Posted by: Josh Lehner | November 24, 2015

High-Tech: Software, Outposts and Critical Mass

Oregon’s high-technology sector is being disrupted. Industry growth in the past decade is entirely concentrated in software, while Oregon’s historical strength in hardware is no longer the driver of job growth. Hardware remains the state’s comparative advantage, pays a large number of employees very high wages, and drives much of the state’s GDP growth due to its productivity. However, relatively flat employment in hardware — like manufacturing overall — has been, and is the new up. Conversely, software companies are driving job growth in the sector, much of which is concentrated in Multnomah County. See here for more on the sector definitions.


The Oregonian’s Mike Rogoway has two recent interesting articles on this software growth and the fact that many of these firms are outposts, or non-Oregon headquartered firms. Underpinning his interesting articles is work our office has done, but only with the help of our friends in Research at the Employment Department and in Research at the Department of Revenue.

To help understand the outpost topic a bit further, we asked Mary Fitzpatrick at the Department of Revenue to crunch corporate tax return data for a core set of high-tech industries. She was kind enough to run through all the tax return data and match it up with withholding records for a few different years. The graph below shows the non-Oregon domiciled firms’ share of the tech sector total. Essentially, it shows what share of the total is from out-of-state companies. Due to the lagging nature of corporate tax returns, the latest year available is 2013. This predates many of the software outposts, however the graph will serve as a historical baseline moving forward, from which we will compare trends. Thanks Mary! There is one big caveat here in that these calculations exclude Intel. This was my decision and done on purpose for a few reasons, see note below for why.


So, that’s a lot of interesting data work, but why should we care about where a company is headquartered? In a lot of respects we shouldn’t. These companies are actively choosing to locate here, bring their outside investments and increase employment, all of which are great, help grow the regional economy and are certainly welcomed. However, as Mike writes:

What Portland doesn’t have is a single big-name tech company of its own.

Even growing outposts are less likely to house the highest paid jobs at most companies, they don’t provide the economic spillover that locally run technology companies do and they may be less likely to engage in philanthropic and community activities than locally run operations.

And Oregon knows from painful experience that when times get tough the outposts are the first to feel the pain. Hynix’s factory in Eugene went vacant for seven years after the chipmaker shut it down and laid off 1,400; Hewlett-Packard has been downsizing campuses in Corvallis and Vancouver for years.

Any potential concern comes from the headquarter hub versus spoke issue. During the next downturn, or any high-tech industry correction, to what extent will the companies downsize or cut their spokes (outposts)? Typically, headquarter operations perform the best and firms consolidate to gain efficiencies during tough times. This means cutbacks or closures in the outposts.

Ultimately, [State Economist Mark] McMullen said, Portland needs a cluster of homegrown skills that can sustain the local scene when the corporate parents’ fall on hard times.

“The hope is we can get the foundation built before, inevitably, they pull back,” he said.

Oregon’s reliance on tech outposts “is not optimal,” in [Elemental Technologies Sam] Blackman’s words, but the recent spate of deals doesn’t necessarily make the issue any worse. It’s bringing money and jobs into the local economy, he said, and setting up entrepreneurs to start again with new companies.

That very last part of what Mr. Blackman said is really important. Essentially, has software in Oregon reached critical mass? Oregon started from a very small software base just a few years ago (unlike hardware) and is growing very quickly. The concern is whether or not Oregon’s software sector can rebuild and thrive following the next downturn, or will the workers leave when the jobs dry up? We know that Portland’s tech talent cluster is both significantly above the U.S. average but below the country’s largest tech centers. Portland ranks 14th highest among the 50 largest MSAs in the country. The regional economy is obviously better off with a more diversified base, including these good, high-paying jobs.


In our economic advisory meetings the other week, every advisor who had an opinion on this topic was upbeat and optimistic. Each believed Portland (and Oregon) has reached critical mass in the sector. That’s great news and if true, indicates the potential downside is limited. Not eliminated of course, as no industry truly is recession-proof. As I said to Mike:

“Still think it’s a risk moving forward, but maybe less of a risk than feared,” Lehner wrote. “We just want to be able to retain all those workers if the firm goes under. We want them to stay and rebuild/start something else.”

With the software sector hitting critical mass, and the broader cluster thriving today, this should be the case moving forward.

Note: The evolution of Intel here in Oregon is, in my mind, well known. Their employment totals, big investments in new facilities and the like are publicly known and regularly discussed when it comes to the Oregon economy. Given the company is the state’s largest private employer (across all industries), they dominate the numbers when focusing on just one portion of the economy. While it is hard to undersell the importance of Tektronix (historically) and Intel (today) to the regional economy and growth in the high-tech sector, the main purpose of this research is to try and examine how everyone else is doing. Exuding the large outlier from the analysis helps focus on the underlying trends impacting the other 3,300 or so companies.

Posted by: Josh Lehner | November 19, 2015

Oregon County Population 2015

The 2015 population estimates for Oregon were just released by Portland State University and we have now surpassed 4 million residents. 4,013,845 to be exact. PSU’s Population Research Center has created a really cool new site to show how we got here, with data going back to the 1800s. They detail some race/ethnicity, age, gender, place of birth and the like. Do check it out for yourself.

Population growth — and migration in particular — is one of the two fundamental reasons Oregon’s economy outperforms the typical state over the business cycle. (The other being our industrial structure.) With population growth continuing to accelerate, it bodes well for the near term economy as these new Oregonians increase demand for housing, consumer services and the like. It does take some time for the labor market to absorb the working age migrants into employment, however eventually it does. For example, the state today is about a year away from the number of jobs catching back up with population growth, relative to the onset of the Great Recession.

Given population growth is so important for both Oregon and the regional economies within the state, the graph below shows county level population change over the past decade. The light blue line is the statewide growth rates, which acts as a benchmark to compare a given county to statewide trends. Central Oregon (Crook, Deschutes, Jefferson) is special and they get their own graph at the very end.

Warning: this is a lot of charts, but the trellis graph is a neat way to show relative patterns and comparisons across myriad measures all at once.


As I said, Central Oregon is special in that their growth rates are literally off the charts in the past 15-20 years. Their boom-bust-boom pattern is something else. Notice the y axis below is substantially different from all other counties. See here for an update on the regional economy which has returned to full-throttle, booming growth.


Posted by: Josh Lehner | November 17, 2015

Housing Forecast Takeaways

I just wanted to share a few of the key takeaways, at least for me, from the Home Builders Association of Metropolitan Portland’s recent housing forecast event.

Portland State’s Dr. Gerry Mildner — who runs the Center for Real Estate at PSU — had a great high-level look at some policy options and considerations about land use and the housing market. He included one of my favorites from urban economics – bid-rent curves talking about demand for land vs willingness to pay. With that being said, my biggest takeaway was the following graph, which shows the type of housing low-income households actually live in across the U.S. I knew there are myriad housing programs available, and too much demand relative to supply (not everyone who applies gets assistance). However I also did not know that essentially half of all low-income households live in purely market rate units.


Dr. David Crowe, the chief economist for the National Association of Home Builders, also gave a really interesting presentation, as usual. His work has really influenced our office over the years, particularly when it comes to demographics and housing (see here from a couple years ago, more recently our peak renter work flows from that earlier analysis). He did touch on stronger household formation, population growth and some demographics. However, I really liked the following graph that shows the housing rebound across states (below) or across metros (shown in the presentation) really is tied directly to local job growth. Historically housing has led the economic recovery — as the Fed cuts interest rates after inflation falls, it unleashes pent-up demand, driving the old v-shaped recoveries. Obviously, as David put it, “this is not your grandfather’s recovery”. Housing did not lead us out of the Great Recession and remains only partially recovered today. Yet the biggest driver in new construction is the strength of the local economy and job growth, which creates the demand for homes.


My presentation really was a summary of recent blog posts, including the return of migration flows into Oregon, much of our household formation on net has occurred at the higher end, and whether the housing market may be reaching peak renter due to demographics. I also discussed some broader economic topics (full-throttle job growth, strong wage gains, job polarization) and our office’s forecast. The one item that was somewhat new, was the following graph. I updated previous work I did with University of Oregon’s Tim Duy on home prices and new home construction across the largest metros in the country. This is updated to include the new 2014 American Community Survey data.


In conversation with Tim he brings up a really good point. This chart is interesting both for what it shows and what it does not show. Specifically, among the 50 largest MSAs in the nation, there is no market that builds a lot of housing and is really expensive. What is missing from the graph is income, or the ability to pay. Price to income trends (affordability) is key, but even so, supply and demand clearly do have an impact on the housing market.

Posted by: Josh Lehner | November 10, 2015

Material Deprivation, Poverty, Child Care and Inflation

An interesting topic arose at the PSU Census Data User meetings two weeks ago. Essentially, it boiled down to the differences between the official poverty measures used and something more akin to material deprivation. Trudi Renwick, from Census’ Poverty Statistics Branch, walked us through a bit of the differences there. Poverty is based on how much money is needed to afford a defined basket of goods and services. Material deprivation is more a measure of physical hardship or being able to afford typical products in society — Trudi mentioned things like indoor plumbing and refrigerators.

Since nearly every American has those items, poverty today is better in a material deprivation sense. In fact, via the New York Times summarizing work from World Bank economist Branko Milanovic, “… the typical person in the bottom 5 percent of the American income distribution is still richer than 68 percent of the world’s inhabitants.” However, just because Americans in poverty today have access to a toilet and even a smartphone, does not mean they have an easy life.

This discussion brings to mind two of my favorite graphs which do help shed light on these issues. The first graph shows the adoption of new technology over time. I pulled this specific graph from the Harvard Business Review, who grabbed it from the New York Times.


There is a lot embedded in the graph. The rate of adoption is picking up, that is newer technologies spread to a wider swath of the population at a faster pace today than a few generations ago. Some technologies take a longer time to adopt than others and there are certainly plateaus to adoption. For a few simple reference points, Derek Thompson in The Atlantic wrote:

— In 1900, <10% of families owned a stove, or had access to electricity or phones

— In 1915, <10% of families owned a car

— In 1930, <10% of families owned a refrigerator or clothes washer

— In 1945, <10% of families owned a clothes dryer or air-conditioning

— In 1960, <10% of families owned a dishwasher or color TV

— In 1975, <10% of families owned a microwave

— In 1990, <10% of families had a cell phone or access to the Internet

Today, at least 90% of the country has a stove, electricity, car, fridge, clothes washer, air-conditioning, color TV, microwave, and cell phone. They make our lives better. They might even make us happier. But they are not enough.

The other graph the issue of material deprivation and poverty brings to mind is the following, also via the NYT. The graph shows the inflation rate for a particular good or service, relative to the overall increase in the consumer price index. Simply put, this illustrates that many physical products like TVs and phones have become much more affordable over time, hence why so many more people have them. Conversely, categories that are generally accepted to help one escape poverty itself, have risen faster than everything else. College-educated workers earn more, but the costs of obtaining a degree have skyrocketed. Similarly, child care is expensive and parents need child care to be able to work and earn money, which could then put them above the poverty line. Such services are relatively harder to afford today given price trends, yet are needed for parents and households to earn more money.


I find both of these graphs very informative, interesting and applicable to the discussion surrounding material deprivation and poverty. In particular, whenever I see inflation for different goods or services, or hear discussions surrounding poverty, I have this second graph in the back of my mind. Thankfully, for the vast majority of Americans, material deprivation is no longer the primary hardship. Unfortunately, poverty certainly remains a very big, and outsized economic issue.

Posted by: Josh Lehner | November 5, 2015

Housing Stock and the Missing Middle

One facet of the housing market and discussion that I find interesting is the comparison of the type of housing in each city (or neighborhood for that matter). Back in September Emily Badger in The Washington Post crunched the numbers for many of the country’s largest cities — not metros, but just the primary city — breaking down the figures into single family, duplexes, mid-rise apartments, high-rise apartments, and the like. I think the comparison is fascinating, but wanted to broaden it to the MSA level given that the majority of folks living in, say, “Portland” really live in Beaverton, Gresham, Hillsboro, Vancouver and so forth.


One item that stands out as both relatively small in actual numbers, yet a bigger focus of urban research are the small multifamily complexes, the dark blue, 1-4 unit multifamily in the chart. (1 unit multifamily really means single family attached, i.e. rowhome/townhome.)  City Observatory’s Daniel Hertz refers to these as the missing middle. In Portland, many of these units were constructed back in the late 1970s housing boom and again in the late 1990s.


Given their small market share, especially in today’s construction, why are these types of housing important? As Daniel writes at City Observatory:

“…small multi-unit buildings can provide lower-cost housing at market rates – and lower construction costs for nonprofit developers building subsidized housing.”

“…duplexes and triplexes can be a low-visual-impact way to add people to a single-family-home neighborhood. The added density, in turn, can make those communities viable for walkable neighborhood commercial districts…”

“…can be one key to helping older Americans age-in-place, staying in the same community that they’ve been in, but trading a larger, single family dwelling, for a smaller, but still very much in character unit…”

“…is a way to diversify and urbanize low-density neighborhoods without drastically changing the appearance or character of quiet, “suburban”-looking streets that residents of single-family-home areas often value.”

I think these points are particularly practical and interesting, to me personally as one side of my street is detached single family and the other are 4-plexes and townhomes, but also in the broader context given the housing market and ongoing discussions today. Of course it goes without saying, other housing types are important — even more so — given the vast majority of where people live and new construction today is either detached single family or medium to large apartment complexes. The missing middle is just one small aspect or piece of the overall puzzle, but seems to be largely absent in many conversations.

Posted by: Josh Lehner | November 3, 2015

Manufacturing Wages (Graph of the Week)

Our office has spent a lot of time recently discussing manufacturing. The sector is largely flashing near term weakness today, with a strong U.S. dollar, stalling industrial production and weak global demand, however Oregon manufacturing job growth is as strong as ever over the summer and into the fall. Given the industry is highly cyclical it is important to follow such developments and discuss with our advisors to what extent these trends are temporary or could spread to the rest of the economy.

However, from a bigger perspective, manufacturing has long been considered among the good middle-wage jobs. Yet Alana Semuels in The Atlantic recently and Lydia DePillis at The Washington Post last year detail the lackluster manufacturing wage trends. In particular the two-tier wage scale seen in many places these days where recent hires earn significantly lower wages than workers under older agreements. While such two-tier scales appear to be uncommon here in Oregon at least based on the lack of public statements and reports, we have certainly noticed that relative manufacturing wages have eroded in recent decades, which brings us to the graph of the week.

At first blush, average manufacturing wages compared with the statewide average for all workers appears to be pretty steady over time — manufacturing workers earn roughly a 30% premium relative to the average worker. However this result is entirely driven by strong wage gains in computer and electronic product (2014 average wage $123,000). Looking at manufacturing wages excluding such high-tech producers, they have essentially converged to the statewide average. Now, wages have not fallen in nominal terms, but have grown less slowly over time than both inflation and wage gains in the average industry. Thus real manufacturing wages, and relative manufacturing wages have eroded.


The key premise of the articles linked above is that new manufacturing jobs today are no longer a clear path to the middle class like they were a generation or two ago. They pay OK but not great. While the Oregon numbers — on average — suggest solid pay for manufacturing workers, similar trends are clearly evident in the bigger and longer term picture. We noticed this in our job polarization work in recent years. However the first place it was really evident was in our historical look at wood products in Oregon, where the industry has seen both large levels of job losses in the past 30+ years and real wage declines for the remaining jobs.

So what is going on here? It’s a complicated issue but at least part of the answer does lie in the globalization and technological change/automation trends, and then how this impacts workers’ bargaining power (in general, not just with respect to unions) and the like. As we wrote in that wood products article:

For industry employees this is an end result of a number of factors at work within the industry. As mentioned previously, the industry underwent a restructuring in the early 1980s which resulted in less workers needed to produce the same output and productivity enhancements, along with automation and standardization also contributing. Another factor at work is increased competition from both within the U.S. (southeastern states) and Internationally (mainly, British Columbia, Canada). All these factors, coupled with lost jobs have resulted in average wages today that are on par with the statewide average.

In summary, it’s certainly good news that manufacturing jobs are growing again. However like other middle-wage jobs, the gains have been slower than either high- or low-wage job growth. Furthermore, while average manufacturing wages (excluding semiconductors) today in Oregon are near $50,000 per year, this does represent a smaller premium relative to other industries than at any point in recent history.

Posted by: Josh Lehner | October 27, 2015

Oregon Income Trends

This week Portland State University is holding two great meetings for its Census Data User group – one in Portland on Wednesday (live stream starts at 9:30 am, will be archived for later) and one in Salem on Thursday. (There are a few spaces left for those interested in attending either day.) PSU is bringing in two researchers from the U.S. Census Bureau including Trudi Renwick, Chief of the Poverty Statistics Branch, and Linda Clark, Data Dissemination Specialist. Trudie will detail income trends based on Census data and also demonstrate the data tools available for use, while Linda will provide updates on field testing, content changes and methodology updates.

Along with Portland State’s Charles Rynerson, who will cover the 10 years worth of American Community Survey data, I will present on income trends across Oregon. My slides are below. Given the group is primarily analysts, economists, researchers and the like, the focus is both on trends and changes across Oregon but also on pairing the income data with other sources, like household debt, housing costs, tax revenue and job polarization, to further one’s analysis beyond straight Census reports.

As always with our office, the detailed microdata work (PUMS) comes from the state demographer, Kanhaiya Vaidya.

Posted by: Josh Lehner | October 22, 2015

Oregon Jobs: Why I’m not Worried (Yet)

Undoubtedly Oregon’s monthly employment reports have been less than stellar in the past handful of months. The unemployment rate has risen each month since April, although it’s back on track with it’s trend since the depths of the Great Recession. Conversely, job growth has been erratic to say the least. May saw no net job gains, June was weak and then the latest report for September showed recession-sized job losses. If accurate, these reports indicate a significant slowdown in Oregon’s labor market in recent months, if not worse.

However there is one big reason why our office is not concerned yet: wages. Specifically, withholdings out of Oregonian paychecks. We get daily and monthly reports from the Department of Revenue. As seen below it’s noisy data — it matters how many business days are in a month, or how many Fridays, etc — growth remains very strong today. Wages did stall somewhat in the second quarter but have resumed full-throttle growth since.


As discussed before, it is typical to see about one month of job losses each year during an economic expansion. Yet private sector losses of 6,600 in a single month — September preliminary estimates — are on par with those seen during the 2001 recession. We know the employment data is noisy and will be revised and benchmarked. New QCEW data was recently released and ahead of the coming forecast we will examine it in-depth at the industry level.

Our office expects growth to slow somewhat from its 3.5% pace seen earlier in the year, particularly in manufacturing with the global economic weakness and strong U.S. dollar. However every wage indicator we have, including that just updated QCEW data, shows continued strong growth, not a deteriorating labor market. Well, every wage indicator except for one.



Average hourly earnings for all workers has barely budged at all since its inception just prior to the Great Recession. Average hourly earnings for production workers, which has been around forever, is growing at about the same pace as BEA average wages (or QCEW average wages) which are trailing the gains in withholding per job.

Oregon is seeing significantly stronger wage gains than the nation. Our average wage today is the highest its been — relative to the national average — in at least a generation, or since the mills closed in the 80s. Again, except the one new data series that had barely changed at all. We cannot discount that series entirely, but it’s preferable to see how economic data changes over a couple of business cycles so that we have at least some idea of how it responds to a changing economy.

For now, our office believes the Oregon economy remains on track, evidenced by the strong wage gains. Our office is more concerned by slowing withholding, if it comes to pass, than a few subpar movements in the jobs data, prior to their revision. Now, monitoring both are certainly important and we do, along with our advisors. Should wages weaken, and the subpar employment reports continue, then we will become worried. Our next forecast is set for release on December 2nd and the above will certainly be part of our advisory meetings in the coming weeks.

For the record, I used core PCE to deflate the wages from nominal to real.

Posted by: Josh Lehner | October 20, 2015

Graph of the Week: High-Tech Growth 2015

Over the weekend, Mike Rogoway has really good update on the Oregon high-tech sector in The Oregonian, and then asks the question of whether or not this growth is impacting the housing market. The answer to that question is no, or at least only a tiny amount, despite some of the conversations I’ve been apart of. Tech growth is having a bigger impact in San Francisco and Silicon Valley as Tech Crunch’s Kim-Main Cutler has written, and to which she spoke at Metro’s housing panel the other week. However that’s due to high-tech being a much bigger industry in the Bay Area than it is here in Portland and Oregon more broadly. Even as Oregon high-tech job growth has been solid in recent years, in Portland it accounts for about 10% of all jobs and 8.5% of the growth from 2012 through 2015. Which brings us to the Graph of the Week, which compares hardware and software high-tech growth across different counties.


This is made possible by our friends over at Employment Department (thanks Beth and Ken) who provided us with the detailed industry data that depict these underlying trends, which largely continues with our previous work and look at Oregon high-tech. A similar graph was included in Mike’s Oregonian article, but due to deadlines and the just released data, this graph includes three more months of data; however the big story remains the same of course.

While Washington County has long been the home of the state’s high-tech sector, and remains the county with the largest tech employment count today, that balance has been shifting somewhat in recent years. Nearly half of all high-tech jobs added in recent years have occurred in Multnomah County (about 3,100 of the 6,600). This is due to the shift in growth within the high-tech sector from Oregon’s traditional advantage in hardware (particularly manufacturing) to software more broadly. Overall, our office’s take on the industry and outlook follows our previous work:

However it is important to think about what types of technology we actually have here in Oregon, compared with what other sub-sectors are concentrated more heavily in other locations. For example, we know that Oregon has a higher concentration of manufacturing high-technology with the presence of Tektronix (more historically) and Intel (more recently), and the like.

The strong growth in recent years, both nationally and here in Oregon, is dominated by the software side of the industry. Hardware is largely holding steady, but not likely to grow employment significantly in the future.

Our office is working with the other friends at the Department of Revenue to conduct some more high-tech research, which will hopefully be available in the near future. Also, ahead of my talk to the home builders, there will be a bit more on housing as well. However the intersection of these two topics is somewhat limited here in Oregon just due to the industry’s size. Furthermore, as detailed previously, laying the blame for higher housing costs at the feet of Californians, tech-related or not, is incomplete and a bit misguided.

Posted by: Josh Lehner | October 12, 2015

Is 2015 Peak Renter?

There have been at least three primary drivers of the massive shift toward renting in the past decade: finances, demographics, and taste and preferences. Much of the discussion surrounding this overall shift has focuses on the finance issues — foreclosures, credit availability, ability to afford, lack of down payment, etc — and with good reason as this is the most visible aspect of the housing bust and impact of the Great Recession. However given the ongoing strength in multifamily housing today, key questions are being asked. Among them: how long can it last and how much, if at all, will ownership rebound in the future? In other words, when will the housing market hit peak renter? To answer, let’s examine those three underlying drivers.

First, financial issues will continue to improve. Credit availability will loosen further (it has along some dimensions like down payments, yet not on FICO scores). Household balance sheets are largely in good to great shape. Strong economic growth, especially in the largest cities, is generating increased household formation, particularly among the higher income brackets. All of this suggests the market is, or will likely be, shifting toward ownership.

Second, demographics have played a really large role to date, yet flown under the radar. This is likely due to the fact demographics are slow moving and primarily deterministic. It is nearly impossible to alter demographics in the near-term. To illustrate this impact, the graphs below show Portland MSA’s population and renter share by age.

The vast majority of 20-somethings rent, however ownership basically increases from about 25 years old through roughly 50 or 60 years old. This is true even in recent years following the massive shift into rental. Increased homeownership is one reason why our office refers to 25-35 being the root setting years. In fact, age 35 in Portland is the point where half of the population rents and half owns. Rental rates don’t increase again until 80+ years old — Boomers will hit this en masse in about 15 years.

Demog15 Demog25

The big bulge of Millennials are impacting the multifamily rental market today. However in a decade, they will be 25-45 years old, with the highest number in their mid-30s. Such demographic shifts indicate there will be ownership increases as the Millennials age.

These demographic trends are also something Bill McBride (aka Calculated Risk) has been researching. In fact, Bill was on Bloomberg TV’s “What’d You Miss?” on Friday talking specifically about demographics and housing (video here, starts at the 41:40 mark, ends at 45:10). Bill even used the above graphs and discussed the Portland market and demographics a bit. Pretty cool to see Bill on TV and using our graphs!

Now, what is interesting here is determining what the demographic impact on the housing market will be moving forward. Below, I fix the rental shares by age and run our office’s demographic outlook for Portland through, thus producing a demographic-based projection for rental vs ownership.PeakRenter15

Under the baseline projection, demographics do suggest the market is somewhere near peak renter in Portland. Bill’s work indicates it may be another few years for the U.S. as a whole. However, even as both finances and demographics point toward more ownership, we have yet to discuss the third major driver into rentals today: tastes and preferences. This is the wild card and hard to gauge or measure for future trends.

To what extent will residents permanently shift into multifamily? This is where the gray line above comes into play. I am using San Francisco rental trends as a placeholder and even then only going halfway to their rental rates. In the coming decade or two it is unlikely Portland could move all the way to SF rates, however we could move part of the way. The reason being, as Joe Cortright, from City Observatory, says, we have a shortage of cities today, particularly in the urban core of major metropolitan areas. Thus, even as demographics and finances suggest the housing market is fundamentally near peak renter, it is easy to see how the taste and preferences of residents can keep the share high, if not higher.

All that said, our office remains skeptical that all of the shift into rental is permanent, even from a taste or preference stand point. When the Millennials do settle down, get married, have a couple of kids — at a later age than previous generations — we know single family with good schools looks a lot more attractive. Even so, it does look like most of the increase in rentals is likely to be permanent, particularly in light of the fact that no economist or housing expect I know is predicting a return to the pattern of development and growth seen during much of the past few decades. Even within the renter/owner calculus, as Bill talked about on TV, condos are likely to grow, which are, obviously, both owner and multifamily. Combine this with the possibility that retiring Boomers will actually want to downsize and live in the urban core (I think this is still an open question, not a done deal) and the outlook for multifamily remains strong.

Overall, the biggest takeaway I have from this work, is that in growing, popular areas like Portland, even if the market shifts back toward ownership somewhat, overall demand will increase for both. This is simply due to overall population growth. There will be more of all ages, and preferences a decade from now, look back at those first two graphs. Given this post’s title, I’ll give Bill the final word:

This doesn’t mean 2015 is “peak renter”.  But this does suggest growth will slow for multi-family, but not a sharp decline.


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