Storm clouds on the horizon for Oregon housing industry
Combine inflation, rising interest rates, supply-chain issues, a lack of developable land, a shrinking skilled workforce. Those factors create a real problem for the housing industry, according to Kent Ziegler, Oregon City Business Alliance president.
"We have storm clouds on the horizon when it comes to the housing industry," Ziegler said while moderating OCBA's monthly forum, held in August at the Abernethy Center in Oregon City.
OCBA's forum provided a venue for developers' tentative celebration of Oregon City Planning Commission's 5-2 approval on Aug. 22 of about 476 residential lots as part of West Linn-based Icon Construction's Park Place Crossing project. Controversy over the project then increased when the commission on Sept. 12 voted again, this time 4-3, to approve the project, a decision that will be appealed to the city commission.
"Especially on the affordable-housing front for the younger generation, the first-time homebuyer, it's the worst it's been since 1989. We just cannot make enough new homes. The pipeline is not available; it keeps getting smaller," Ziegler said.
The cause of that shrinking pipeline: a lack of buildable land.
"Land is a resource that takes years of work, time and planning by state and local authorities and private and nonprofit entities to reach a buildable state," said Roseann Johnson, entitlements manager with Lennar Northwest. "Planning by local governments may begin decades ahead of any construction seen by the public."
Government planning complete, developers begin looking at land that's been designated commercial, residential or mixed-use development, depending on their needs.
When a developer finds land to develop, they still need to get local, state and federal approvals to build.
"The public and the private have invested in this big, huge cost and time to get to a buildable state for land and, from that standpoint, it makes sense to follow through on something." Johnson said.
"From a development standpoint," said Harlan Borow, land development and acquisitions manager with Icon Construction, "all the low-hanging fruit, all the easy land that was there to develop, is developed."
With less developable land available, less development gets done. The Oregon House and Senate tried to help the situation.
Oregon legislators passed House Bill 2001 and Senate Bill 458 to address rising housing costs by increasing development and homeownership pipelines.
House Bill 2001 is a middle-housing policy which allows for duplex, triplex and cluster homes to be built on single-family residential lots.
Senate Bill 458 concerns middle-housing land division, allowing for more homeownership on a single-family lot.
"That means wherever we allowed single-family homes, we had to allow these other middle-housing types," said Aquilla Hurd-Ravich, community development director for Oregon City. "It's meant to address increasing housing costs, changing households and addressing systemic injustices."
Oregon City commissioners adopted code changes required by state legislators early last June. These new codes may not work as well as state legislators had hoped.
"In talking with landowners, it's a very difficult situation," Borow said. "They read the headlines: Middle-housing says, 'I can build two or three houses on every lot, therefore my property is worth two or three times what it was before, right?' Well, no, it doesn't really work that way."
Multi-unit buildings are more expensive to build and not as profitable as landowners may hope.
"There's tension from the homebuilder side," Borow said. "When you're looking at getting into more affordable houses, smaller houses and attached houses, it adds cost. You have to redesign your product line; you have to deal with fire codes that you didn't have to deal with before."
A lack of buildable land isn't the only problem, then. There's added cost. There's also bureaucracy.
"The real deal I work with every day is how to get to yes on what can be built down the road," Johnson said, "Getting approvals on paper, prepping the land — that's what it's all about."
That process involves "lots of consultants, due diligence, looking at what the code says about a given parcel of land and what can ultimately be built there," Johnson said.
After submitting applications and fees to governing bodies, developers must go through public hearings.
"Those hearings can go either way. If there's a lot of public opposition, they can stagnate a future community," Johnson said.
Getting past the public hearings is only one step among many.
"We have the approvals on paper and land development laying the pipe, paving the streets — what do we get out of it? We get a beautifully paved street with mountable curbs and a bunch of dirt that's been graded," Johnson said. "All of those costs and all of that time that the public and the private (sectors) put in — along with the raw land that was designated for some sort of development — got us to this buildable state. No actual buildings yet though."
That land, now in a buildable state, could become a park or a little corner store. It could be single family homes or a commercial business park. Perhaps even a mixed-use live-work community.
Getting to that point takes paperwork. Paperwork takes time. Time is money.
"A lot of municipalities have been understaffed," Borow said. "From a development standpoint, that leads to longer times for engineering review and getting permits."
"Here, time really is money," Borow said. "You've got loan and carry costs for the time it takes to get through engineering and permitting. When staffs are short, it can take a lot longer than we would like."
Developers also have utility delays with PGE, Northwest Natural, Comcast and other utility providers.
"It takes six to eight months to get a pole for a streetlight," Borow said, "Six to eight months. Some of the transformers and switches and things like that from PGE can take a year. There's a lot of time sitting around waiting for things."
Waiting around for things isn't the only obstacle developers face. Johnson breaks costs down into soft costs and hard costs.
Examples of soft costs include hiring an arborist to assess tree health and recommend preservation or removal. Creating a homeowners association for a mixed-use or residential community is another potential soft cost.
"Archaeological, that's an increasingly important cost," Johnson said, "tribal interests in land that has been designated to be built on. Having an archaeological dig team out on site is an increasing cost nowadays."
Hard costs are things like diggers, earth movers, pavers. Big machines on site laying the pipes, putting roads down. Anything done to change the topography of the land or the way people will use it.
Besides hard and soft costs, there are onsite and offsite costs.
A mixed-use, commercial or residential community needs to have its own infrastructure. If it happens there, it's an onsite cost. But the new community will also affect things outside the community, generating offsite costs.
Offsite costs are things like "the park that your kids are going to need to go to that may not be in your subdivision," Johnson said. "In that commercial business park, the workers need to have open space to enjoy while they're on their break."
All of those onsite and offsite pay for improvements that are agreed upon ahead of time. These improvements must be made before vertical construction begins; commercial, industrial or residential.
"Growth does in fact pay for itself and accommodate its new existence in your community," Johnson said.
Lack of buildable land, increased costs from bureaucracy and a strained supply chain. If that weren't enough to give developers pause, add on a labor shortage.
"It was worse with all the stimulus and unemployment kickers," Barlow said. "Somebody calculated that if you made less than $65,000 a year it made no sense to work."
Things are better now, but it's still hard to find people.
"A lot of people went out of the trades," Borow said. "It's not quite as bad as in the heyday when people would come steal your crews and then they'd go to California. It's still pretty hard."
When vertical construction starts, there isn't time for labor shortages or supply delays.
"When you're building a house, you have a schedule, you need to meet certain milestones so other trades can come in and do their work," Borow said. "If you miss here, you put everybody else off. You run the risk they're going to leave for work elsewhere and not come back. Then you're scrambling."
Developers and builders may be facing real estate problems but they aren't the only ones.
Clackamas County established some guiding principles to sustain livability by committing to displacement prevention, advancing racial equity and inclusion and creating affordable housing options for vulnerable and marginalized communities.
The Housing Authority of Clackamas County is the oldest housing authority in Oregon controlling some of the oldest public housing stock in Oregon. HACC exists to provide free or low-rent apartments to low-income residents.
Much like public-housing authorities across the country, HACC struggles with housing stock in need of significant repair.
"After nearly 80 years of operation, we're facing some major challenges," said Devin Ellin, HACC director of housing development, "mainly, maintaining our housing stock with an insufficient budget while attempting to respond to an increased demand for affordable housing."
Although multi-unit housing may be ideal for public housing, it seems that duplexes, triplexes and cluster homes may not be the answer for buyers.
"Housing affordability is a real issue that we all need to work toward finding a solution to," Borow said. Going smaller, building more attached homes, he said, "goes against the whole trend of people trying to get out of that situation."
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