Posted by: Josh Lehner | November 14, 2019

Housing Remains a Macro Issue

Just a quick reminder that housing supply remains a macroeconomic issue:

  • Residential investment has been a drag on GDP growth in 8 out of the last 10 quarters.
  • Low levels of new construction contribute to rising prices and worsening affordability if incomes don’t keep up.
  • For places like the Pacific Northwest that rely on in-migration to drive long-run economic growth, if young, working-age households cannot afford to move here in the first place, forecasts for private sector revenues and public tax collections need to be lowered.
  • While local policies clearly have impacts, new construction relative to population growth remains quite tame across the country.

Our office has harped on this topic quite a bit over the years but it’s really this last point that is missing at times from the conversation. It is true that national statistics can mask regional differences and we also tend to attribute local statistics to local conditions. However, if we step back and look at new construction, it really has been low everywhere. Or at least low relative to population growth, despite considerable variation in economic conditions and local policies.

This was once again front and center over the holiday weekend as the Los Angeles Times had an article on Boise’s growth, California migrants, and housing affordability. Sound familiar? Do read the piece if you want a bit of navel-gazing. But I think it is important to highlight that Idaho and Boise are experiencing low levels of new construction just like the rest of the Pacific Northwest. Their trends in terms of construction, prices, vacancy rates and the like has really driven home the point to me that housing supply truly is a macro issue.

A more timely look at new construction relative to population gains shows no real encouraging signs of life either.

It’s been a few years, but our office previously dug into some of the commonly cited reasons for the low levels of new construction. I don’t believe that list has really changed. It’s more nuanced than this, but if we trace the logic of industry trends this cycle it goes something like the following. Affordability is worse today because we didn’t build enough units. We didn’t build enough units because there aren’t enough buildable lots. There aren’t enough buildable lots because we haven’t done enough land development to turn raw dirt into buildable lots. We haven’t done enough land development in part because financing remains tighter for these types of loans.

If housing supply is a macro issue (it is) then it makes sense to look for macro policies or levers as key players. Our office’s earlier work, and relying of work from the National Association of Home Builders, shows that the stock of loans for single family builders for acquisition, development, and construction remains quite small. It takes time to turn raw dirt into lots and these are risky loans, their collateral is typically the dirt itself. But this, at least to me, seems to be a key sticking point for housing production.

Notes: This chart is nominal, so in real terms these loans are even smaller. That said this is the stock of these loans and not the flows, which could mask a healthy amount of churn and project financing. Builders turn to other sources of financing if traditional lending is unavailable, so this chart is an undercount of all of this type of activity, but still highlights in important issue.

While housing supply is an macro issue, it does not mean that nothing can be done locally. This past legislative session, Oregon passed 3 main housing-related laws. I have spoken to a few groups about the new policies in recent months and at a very high level they look something like the following.

SB 608 – rent stabilization – is designed to prevent the worst displacement scenarios while also not discouraging new housing supply. HB 2001 – re-legalizing missing middle housing — is designed to encourage or at least allow more housing units on land already inside urban growth boundaries. HB 2003 – regional housing needs analysis — is designed to ensure that housing supply meets the true, regional needs and not focus purely at the city level where we can lose the forest for the trees at times.

Bottom Line: Housing supply is a macroeconomic issue. New construction remains subdued across the country and not just due to local policies, although they certainly matter too. It will take years before we know if new legislation bears fruit, but hopefully over the long run supply will increase relative to the previous status quo. In the big picture, higher levels of new construction would support stronger economic growth today, and better affordability for current residents. In places like the Pacific Northwest, higher levels of new construction would also ensure stronger growth in the future as well.


  1. One of the bullets under HB 2001 is “Existing Infrastructure”. Sounds like a plus, but I wonder. Utilities in single-family areas were engineered for low density. If densification eventually requires utility upgrades, how will SDCs that have been trickling in one unit at a time cover that cost? If landowners are not only adding units but in some cases are doing so by eliminating garages and driveways, will there be enough on-street parking? I am not saying densification is a bad thing, per se, but I think “missing middle” advocates tend to gloss over some of the potential impacts.

    • Take a look at
      for a comprehensive, evidence-based analysis of HB 2001. Whoever wrote this clearly did no due-diligence on the impacts. HB 2001 doesn’t provide housing, it upzones land, leaving development decisions to the market. What could wrong? … A lot!
      Paul Conte

  2. […] Source: Housing Remains a Macro Issue | Oregon Office of Economic Analysis […]

  3. John,

    At the risk of triggering the “No Growthers!”, I need to point out the elephant in the room, at least in Eugene — an Urban Growth Bundary (UGB) that hasn’t been significantly changed, and which was recently reaffirmed based on phony analysis.

    I was on the Eugene Comprehensive Lands Analysis (ECLA) Community Advisory Committee (CAC) in 2009-2010 that was formed in response to HB 3337 (2007). I know my way around numbers; and in the first round of the analysis, I warned the City Planning Division staff and the ECONorthwest consultants that they had major problems with their data and methodology. They blew my warning off and presented a final report to the City Council, whereupon I delivered a review that showed that (if I remember correctly) around 30% of the “new” multi-family dwellings were actually changes in several very large retirement communities addressing scheme from (e.g., 4560-A, 4560-B, etc. to 4560, 4561, etc. Ooops! Council rejected that report and extended the deadline for another 6 months, whereupon the staff and consultants just screwed up again. At that point our now departed City Manager dodged accountability for the debacle by launching “Envision Eugene (EE).

    EE was purportedly a “third-way” that would “bring together the community” and decided the “vision for Eugene.” I won’t recount the miserable process, which resembled the story of “The Emperor’s Clothes” more than anything. But in the end, after some backroom dealing, the final staff recommendation was for substantial UGB expansion for “industrial” land, but minimal expansion for “residential” land. The main “swindle” they used was to overestimate the likely “need” and “production” of multi-family housing. The swindle was masked by some deeply buried, meritless “assumptions” that none of the decision makers or influential “players” wanted to hear about. The recommendation satisfied Eugene “progressives” irrational, “religious” belief in the sanctity of the current UGB, while local developers relied on a promise of a quick reevaluation that would address their desire for more bare land.

    So, as HB 2001 trundles on, Kotek’s staff and others (including Eugene zealots) are shouting that the State has to bring a “hammer” (yes, they used that term a lot) down on Eugene because the City Council had stalled and dodged on providing adequate housing. (Never mind that the equally clueless LCDC gave Eugene and award for “Envision Eugene.”) And so it goes.

    Now, there is solid data available from recent developments here that confirm that HB 2001 isn’t going to result in housing that’s affordable for any household making less than the Area Median Income (AMI). One was the development of 20+ standard lots which had at one time had small older houses. A mega-church bought up all the properties (an entire block) and removed all the houses. (They planned a school.) When the church fell on hard times, they sold the property to a decent, local builder who had 99% ready lots — already platted with all utilities and complete vehicle access. The lots are zoned R-1 (single-family, more or less) and he built one house on each lot, I think around 1,800 s.f. living space and a garage. These sold rapidly for upper $300’s to upper $400’s. So, in a “perfect” situation for walk-on development, the market led this builder to create mid-sized houses at prices well above what an AMI-income household could afford.

    The second case is a set of condos, built by a very community-oriented group, but as a commercial venture. They use a defunct church building and new construction on the church land, for about 14 (I think) condos around 1,400 s.f., and these have sold rapidly in the upper $300’s lower $400’s.

    The conclusion is simply that with a persistent strong demand, any opportunities that HB 2001 opens up will be for dwellings priced to the upper half of the market. There is no “trickle” down from building a relatively small number of these in built-out single-family neighborhoods. There would, however, be a somewhat beneficial market effect if enough of the nice flat land north of Eugene were opened to denser development of both condos and lower-cost, denser, single-family homes.

    Finally, Eugene is surrounded by about ten “commuter” towns that are exempt from HB 2001. Guess where households that want a single-family home, in a single-family development are going to live? So because of the incredible ignorance of the zealots who wrote and supported HB 2001, there’s going to be a huge increase in VMT in the southern Willamette Valley.

    I would love to see OEA do some comprehensive analysis of HB 2001, instead of the simplistic “more housing ==> lower prices” pseudo-analysis that I’ve seen so far.

  4. […] here in the Pacific Northwest the level of residential construction remains historically low relative to in-migration numbers.  The result is that home prices and rents continue to […]

  5. “There aren’t enough buildable lots because we haven’t done enough land development to turn raw dirt into buildable lots. We haven’t done enough land development in part because financing remains tighter for these types of loans.”

    The #1 reason for a lack of raw land is the cities refuse to grow the UGB and interesting that In this entire article not one mention of the urban growth boundary. There is something local municipalities can do about and becuase they have refused for cultural reasons is the main reason for a housing shortage in western Oregon. City of Eugene had an opportunity to grow it but because they used erroneous data in their analysis they gave it pass and instead this year passed a 1% New Construction tax that is nothing more than a welfare distribution program. In fact there is a story last week that the actual population Eugene is 172,000 not $154,000 as the city has published.

    Much of the issues we have in Oregon are result of stubborn cultural principles like being strongly against “urban sprawl.” Newsflash: housing is the cheapest where there is the most sprawl. Fact is Houston Texas is the cheapest housing in the country and has among the loosest zoning laws. Oregon causes a lot of self-inflicted woulds with wrong headed thinking like UGB’s and raising taxes on new homes. Oh and has anyone taken a look at the cost for permits in the city and county levels. $25,000 for a single family home. It’s HIGHWAY ROBBERY! They do it because they can and it drives up the cost building passed on to the buyer.

    Banning SFH zoming is not going to do a damn thing to have any measurable impact on the housing shortage, give me a break. That was tried in Portland and less than 5% of the eligible properties were developed. We need big time organic home growth both SFH and multi-family but we need land to build them on. How about the state has a powwow the impossible idiots who run cities like Eugene and start twisting some arms to grow the UGB? That will have actual impact and improve the quality of life here.

    • Hi Jim,

      Thanks for the comment. I think it’s clear that our state’s unique land use laws increase housing costs over the long run. We have talked about that a few times in previous pieces. We are literally restricting long run supply, and it does push up prices.

      However I do not believe it is a primary driver of housing issues in the past decade. This is because we are seeing similar trends/problems in other locations without similar land use laws. Our laws would be a marginal impact, not a primary impact.

      Additionally UGBs are supposed to have 20 years of land supply in them so short term fluctuations shouldn’t have a big impact. Of course on the ground we know it’s not quite that simple and at times our UGBs may not have a true 20 year supply. That’s a problem.

      Note that our land use laws aren’t purely a housing cost issue. There are other, generally harder-to-measure benefits of UGBs in terms of farm land and being able to drive to an orchard in 10-20 mins or whatnot. These do provide benefits that society values, or at least support via elections. The highest housing costs are a byproduct but not always the only consideration. Your mileage may vary in these cost/benefit discussions of course.

      Finally, what Portland policy are referring to specifically? The residential infill project has been discussed for years but had yet to be passed or adopted by the city so it has not gone into effect. I am unaware of any other specific policy regarding missing middle or single family zoning, but I am not an expert on local zoning. Would love to learn more, thanks!

  6. Jim, you’re dismayed at the 25,000.00 building permit fees but you are off by 50%. For a single family home in Portland the permit fees when combined with impact fees for water, sewer, parks, schools and traffic costs more in the range of 50,000.00 If you are starting with bare dirt the permit and cost to subdivide property into lots adds another 50,000.00. So for a 400,000.00 home 1/4 goes to the various governments. There was a big uptick in apartment buildings in Portland solely because the rules were changed so the property owner did not have to provide for tenant parking. People already living in these areas are suffering because their homes which are required to provide off street parking are being inundated with vehicles from large apartments with no such regulation. I have been involved in land development since the 70’s and we reap what we sow. Elections do have consequences.

  7. […] This received quite a bit of attention. Please see our previous look at how Housing Remains a Macro Issue for more on these trends. They’re not just Oregon-specific. And the Oregon Legislature […]

  8. […] areas with strong economies and a high quality of life. However we also know a key reason is the low levels of supply or lack of new construction. As Tim Duy and I wrote a few years back, expensive cities don’t […]

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