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Economists predict housing costs will continue to increase throughout the region

PMG FILE PHOTO - Home builders are facing multiple challenges to keep up with housing demand.

Housing costs are going to continue increasing for reasons outside the control of residential home builders.

These reasons include a continuing shortage of new homes to meet the demand, an ongoing labor shortage that is driving up constructions wages, disruptions in the supply chain increasing the cost of materials, the highest inflation in more than 30 years, and expected increases in interest rates as the federal government winds down its COVID-19 pandemic economic stimulus programs.

Those were among the options of two economists who spoke at the 2022 Housing Forecast hosted by the Home Builders Association of Metropolitan Portland on Nov 10. They were Oregon State Economist Josh Lehner and Robert Dietz, chief economist and senior vice president for Economics and Housing Policy for National Association of Home Builders.

"Rents are going up and rents support higher home prices," Lehner said.

"We could be talking about a recession again in 2022 or 2023," Dietz warned about the cumulative result of the economic pressures.

The gathering at the Oregon Convention Center was the first time the annual event had been held in person since it was canceled last year because of the pandemic. All of the speakers talked about the difficulties the industry faced when much of the economy shut down in March 2020 as COVID-19 began to spread.{img:320606}

"It has been a very tough couple of years for the entire residential construction industry," Association President-elect Andrew Tull said in his opening remarks.

The shortage of all kinds of housing in Oregon and across the nation has been known and discussed for years. Elected officials at all levels have promised to increase construction. Oregon was the first state to allow "missing middle" multi-family construction in virtually all neighborhoods, including duplexes and accessory dwelling units.

Despite that, Lehner said the state still needs to create over 29,000 addition housing units a year through 2040 to meet the demand.

"Missing middle housing has been held up as a great solution, but it is not a silver bullet. It doesn't help as quickly as we would like," he said.

Dietz claimed that governments across the country are substantially increasing housing costs through regulations. He presented a chart that said regulations currently add an average of nearly $94,000 to the cost of a new home — an 11% increase since 2016.

"That's a quarter of the average cost," said Dietz.

According to both Lehner and Dietz, the labor shortage is among the greatest challenges. Nationwide, there are more than 10 million current job openings, Dietz said, which is more than the official number of unemployed workers.

But many people have dropped out of the work force and are no longer looking for jobs, in large part because of the risks and uncertainties created by COVID-19. They include baby boomers who choose to retire early and women with school-age children who stayed home with them because schools closed and are still struggling to reopen.

Lehner and Dietz both said they were struck by the decrease in the percent of men who are working or seeking work. Dietz presented a chart that showed that labor force participation for men has dropped steadily from around 87% in 1948 to about 66% in 2020, with only a slight increase so far this year. Causes include aging, opioid abuse and COVID.

In contrast, the participation of women climbed steadily from about 33% in 1948 to a high of around 60% in 2000 before settling at about 55% today. Lehner urged home builders to increase their efforts to recruit women, who have been historically underrepresented in the construction industry, along with communities of color.

Both Lehner and Dietz predicted residential construction will continue to increase next year, though not enough to meet demand. The remodeling sector is predicted to do especially well and single-family home starts are expected to exceed apartment units for the first time in years. Demand for new single-family homes is especially strong outside urban centers, including the suburbs and the even more distant exburbs, Lehner said.

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