Fewer renters, more homeowners in future
Despite local policies encouraging the construction of apartments, fewer and fewer people will want to rent in the future, according to state economist Josh Lehner.
"Because of demographics, those who want to own their own homes is increasing. That's my theory of 'peak renter,' " said Lehner, who works in the Oregon Office of Economic Analysis, which is charged with developing quarterly state economic forecasts that include housing trends.
Lehner explained his theory at a housing conference sponsored by the Metro Portland Home Builders Association last Wednesday at the McMenamin's Kennedy School in Northeast Portland. He said there were several reasons why the rate of home ownership has fallen in recent years, including lingering fears from the Great Recession, when many families lost their homes to foreclosures.
But Lehner said another reason was the large number of Millennials entering early adulthood at about that time. The sheer number of those not yet prepared to buy a home distorted the traditional housing market. Now more of them are having children and settling down.
"When you're in your 20s, living downtown near nightlife is fun. But a single-family home in the suburbs with good schools looks a lot more attractive when you're 35 than when you're 25," Lehner said. "We're not going to be a nation of renters forever."
In the short run, Lehner expects the high rate of apartment building to continue in the Portland area, to help accommodate the 35,000 or so people expected to move here every year for the foreseeable future. But he predicts the construction of single-family homes will rise as family incomes continue to recover following the end of the recession.
"Household income is really starting to grow again. It's not all the way to where it was a decade ago, but the last three or four years have been very strong," Lehner said.
Several things will have to change for the single-family housing market to keep up with demand. At the present time, far fewer single-family houses are being built, both locally and across the country, than before the recession. Lehner finds that puzzling, given the sharp increase in prices being paid for such homes in recent years.
Lehner said developers give several reasons for their inability to keep up with demand, including a shortage of buildable lots. Lehner does not believe Oregon's land use planning laws are making the situation here any worse than the rest of the country, although they are probably driving up land prices and making homes here less affordable than those in similar regions.
But Lehner said developers are having a hard time getting financing for projects because of bank lending policies that only recently have begun changing.
"Loan volumes to single-family builders are down 60 percent since 2007 but up 10 percent over the last three years," Lehner said.
There are some risks on the horizon that could reverse the emerging home ownership trend. Lehner said it could be endangered by another recession or policy mistakes made in Washington, D.C., such as a trade war with China that would be especially hard on trade-dependent states, such as Oregon.
Shifting housing types
Still the question remains: Even if more builder financing becomes available, where will the new homes be built? Traditional subdivisions are getting increasingly harder to site within the urban growth boundary administered by Metro, and the regional government is signaling that future expansions won't come easy.
One answer at the conference was in existing single-family neighborhoods in Portland. Although many if not most residential demolition and infill projects are opposed by neighbors, the city is in the process of rezoning large chunks of residential neighborhoods to allow so-called missing middle housing. That includes duplexes, triplexes, multiple accessory dwelling units, small apartments and cottage clusters, some of which could be sold as homes instead of built as rentals.
One panel at the conference included members of the citizen stakeholder advisory committee for the Residential Infill Project, which has recommended the rezoning. They not only support it, but have formed an advocacy group to lobby the City Council to approve the rezoning when it comes before the council.
The members were 1000 Friends of Oregon lawyer Mary Kyle McCurdy, Cully Neighborhood Association President David Sweet, and builder Eric Thompson, founder of Oregon Homeworks. They said building more housing in existing neighborhoods will increase affordability while protecting the environment. Their group, Portland for Everyone, is a project of the 1000 Friends of Oregon land use watchdog organization.
"We will build what the code allows. If we can get two or three households on a single buildable lot, that will drive down home prices," Thompson said.
Sweet admitted the rezoning concept is controversial. But he insisted it has popular support, which Portland for Everyone is simply mobilizing in advance of the council decision expected later this year.