A short item I posted two days ago about 16 thousand vacant apartments in the Portland metro area has attracted an outsize amount of attention.
The post has racked up more than 90,000 thousand hits and around 10 thousand Facebook shares, along with countless retweeets.
The responses generally fall into two categories: those who are outraged by the vacancies given the city’s homeless and affordable housing crises, and those who view the empty dwellings as a positive sign that an overheated rental market is cooling down and will eventually lead to price declines.
Actually, there was a third category of responses, from readers who felt the post lacked context. The story reported on the number of empty apartments, but didn’t offer analysis beyond noting the potential impact on prices.
For more context, I turned to Josh Lehner, in the Oregon Office of Economic Analysis.
Vacancy rates declined substantially over the past 10 years, and at one point Portland’s vacancy rates ranked among the lowest in the nation, Lehner said. A boom in new market rate and luxury apartment construction, especially in the urban core, has altered that trajectory.
Now vacancies are on the rise, and the market is rebalancing. “It’s probably going to overshoot,” Lehner said. “It’s hard to get supply and demand in perfect balance. How far will it go and how much imbalance, we’ll have to see.”
People are appalled by the idea of thousands of apartments are sitting empty, but a 5% vacancy rate is considered pretty healthy. And from the economist’s view, higher vacancy rates are a good thing. The key is focusing on the trend, not the absolute number.
“Building market rate housing improves overall affordability,” Lehner said. Indeed rental costs are declining, by around 2.2% in the past year. The question is whether prices will drop enough to be affordable for people locked out of the market. A 1-bedroom in Portland today goes for a not-so-cheap $1,128, according to Apartment List. Plus, according to anecdotal reports, many landlords are using perks (including a month or two free rent), instead of lowering the cost of year long leases, to attract tenants.
The price declines will likely impact the market rate buyer, Lehner said. “The city has seen tons of high end job growth, and there’s a lot more people out there who can afford those higher rents. They need a place to live.” Building luxury housing in the urban core puts pressure on townhomes and other rental stock, he said.
Not everyone buys into the argument that building lots of market rate housing is a net positive.
“There is a view that is getting some traction in the media,” Commissioner Nick Fish told Willamette Week last spring. “I call it ‘trickle down housing,’ and the idea is that … if we continue to have 95 percent or more of our housing at the luxury level, that we will over time be a benefit to those people shut out of the market.”
For the median household, or for low-income residents, new construction will probably never be affordable, Lehner agreed. There is always going to be a need for housing assistance subsidies, he said.
Plus, most of the new construction is designed for young singles, not families.
So what can we learn from rising vacancies? That we need more affordable housing, along with policies to ensure everyone has a roof over their heads? Or is it a sign the market is balancing out?
Both of these conclusions, of course, are valid. As for solutions — they don’t come easy.
BTW: Portland is not the only metro area to experience a glut of empty apartments. A whopping 26% of Seattle apartments in the core of downtown are vacant, the Seattle Times reports.
Updated August 2: As I noted in my original post, empty apartments include units vacated for temporary reasons (tenants moving in and out) as well as market factors. According to Patrick Barry of Barry & Associates, Lehner and other industry experts, the market — specifically, oversupply of new class A construction — is driving the increases in vacant units we’re seeing today.
Updated August 3: The headline of the original story has been changed to more accurately reflect the content.