What to know about Salem’s housing, rental markets in 2024

Salem remains in an apartment building boom, but high costs and interest rates are slowing construction of new homes.

And despite new construction, most apartments and houses remain unaffordable for the majority of Salemites.

Those are among the takeaways from the annual SVN Economic Forum, held at the Salem Convention Center Feb. 23.

The annual event brings hundreds of Salem businesspeople and leaders together to hear from local business analysts and advisors about trends driving local property, agricultural and housing markets.

Here’s a look at the key developments in Salem’s housing market.

Rent increases have slowed after big jumps in recent years

Salemites renting apartments are paying 22% more in rent now than they were five years ago.

The average apartment in the Salem metro area, which includes Marion and Polk counties, now has an asking rent of $1,371, according to Katherine Powell Banz, appraiser with Powell Banz Valuation. Two-bedroom apartments make up over half the total units.

But after years of rapid growth, rent increases slowed in 2023. Rent rose just 1.8% on average across the Salem market.

That coincides with more apartments being built in Salem and a higher vacancy rate. Last year, 6.4% of Salem apartments were vacant, up from just 2.8% in 2021.

Powell Banz says that means more landlords are offering concessions to tenants to fill units

“This has given tenants a bit of breathing room after years of rent growth surpassing wage increases,” she wrote in a summary of her data.

New apartment construction is peaking, with construction costs high

Last year, 1,021 new apartments opened in Marion and Polk counties.

That’s the second-highest total since at least 2014, according to Powell Banz. She looked only at apartment buildings with five or more units, not smaller developments.

At the end of 2023, another 1,290 apartments were under construction in both counties, 704 of them in Salem and Keizer. She expects about 890 to open in 2024, and just 211 to open in 2025.

That’s on the heels of a huge building boom over the past five years, where 4,268 apartments were added to the Salem metro area. One in eight apartments locally was built in the past five years.

But construction costs are high: the average apartment now costs $200,000 to $275,000 to build, Powell Banz said. An affordable unit that receives government subsidies costs more to construct: $295,000 to $365,000.

Those higher costs are due to several factors, including a federal requirement to pay construction workers prevailing wages, more on-site resources for tenants, and higher quality of materials to ensure buildings last.

Most Salemites can’t afford a home

It’s harder for a working family to afford a home in Salem than almost anywhere else in the U.S.

That’s according to the National Association of Homebuilders’ Housing Opportunity Index, which looks at the average cost of houses sold relative to local wages.

At the end of 2023, just 13% of Salem homes were affordable to a family earning Salem’s median wage. Nationally, the figure is about 38%.

It’s a sharp drop from a decade ago, when about three-quarters of Salem homes were affordable.

“Salem has gone from one of the most affordable markets in the country to one of the least affordable in the past 20 years,” wrote Mike Erdmann, CEO of the Home Builders Association of Marion & Polk Counties, in his presentation.

Salem ranks 215th out of 241 cities the association looks at. Portland is more affordable, because while home prices are higher, wages are also higher.

High construction costs, interest rates mean fewer and smaller homes

Construction began on about 1,000 homes in the Salem metro area last year, according to Erdmann. 

That figure includes single-family homes as well as duplexes, triplexes and accessory dwelling units — small freestanding secondary homes that are on the same lot as a larger home.

In Salem, ADUs were 16% of all houses beginning construction, up from less than 4% in 2022.

Home sales are down a third from three years ago, with rising mortgage interest rates making sales harder.

In response, Erdmann said builders are building smaller. The average home sold at the end of 2023 was 130 square feet smaller than at the start of the year.

Salem saw just two applications for new subdivisions last year, one in south Salem near Creekside Golf Club, and one in east Salem at the corner of Cordon Road and Hayesville Drive.

Erdmann said land development is challenging because builders face high borrowing costs and it’s difficult to build homes at a price the average seller can afford to pay.

Correction: This article originally listed the incorrect location for a new subdivision. It is located at the corner of Cordon Road, nor Cordoner Road. Salem Reporter apologizes for the error.

Contact reporter Rachel Alexander: [email protected] or 503-575-1241.

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Rachel Alexander is Salem Reporter’s managing editor. She joined Salem Reporter when it was founded in 2018 and covers city news, education, nonprofits and a little bit of everything else. She’s been a journalist in Oregon and Washington for a decade. Outside of work, she’s a skater and board member with Salem’s Cherry City Roller Derby and can often be found with her nose buried in a book.