According to Bloomberg news (see the article here) builders across the country are buying older, smaller single-family residences on large lots, demolishing them, and building a newer larger house on the property.
Closer to home I am hearing anecdotal reports of this practice beginning to happen in some of Portland’s closer in neighborhoods. This trend appears to be driven by the desire to be as close as possible to the urban core yet still live in a nice single-family residence. I see this practice becoming more common as traffic congestion increases in the Portland area and commute times to the suburbs continue to grow.
After hearing anecdotal stories of Silicon Valley middle level executives unable to afford housing that would be reasonably available to them in almost any other part of the country, this article from CNBC comes along (See article here). This article seems to confirm the stories I have been hearing from other real estate agents as well as prospects I have had the opportunity to talk with from the Bay Area. Add to this congestion, taxation, and water shortages and the story becomes more compelling.
As the Portland/Vancouver market is rather small, it would not take much in-migration to make a considerable difference to our current real estate values, especially when one considers the effect of urban growth boundaries on land prices when population growth occurs. If the trends described in this article are true, we could be in for a sustained run-up in real estate values in all product types in our market. Portland already has a reputation as a great place to live and has been attractive for highly educated younger people to migrate for years. Having a solid population of residents educated and skilled in science, technology, engineering, and math (STEM) makes this area attractive to both technology companies and entrapreuners looking to start technology based companies. This could be quite a ride!
In the close in Portland, OR Apartment Market, 3 bedroom units have a significantly higher vacancy factor than two or one bedroom units. In recent market statistics from CoStar for the north and northeast Portland Apartment Market, for properties 2 to 10 units in size, vacancy for 3 bedroom units was over 10%, as compared to two bedroom at just under 8%. Contrasting that, one bedrooms are just under 4% vacancy, with studios just under 3%. This was based on a survey of 691 multifamily properties in the close in north and north east part of the City.
While there has always been a spread in vacancy by number of bedrooms (more bedrooms, higher vacancy historically), the spread for three bedrooms increased noticeably around the end of 2011 to the beginning of 2012 over all the other size categories (2 bedrooms, one bedrooms, and studios). This seems to be particularly true the closer into the Portland Downtown Core that you get.
This correlates with a report from Todd Clarke, CCIM with New Mexico Apartment Advisors about the millennial generation and housing. In the report, millennials tend to want to live alone, as close to the urban core as they can get, and appreciate the forced simplicity of living in smaller spaces, and they prefer to rent rather than own. The want to own fewer “things”, and have more experiences of life. As the millennial generation (age 19-37) is actually larger than the baby boomers, they will have a major effect on all types of real estate demand in this country going forward. As a result some multifamily developers are starting to drop or severely reduce 3 bedroom apartments from their unit mix.