Redfin created a model to determine which properties in the Portland area are most likely to be redeveloped. If all the likely candidates were converted from single-family homes into multi-family dwellings, the number of homes for sale would increase from roughly 8,000 to more than 22,000.
Oregon is coming close to becoming the first state to ban single-family-only zoning in most areas, a move that could potentially add an entire summer’s worth of new listings and nearly triple housing supply in the Portland metro, helping to combat home-price growth.
The bill, which is an attempt to curb price growth and provide more affordable housing options to Oregon residents, would require cities of more than 10,000 to allow duplexes and cities of more than 25,000 to allow triplexes, fourplexes, attached townhomes and “cottage clusters” in areas currently zoned for single-family homes only. The bill also applies to all cities within the Portland metro area, regardless of size. We’re going to look at the impact this could have on the Portland area, where home prices have shot up about 37 percent since the beginning of 2016.
Although housing in the Portland metro is less expensive than it is in places like San Francisco and Seattle, the median sale price is well over the national median of $324,000. One major reason for rising prices in Portland is years of low inventory: Although the number of homes for sale has been rising in the past year as the market has softened, the Portland metro hasn’t had more than three months of housing supply since February 2015. Measured by dividing the total number of homes for sale by the number sold in a given period, months of supply measures how long it would take for housing supply to be bought up at the current pace of sales. Six months of supply is typically considered a balanced market, with any measure below that representing a seller’s market, and values above six months representing a buyer’s market. Eliminating exclusively single-family zoning and allowing for more dense housing is an effective first step toward combating the housing affordability crisis that’s taken hold in many parts of the country, especially high-priced coastal metros.
“Portland has massive amounts of incoming residents, especially from Seattle and the Bay Area, and not enough new homes being built to keep up with demand. The homes that are being built are mostly unaffordable for the typical local,” said local Redfin agent Matt Novak. “Portland’s housing market needs a workable way to increase housing density so new and existing residents can find affordable homes that aren’t too far away from the city center. Adding duplexes, triplexes and townhomes, along with some backyard ADUs (accessory dwelling units), is one way to help keep our city’s housing costs affordable for people who aren’t able to afford spending more than a half-million dollars on a home.”
To examine the potential impact of the single-family zoning ban in the Portland metro, we determined which single-family properties in the area have the most potential for redevelopment, then calculated how many new housing units could be built out of those properties under the new regulations.
Hypothetically, the bill could help create 14,000 new homes—the equivalent of an entire spring’s worth of new listings in the Portland metro, which would nearly triple the available housing supply in the area—if all the new homes were built at the same time.
Here’s the math behind the 14,000 potential new homes:
- There are roughly 500,000 single-family homes in the Portland metro area.
- We created a model to determine which of those properties are most likely to be redeveloped under the new bill. We assumed that an old home on a large property that takes up just a small portion of the total square footage of the property, located in a walkable and transit-friendly neighborhood, is most likely to be redeveloped. Then, we assigned each property a “redevelopment score” of 0 to 100, with 100 having the highest potential for redevelopment.
- Using the criteria above, of Portland’s 500,000 single-family homes, about 7,000 have redevelopment scores of 75 to 100, making them the most likely to be demolished and rebuilt into more dense housing. Of the homes with redevelopment scores of 75 to 100, the average age is 93.6 years, the median size of the home is 810 square feet, the home takes up an average of 13.5% of the lot and the average Walk Score rating is 79, which means most errands can be accomplished on foot.
- The homes that are likely to be redeveloped would be turned from single-family homes into duplexes, triplexes, fourplexes, townhomes or “cottage clusters.” We assumed that on average, one home on a lot with high redevelopment potential will be turned into three homes.
- 7,000 X 3 = 21,000, which is a net gain of 14,000 new homes.
- 14,000 new listings to the Portland metro area is equivalent to the total number of listings added in March, April and May 2019.
- There are currently about 8,000 homes for sale in the Portland metro. If 14,000 new units all came on the market at once, it would nearly triple the total inventory available.
The bill would fully go into effect in 2022 (assuming Governor Kate Brown signs it into law, as she’s expected to). Once it does go into effect, it would likely take years to redevelop even a small portion of the eligible properties into multiple housing units.
Even so, additional housing can help curb price growth, particularly in high-priced coastal areas. In Portland, the typical home is unaffordable to a household earning the median income for the area ($66,657); to afford a median-priced home ($412,000), a household would need to earn a minimum of $76,929 to avoid spending more than 30 percent of their income on housing.
Adding new units would help keep Portland home prices in check and help more residents afford homes. That’s especially true if the units are duplexes, triplexes, townhouses and other multi-family dwellings, as those tend to be less expensive than the single-family homes they’re replacing: The typical two-bedroom home in a two-to-four-unit complex in the Portland metro sells for $264,200, while the typical two-bedroom single-family home in the area sells for a median of $337,418.
“The new units are likely to be located in dense areas close to public transit, which will also help curb other living expenses and add to quality of life for residents who otherwise may only have been able to afford homes with longer commutes,” said Redfin senior economist Taylor Marr. “If the upzoning bill really were to result in 14,000 new units in the metro area over the next few years, price growth will likely be about 2 percent lower than it otherwise would have. So although adding multi-family housing options won’t necessarily reduce home prices in the Portland area, additional supply is an important step toward keeping price growth modest, attracting talent and helping Portland avoid becoming as expensive as nearby regions like Seattle and San Francisco.”
“But while the bill will hopefully create more housing options for a wider range of Portland residents, it could also essentially cancel itself out by making Portland even more attractive to people moving in from other West Coast metros or encouraging people who would have moved away to more affordable inland areas to stay,” Marr continued. “And it’s important to note that builders face three distinct challenges: Land, labor and lumber. This bill helps solve the land challenge, but the government needs to address the other two. Without adding additional support for developers and construction workers–such as tax breaks for building materials or incentives to attract construction workers to the region–developers building these new multi-family units will be competing for resources with those constructing more profitable single-family homes.
Oregon is a national leader in banning single-family-only zoning to help combat the housing affordability crisis. The Minneapolis City Council voted late last year to eliminate exclusively single-family zoning throughout the city, but Oregon is the first place to pass legislation that would extend throughout the entire state.
Published on July 18th, 2019