Posted by: Josh Lehner | May 31, 2016

Life Cycle Housing Costs in Oregon

At a recent House Committee on Human Services and Housing, Representative Taylor asked me whether or not the people moving to Oregon, and Portland in particular, can afford to do so? In other words (my words, not hers), do they know what they are getting into regarding housing costs? I hemmed and hawed like any good economist (on one hand…) but her question stayed with me. So I dug into the underlying Census data to answer it the best I could. It turns out that yes, the new young migrant households moving to Portland can afford the rent. Rather, their incomes are effectively the same as the existing young rental households in Portland. Thus the current residents and the new residents can afford, or not afford, the rent to the same degree. (See the addendum at the end for more.)

However, Representative Taylor’s question brings to mind some recent research I’ve been doing regarding generational differences in Oregon. How do employment rates, educational attainment, and the like for the Millennials compare to previous generations in our state? However this research initially began by looking at housing costs over one’s lifetime and then by age cohort. A California version of the graph below sparked this research project. (Also, Joe Cortright at City Observatory has a great primer on lifecyle effects vs generational effects.)

How you read this graph is that each colored line represents an age or birth cohort. These are really 5 year groups, so the 1960 cohort is people born between 1958 and 1962, for example. As you move from left to right, the graph shows the median housing costs as a share of income for rental households across the state. The higher the line the more income is spent on housing.

lifecyclerent14

While it is true that younger households always spend more on housing than those in their prime-working and peak-earning years, the biggest trend that stands out is each successive generation in Oregon spends a larger and larger share of their income on housing. The same is true for homeowners and this is also true in California. This is entirely due to higher housing costs and not due to lower incomes. The typical rental household headed by a 30 year old in 1980 earned $34,000 adjusted for inflation. In 2010 a similar 30 year old rental household earned $34,800. However moving from the green or gray line (Baby Boomers) to the blue line (young Gen Xers and older Millennials) represents an increase of 6 percentage points of income spent on housing (19% to 25%). This translates into the equivalent of $175 per month increase in rents. The gap so far is even larger for the 1990 cohort thus far into their adult lives, although they are also seeing lower incomes since they came of age during the Great Recession and its aftermath.

Again, this is part of a larger research project I’ve been doing that compares and contrasts both life cycle and generational trends in Oregon over the past 40 years. I find it informative to know where we’ve come from in hopes that we can better understand where we are going regarding some of these big, mostly economic trends. In no way, shape, or form is this intended to be pro or anti any generation, even though I know there is quite a bit of that on the internets, hence my disclaimer.

Addendum: Back to Representative Taylor’s question about whether new residents can actually afford to move and live in Oregon. At the hearing I did mention that we get a mix of those using moving van lines which likely have a job and the DIYers with U-Hauls which probably do not. I also talked about how 20- and 30-somethings in Portland have the same employment rates (EPOP) as the typical large metro in the nation. The local economy is able to absorb and integrate the new residents.

However, in looking at the specific data it turns out that new, young rental households in Portland earn the same amount of income as the existing young, rental households. Thus they can all afford, or not afford, housing to the same degree. However, it is true that folks moving from outside of Oregon do have slightly higher incomes, but they also pay slightly higher rents. If it’s not just due to the margin of error, I think there are clear reasons for these patterns.

First on the rent. People who move are subject to the current market rates for housing, while those who do not move are likely in a better spot either location-wise of financially. If the rent and neighborhood are good, or even acceptable, why move until necessary? Second, one key aspect of migration in recent decades is the fact that higher migration rates are associated with higher levels of educational attainment. The influx of migrants always have more schooling, which typically translates into higher incomes. I suspect this differences in the mix of households is the reason for the higher incomes of migrants.

pdxrent14

Note: I used the 2014 ACS 5 year estimates here to get a larger sample size (n=3,999). The 2014 ACS 1 year estimates showed, broadly, the same patterns but the sample size was just 821. When you start decomposing that into out-of-state migrants, the sample shrinks to just 74 individual households with 15 from California. To the extent that the patterns in 2016 differ from 2014, then these results may not hold of course.


Responses

  1. […] lifetime but also across generations or birth cohorts in the state. Previously we looked at how younger generations in Oregon spend more on housing than previous generations did at the same point in their life […]


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