Housing Gen Z: Does Portland's current multifamily construction boom serve our next generation?
By: Lindsey Zehel, Advisor IMG Northwest, October 2018
Dynamic growth has occurred in the Portland metro area over the past decade with gains in income, employment and population that exceed the national average. Median household incomes in the area have increased by 25% since 2010. Portland continues to boast a historically low unemployment rate (3.6%, Aug 2018). Portland has a unique ability to attract and retain millennials (a large share of the renter demographic) and now ranks as the nation’s 15th most educated city in the U.S.*
The metro population has expanded at an impressive rate of nearly 10,000 new residents each year for the past decade. The number of cranes visible in Portland’s skyline (30 active at the start of 2018) indicates just how much future growth is expected. The City of Portland has proposed a strategy to “grow up, not out” in its 2035 Comprehensive Plan.
Are multifamily developers designing the appropriate unit mix to meet future demand?
Flattening rental rates, aggressive concessions, and rising vacancy rates seen throughout 2018 are signaling that developers’ goals to supply sufficient housing have been achieved, and perhaps exceeded, for the moment. However, the composition of this newly constructed housing supply may be cause for concern.
Roughly 75% of new units delivered between 2015 and 2018 were studio and 1-bedroom units, reflective of the limited supply of developable land and dramatically increasing costs of construction and lending. According to CoStar, there were only 206 new 3-bedroom multifamily units delivered in the Portland metro during this three-year period.
Looking at the lack of three+ bedroom multifamily units being delivered, it’s clear that developers may not be factoring in the following data:
- Portland’s projected natural population increase (vs. net migration – influenced by current economic conditions)
- Condos/single-family residences that will remain unaffordable for Gen Z, due to lack of wealth and lingering student debt. Portland’s median home price remains well above the national figure, and current single-family residental construction is sparse. “While demand is strong from highly paid employees, not everyone works for Nike or a tech company downtown,” notes an October 2018 CoStar Portland Multifamily Market Report.
Lifestyle households (renters by choice) have the financial strength to own, but have chosen to rent. A share of these households will consider a 1,000 sq. ft./three-bedroom apartment “downsizing,” if they have opted to leave a bigger home (2,000+ sq. ft.) in the suburbs.
Renter-by-necessity households include young professionals who do not have the wealth to purchase a condo or single-family home, students, and “gray” or “blue”-collar workers. This demographic will look for a 3+ bedroom residence in order to accommodate roommates or family members to save on housing costs.
- The potential over-supply of studio/one-bedroom multifamily units may have a profound effect in a decade when larger unit mixes will be needed the most both by Gen Z, and even Baby Boomers downsizing.
- For long-term multifamily investors, building a portfolio that includes a more diverse unit mix may be critical to achieving financial stability.
Sources: U.S. Census; Qualityinfo.org; CoStar Portland Submarket Oct 2018; Yardi Matrix Spring Outlook
*WalletHub, Ranking metrics include share of adults aged 25 and older with a bachelor’s degree or higher