Where are the homebuilders?

Cathy Cheney

The Portland suburb of Happy Valley isn’t just one of the busiest for new home construction, it’s also one of the few places where builders are finding available land.

Portland home prices are up 13 percent in the past year and only 14 percentage points separate the current value of local homes from their prerecession peaks, down from 21 at the height of the recession.

You’d think homebuilders would leap into the fray, but for a story in today’s edition of the Portland Business Journal, I found few active homebuilders willing to dream big.

Permit data bears it out. The Census Bureau reports local agencies issued about 5,640 permits for single family homes in the Portland area, 1,600 or so fewer than the 7,277 that need to be constructed on average each year to keep up with a population that Metro estimates will grow by 1 million by 2035.

What’s keeping the market from roaring back?

There are lots of reasons, the key word being “lots”. Developable land is in short supply and prices are on an upswing, putting the squeeze on homebuilders.

And few have forgotten the Great Recession, which laid waste to balance sheets. Coupled with lending issues, it’s no surprise that few are racing to start more than a few dozen homes at a time.

John Mitchell, the well-known local economist, isn’t buying it of course. He notes permit activity is inching up and predicts it will keep rising as both lenders and homebuilders rebuild their capacity to work. In short, Mitchell believes demand will drive supply — classic economics.

But for now, Portland is in a crunch. Demand will continue to outstrip supply for the foreseeable future.

Wendy Culverwell covers real estate, retail and hospitality.