This morning I am presenting some new research that compares the 100 largest MSAs in the country at the Multifamily NW Apartment Report release. The work covers how cities face tradeoffs between economic strength, quality of life and housing affordability. A city can achieve success on two but not all three dimensions at the same time. This represents what I am calling the Housing Trilemma. In advance of releasing all the material, I want to first focus on just the affordability measures.

When discussing Portland’s housing affordability, the most common way is to point out prices in other major West Coast metropolitan areas. For example, according to Census figures, Portland home values are 17% below Seattle, 39% below San Diego and 58% below San Francisco. Monthly rents show similar patterns, albeit with slightly smaller differences. So while many admit Portland’s prices are high, they’re still a bargain compared to these other locales. And this is certainly true, so far as it goes. However, adjusting housing costs by local incomes, something I would argue is a better way to measure it, Portland’s affordability looks considerably lower.

To help put Portland’s housing affordability in perspective, below I detail each of the three housing measures I used in the new research. A quick refresher on box plots, or box and whisker graphs. The box itself shows the middle 50% of all values. In this case it means the middle 50 MSAs, with 25 having lower values than the box and 25 having higher values. The middle line represents the median where half of the MSAs have higher values and half have lower values. The extended lines, or whiskers, show the minimum and maximum values across all 100 MSAs.

Price to Income Ratio

The first metric tries to gauge and compare ownership affordability across metros. Specifically this is the ratio of median home value to median household income. The longstanding rule of thumb for affordability is roughly 3 to 1 ratio. The median across the nation’s largest metros is 3.3. However Portland ranks 15th highest (or 86th lowest), just a notch below our neighbor to the north. Portland is also considerably higher than the box part of the graph, or the middle 50 metros in the country.

Going back to how we typically discuss affordability. Based on the Census figures, 13 MSAs have higher home values than Portland. 12 of those 13 also have higher household incomes. The 1 that does not – Sacramento – trails Portland by $200.

However, comparing Portland to metros with similar income levels reveals a different pattern. 31 MSAs have median household incomes that are +/-10% of Portland’s income. 28 out of these 31 metros have lower home values than Portland.

Cost Burdened Renters

The second metric is the share of rental households that spend 30% of their income on rent, or more. This is the classic measure of being housing cost burdened. It is an imperfect measure, but is also fairly well understood and regularly used. If a household has to spend an outsized share of their income on housing, it leaves less money to pay for everything else. Here, Portland ranks 26th highest. That is, the share of rental households in Portland that spend at least 30% of their incomes on rent is higher than 74 of the 100 largest MSAs in the nation.

The differences may not seem to be large, a couple percentage points, for example. However in practice this represents a lot of households. If, for whatever magical reason, Portland’s share dropped from its current rate to the median 51%, that would mean 10,000 fewer households that were cost burdened. Declining to Seattle’s percentage would mean 17,000 fewer households that were cost burdened.

Vacancy Rate

Portland’s vacancy rate – the share of housing units that are not occupied, after adjusting for second homes and migrant worker housing – is the 5th lowest in the nation. This encompasses both owner and rental properties.

The low vacancy rate gets to the heart of the current market. There are too few units given the strong, and growing demand. In such a market, anything available at a remotely reasonable price and/or location, is gone instantaneously. The lack of supply drives prices higher, everything else equal.

Now, Portland has always had a lower vacancy rate, however the issue is much more pressing today. The region is effectively one year behind in terms of new construction relative to the population gains. A couple years back, Trulia did some work examining vacancy rates across metros. Only 13 of the 100 largest saw their vacancy rates decline from 2000 to 2013. Portland was one of those 13. Nearly everywhere else saw increasing vacancies due to the housing bubble bursting and foreclosure crisis. Portland experienced those as well, of course, however vacancies quickly declined as the economy rebounded and household formation returned.

Your mileage may vary on the specific measures used here. There are myriad alternates available. However, I think these three metrics do a good job of summarizing both housing affordability and comparing metropolitan areas across the country. The full Housing Trilemma work will be out soon, where you can pick any of the 100 MSAs and see how they compare across economic strength, quality of life and housing affordability.