The 5 Myths About Portland Apartments

Myth 1: New apartments are raising the cost of rent.

Apartments don't raise rents. People do. And like Buddhism warned us, they do it the same way that people ruin everything: with desire.

When you curse an apartment building like Burnside 26 for charging $1,336 a month for a studio, you're confusing cause and effect: thinking the developers caused a pricey apartment building by constructing it.

That's so wrong that when we called local economists to ask them about it, three of them laughed at us.

"Force them to remember the economics class they slept through freshman year," says Portland economist Joe Cortright.

Pencils down: What causes the price of anything to go up isn't a new supply, but the strength of demand for a product that's in short supply. Long before developers broke ground on Burnside 26, Portland apartments became extremely hard to find.

Portland housing has been hot for a while. By 2011, this city's rental market was the tightest in the nation.

Last year, the number of apartments available for rent at any given time hit a record low of 2.8 percent, says real-estate brokerage Marcus & Millichap.

With so few units available, tenants have no leverage—landlords can charge more.

"It's like musical chairs," Cortright says. "If you don't add more chairs to the game, people get squeezed out of the game."

If it makes you feel better, you can still blame greedy developers for this

shortage. That's because for most of the past decade, developers weren't building apartments—they were building condos, and taking rental units off the market and selling them as condos.

When the mortgage bubble burst in 2008, people wanted apartments again. So did the newcomers flooding to a city hyped by every publication from The New York Times to Kinfolk magazine. But Portland didn't have many apartments left, and nobody built any new ones during the recession.

Developers have finally started adding new apartments—increasing construction from 518 rental units in 2011 to 4,413 in 2014.

But the population continues to grow, and Portland added 30,500 jobs last year, nearing a 15-year high. So the supply of new apartments still hasn't caught up to the demand of people who want them. (See chart above.)

Until the supply of new apartments jumps way ahead of demand, rents will keep rising.

Myth 2: The rash of home teardowns is destroying affordable housing.

"On average, replacement houses are nearly twice the size of what existed before demolition," wrote Denise Bartelt last August for preservation group Restore Oregon. "Most replacement housing contributes to rising home prices."

But there's one problem with the idea that teardowns are a force in making the city more costly. The numbers show it can't be true.

In the past five years, developers tore down 929 single-family homes, according to the Portland Bureau of Planning and Sustainability.

That's just 0.6 percent of the city's total number of single-family homes, not nearly enough homes to move the needle on rental rates. (See chart in Myth #1, above.)

Developers then built 2,002 new housing units on those cleared lots. Twice as many households now live on the same land.

Don't forget: The battlegrounds over teardowns are some of the city's richest neighborhoods.

"If you look at the median price of a house in Eastmoreland," says Portland State University urban studies professor Ethan Seltzer, "and you claim that tearing one down is reducing affordability, that's patently ridiculous."

Myth 3: Rent control is the answer.

When you get the notice from your landlord that he's hiking your rent $50 a month, you might fire off an angry email to City Hall, demanding somebody make him stop.

You're a private in the wild-eyed, tie-dyed army fighting for rent control.

Maybe you'll win. (Probably not.) But rent control in other cities hasn't changed the reality of rents rising everywhere else. Instead, it creates a bubble in which you can float around while ignoring a wider problem.

"Rent control is an Econ 101-level policy disaster," says Jerry Johnson, who runs the Portland real-estate consulting firm Johnson Economics. "If you happen to get one of the rent-controlled units, good for you. But it's basically a lottery of who wins and who loses."

Sure, maybe you get to protect your lower rent, and the California refugees

fleeing the drought and pestilence of Silicon Valley pay more. But rent control is a trap. Now you have to stay.

Rent control means the only place in your neighborhood you can afford is the one you're already in. That means problems when people change jobs, need to live near a hospital, or simply want to start over.

San Francisco—where the average apartment rents for $2,834 a month—has the nightmare scenario of rent control. Many landlords either evict tenants or keep apartments empty. Roughly one in 12 housing units in San Francisco sit vacant, according to the U.S. Census Bureau. (See chart above.)

"Has that really been effective at solving their problems?" asks Tim Duy, an economics professor at the University of Oregon. "No. You think you're helping people, but you'€™re constraining the stock of affordable housing."€

Myth 4: We can solve the problem by making developers build affordable apartments.

OK, so you're not a narcissist who wants to keep your rent cheap at the expense of everybody else.

But you also want Portland not to become a city only for people who can

afford Apple Watches and Teslas. So the question is, how can government get developers to build affordable housing?

One trendy idea: Force them.

"Development is a not a right, it's a privilege," says Jonathan Ostar, executive director of OPAL Environmental Justice Oregon. "There are many reasons why folks are being priced out of the city. One reason is the inability of Portland to use a tool like inclusionary zoning."

Inclusionary zoning is a policy that requires developers to make a certain percentage of any development affordable to poor and working-class people.

Oregon is one of two states—Texas is the other—that bans cities from mandating inclusionary zoning. State lawmakers are now trying to end that ban.

The policy could work in Portland. Because it ties affordable housing to the

market, it works best in a building boom, like the one we have now. But it's no silver bullet.

In the roughly 500 cities that have tried inclusionary zoning, the policy has proven to be a powerful but complicated tool. Set the rules too lenient and developers wiggle out of building affordable units. Make it too strict and they don't build at all.

"It costs you nothing as a politician," Johnson says. "I can go to a ribbon-cutting and show you the units. But I've basically made everything cost more for the people who didn't win the lottery."

Often, there aren't many units to show. In 2014, Seattle city officials conducted a survey to see how many affordable homes and apartments were built in the previous four years by similarly sized cities, including Portland.

Six of those cities had inclusionary zoning. Portland mostly used taxpayer

financing from urban renewal areas. (See chart above.) None of those

cities produced as many affordable housing units as Portland.

Myth 5: Portland should just stay the same.

Portland was designed to grow up—literally.

The city has limits to how much it can expand—a border around the city that declares where homes must stop to protect farms and forests.

The urban growth boundary is what keeps Portland from sprawling into endless tracts of suburban houses, like Phoenix or Los Angeles.

It also means that when the city gets bigger, it must pack in new people within the existing land, by increasing housing density.

"If you don't let developers build out, they're going to build up," Duy says. "And if you don't let them build up or build out, then prices are going to rise fairly quickly."

Portlanders are proud of the urban growth boundary—until its effects reach their neighborhoods.

In the mid-1980s, Lake Oswego developer Phil Morford bulldozed old houses in Northwest Portland and bulldozed them to erect more than 70 row-house units.

People hated Morford's row houses for the same reason they now loathe fancy apartments: They blamed the new buildings for raising rents and ruining a neighborhood.

The developments also help stop sprawl.

Ted Reid, a planner for regional government Metro, predicts the Portland area will need 200,000 new housing units over the next 20 years. He says if just half those units are single-family houses, the urban growth boundary would need to balloon outward by 4,000 acres every six years. Each time, we'd be adding a city the size of Forest Grove.

Reid says any scenario where Portland doesn't add new apartments would make the city's central neighborhoods astronomically expensive.

"People would continue to move here," he says. "People would continue to have children. You'd create a situation where the city would become unaffordable to all but the very wealthy."

In fact, the policy decision that would most rapidly lower housing costs is changing Portland zoning code to allow more apartments to be constructed in neighborhoods where only single-family homes are allowed.

That's something city planners are doing cautiously. But good luck to the Portland politician who must fight door to door with homeowners when the next neighborhoods start changing: St. Johns, Sellwood and even Lents.

It'll be ugly—unless you learn to love the apartments that are so easy to hate.

[For a testimonial from one of the residents of Burnside 26, click here.]

A Gallery of New Apartment Buildings in Portland

photos by Aaron Mesh

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