Latest / HFO Multifamily Marketwatch for Oregon and SW Washington / How Fewer Multifamily Starts in Oregon Impacts Investor Returns
Transcript
- 0:00Michael Pierce, HFO Senior Research Analyst (00:00:00) - You were listening to the HFO multifamily MarketWatch podcast. Apartment owners who need to know trust HFO, the leading source for multifamily information in Oregon and Washington.
- 0:01Michael Pierce, HFO Senior Research Analyst (00:00:10) - Welcome back to HFO Multifamily Market Watch Podcast, your go to podcast for the latest updates in multifamily real estate sectors. I'm your host, HFO senior analyst Mike Pierce. Today we have an exciting lineup of stories. Our podcast today is sponsored by Gantry Incorporated, the country's largest independent mortgage banking firm focused exclusively on commercial real estate and Pacific exteriors. Northwest apartment, citing contractors with nearly 30 years of experience providing exceptional quality to multifamily and residential owners. Now, let's dive in. Today, we're diving into a significant trend affecting the housing market this year. The notable decline in multifamily housing starts in permit applications at a national level, and also locally here in Oregon and Washington. Let's explore the key statistics and underlying factors driving the shift. We are seeing a significant drop in multi housing starts and permits. Starts for building with five or more units. Plummeted 51.7% year over year to a seasonally adjusted 278,000 in May.
- 0:02Michael Pierce, HFO Senior Research Analyst (00:01:10) - On a national level, housing starts also saw a 19.3% drop from the previous year, impacting both multifamily and single family units. For building permits, developers pull permits for seasonally adjusted rate of 382,000 apartments in May of 2024, marking a 31.4% decrease year over year. The total number of units under construction also decreased 8.6%, signaling a broader slowdown in the market. Several factors are contributing to the decline in multifamily housing starts. First one is the interest rate. High interest rates make construction and development loans more expensive, stifling new projects. In May, mortgage rates were averaging 7.06%, pushing potential buyers to the sidelines and causing builders to be cautious. The second material and labor shortages. Builders are facing ongoing challenges with securing necessity, materials and skilled labor. The shortage has severely impacted project timeliness and costs. Reducing new multifamily housing starts post-Covid. Construction costs have stabilized but remain high compared to pre-pandemic levels. While material costs increased, the rise is slower compared to previous years. Specific materials like steel and concrete have seen price increases, whereas lumber prices have decreased significantly as suppliers replenish stocks.
- 0:03Michael Pierce, HFO Senior Research Analyst (00:02:21) - Labor costs are rising due to ongoing labor shortages and high demand for skilled workers. This tight labor market particularly affects mainstream metropolitan areas like Portland and Seattle, significantly increasing wages for skilled labor. Many units were under construction or completed in recent years, leading to an oversupply concern in some markets coupled with economic uncertainties. This has made developers more cautious about new projects. The multifamily housing market is expected to continue facing challenges. However, stabilization is anticipated by 2025, with projections of slight rebound and starts and completions shifting our focus to the Portland MSA region. To analyze the multifamily permit applications using the latest data. The Portland MSA has experienced fluctuations in multifamily permit applications. Notably, the total permits issued saw significant changes across the counties. In 2014, 6681 permits were issued within Multnomah County, accounting for two thirds of the total. This number increased over the following years, peaking at 9504 permits in 2017 before experiencing a decline in 2023. The number of permits issued was 5158, reflecting a notable decrease compared to previous year's average county multifamily permits issued over the past five year period from 2017 to 2021 range from a high of 3681 annually in Portland to 1154 units annually in Washington County, and 1614 units in Clark County.
- 0:04Michael Pierce, HFO Senior Research Analyst (00:03:50) - Based on the annualized data for permit applications through April 2024. Here are the percentage change in permit applications for 2023. City of Portland decline of 73.86% Multnomah County decline of 81.23%. Clackamas County A decline of 86.9%. Washington County a decline of 90.69%. Clark County A decline of 50.73%. And in Gresham, a decline of 87.34%. Economic factors, including high interest rates and construction costs, have impacted the number of permits issued. High interest rates and multi-family costs have made new projects less financially viable, contributing to the decline. The regulatory requirements and permit delays have also had an effect on the permits issued. Developers can often face challenges navigating the regulatory landscape, which can delay projects and increase costs. In conclusion, the multifamily housing market nationally and within the Portland MSA is experiencing significant challenges. High interest rates, material labor shortages, and regulatory hurdles contribute to a declining new multifamily housing starts and permits. Stay tuned for future podcasts for more insights on how these trends shape the housing landscape, and what to expect in coming years.
- 0:05Michael Pierce, HFO Senior Research Analyst (00:05:05) - Thanks for listening. We'll be back next week with a new edition of Multifamily Market Watch. Be sure to check out our most recent HFO TV interviews. We have Adam Musky talking about transforming Portland's future through public safety and economic growth. HFO TV interviews are available on our website or YouTube channel. You can always stay up to date on multifamily news throughout the week by visiting or subscribing to the Northwest Apartment Investor blog, available on our website. Thanks for listening and talk to you next week.
- 0:06Michael Pierce, HFO Senior Research Analyst (00:05:33) - Stay in the know with HFO. Listen to podcasts, read the latest news or watch exclusive HFO TV interviews. Connect to our blog, podcasts or video interviews directly from our website at HFO comm.