During the residential construction boom of the last decade, new homes have become less affordable to folks who work locally, especially those in service-sector jobs such as restaurants, education, health care or housekeeping. Several nonprofits specialize in building homes for buyers with documented income limits. As well, many builders are selling homes at market rates (typically $350,000 or higher). However, few builders cater to the middle income range of hopeful homeowners: those who either don’t meet strict income limits or are priced out of market-rate housing.
The reality is that the economics no longer allow developers in downtown Portland to profitably build traditional housing for the middle sector. Land prices on the peninsula continue to rise; a multi-unit housing project may cost over $50,000 per unit of buildable land. Just as challenging has been the steep increase in construction costs, spiking to about $200 per square foot. When accounting for “soft” costs such as engineering, permitting, legal, financing and design, and discounting the common area space of a multi-unit building (which is not part of the sales calculation), a typical 1,000-square-foot condominium could now cost a builder well over $350,000.
In other words, if there is a profit to be made after the brokerage commission, developers often need to sell units for more than $400,000. The bottom line is that traditional-sized downtown condos are now financially out of reach of most service employees.
If we are to continue to be an economically diverse small city, we need to look at nontraditional solutions.
The obvious response is to seek federal, state and local subsidies. In fact, the city of Portland has made tremendous efforts to bridge the disparity between affordable and market-rate housing by assessing fees on developers and creating the Housing Trust Fund.
Another creative solution that has found success in metropolitan areas is micro-housing. Small and efficient units have been the norm in high-density Asian and European cities for decades. Smarter design principles maximizing floor space (e.g., combined kitchen and living space and compact closets), enhanced with high ceilings and oversized windows, create the illusion of greater space. Other amenities like balconies further push out the building envelope, creating semi-private spaces in a small footprint. Using modular furnishings such as fold-out Murphy beds also allows flexible uses for traditionally static spaces.
Using these principles, a well-built, approximately 400-square-foot condo with quality amenities can be profitably sold in the desirable $220,000-$250,000 price range. For cities that have seen an astronomical rise in real estate prices, small size ensures affordability. Simple math dictates that a condominium half the size of a traditional unit will sell for significantly less money. If city officials want to ensure that new condos are accessible to homebuyers, incentivizing smaller units is an effective tool.
These units are obviously not for everyone, but they are well suited to downtown areas. There is a marked shift back toward urban living as millennials and retirees seek to live where they work with easy access to recreation, employment and health care. For buyers who struggle to shed enough possessions to comfortably fit in these smaller units, most urban areas like Portland have multiple storage facilities leased on a short- or long-term basis.
With smaller size also come reduced overhead costs (including condo fees), enabling many renters to achieve homeownership and, thus, adding stability to our neighborhoods. A well-insulated 450-square-foot condo should cost no more than $500 annually to heat and cool.
If Portland is serious about addressing the affordable-housing shortage, there needs to be a multifaceted approach, including nontraditional concepts. While subsidies through the Portland Housing Trust Fund are helpful, I would ask city officials and planners to adopt strategies that further encourage small-unit housing. Another important step would be to examine the current inventory of city property that would be appropriate for this type of development.
The soul of every great city can often be found in the demographic diversity of its populace. The livability that has been the hallmark of Portland for many years requires a creative approach as rising housing costs signal a more homogenous city.
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