New construction activity in Oregon has grown in fits and starts in recent years. The absolute level of construction is up and our office expects growth of 10-15% in the coming years. However, while the total number of units being built is higher, we know that relative to population growth, this increase is pretty minimal. Oregon is building fewer units per new resident than we typically do. This is true across all regions of the state.
Now, that 10-15% of growth in the forecast can seem like a lot or a little depending upon where you live or what type of housing we’re talking about. What’s been both encouraging, and less-than-encouraging, is what’s happening beneath the surface of these topline figures.
Let’s start by looking at multifamily construction in Oregon. This is the source of much of the volatility in recent years as multifamily can be lumpy. One month you get a big apartment complex permitted and another one may not be coming into the pipeline for another couple of months. Also note that the chart above is quarterly, while the charts below are annual and thus less noisy.
Now, multifamily construction predominantly occurs in large, urban areas. As such, Portland accounts for the vast majority of this type of construction in the state. The Portland data has been quite noisy in recent years, impacting the statewide totals at the same time. Even with the concerns of overbuilding, permit activity remains strong. In talking with our advisors, a lot of this reflects at least a couple of things. On one hand, permits today reflect the fact that the pipeline and pre-development stages filled up years ago. These projects are just now beginning to build. Additionally, finding the perfect balance between supply and demand is difficult. When a multifamily boom occurs, the market tends to result in overbuilding for a period of time. It then takes a few years to work off this inventory, but given migration flows to Oregon, these units will fill up in the years ahead.
What’s also important to note is that while permitting within the Portland area is strong, but largely flat in recent years, this is not true elsewhere in the state. Construction activity is picking up outside of Portland. 2018 was the strongest multifamily year since the early-2000s. Gains in Benton, Jackson, and Lane drive the overall increases and so far in 2019, multifamily permitting remains strong.
Turning to single family construction across the state shows a somewhat different pattern. Single family construction in the Portland area has held steady for pretty much the past 7 years or so. However, single family building throughout the rest of the state has ramped up, helping to drive ongoing growth at the statewide level.
Bottom Line: Housing starts in Oregon continue to increase and our office expects a bit more growth in the coming years. These gains are more likely to occur outside the Portland region as the expansion continues to spread and reach all corners. A bit more growth in new construction, when coupled with a slowing population outlook, should result in a somewhat better balance in the housing market. Even if housing starts hold steady at current levels, due to supply constraints, lower demand or whatever reason, this too should bring a little more balance as migration flows taper in a mature expansion.