Causes of the Great Housing Shortage

April 2017

Oregon Office of Economic Analysis

Oregon Office ofEconomic Analysis

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There is No Supply…

Oregon is currently building as many new housing units as we did in the 1980s, following the timber industry’s restructuring.

Oregon has more than 1 million more residents today.

Oregon Office ofEconomic Analysis

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…Anywhere in Oregon…

Permits for new construction are considerably lower today than pre-housing bubble levels of activity across Oregon.

Oregon Office ofEconomic Analysis

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…Even PDX Lagging

Even as Portland’s overall level of new construction is back, it has failed to keep pace with demand. Household formation is rising and population growth is as strong as ever.

Oregon Office ofEconomic Analysis

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Affordability Challenge

Strong demand and low supply is a recipe for rising prices and eroding affordability.

Oregon Office ofEconomic Analysis

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•Confidence•Labor•Land Use•Lots•Finance

Supply Constraints

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Optimism Abounds

“Successful developer by their nature is optimistic”

Oregon Office ofEconomic Analysis

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Industry Adding Jobs…

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… But Wages Not Crazy…

Construction wages relative to the statewide average are well within historical range.

Wages are rising across the board, and in all industries.

Oregon Office ofEconomic Analysis

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… and Labor is Scarce Everywhere

The labor market is getting tight for all industries, construction included.

Oregon Office ofEconomic Analysis

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Idaho’s Land Use Laws?

Policy does matter. Oregon’s land use laws do have long-run effects. However they are not the driver of short-term building issues in recent years.

Localized explanations for national or regional patterns do not explain much.

Oregon Office ofEconomic Analysis

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Lot Supply Issues Everywhere

Source: National Association of Home Buildershttp://eyeonhousing.org/2016/05/shortage-of-lots-now-worse-than-ever/

Lot supply is low and a growing concern.

Issue more severe in the West, and in prime locations – so-called A lots.

Oregon Office ofEconomic Analysis

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•Dave Crowe, NAHB’s former Chief Economist

•2014: “The land shortage is the result of tight credit for developers who have been unable to buy raw land and develop sites for builders.”

http://eyeonhousing.org/2014/08/builders-confidence-continues-to-build-2/

•2015: “… lot supply continues to be the biggest concern among builders … very limited access to capital from regional and community banks …”

http://eyeonhousing.org/2015/07/builder-sentiment-reaches-new-high/

Lots and Credit

Oregon Office ofEconomic Analysis

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•Builder Confidence•Labor Costs•Finding Enough Workers•Lot Supply•Credit Availability

Supply Constraints

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Maybe Not Quite As Bad

For More: http://eyeonhousing.org/2016/11/nahb-survey-adc-financing-standards-continue-to-ease/

The Fed Senior Loan Officer Survey shows banks are tightening construction and land development loans. This is a big concern.

However, NAHB survey of members show loosening standards for builders. This is good news.

Oregon Office ofEconomic Analysis

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Loan Volume Low, But Growing Kinda Briskly

Replication of NAHB chart. http://eyeonhousing.org/2017/02/adc-lending-expansion-slows/

Flow of credit has returned, however considerably smaller today than a decade ago.

Oregon Office ofEconomic Analysis

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•Financing and credit availability following the bust likely the primary cause of the housing shortage.

• Increased lending for multifamily has resulted in apartment surge, which is beginning to impact rents.

•Good news is the flow of credit has returned for builders, even if overall loan volumes low.

•Additional issues do impact the industry, prices, and affordability.

•Reasonable to expect some sort of single family cycle; it has just been delayed a long time.

• Except in geographically constrained regions (e.g. SF)

Summary

Oregon Office ofEconomic Analysis

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joshua.lehner@oregon.gov (503) 378-4052

www.OregonEconomicAnalysis.com @OR_EconAnalysis

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