If someone lives in Oregon, there’s a low probability their rent is considered affordable.
Half of all Oregon renters spend more than 30% of their income on rent, which puts their rent beyond the federal definition of affordable, according to an Oregon Health Authority study. A “severe housing cost burden,” affects 27% of renter households, meaning they spend more than half of their income on housing and utilities.
Surging rents are often credited to a lack of housing. In turn, policy makers and developers alike posit building more homes is the way to solve this problem. But development alone isn't the solution. Cyclical surges in rent and development are integral to how the current housing system works — and rent rarely ever decreases in this cycle.
It would seem “housing deficit” translates to “fewer homes than people in need of homes.” However, that’s not the case. According to CoStar, a real estate analytics consulting firm, the current vacancy rate for multifamily homes is 4.1%, an estimated 14,800 homes statewide. The homeless population in Oregon is estimated to be 14,655. Technically speaking, there are enough multifamily structures alone statewide to house the unhoused. Data for single-family residences is harder to come by.
For a housing market to function, however, experts say there needs to be more than one house per household, a cushion allowing for practical considerations, like demolishing or renovating aging housing, families changing sizes or people moving. Nationally, and in Oregon, the population has grown and the number of vacant homes has decreased.
“The consequence of that is that prices rise, because there's more competition for the units that are available,” said Lorelei Juntunen, president and CEO of ECONorthwest, a Portland-based consulting firm. “It's harder to find one that matches the income level and amenities that people are looking for. It drives the market to a place where prices are rising faster than incomes, and is the number one cause of the affordability crisis that we have in the Portland metro area, and is a major contributor to homelessness as well.”
Build, build, build
Housing supply shortages are generally followed by a push for housing development.
As long as developers continue to build, the logic goes, there will be more supply, then the market will stabilize and rents will stop spiraling out of control. There is truth to this, in that the population is growing and people need places to live, and expanding housing supply does slow the surging cost of housing. But building new houses doesn’t lower rents, or in the long-term stop them from going up.
The housing market, Juntunen explains, works like this: When prices rise, it drives more investments in housing development, which brings more units online, which increases vacancy, which causes rent increases to stabilize, which decreases development activity.
“Until more people move in, and prices rise again, which drives the next development cycle,” Juntunen said. “That's kind of how it happens — in these waves like that.”
So when conversations around development focus on stabilizing rent, it’s an approach that’s inherently short-term because rent is only stabilized until the next development cycle. Each time rents reach a new plateau, a point of no return from which the only way forward is up.
“It's actually quite rare that you see rents falling,” Juntunen said. “But you see them stabilize and get flatter.”
Prices are already high
Even if more homes are built, they will rent at rates that are already unaffordable for a vast amount of the population, and the rates will climb from there. In Portland, rental rates rose 39% in 2021 alone, according to Redfin, the highest rise in the country. This surge came on the heels of a drastic contraction in supply: in 2020, Oregon had the lowest home vacancy rate in the nation, according to an analysis of U.S. Census data from the National Association of Realtors.
Affordable housing is an issue beyond Oregon. The average rent in the United States rose 15.2% in 2021. Mortgage rates are surging too — in 2021, the national median monthly mortgage rates for homeowners climbed 25% — which pushes some people out of the home buyer market, adding more people to compete in an already overcrowded rental market.
“The reality is that the tighter the vacancy (rate) is, the harder it is for people who are at the lower end of the income spectrum to be able to get into a unit that they can afford,” Juntunen said. “The people who have money are fine, they can win the bidding war.”
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A single person earning minimum wage in Portland ($14.00) could afford to spend $728 a month. The average monthly rent for a studio apartment in Portland is $1,245, almost double what a minimum wage earner could afford, according to the Department of Housing and Urban Development. The math doesn’t change much when the minimum wage in Portland increases to $14.75 on July 1.
According to data from the employment department, 6.1% of Oregonians in 2020 worked minimum wage jobs.
Tom Armstrong, supervising planner at the Bureau of Planning and Sustainability, said the result is that the poorer a person is, the worse they are impacted by rent surges.
“It is particularly focused on the sort of moderate to lower income households,”Armstrong said. “We see a greater need at lower income levels.”
The housing system, like other facets of the economy, has exacerbated a deepening wealth gap. Homelessness is at the far end of the spectrum, in which the cost of a roof and walls is out of reach; on the other end are the wealthiest — people who have multiple homes, expensive homes, and investors who own lots of housing, profiting from rents and influencing how much they rise.
The real estate industry is worth billions
In dissecting the housing crisis, to which rising rents are intertwined, experts point to market considerations: labor costs and supply chain challenges, the rising price of lumber; and landlord costs like renter turnovers, repairs and insurance.
Regardless of rising labor costs, supply chain issues, or any other considerations for those on the wealthy end of the housing spectrum, there’s another effect of the housing crisis: it’s great for profits.
In 2015, the same year Mayor Charlie Hales declared homelessness an emergency, real estate profits topped $10 billion. Since then, profits have doubled. In 2021, the real estate industry in Oregon generated more than $20 billion.
As Street Roots reported in April, investors are purchasing real estate in record numbers. In the fourth quarter of 2021, investors purchased 12.6% of homes in Portland, a 46.3% rise from the year before.
The ability of minimum wage, low income and even moderate income earners to afford rent is not a core determination in any of the decisions that typically drive development.
“They're not going to build a building if they can't make a profit off of it,” Armstrong said. “So when you factor in increased construction costs from materials and labor, that means even in situations where you might even give away the land for free, (it) doesn't mean that the housing that is produced or built there will even necessarily be affordable to moderate to low income households. There’s still just some structural economics, around construction costs, that mean that new housing will come in at that elevated price point.”
This is a consideration for landlords deciding the price point for a rental, but it also determines the kind of housing they build in the first place.
Because profit is the primary force driving development, developers are more likely to build housing generating the most profit. Investors and developers look at “development feasibility” (meaning the price or rent level at which private market rate development can be built), which tends to result in an end product rented at a high rate to ensure profit after recouping building costs.
In short, relying mainly on development to address affordability actually ensures there are fewer affordable homes built.
Simply building more houses won’t make housing affordable
Housing advocates point to policies like rent control and neighborhood planning and development programs to help Black, Indigenous and people of color, marginalized and low-income people stay in their homes and neighborhoods.
Josh Lehner, economist at the Oregon Office of Economic Analysis, said raising wages to keep pace with rent and cost of living is essential, too.
People of color are disproportionately burdened by housing costs — more than 50% of African American households, Native American/Alaska Native/Pacific Islander households and households of “other race” or “two or more races” are housing cost burdened, compared to 34% of white households, according to Oregon Housing and Community Services data.
“It's not like there's just … one easy thing,” Lehner said. “If we're gonna get better affordability for an income, it's probably not going to be because housing gets literally cheaper, (it’s) that housing gets relatively cheaper.”
Oregon is also investing heavily in a blend of local, state and federally funded housing programs, though those programs alone won’t meet the anticipated housing need. Oregon’s Regional Housing Needs Analysis found that Oregon lacks 140,000 units to serve people already in the state. Looking ahead, researchers estimate Oregon will need approximately 580,000 units over the next 20 years to address current underproduction and future growth.
Right now, there are approximately 45,000 active and occupied units that are overseen by Oregon Housing and Community Services. To date, OHCS has approved funds for more than 12,500 homes that are planned or in active development. Another 19,000 rentals are overseen through federal or local programs.
In total, there are 76,500 publicly funded homes, already operating or approved, in Oregon.
“When we talked about housing affordability, there's two parts to that equation, right? One is the actual housing costs. And then the other is your income or your ability to pay for it, right? And when we talk about mobility, it's the combination of those two, how much does it cost?” Lehner said. “It's more about relative increases. Are they going up faster than the rate of inflation or other products? Are they going up faster than the rate of income growth?”
As the housing cycle repeats itself and rents continue to surpass wages, Armstrong concedes it's possible that living arrangements in the U.S. could change, ultimately translating to more people living in smaller spaces.
“It's certainly a possibility,” Armstrong said. “If you look at other high housing cost areas, like Seattle or San Francisco, you start to see smaller units, more single room occupancy dorm-like settings, right. Again, part of that is sort of the construction cost economics — you build a smaller unit, it's going to naturally be less expensive. And so I think that it is going to be a different type of housing unit that is going to be available to the people earning minimum wage and being on the lower end of the wage.”
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