Building permits for multifamily housing has decrease dramatically since the peak in 2017/2018.
The number of Detached Single Family home rentals has decreased by 4000 units in Portland and over 6000 metro wide.
The housing demand for rental units is higher than ever before.
This year the headlines have been mostly focused on our hot housing market, but the rental market is hotter than ever, and with it we’ve seen a steady rise in rents. According to the Oregon Office of Economic Analysis, in just the first six months of 2022, 168,000 Portland Metro households have been priced out of the market. The pandemic housing boom has made home ownership unaffordable for more than 4 out of 5 households in the Portland region. This is causing more demand on the local rental market, where supply has been on decline since 2014. We are in our 7th year of a “housing crises” that seems to only be getting worse.
According to a published study by ECONorthwest, Detached Single Family home rentals are being sold and converted to primary residential ownership at an alarming rate, dropping nearly 14% since 2017 in Portland and 10% in the greater area.
Contributing factors for this decrease include a sharp rise in home values making it an attractive time to cash in on a long term investment, and the “squeezing” of landlords by lawmakers attempting to make housing more equitable to their constituents. There is a lot of finger pointing at the lawmakers putting stricter accounting, tracking, and financial constraints on landlords. And the data showing the consequences of the rent moratoriums associated with the pandemic is sparse to say the least, leaving only anecdotal evidence to tell the story. In my opinion, motivation for the conversion and sale of our rental units makes no difference. To me, taking a swing at lawmakers efforts to balance the landlord/tenant laws in our market while simultaneously cashing in on giant capital gains in a short period of time seems disingenuous at best. And the trend far exceeds the laws put in place, making it a clear case of correlation and less causation.
Just look at this chart published by Oregon Live showing multifamily permits issued in Portland(2).
Look, I know that there is a mountain of chatter about the rental market in Portland and the state of Oregon in general. I know the general conclusions are that lawmaker’s attempts at keeping rents from rising at an alarming rate is being blamed for the low and decreasing rental inventory. But I can’t be the only one that understands that people FOLLOW MONEY. When rents are increasing, developers build more housing. Why? Because that’s where the money is! When rents decrease, developers stop building, the market adjusts, and when a squeeze in the market occurs, they start building again. I don’t know why that isn’t obvious. Landlords and developers will adjust their strategies to make money. If they need to pay closer attention to their accounting and rental application intakes, they will. Why? Because there is always money to be made.
The average rent for a 2 bedroom apartment in Portland is $2659/mo and for a 3-bedroom unit (if you can find one) it’s $2815 . These numbers are going to continue to rise at an alarming rate as demand continues to outpace supply. Building permits aren’t going to peak until 2024, dragging rental prices up in the meantime.
Here’s the bottom line. Home ownership is the only way for you to have control of your future. If you think you can plan for a comfortable retirement by saving the max allowed in your 401(k) but leave your housing up to the whim of a volatile and increasing rental market, you may find your savings won’t be enough to cover your monthly bills when you switch to a fixed income and experience increased monthly living expenses. If you can afford a mortgage now but are waiting to see a drop in the market, you’re joining a mass of buyers that are going to miss out on the opportunity to buy when demand is low. The next spike in demand (and therefore increased prices) is what you’re going to get if you continue to wait until the news says it’s a good time to buy. Interest rates can go down in the future, your rent won’t.
If you own a home currently, now is the time to seriously consider converting it to a rental. Look at the graph I shared up at the top of this article. Those 4000 - 6000 landlords that sold their single family rental units and cashed out of the market? Guess what? They all made a TON of money. Every single one of them. How do I know that? Easy, I (and people like me) helped them sell. Sure, I can give you anecdotal evidence by sharing my experiences. How a landlord who purchased a home for $59,000 in 1992 had a tenant pay off their mortgage by 2005 and are now selling to my wonderful first-time home buyer client in 2022 for $450,000. Even if a cash on cash return for the first 12 years simply paid all or a majority of the mortgage showing a LOSS for the owner, it was still an amazing investment. These numbers and benefits aren’t difficult to parse. Especially if you have an expert at your side. For many of you, keeping your home as a rental and taping into the equity in a creative way to get the down payment funds you need is a conversation you should be having with me right now.
And if you’re a landlord looking to sell your rental in Portland Metro, I know plenty of people willing to buy it today. Let’s chat.