Randy Stapilus: Oregon's housing problem one of price, not of supply

##Randy Stapilus

About the writer: Randy Stapilus is a former reporter and editor who has turned to writing and publishing books from Carlton. He has devoted his career to covering politics and government in Oregon, Washington and Idaho. In addition to publishing books for himself and others through the Ridenbaugh Press, he maintains a blog at www.ridenbaugh.com. He also continues to write for print and online news publications, including the Salem-based Oregon Capital Chronicle, where this piece originally appeared.

Oregon has a housing crisis. And with it, good reason for establishing the state Housing Accountability and Production Office, which Gov. Tina Kotek launched July 1, based on authorization provided during the 2024 legislative session.

In announcing the new housing accountability office, Kotek remarked, “My North Star is for every Oregonian to be able to afford a home. Our economic prosperity depends on it. I believe that we can get this done.”

If that is to happen, the target should be clear: There is no large crisis in the raw amount or supply of housing. The crisis lies in its price.

In this current decade, Oregon’s population increased only slightly, from about 4.2 million at the decade’s start to about 4.3 million now, and there’s been no mass destruction of existing housing. Not a lot of houses are needed to service the population growth since before the price explosion a half-decade ago, before which housing wasn’t widely seen as notably short in supply.

In April, legislative Republicans complained that in the last three years, only about 43,000 residential building permits had been issued in the state, well below the governor’s target of 108,000.

But the number of households rose by only about the same amount during that time. So in theory, the new construction should have been enough to keep up with it.

In 2023, the most recent year for which data is available, Oregon had about 1.75 million households, averaging 2.4 people each, according to the U.S. Census Bureau.

That same year, the Census counted 1.88 million “housing units” in Oregon, more than 100,000 greater than the number of households needing a place to live.

The count included “a house, an apartment, a group of rooms, or a single room occupied or intended for occupancy as separate living quarters.” It did not include some other residential places, such as mobile home parks.

The upshot is that Oregon, like most states, has more residential units than households.

And there is no crisis for people of sufficient means. Anyone who can afford to plunk down a half-million or so — which includes many existing homeowners, in or out of state — will not have much trouble finding a house.

People below that level, however — and that includes a large segment of the population — may find that a house to buy or apartment to rent simply out of reach.

The problem with Oregon’s housing crisis is, in a word, affordability.

As of May, the median home value in Oregon, which reflects going purchase prices, stood at $540,300, according to online real estate market platform Zillow. One homebuying calculator estimates that a purchaser putting down 18% for the home — the median for home buyers in the U.S., according to the National Association of Realtors — would need savings in hand of $97,000 and earnings of more than $120,000 per year to afford mortgage payments.

That means fewer than a fifth of Oregon households could afford a median-priced house, based on the income component alone, although sales by owner could expand that number somewhat.

Despite the limited pool of buyers, prices have climbed high and stayed high. Why?

Oregon’s notably strict laws on land use are often mentioned as a cause. They may contribute, but many other states — including next-door Idaho — face pricing problems equal to or worse than Oregon’s, despite far fewer building restrictions.

High-end homes are more profitable for builders and developers, so they build more of them. That also contributes.

But the key explanation for why so many more houses are purchased, compared to the number of local residents who can buy, seems to be relatively wealthy investors — individuals and especially businesses — buying large numbers of houses and apartments in Oregon and around the country. Many national studies have found as much.

Redfin News, which tracks home sales nationally, said last August that investor homebuying has been rising steadily in recent years — about 3% annually. It said investors accounted for one of every six U.S. home purchases, accounting for $43 billion worth of residential units and one of every four entry level units.

Redfin found that during the second quarter of 2024 in Portland, 13% of sales valued at $511,419,529 were closed by investors, and said the investor share has been rising steadily in recent years.

Many of these homes are flips that are renovated, then resold for still higher prices. All of that activity places upward pressure on the sale prices of other homes.

A variety of buyers have been among the mass purchasers. Oregon Sen. Jeff Merkley has for several years focused on the role of hedge funds, and with U.S. Rep. Adam Smith, a Democrat from Washington, introduced in 2023 the End Hedge Fund Control of American Homes Act.

Merkley called hedge funds, “a contributing factor that has made it more difficult for middle-class Americans to become homeowners and is contributing to America’s twin crises of housing unaffordability and wealth inequality.”

Others have disagreed about how large a role such funds have played. But someone can afford to buy all those houses — in many cases at points well beyond the asking prices — and less-wealthy wage earners cannot compete.

That would be a real and pertinent, albeit sensitive, topic for the new state agency to address. Until someone does, the housing shortage for most Oregonians will go on.