In fact, the real story might be rather different. The real story might be that in the face of strong demand, tight supply, and rising rents and sales numbers across multiple sectors, developers are not responding very quickly with new supply.
The story is not so much "economy offers a lift," but instead is "supply and demand are stuck in an imbalance and are not adjusting to find the new equilibrium."
The invisible hand may not just be invisible, it's totally absent or broken!
A sign of this might be in the "Industrial" section. There are two paragraphs that from here read like they are in contradiction on supply, the first written from a standpoint of surplus, the second from a standpoint of deficit:
- Portland currently has over two million square feet under construction, or in the development pipeline, largely fueled by institutional developers like ProLogis or Trammel Crow. The valley needs any new construction to absorb immediately to get these developers to consider anything of scale in our market.
- The Market Quick Facts show a sub-market that is out of balance from a supply and demand standpoint. Without new industrial inventory the supply will not exist for local businesses to expand and companies from outside the area have no options to locate within the valley. That also puts upward pressure on the value of existing buildings both for sale and for lease. Asking prices and asking rents will continue to climb until supply and demand are back in balance.
This underscores the suspicion that developers and government business development folks sometimes may be gaming the system!
Maybe it's nothing, but it seems incoherent. It could just be sloppiness, but maybe it's also a dodge, an evasion of the fact we are facing a market failure, and that developers and owners might be "rent-seeking" in an artificially constrained market instead of seeking new rents by building more.
Overall, as commenters have pointed out over the past year, the City's decision to focus on ADUs ("granny flats") in zoning reform means they chose to focus on something too small and feeble to make an aggregate difference in the total supply of housing and the average cost of housing. The solution they chose doesn't scale. It's not useless, but it's dwarfed by the problem.
It is interesting, then - nothing new, but something always to point out - that abstracting real estate as a "product" and an "investment" means that renters are always seen as something from which to extract value, and not as people who have dignity and who deserve basic things like housing and food.
To help offset the imbalance of supply and demand, developers continue to bring new projects to the market. 1,372 multi-family units are in various stages of planning and construction. This includes the recently completed South Block Phase II, seven multi-family projects currently under construction totaling 652 units, and six multi-family projects totaling 657 units in the planning phase with construction anticipated for 2017 (82 units in 2018).Whatever else this is, it is also strong evidence for a market failure.
Salem/Keizer continues to be in catch-up mode. Rent appreciation averaged 19% over the past year, with 2BR/1BTH units capturing the highest increase of 27%. 3BR units followed suit at 23%.
The disparity between median family income and rent appreciation is increasing and will likely prove to be unsustainable over the long term. With rents increasing year over year, renters are beginning to pursue other living arrangements such as moving back home or doubling up...
Despite the affordability gap, opportunity for rent growth remains due to increased population, continued lack of supply, and shortage of readily developable land available for new projects. This is reiterated by the recent redevelopment of previously improved sites and several new and planned projects pending conditional use approvals and/or zone changes prior to development.
Once the developing and planned projects come online, rent appreciation is expected to slow, and vacancy may increase slightly; albeit, not in excess of one to two hundred basis points. This is anticipated to begin in mid-2017 due to the upcoming deliveries such as Keizer Station Apartments (Keizer), Hyacinth Street Apartments (NE Salem), and River Valley Terrace (West Salem).
If interest rates continue to climb, capitalization rates will follow suit, which may lead to a decrease in transactional activity and sales volume in 2017. However, the multi-family property sector is anticipated to remain the darling of commercial real estate investments in the near term.
If demand is high, but conditions are such that it is difficult to increase the supply, then the market is failing to reach a new equilibrium, and it is appropriate for government to intervene.
Office Space and Tax Abatements
a breathless press release the other day:
Advanced Manufacturing and Technology Industry Expands in Salem: Companies Recognize Advantage to Locating in Salem [woo-hoo!!!]Here's a bit from the Forum:
Rents continue to surge forward with the lack of new product hitting the market and little construction on the horizon...With the improving market, concessions have been virtually eliminated in all but the hardest to lease locations in the market.If things are so great, and if private owners do not have to give out concessions, why does the City keep handing out "Enterprise Zone" property tax abatements like a drunken sailor?
The whole thing just doesn't add up. Whatever it is that we are doing for incentives don't seem to be working - they may be unnecessary or they may be targeted at the wrong things.
In the "retail" section, there's a note about a "three-tenant development" between Wilco (the old Safeway) and Roth's, anchored by a Starbucks. There was a demolition permit issued for the old sign shop next to Rock-n-Rodgers, so those pieces look like they fit. The Starbucks probably be another drive-through coffee shack. I wonder if they'll close the one by Fred Meyer, just north of Madrona.
A Final Bit on "Car Housing" vs. Human Housing
Why are we so ready to accept extracting disproportionate wealth from people for human housing, but we are totally unwilling to accept charging tiny fees for car housing?
With rents increasing year over year, renters are beginning to pursue other living arrangements such as moving back home or doubling up.No problem! Nothing to see here.
|Basically, we guarantee free car housing|
We have mandatory inclusive zoning for cars, and we insist on free curbside parking in the public right-of-way, but we condemn people to homelessness regularly.
That doesn't add up either, and is another instance of a broke market that supplies wildly suboptimal outcomes.