A Tale of 3 Cities: Oregon’s housing crisis

By Dave Hunnicutt
Oregon Property Owners Association

Late last month, the Oregon Housing and Community Services agency published its first “State of the State’s Housing” report. The purpose of this report is to inform Oregonians about the state’s progress in addressing our housing crisis.

Before I go any further, I want to emphasize the word “crisis”. We hear this word thrown around a lot in the Legislature – we have a housing crisis, a funding crisis, an education crisis, etc. In Oregon, the word “crisis” gets overused by politicians trying to collect millions of dollars for something or running for office. In other words, it’s often an overused throwaway word, but not when it comes to housing.

This is why the results of OHCS’s study are unsurprising and frankly depressing. Here’s a grim picture of Oregon’s housing crisis as it stands today:

• In 2013, 53% of Oregon households could afford to purchase a home, but today only 29% can buy a home.
• Since 2013, for every $1 that Oregonians’ wages increased, housing prices increased by $7.10.
• Oregon needs 500,000 new housing units in 20 years to begin addressing the housing crisis, but current production levels will result in less than half that amount.
• The renter cost burden has increased by 11% between 2019 and 2022, representing tens of thousands of new households struggling to keep up.
• Oregon ranks third in the nation for people experiencing homelessness, behind only New York and Vermont.
• With homeownership out of reach and rent prices climbing, Oregonians are overwhelmingly facing financial insecurity, eviction, and, ultimately, homelessness.

We’ve written about the root causes of Oregon’s housing crisis many times, and have a YouTube video explaining it, so I’m not going to spend time here breaking down how we got here. Long story short, Oregon has been chronically underbuilding housing for decades, while the demand for housing has continued to skyrocket, which creates a pressure-cooker scenario that drives prices up. On the buyer-side, we have precariously high interest rates, shockingly low wages, and an extremely high cost of living (anyone check the price of childcare lately?), which leaves buyers with very weak purchasing power. Put these two together and you’ve got Oregon’s housing crisis.

There are really two things that need to happen to solve this problem – increase housing supply and increase purchasing power. Like every other state, Oregon relies heavily on the private sector to build housing to meet its supply needs. Whether legislators and agency officials want to admit it or not, the government can never and will never produce the housing numbers needed to meet demand.

The state needs property owners and market-rate builders to solve this problem. Make no mistake, property owners and builders have been telling the Legislature and local governments what is needed to solve the problem. If only they’d listen.

As the story goes, every solution faces significant opposition from anti-growth and environmental groups who favor the creation of tree-root preservation zones over the construction of no-frills affordable duplexes. Or worse, opposition from land preservation activists (who all own their own homes and properties) who stage protests to prevent cities from supplying more housing because it offends their opinion about how the city (that they don’t even live in) should expand.

It should be no surprise that nothing gets done and the problem gets worse. If the legislature truly wants to solve this problem, it just needs to have the courage to do it. At the same time, when the legislature does take positive steps, Oregon cities must step up to help.

Unfortunately, that doesn’t always happen. Hence, the tale of three cities…

It’s best of times in Bend & Hillsboro (sort of).

Last February, after years of attempts, the legislature finally passed a bill to make modest changes to housing production. The bill, Senate Bill 1537, was Governor Kotek’s top housing bill for the 2024 legislative session and had her full backing.

One of the more controversial sections of the Governor’s bill was a section allowing a city to create a one-time expedited urban growth boundary expansion that sidestepped the usual multi-decade long growth process.

The point of the expedited UGB section was simple – allow landowners to bring their land into the UGB now, instead of 20 years from now, in exchange for covenants that require significant portions of the land to be built with moderate-to-low-income housing. This creates a powerful incentive for property owners to agree to cap the price of their land to see some sort of return on their investment in their lifetime. In other words, the bill uses Oregon’s land use dysfunction as a tool to get property owners to voluntarily agree to something they would otherwise balk at doing.

At the same time, providing a quick and easy UGB expansion for affordable housing allows communities to meet their housing needs, and builders to have an affordable land supply to build an affordable product.

Remember, dirt is the base ingredient of a house. If the price for the land is exceedingly high, a builder can’t build an affordable housing product. It’s not complicated.

Dirt prices are exceedingly high when there is so little of it that you can legally build on. The traditional UGB expansion process exacerbates this supply and demand issue by artificially shorting the supply of land zoned for urban housing. At the same time, Oregon law provides no opportunity for rural landowners to move their land inside the UGB.

Similarly, the traditional UGB process is long, risky, and extremely expensive for cities to undertake. SB 1537 solves these issues by giving landowners an incentive to sell low in exchange for expediency on their return, and by allowing cities a unique chance to work collaboratively with property owners and builders to rapidly boost supply.

Understanding the value of SB 1537, two of Oregon’s larger and fastest-growing cities immediately jumped at the chance to take advantage, but only one succeeded.

Bend, one of the fastest-growing cities in the United States (and one of the least-affordable), recognized the value of the bill and immediately set out to add land to their UGB for affordable housing. Earlier this month, the Bend City Council voted to add an additional 100+ acres to the City’s UGB to create housing.

Rather than the typical 5–10-year gridlock resulting from no-growth lawsuits challenging any UGB expansion, Bend expects to have the land developed and ready for occupancy within two years. In the rest of the United States, two years is a weird delay. In Oregon, getting a UGB expansion complete and housing built in two years is an impossibility due to our laws.

On top of the rapid timing (for Oregon standards), as required in the bill, at least 30% of the housing units will be available for Bend’s low-to-moderate income residents. This is a huge win.

The other city, Hillsboro, was equally eager to add land for additional housing. Hillsboro, the real economic engine of Oregon, would have jumped at the chance to add additional housing land to meet residents’ needs. Hillsboro is growing fast and attracting industry. New industry means new people and new housing.

But unfortunately for Hillsboro, a last-minute poison pill added to the legislation by Oregon’s no-growth lobby resulted in Hillsboro being disqualified from the bill.

You might wonder why Hillsboro was disqualified. The reason is because Hillsboro did not have a high enough percentage of its residents who were severely affected by high housing prices to demonstrate that they needed more affordable housing. Tell that to any young person trying to buy a home in town.

In other words, Hillsboro was punished for doing too good a job at working to keep their housing prices low! Unfortunately, punishing a city for doing well is the Oregon way.

While we know that the process of utilizing this bill wasn’t easy, we want to congratulate both city councils for their willingness to help their residents and step up to the plate on meeting their residents’ needs. This is the type of direct and bold action needed to move the needle.

It’s the worst of times in Lake Oswego.

At the other end of the spectrum sits Lake Oswego, which should come as no surprise to anyone. We don’t know whether Lake Oswego would qualify to add additional land to meet the needs of their less-affluent residents because they would never bother to try. In fact, the City signed agreements with their neighboring cities (West Linn and Tualatin) ensuring that it will be nearly impossible to expand to provide lower priced housing. After all, if the city grew and added some lower priced housing, some of the “little people” might move in. Oh no – let the pearl clutching begin!

Instead of trying to make their city more affordable, Lake Oswego went in the opposite direction. Three months after approving plans for a new home and issuing a building permit, city building officials revoked approvals for a new home that was already nearly completed.

What was the offense that caused the city to change its mind? The maximum height of the house at the highest point was 30 feet, 10 ¼ inches, while the City’s maximum home height was 30 feet. Heavens no! That extra 10 inches is going to ruin the ambiance of the City!

But city bureaucrats decided the rules are the rules and demanded that the builder tear off and redesign the roof to ensure that the extra 10 inches were removed. The builder complied, and now the family is suing the City for the additional $158,000 in costs that they suffered as a result of the city deciding to change it’s mind after the fact.

In words of Dickens, “It was the age of wisdom, it was the age of foolishness.”

This kind of silliness is why people get tired of overregulation, whether it’s housing or something else. Unfortunately, it’s acts like this that guarantee that the days of “local control” are probably numbered.

The opinions expressed in this post are those of the author and do not represent the opinions or positions of any party represented by the OPOA Legal Center on any particular matter.