Josh Lehner

Husband. Father. Economist. Supporter of Native Oregon Beer.

SW Portland and the Housing Trilemma

Tonight I am giving a presentation to the Hillsdale Neighborhood Association. While it will include some research from my day job, all thoughts and opinions expressed are my own, especially as a Hillsdale resident. Below is a more complete summary of my thoughts and a full set of slides. The actual presentation is a subset of this work.

The Portland region has a strong, vibrant economy and a high quality of life. However, these successes have come at the expense of housing affordability in recent decades. These three factors – economic strength, quality of life, and housing affordability – represent the housing trilemma. A city can have two but not all three at the same time. Tradeoffs are inevitable. That said, Portland’s affordability problems are worse than many other fast-growing and popular metros around the country like Austin, TX and even Seattle, WA. The challenge Portland faces is forging a path forward that increases construction to better match a growing population, while simultaneously avoiding the sprawling outcome of many Sun Belt metros. This is not an easy needle to thread.

In fact, progress to date is at best mixed. The Portland region has underbuilt housing in the past decade relative to population growth. And much of the new construction we have seen has been large apartment buildings in a few select neighborhoods. This pattern of growth leads to scattered pockets of dense construction inside an otherwise dormant region, as BuildZoom’s chief economist Issi Romem described it in a recent analysis. These trends are common across the nation, and Romem’s work finds that Portland is doing a little better than Denver, Seattle, and the typical large metro.

That said, Portland is still seeing a very large increase in neighborhoods (census tracts) with almost no new construction. Since 2000, Romem finds that nearly one-third of the Portland area’s neighborhoods qualify as such. Southwest Portland, of course, is no exception given much of our development occurred in the 1950s through the 1970s. Construction since has been minimal, at least outside of the build-up of the south waterfront area. Given our region’s land use policies and goals, this is problematic, even incompatible. Maybe University of Oregon economic professor Tim Duy is right that the only thing Oregonians hate more than sprawl is density.

SWUnits2016In this context, I think our experience here in Hillsdale may be a useful example. We do have a good housing variety near the Hillsdale Town Center. Within a few blocks there are a few apartment complexes, but also duplexes, 4-plexes, and townhomes. Don’t get me wrong. Detached single family homes are 72% of all housing units in Hillsdale and 69% in SW Portland more broadly, outside of the south waterfront. However, seeing more duplexes and townhomes, the so-called missing middle housing, would go a long way toward reaching our land use goals and accommodating our growing population.

Specifically, the missing middle housing has a number of advantages. First, as City Observatory notes, it is one way to “urbanize low-density neighborhoods without drastically changing the appearance or character of quite, suburban-looking streets that residents of single-family homes often value.” Duplexes and townhomes are human scale density that avoid the sprawling apartment complexes and tall high rises. In fact, our little street in Hillsdale is about half owner-occupied single family homes and half 4-plex or townhome rentals. It’s a great mix and does not detract from our love of the neighborhood in the least. But our crumbling street and lack of sidewalks do…

Second, with a few more residents in the neighborhood, it is more viable to support a walkable commercial district. Here in Hillsdale there have been periodic concerns about the local co-op and potential of losing the grocery store again. More neighbors should mean more successful businesses.

Third, duplexes and townhomes are significantly more affordable, allowing a larger share of the population to live in the neighborhood. This goes for both owners and renters. For example, just a few houses away from our home, one of the region’s best-known builders tore down an old ranch on a double lot. In its place were built two single family homes in the standard infill style these days. The large home sold for $700,000, while the extra-large home sold for just over $800,000. While new construction is almost always expensive and tailored toward the upper middle class and above, these price points ensure only about 10-15% of Portland area households can afford to buy them. This affordability calculation is based on mortgage rates at the time of purchase, plus property taxes and homeowners insurance. The range is due to down payments of 5% or 20%. Overall, very few households can afford to purchase a new detached single family home in close-in neighborhoods.

However, at the same time this was happening, and directly across the street from our home, another builder tore down an old, tiny bungalow in need of repairs. In its place rose two townhomes, or a duplex. Each one is good sized at about 1,750 sq ft with 3 bedrooms and 2.5 bathrooms. Each sold for just over $450,000. Again, new construction is expensive, however this price point is affordable for one-third of Portland area households, a big step up in affordability. Beyond buyers and renters, lower-cost housing at market rates also means nonprofit developers can afford to build more units as well.

Fourth, increased housing options will likely lead to better residential integration as a wider share of the population can afford to live in the neighborhood. Research shows that integration, both economic and racial, is one of the key characteristics of cities with high levels of upward economic mobility. Another key characteristics is high quality public schools, which many of these dormant neighborhoods have as well. Integration leads to better societal and economic outcomes.

Fifth, increased housing options also better allow for current residents to age in place. No longer will empty nesters have to leave the area when the time comes to downsize from their family home. Today, nearly 1 in 6 households in Portland, and in SW, are single person households over the age of 55. A large detached single family home may not be the best option, however if no alternatives are available, people live in their homes longer because they do not wish to move away, losing long-time friends and social connections.

Sixth, increased options in close-in, low-density neighborhoods is also environmentally friendly. Better transit access is key, along with walkable neighborhoods. That said, the benefits also extend to the public sector and public services as maintaining infrastructure is easier and more manageable.

Bottom Line: The Portland metro area remains a very attractive place to live due to its strong economy and high quality of life. The region needs to ensure an adequate supply of new construction to accommodate the ongoing economic and population growth. Allowing for more duplexes and townhomes within existing neighborhoods provides a handful of benefits and opportunities, including being compatible with our unique* land use system’s goals. That said, infill alone is unlikely to meet the region’s needs. Expansion to allow for new single family neighborhoods will be required as well.

Overall, should the region be unable, or unwilling to accommodate the growth, we know the path we will go down. The lack of housing overall leads to worse affordability and ensures displacement will increase. Only higher-income households would be able to afford to move to Portland. Eventually, the lack of new construction and affordability would restrain or even choke of economic and population growth entirely.

* Or pick whichever adjective you prefer

 

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The Dempsey Math

Well, it’s official. Dempsey is a Sounder. Man, that irks me so much. However I was much more pissed off before I heard the numbers. $9 million transfer fee and $8 million per year. Wow. That’s a lot of money. Especially for our league with a salary cap around $3m and top DPs at $2.5m – Landon – or $3.8m – Henry.

As a thought experiment and what-if scenario, I was wondering what it would take in terms of ticket prices at Jeld-Wen Field to pay for something like this. Obviously ticket prices aren’t the only way for the team to recoup the costs, but does make for an interesting and revealing analysis. The top line results?

  • Raise ticket prices 19-22% to recoup the $9m transfer fee over 4 years
  • Raise prices 69-77% to pay for $8m annual wage bill
  • Raise prices 43-48% to pay for $5m annual wage bill (assuming increased sponsorships and merchandise pay for rest)

Now, how did I get these figures? I took the seating map of JWF, season ticket prices and average attendance figures. Finding an approximate distribution of seats within the stadium by price allows us to do the rest. When I did this a few times with a few tweaks here and there I kept coming back to per game ticket sales of between $500,000 and $600,000. I also remember seeing a quote from Paulson about how the Cal FC game cost him about half a million dollars because we lost and therefore did not get to host another Open Cup match. So I think we’re in the ballpark here in terms of ticket sales.

I ran the numbers at different levels of revenue to provide the range of estimates and then also under the three scenarios mentioned above: recouping just the transfer fee, paying the annual wages or paying part of the wages plus assuming more sponsors and merchandise.

What those percentages mean is that for a TA ticket, recouping the transfer fee would amount to +$4 per ticket, or $80 over the 20 game season ticket package. For KeyBank that amounts to $16 per ticket or $320 per season. Over 4 years, these increases would amount to $9m.

Where the math really starts to get ugly is when trying to pay for the annual salary for Deuce. $8m would require tickets to increase in price by 69-77%. A TA ticket would then cost $31 per match, an increase of $13 or $260 over the season. For KeyBank this amounts to +$56 per match, or $1,130 over the season. I don’t know how many Voodoo Donuts you would need to eat at $134 per match, but it’s a lot.

Finally, assuming increased sponsorships and merchandise sales help cover the cost and the team only needs to recoup about $5m in annual wages, results in ticket price increases of somewhere between 43 and 48%. For a TA ticket this is +$8 per match, resulting in a $26 ticket. KeyBank would see increases of about $35 per match.

All of the specifics across all ticket sections are below. Apologies for the small size, click on it for better viewing.

TicketPrices

Now, the question becomes whether or not these increases would be worth it. Seeing one of the best Americans to ever play the game is certainly worth something and I’d gladly pay more. I just don’t know what the fine line is in terms of being able to afford it as a team or not. Gains of 20% or so are likely manageable and with a waiting list like the Timbers have, certainly understandable. Now, trying to recoup both the transfer fee and a majority of the wage bill would likely be a bit too much, in my opinion.

Introductions

Hello,

I am a husband, father, economist and proud supporter of native Oregon beer. I live in Portland, Oregon. My day job consists of tracking down and analyzing data. It’s pretty awesome. I am lucky enough to have found a job that I love. However, there are quite a few items I find interesting that are not appropriate for work. These certainly include some economic items but also thoughts on soccer (Timbers), football (Chiefs), beer and being a new father.

Here’s to a new venture and I hope you like it. To learn more about me click on the About page at the top of the blog. I welcome any and all feedback so please don’t be shy!

Cheers,

Josh