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Housing affordability, lack of skilled workers taking a toll on state's productivity.

PORTLAND TRIBUNE: JONATHAN HOUSE - Josh Lehner, an economist with the Oregon Office of Economic Analysis, was among the presenters at the 2019 HBA Housing Forecast Breakfast at the Oregon Convention Center.

Oregon's economy has never been "bigger or better," but Josh Lehner, an economist with the State of Oregon Office of Economic Analysis, doesn't see that case holding true as Oregon moves through next year and into 2020.

With an economy highly dependent on manufacturing and exporting those goods produced, Oregon has been enjoying boom times for the past several years. Out of 100 of the largest metro areas in the U.S., Portland was among the top five in terms of growth from 2007 to 2017. Household income averages in the state reached the 16th highest in the country. Poverty rates have fallen, unemployment is down across all age sectors and Oregonians have more money in their pockets.

But Lehner is seeing signs the good fortune many not last, and he isn't alone in that estimation.

During an annual forecast presented by Parr Lumber and the Home Builders Association of Metropolitan Portland, both Lehner and Robert Dietz, chief economist for the National Association of Home Builders, pointed to an array of issues — from a growing problem with the affordability of housing to a shortage of skilled labor — that they say may take a toll on Oregon if steps aren't taken soon to address them.

The state has seen a 14 percent increase in job growth even as the rest of the country's job growth has been stagnant or decreasing. Portland, specifically, is growing at a rate twice as fast as the rest of the country. But those achievements have come with consequences.

PORTLAND TRIBUNE: JONATHAN HOUSE - Robert Dietz, top left, chief economist for the National Association of Home Builders, shared his observations on the state of housing and the economy with attendees at the 2019 HBA Housing Forecast.

For starters, a rapid growth in population without enough housing to meet the demand has created affordability issues in the state.

The housing affordability index, a measure of new and existing home sales and what is affordable for a "typical" family in the U.S., hit an average national peak in 2012 with 78 percent of homes in the country in a range considered "affordable. The most recent data had that level dropping down to 56. Estimates expect the index will drop to 50 over the next 12 months, reaching a level that will represent a 12-year low.

Locally, Portland is well below that 50 level with an index of 34. Seattle comes in at 33. While the Pacific Northwest numbers are dismal, they're still better than Los Angeles and San Francisco. Those two cities, which Dietz says have been "chasing each other for the title of least affordable market for the past 20 years," are each in the single-digit range.

Dietz echoed what Portland metro builders have said they're starting to see — a slowdown in the residential construction market, where increasing costs for labor and lumber have played a role in driving home prices up 32 percent since the most prior peak.

"The demand side is beginning to sag a little bit because of these costs," Dietz said.

One solution Dietz suggests is an adjustment of government-driven policies and regulations that will help make it easier — and cheaper — to build housing more quickly. Local builders have pointed to system development charges as one of the lead reasons for increases in the cost of building both multifamily and single-family projects. While SDCs vary based on cities, the highest SDCs in the Portland metro area reportedly can add as much as $47,000 to the cost of a new single-family home for a potential buyer.

Local builders also have called for the state to adjust land-use laws that would allow buildable land to be brought into the urban growth boundary in a more responsive and timely manner in order to meet supply needs.

"From a policy side, you need to find ways to reduce the cost of buildable land and actual construction," Dietz said.

While Portland and other cities are taking steps to address the lack of affordable housing for low-income populations, few cities are paying attention to another area that's lacking, what Lehner calls "missing middle housing."

The solution to fill that gap lies in changing the way cities look at housing. Accessory dwelling units and town homes — especially those with designs that allow for aging in place — can provide infill and options.

During his presentation during the forecast, Lehner also urged local officials, developers and builders to look beyond the immediate future to identify areas of opportunity for building enough housing to be able to continue to attract households of young, skilled people. Bringing that talent into both Oregon and the Portland metro area is critical because the state is running out of skilled workers, which means that productivity is taking a hit.

"I'm concerned," Lehner said. "I don't know where that housing is going to come from. We need to be planning today."

But just identifying those areas and making sure they're brought into the urban growth boundary isn't enough, in Lehner's opinion. Having a lot ready for housing to rise in 2024 or 2025 means taking steps now to lay down infrastructure to support those developments.

"If we don't do that now, it puts everything at risk," he said.

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