When my colleagues and me talk with rental housing providers in Portland about their investment plans, we often hear the same refrain.
I'll consider anything outside the city of Portland...better still, anything outside Multnomah County.
This statement has been repeated by investors all over the country countless times in the last year. The feedback and concerns are consistent. Investors are reevaluating whether "City that Works", in light of increasing homelessness, crime and government regulations, is a viable option. Many are now deciding that it doesn't.
According to a local 1031 exchange firm, last year only 35 investors accounted for $55 million of the $220 million worth of sales in Portland that came through their office. The same accommodation company saw $435 of the $900 million total sales in Oregon leave via 1031 exchanges. Washington, Florida Arizona and Idaho were the most popular destinations.
Recent Oregon Housing and Community Services research identified the need for 554,000 additional units in Oregon over the next twenty years. Oregon Governor Tina Kotek has proposed a bold public investment that will spur the production 36,000 new homes per year.
Oregon's legislator seems to be more concerned with penalizing landlords than encouraging investment and accelerating production. Oregon's latest rent control measure SB 611 which limits rent increases to 5% plus CPI but not more than 10% in a calendar year, and Ballot Measure 26-232 which will appear on the ballot in May, both of which are giving investors pause.
This is a serious problem, because Portland, in addition to the obvious need for additional housing, also needs to continue investing in its existing housing stock, which is getting older.
Costar reports that Portland has approximately 4,300 apartment blocks, with nearly 130,000 apartments. Of the buildings in Portland, 68 percent of them were constructed before 1980. This means that most of Portland's rental property has plumbing, electrical, and other building systems which are close to or have reached their 50-year-old useful life.
In addition, the cost of utilities, administration, and taxes are on the rise. Our office has seen an annual increase in these costs as high as 9 percent, depending on where a property is located and local levies. Operating an apartment complex efficiently becomes more difficult, especially for small communities that have fewer units with income to share. In Portland, more than 76 percent are apartment buildings with fewer than 30 units.
Consider, for instance, the sale of a seven-unit apartment complex in North Portland, which was sold at the end of last year. The property was in a state of severe disrepair. The property was in a state of severe disrepair.
Rents were 25 percent or more below the market. The previous owner would not have been able to afford the urgently needed capital improvements at the property based on the income. With current interest rates, and proposed legislation in Salem being considered, it is difficult to imagine that a new owner would be able to afford the property.
It's difficult enough to budget for a project of this size in the current market. In a market where legislators dictate the rental housing providers' prices and payments -- such as SB 608, Ballot Measure 26-232, and SB 611 -- investors are forced to question Portland, Oregon as a business location.
Portland is a great city. Portland is a great city because of its access to nature, food culture and open-minded, friendly people.
Unfortunately, many rental housing providers decide that it is not worth the risk.