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Chris Nelson, principal of Capstone Partners, stands in front of the LL Hawkins Building in Slabtown, a Capstone project. Photo: Jason E Kaplan Chris Nelson, principal of Capstone Partners, stands in front of the LL Hawkins Building in Slabtown, a Capstone project.

The pandemic has led to a resurgence of the suburbs as remote workers seek more space. Will offices follow suit?


Tonya Hurt loved everything about her Milwaukie house. Filled with light, surrounded by a big yard and located in a great neighborhood, the home she shared with her husband and two sons lacked just one thing: proximity to her in-laws.

The aging pair would frequently make the 50-minute drive from Beaverton, carefully timing visits to avoid rush-hour traffic. Still, Hurt did not like the idea of the senior couple driving so much.

To cut everyone’s commute, Hurt, a principal broker at Harcourts Real Estate Network Group, moved her family west from one Portland suburb to another. True, the Beaverton area was more expensive, but for Hurt, the historically low mortgage rates made the move affordable.

“When interest rates are lower than inflation, that is a good time to buy,” she says.



Apparently, everyone agrees. Oregon’s housing market is white hot. However, the low mortgage rate is just one log fueling the fire. Unprecedented and unhealthy undersupply — the Portland area had less than a month of inventory in December and Bend’s stock for 2020 is down 35.7% to just 2.7 months — is also hiking prices way up as multiple buyers compete for the same home.

One real estate broker says she recently saw 20 offers for one single house in the Portland area.

The conditions leading to this shortage were set in place well before today. Born from the unintentional consequence of adopting the Urban Growth Boundary to reduce sprawl, a shake-out of midsize, mom-and-pop builders during the Great Recession, and policymakers slow to respond to population growth, Oregon now finds itself “49th in the United States for housing underproduction,” according to a presentation by Lorelei Juntunen, partner and vice president of operations at ECONorthwest.

Add in realities of COVID-19, where the well-heeled seek out bigger lots and more square footage to ease their work-from-home lifestyle, and you have a runaway residential market pushing prices higher and buyers out to the suburbs, exurbs, and “Zoom Towns” like Bend, Cannon Beach and Hood River.

If they can afford it.



On the flip side, Oregon’s commercial market — office buildings, retail, hospitality and the like — has cooled way down. That makes sense as pandemic restrictions continue to hamstring commercial activity all over the country.

But Portland, thanks to the self-perpetuating cycle of nightly protests, boarded-up businesses and sensational news coverage, is taking it especially hard on the chin.

The result sees the city slipping from favor. The PricewaterhouseCoopers/Urban Land Institute Emerging Trends in Real Estate series rated Portland 66th out of 80 markets for real estate investment. This represents a big drop from a high of third in 2017. A recent Forbes article, sensationally titled “Death of a City: The Portland Story?” piled on.

Meanwhile, downtown-business insurance rates are skyrocketing, and most downtown Portland business owners no longer feel the city is clean and safe, according to a survey by the now-ironically named enhanced services provider, Downtown Portland Clean & Safe.

It has people wondering if the bloom is off the Rose City.



“Portland was probably overrated when it was at its peak,” muses Chris Nelson, principal at Capstone Partners and Urban Land Institute Northwest chair, citing investments from outside developers drawn by the city’s growing popularity.

He points to a more nuanced look in the Urban Land Institute’s report that finds local developers and investors remaining a bit more bullish on Portland’s prospects.

Still, Nelson and others acknowledge that downtowns are hurting.

“The most difficult sale we have right now is the condo, where the city is your living room,” says Lake Oswego-based Drew Coleman, of Hasson Company and president of Oregon Realtors. “People are looking for suburban or rural locations while the desire for city dwelling has plummeted.”

Coleman also confirms that people are traveling farther and farther afield. “Buyers who were happy with commuting 20 minutes a day, five days a week, are now willing to drive 40 minutes to chase more square footage and a better price.”



But that does not translate to lower home prices in Portland proper. Realtor.com reports a December 2020 median home price of $500,000, trending up 11.1% year-over-year.

That puts home ownership out of reach for many but not all.

For the Edingtons, Portland was a bargain. This pair of East Coast retirees wanted to move closer to their two adult daughters, one who lives in West Texas and the other in San Diego.

The pair considered Southern California — after all, it certainly had climate and proximity to grandkids going for it. But they eventually settled on a three-level, 1931 home in Portland’s Eastmoreland neighborhood.

0321 edingtonsFor William and Pamela Edington, retirees from the East Coast, the Portland housing market was a bargain compared with Southern California. Photo: Jason E. Kaplan

“Portland provides an urban experience as opposed to Sun City,” says William Edington, a former college administrator, speaking about a car-centric area outside of San Diego. The couple were thinking ahead to a time when driving becomes a barrier to getting around. “We were impressed by Portland’s web of trollies, light rail and buses.”

Price was also a big driver.

“Compared to Southern California, this was almost giving it away,” says Pamela Edington, who recently retired from her job as president of Dutchess Community College in Poughkeepsie, New York. “Still, I was surprised by how expensive Portland had become.”



When Gov. Tom McCall created the Urban Growth Boundary in 1973, his intention was to fight “sagebrush subdivisions, coastal condomania and the ravenous rampages of suburbia,” or to put it more directly, sprawl. The groundbreaking legislation, requiring cities to reserve a 20-year supply of land, has been very successful at preserving forests and farmland.

But times have changed.

Oregon’s years of surging population growth put massive strain on the region’s already tight housing stock. Land prices remain high, “artificially constrained by the Urban Growth Boundary,” according to Coleman.

Housing starts are at historic lows and medium-sized developers, which could help pick up the slack, were forced into bankruptcy during the subprime lending bubble and never came back.

Two recently passed House bills may change this narrative. HB2001 allows the building of duplexes, triplexes, fourplexes, cottage clusters and townhouses in areas where detached, single-family homes are the rule. (That rule, by the way, is the direct result of racist redlining policies designed to ensure segregation between the wealthy and poor.)



HB 2003 goes even further. The goal is to counter the state’s underproduction crisis and “publicly finance more affordable housing across Oregon, create more housing choice in exclusively single-family neighborhoods and smooth the way for more construction at the local level,” according to a presentation by ECONorthwest’s Juntunen.

The bill requires medium and large cities to analyze what housing is needed for current and future residents every six to eight years. Cities must also adopt a housing-production strategy that lists specific actions to ease the crunch.

Even with these tools, digging out of the housing hole will be challenging at best.

Juntunen’s analysis found a need for between 145,000 and 195,000 units over the next five years — between 30,000 and 40,000 annually. That represents a large lift considering the region averaged only 20,000 units a year over the past five years.

Not meeting the challenge will further constrain the market, squeezing homeowners and renters alike. Some 33% of all Oregon households are already “cost burdened, meaning they spend more than 30% of their income on housing,” reports Juntunen.

That number grows depending on location. The Ford Foundation reports that a whopping 49% of coastal households are cost burdened.



Oregon must find a way to build itself out of its housing crisis. But commercial real estate is another story. “The combination of business closures, less foot traffic, and demand for office space points toward less new construction activity in the years ahead,” writes Josh Lehner from the Oregon Office of Economic Analysis. 

The effects of COVID-19 restrictions, particularly the rise of work from home, is being felt right now. A recent report from JLL Capital Markets finds office-vacancy rates jumping to a near-Great-Recession high of about 15%. At the same time, rents are dropping and subleases continue to flood the market.

Even the Westside suburbs, “a bright spot in the Portland market,” according to the report, have taken a hit as both Nike and Comcast drop large amounts of office space.

Yet at the same time, others are doubling down on the suburbs. Six of Portland’s premier restaurants are teaming together to build a restaurant complex in Lake Oswego’s Mercato Grove. Part of a large development that includes apartment housing and retail, their goal is to make the space as COVID-proof as possible.

It looks like the suburbs have caught up with cities when it comes to desirability and amenities. Will the offices follow suit post-pandemic?

Experts like Nelson think so. As an example he points to REI. The outdoor retailer was set to move into its brand-new, 8-acre corporate campus in Bellevue, Wash., last summer. Instead, it sold the property to Facebook and plans to have workers flex between working remotely and coming into one of three smaller satellite offices dotting the Seattle suburbs.

“There are lots of reasons businesses may move out of the central-
city core,” he says. “COVID just amplified them.”



Nobody really knows what the future of work will look like. Offices will still be crucial for meetings, hosting clients and maintaining company culture. Yet working from home, at least for a couple of days a week, is not going away.

Most predict that this hybrid approach will become the norm. Housing statistics show that homebuyers are already on board.

Lawrence Yun, chief economist and senior vice president of research at the National Association of REALTORS®, presented survey results that showed only 13% of homebuyers are interested in urban/central-city areas. “That number should be 33%,” he explained during the Oregon Housing Economic Summit.

Interest in resort communities, on the other hand, is rising to 13%. “That is usually less than 10%,” Yun says.

Bend and Hood River are already seeing this rush. “[These] popular, scenic areas have experienced an even greater influx of demand,” writes the Oregon Office of Economic Analysis’ Lehner. “Zoom Towns appear to be real, and pandemic-related migration looks to be doubling down on existing patterns of growth.”



But not all of the state’s popular, scenic areas are equal.

The tiny town of Maupin in Wasco County, for instance, is still waiting for its big rush. It invested in 1-gigabit-per-second, high-speed internet back in mid-2019 specifically to entice river-loving telecommuters to work, live and play on the Deschutes River. Success has been moderate so far.

“I lost sales before because the old internet choice was not high speed or secure enough,” says Ellie Webb-Timinsky, Oregon broker at Columbia River Properties. When pandemic restrictions hit, she braced for a flood of buyers ready to turn Maupin into the next Zoom Town.

But that flood never came.

“I’ve been advertising that there is plenty of sun, fresh air and room to distance,” she says. Webb-Timinsky reports that sales over the past year are up, 11 homes sold over the past 12 months compared with seven the year before. But she is clearly underwhelmed. “Maupin is still relatively quiet compared to the rest of the crazy real estate market.”

So what is holding Maupin back, with its $2 million internet infrastructure and improved downtown and civic center?

Proximity surely plays a role, but at less than two hours from Portland, it is a closer commute than Bend. When it comes to services and amenities, however, Maupin, with its one small grocery and handful of restaurants and shops, cannot compete.

“That is the story of Maupin. There is not much here, and it is taking its time to move ahead,” says Rob Miles. Miles owns the Imperial River Company, which includes a lodge, bar and restaurant along with offering guided rafting trips.

He also bought two spec houses in 2018 that sat empty until this year. One sold outright. The other is rented to two telecommuters who moved from Hays, Kansas.

0321 robmilesRob Miles in the Maupin subdivision where he built two homes  Photo: Jason E. Kaplan

Miles wishes more for Maupin, a “little gem tucked off in the corner, so close to everything but still out of people’s minds.” But some locals get protective when talking about the city’s growth potential.

“People say they don’t want Maupin to become Sisters or Hood River or Cannon Beach, and I just shake my head and roll my eyes,” says Miles. “We do not allow vacation rentals, and we are 100 years from becoming Cannon Beach.”

Meanwhile, Maupin and the rest of Oregon waits to see what the future brings. Some problems like low housing inventory will persist. Even Maupin is constrained “with only three homes presently on the market,” according to Webb-Timinsky.

Other problems, like Portland’s public relations trauma, may turn around or get worse.



Still, Capstone Partners’ Nelson remains optimistic. He is clear-eyed about the effort needed from politicians, the private sector and other stakeholders to swing the pendulum back.

He also worries about the small, independent operators of restaurants, gyms and bars that are fighting to stay afloat. But in Nelson’s mind, innovation and new concepts are coming.

“Portland’s best days are ahead,” he says.


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