Last week, I was a panel member for the YIMBY (Yes In My Back Yard) breakout discussion at the Oregon Leadership Summit. The group overall discussed the lack of supply, the importance of affordability, some regulations, market conditions, public policies and the like. It was a wide-ranging and informative session, if I may say so myself. Today I want to recap a few things, and take another stab at visualizing the importance of housing supply and the role of filtering.

First, I discussed a few of the bigger picture things our office has done, including the significance of affordability for Oregon’s long-run economic growth, the fact that affordability truly is a statewide challenge, the main housing supply constraints holding back construction in recent years, and the importance of household income gains for affordability.

Second, the basis for the whole YIMBY panel is some forthcoming research by ECONorthwest, led by Mike Wilkerson. While our office has done some back-of-the-envelope calculations trying to quantify the underbuilding of housing, Mike and ECONorthwest bring a full-fledged model looking not just at Oregon, but across all states. The upshot of the research is Oregon has probably underbuilt housing even more than we think we have. One result of this work is that for the first time the Oregon Business Plan is incorporating a housing supply/new construction goal. In essence, the newly stated goal is for Oregon to build 30,000 new housing units per year. This calculation is based on our office’s forecast for housing starts (~24,000 per year) plus an additional amount of new construction to make-up the lost ground over time.

Third, just as we know affordability is a statewide challenge, we know the lack of new supply is too. Every region in Oregon is adding jobs and new residents, however we continue to see very low levels of construction – not just relative to the bubble, but prior to that even. This is particularly the case once you get outside of the Portland area.

Fourth, as we discussed previously, housing does filter. New construction is always expensive and always aimed at the upper third or so of the market. That said, over time as housing depreciates, it does become more affordable. This filtering does not happen overnight. It is a long-run process. Filtering is also the major way to provide reasonably priced workforce housing for those making in and around the median family income. There is not nearly enough public money to fund the affordability gap, given the demand is too large, and the costs are too high. Now, there is a role for the public sector to play, particularly for the lowest income households. Don’t get me wrong. Every single unit counts. However, the solution has to mostly be a private market solution. And the linchpin to this process is to continuously add new supply. If you build more housing, you get more filtering.

Finally, what follows is another effort to show how filtering works in the real world. What the charts below show is the current housing stock in the Portland metro based on the recently released 2016 American Community Survey data. The first chart shows the housing stock divided into thirds based on home values or monthly rents*. Then we look at when these units were built by decade. Remember, we segmented by price first, then by decade of construction, not the other way around.

From a big picture perspective, you will see that we have some expensive and some more affordable units from each decade, even if the exact breakdown varies based upon the unit type, geographic location, quality of construction and the like. That said, for today I want to focus just on the least expensive third of the current housing market, or the red portion. Basically, these are apartments that rent for less than $890 per month, and homes valued below $290,000.

The biggest takeaway you see is that the total or absolute number of these more affordable units is pretty evenly distributed across the decades. Yes, there are more of these units from the 1970s and 1990s because Portland built more overall during those decades. However, there are also as many relatively affordable units built in the 2000s as there are from the 1980s and 1960s. This, too, is because the Portland region built more housing in the 2000s. If you look back at the chart above, in the 2000s Portland built nearly a third more housing than in the 1980s, and nearly double what was built in the 1960s. Again, if you build more housing, you get more filtering.

All of that said, the really unsatisfactory part of this work is noticing how little the 2010s production has been to date. Yes, of course, we have yet to see the full decade. However, even with a few more decent years like we have seen lately, the 2010s is on pace to build as many units as we did in the 1980s. And that’s in the Portland area. Across the rest of the state we will surely build fewer units.

While the current lack of supply is a problem today, it will also last a generation, if not longer. The wounds of the Great Recession and housing shortage may heal, but they will remain visible. The reason is that the units that are currently filtering from more expensive to less expensive today are those largely built in the 1990s and 2000s. Fast forward to the 2030s and the small number of units built in the 2010s means there are fewer units to go around, and fewer units to filter then. All of this ties back to the ECONorthwest research and the new business plan goal of not only building enough housing today to meet current demand and population growth, but also trying to build more than that to make up for the shortfall.

* To arrive at the overall housing market thirds, I did segment the market further into single family detached, single family attached, and multifamily for both ownership and rentals. I then added these segments together to get the total.

UPDATE: In a follow-up post, we take a similar look at the North Central Oregon region, Southwest Oregon, and SE Portland.

Addendum: In the comments, I was asked if I could show the single family broken out from the multifamily. Here are the charts for each big segment of the market I looked at. Same general story applies, although the exact specifics of which decade is the largest and which has filtered the most is a bit different. The biggest difference would be the 2000s, where we didn’t build as much multifamily, but we did a good amount of single family (it was the housing boom/bubble, after all).