Economists Predict Positive Housing Forecast for 2017
The 2017 housing forecast—put on by our friends at the Home Builder’s Association of Portland (HBA) and Parr Lumber, generated a significant crowd (and buzz!) last Friday morning, as 500 attendees gathered for an analysis of the 2017 housing market.
The audience was filled with companies across the home builder, real estate, and land development industries, as well as government representatives, and other relevant industry leaders.
While the outlook for 2017 remains positive, the narrative from 2016 remains as follows: Low lot inventory and labor shortages continue to hinder builders’ ability to take advantage of the economic conditions created by a high level of demand in the Portland/Metro area.
Key takeaways from the event:
1. Consumer demand remains high. It seems that the hidden gem of Portland we call home, is not so secret anymore. According to the US Census Bureau, the Portland metropolitan region grew by an incredible 40,000 people–111 per day–from July 2014 to July 2015. This population influx, driven by migration from other states, is only expected to continue – ultimately contributing to the increased demand for housing in the Portland and surrounding area. In addition to the transplant movement, Millennials – now representing the nation’s largest demographic  – will begin moving out of their ‘parent’s basement’ and into owner-occupied units in greater numbers, adding another layer of housing demand to the already booming market.
2. Lot inventory remains low. As stated by Chief Economist Robert Dietz of the National Association of Home Builders, “64% of home builders report low supply.” Current lot inventory in our region is at the sub-2 month level, which is incredibly low given the demand conditions that currently exist in our marketplace. The constrained supply of build-able lots close to urban areas (where demand is highest), drives up lot prices which can impact the affordability of finished units. Until lot supply increases – either through changes to zoning maps or the urban growth boundary – prices will likely continue to increase.
3. Regulatory burdens drive up affordability. Zoning, permits, system, and development charges can account for 25% of the total cost of a new home, and add months to the development cycle, which places upward pressure on affordability. Moving forward, it is essential for home builders to work with our local government to streamline this process, bring down costs, and ease some of the constraints that are impacting the ability of builders to obtain and develop affordable lots.
4. Labor shortages continue. Skilled labor is in high demand. Many of the workers who left during the recession have yet to return, and young talent is slow to enter the field. This is evidenced by the surprisingly high average age – 42 years old – of construction workers in the Portland and surrounding area, as announced at the conference. While there are many vocational programs and training courses being implemented across our region, a continued investment in the education of young professionals will help to quell this issue long term.
5. Positive outlook for 2017. While there are many supply-side constraints limiting profit potential in the market (i.e. lot affordability, labor shortages and regulatory burdens mentioned above), the high level of demand is expected to continue for the foreseeable future which bodes well for the overall health of the industry.