After four years of skyrocketing apartment rent rates and a shocking lack of available rental housing in the Portland metro area, renters may get a bit of a break this year, industry experts say.
With a flood of new apartment units now coming to the market, vacancy rates are expected to increase from 3 percent or lower to as much as 4.5 percent to 5 percent by year's end.
That means rent rates should stabilize — and may even decline — in new projects that need to attract tenants and fill units.
"We are starting to hear noise that some downtown luxury high-rises are having trouble leasing up," said Deborah Imse, executive director of Multifamily NW, a landlord rental housing association in Portland. "Until lately, units in these projects were being rented sometimes sight unseen."
Imse said some new rental projects may even offer concessions — free cable, no move-in fees or a couple of weeks of free rent — to attract tenants.
"This is good news for renters but Portland is still a strong market for landlords," Imse said. Here's why:
In a typical economic recovery, homebuilding usually is the first to bounce back. But that did not happen after the Great Recession.
In Oregon, neither single-family nor rental housing construction kept pace with demand from population growth all the way back to 2011, said the Oregon Office of Economic Analysis in a recent report. The state remains one year behind in meeting housing needs.
This shortage created apartment vacancy rates, particularly in Portland, below 5 percent. Anything less than 5 percent is considered a landlord's market.
The tight market in combination with strong job growth (29,600 new PDX jobs in 2016) allowed landlords to raise rents, big time — up more than 30 percent since 2015.
Industry research shows that the average two-bedroom apartment in Portland that rented in 2015 for $1,389 a month, now rents for $1,821.
Portland has become one of the tightest rental housing markets in the nation. The situation priced many lower income tenants out of their apartments and triggered push-back from government entities in the form of proposed rent control, affordable housing requirements in new projects and changes to eviction and lease non-renewal regulations.
Meanwhile, developers began to respond to market demand.
Apartment building activity in the Portland-Vancouver market is nearing peak construction levels set in the mid-1990s.
"We see this as a year of transition for the industry," said Patrick Barry of Barry & Associates, which tracks the Portland rental housing industry. "Tenants are going to see more choice as we enter the summer. We don't see any big pick up in rents on older apartment properties and we may see concessions on new product," Barry said.
In January, developers rushed to file for building permits on 13,000 to 18,000 new units before a Feb. 1 deadline that requires new projects to offer a certain portion of affordable (inclusionary) units within the project.
"Despite the influx of permit applications to start the year, many of these projects may fall by the way," Barry said. "These jobs have got to pencil out."
But there are clear signs that the breakneck pace of rent increases and rising apartment property sales and values of the past two years "may be behind us," he said. In 2016, nearly $3 billion worth of apartment rental property changed hands.
That said, Portland is still playing catch-up.
"Assuming the (single-family) home ownership rate is around 60 percent and renter household size is about 2.1 persons with population growth of 25,000 to 30,000 — that translates into demand for around 4,700 to 5,700 (new) units this year across the metro area," the Barry Report said.
So what could slow new rental housing construction in Portland going into 2018? The experts say those obstacles could include rising land costs, inclusionary zoning requirements that mandate affordable housing units inside new projects, and changes to urban in-fill regulations that would allow homeowners to construct a second house (400-800 square feet) in their backyards.
Government mandated tenant relocation fees, rent caps and extended notice-to-vacate requirements are a challenge.
Despite all this, Portland will see more new rental housing this year with tenants getting some relief from big rent increases. Landlords and developers should still feel confident that demand is still there to support more new construction.
"Everyone is looking for (market) predictability…we will likely see pockets of predictability this year," Patrick Barry said.
Right now, apartment construction activity in Portland (and in Oregon) is the busiest since 1996.
Julia Anderson writes for women about money and retirement at sixtyandsingle.com.