hit 2 months in the October RMLS report, after hovering between 1.3 and 1.9 months all year. Want prices to stop inflating? We need more housing.

In addition to all of the cultural and natural offerings of Portland, the city’s strong economy is a huge part of its continued appeal. Our strong manufacturing base might just see Portland through whatever economic challenges come next. But can housing keep up?

Measuring the New Housing Supply

To keep an economy strong, workers need places to live. While existing homes, apartments, condos, etc. can house some people who want to live in Portland, there’s definitely pressure for more housing. New construction is one of the primary ways for a city to add to the inventory of places to live.

Commercial vs. Residential

New construction is generally divided into two categories: commercial and residential. Commercial construction includes retail space, warehouses, manufacturing facilities, office buildings, and the like, but something most people don’t know is that it also includes apartment buildings and condos! Residential construction means single-family homes and duplexes. Commercial construction permits are significantly up from 2015, and 2015 from 2014.

New Permits = New Homes

To measure new construction, most cities go by the number of building permits applied for and issued. Because all new home construction requires a building permit, it’s a pretty good way to estimate how many homes are being built. It’s not perfect, though, as we’ll see in a minute.
Portlandmaps.com’s New Residential Construction Map shows where those permits are being issued — in neighborhoods across Portland. There’s also a handy feature that shows the volume of permits over time. That’s where I stumbled across this fascinating bit of data.
So far this year, 606 building permits have been issued or are under review. A small percentage of those (7.1%, to be exact) have been “finalized”, meaning that the home has already been built.
For the past two years that number has been around 700. Prior to that, we were climbing out of our recession lull, from just under 300 new homes constructed in 2010. Compare that to 2005, when a whopping 1,300 new homes were constructed in Portland!

Why is New Home Construction Slow?

At first, I didn’t like how this data looked. Fewer new homes were permitted in 2016 than in 2015, which was even less than 2014! If so many people want to live in Portland, why aren’t more new homes being built?
There seems to be a gap in the local media coverage about this issue. However, as a real estate agent, I have a few observations to contribute:

  • Most new residents are moving into apartment buildings, which are considered a commercial type of new construction. Hundreds of applications for Accessory Dwelling Units are also being submitted (which you can browse in the “old” PortlandMaps.com site). ADUs add housing to the Metro area, if not for families, at least for retirees, younger workers and single people.
  • Commercial construction has been climbing steadily. In 2016, 344 permits were issued, finalized, or under review. In 2015, that number was 300, and in 2014, there were just 246 permits. Many of these permits were for apartment buildings.
  • New home construction depends on many other market factors, not just housing demand. The is the cost of materials, labor, and permits. All of these have risen in the past few years.
  • Finally, and I think this could be the biggest reason and a “silent” reason, one that has not hit the news media, the city of Portland is moving at a snails pace in approving new lot divisions. I’ve heard estimates from a year and a half to two years to create a new lot. This is unacceptable, considering Portland’s housing crunch! It could very well be true that if Portland steps up and approves lots in a more timely manner, say three to six months, investors will have double the incentive to buy and build. As it stands, the investor can buy a lot, but who knows what that market will look like two years later when the investor can finally divide that lot and build a few homes on it. These delays are unreasonable.

Where the New Homes Are

Are you interested in buying a newly constructed home in Portland? The map shows the dispersion of new homes to be pretty even across the metro area, but there are definitely heavier concentrations at the outskirts, and even outside the city limits. Metro has recently published a helpful report on some of the larger new developments:

  • North Bethany in Washington County. According to Metro, “Since 2014, about 800 single-family houses and 370 apartments or condos have been permitted in the North Bethany area. Some neighborhoods, like the 290-home Bethany Creek Falls, are largely complete, with new homes, streets and parks already filling with families. While most of the homes built so far have been single-family detached houses, construction of apartments and townhomes is picking up, county staff report.”
  • Villebois in Lake Oswego. According to their website, this new community “offers more than 160 total acres of open space and parks, perfect for hikes, bike rides, Frisbee, or a quiet picnic at dusk.” Metro reports that 330 homes were built in Villebois last year, and more 120 homes were targeted for completion in 2016. Overall, about 1,700 of the 2,600 homes planned for Villebois have been built.
  • Happy Valley in Clackamas County. This city has grown from just over 4,500 residents in the year 2000 to nearly 18,500 today. “As of Sept. 30,” says the Metro report, “city records estimated about 340 buildable single-family lots existed throughout the city, with most being permitted for construction.” It’s a beautiful area, with great schools, parks and accessibility to Portland, but of course the biggest reason for the growth of Happy Valley is that there is room to grow!

Interested in a new home in the Portland area? Want to talk about housing availability? Call your local real estate market experts.

AUTHOR

Stephen FitzMaurice

Stephen FitzMaurice, Realtor is a top 5% real estate agent in the U.S. and top 1% agent in Portland. Since 2003, he has worked residential real estate in the Portland Oregon metro area. Call him direct: 503–714–1111. See his listing package here. See his buyer’s team here.

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