Plunge in Portland building permits signals major slowdown in housing, office development

The number of new building permits filed in Portland last year plunged by 27%, falling even below the trough of the Great Recession.

A slowdown was already underway before the coronavirus pandemic hit, following a boom in new hotel and office construction in downtown Portland and new regulations on apartment builders. Then COVID-19 hit and protests rocked the downtown core, accelerating the falloff.

“There’s three or four different things that all kind of happened in quick succession as the market was winding down,” said Michael Wilkerson, senior economist with the Portland consulting firm ECONorthwest.

Portland’s Bureau of Development Services has notified 13 employees they will lose their jobs March 1 because of declining permitting revenue. The bureau says it’s holding off on further cuts until spring while it evaluates the market outlook.

A cyclical decline in commercial building permits isn’t a great surprise given the number of new offices and hotels that went up across the city over the last several years, according to Wilkerson. It may take a few years for demand to catch up with the construction boom at the end of the last decade, and the outlook is particularly uncertain as employers evaluate how much remote work will continue after the pandemic.

There was a rush for multifamily construction permits before new affordable housing rules kicked in four years ago. Portland’s “inclusionary zoning” policy requires developers to set aside apartments in large developments for low-income tenants.

Developers raced to get ahead of those rules and that may have created a slowdown in subsequent permitting. Since then, Wilkerson said, the city has adopted limits on rent increases and other tenant protections that could reduce investors’ return on new projects — and their incentive to build new housing.

Multifamily housing permit activity has been in decline for three straight years, but the 43% falloff in 2020 was astonishing. Developers filed to build just 2,000 new units in Portland, the slowest pace in a decade.

If people continue moving to Portland, but new construction remains anemic, increased housing demand will push rents back up. Wilkerson said that could put the city back where it was in the middle of the last decade, with tenants squeezed by sharp rent increases.

Meanwhile, commercial developers are still reacting to last summer’s upheaval downtown. Portland led the national news for weeks as protesters clashed with federal law enforcement dispatched by former President Donald Trump.

The spectacle probably didn’t have a major impact on last year’s permitting slide, according to Wilkerson — projects filing for permits last year were, for the most part, already in the pipeline — but it has added to the uncertainty around for Portland’s recovery.

As Willamette Week reported last month, Portland plunged from one of the most desirable cities for real estate investors to 66th among 80 cities on an index compiled by the Urban Land Institute.

“The reputational damage is what’s going to exacerbate or prolong what we saw unfold in 2020, effectively,” Wilkerson said.

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