The population in the Greater Portland metro grew by more than 80,000 between 2016 and 2019, while the total number of all housing units permitted was 31,538, according to the Census Bureau. This ongoing housing shortage both inside and outside Portland city limits is expected to keep property values and rents growing as demand continues to outpace supply for the foreseeable future.
Since 2015, there has been an increase in the vacancy rate as thousands of new apartments have been added and absorbed. Rent and other concessions that grew during 2018 have decreased in close-in Portland, East Vancouver and Oregon City. They have increased, however, in neighborhoods where new units were delivered.
Greg Frick, HFO Investment Real Estate
After experiencing flat rents two years ago, rent increases averaged 3.7 percent between April 2018 and 2019, according to the Multifamily NW Apartment Report. Portland saw an overall transaction volume increase with a total of 38 institutional transactions in 2018. Properties valued at less than $10 million experienced only a slight increase in transactions between 2017 and 2018.
Oregon also became the first to adopt statewide rent control on Feb. 28, 2019. Rent increases are capped at 7 percent plus inflation annually. No-cause evictions are limited. The Portland City Council implemented Inclusionary Housing (IH) on Feb. 1, 2017, after which permit applications fell 64 percent relative to the five-year average issuance level, per the Portland Housing Bureau. Of an estimated 23,000 affordable units needed, IH has resulted in the permitting of 328 privately developed, affordable units with 128 additional units pending. Of those, just 32 are complete and rented. The city is holding tight to its IH restrictions with no plans to make changes that may spur development.
Portland began requiring landlords to pay tenant relocation fees between $2,900 and $4,500 in 2017. Recent conflicting court rulings has the ordinance in legal limbo, pending an appeals court ruling. The judge in the most recent case determined the fee was a form of municipal rent control, which is banned under state law.
In 2018, Portland’s Council voted to require warning notices on unreinforced masonry (URM) buildings. Owners sued in federal court and recently won an injunction. The judge’s opinion stated the city would likely lose at trial. The city council is soon expected to approve a tenant screening ordinance that would require landlords to overlook all misdemeanors three years post-sentencing and all felonies seven years after sentencing.
Development in Portland will be a new normal that contains clusters of small buildings with less than 20 units inside the city limits to avoid IH regulations. Larger communities will be developed in the suburbs. Transactions are expected to increase due to job growth, continued in-migration and other obstacles to the development of new units.
— By Greg Frick, partner, HFO Investment Real Estate. This article first appeared in the July 2019 issue of Western Real Estate Business magazine.