Homes on Tierra Drives Northeast on Wednesday, Jan. 12, 2022. (Amanda Loman/Salem Reporter)
Homes in Salem have become increasingly pricey, and renters are having a hard time finding available units with local vacancy rates below both Portland and national averages.
A shortage of both homes for sale and available rentals are driving a local housing crunch, analysts said during an annual economic forum Wednesday at the Salem Convention Center, put on by SVN Commercial Advisors, a local commercial real estate advisory firm.
The Salem metro area’s rental vacancy rate at the end of 2021 was just 2.5%, said Katherine Powell Banz, a real estate appraiser, who presented data on multifamily housing.
That data, from commercial analytics firm CoStar, takes into account the region’s roughly 33,000 apartments and rentals in buildings with 10 or more units. Of those, 1,171 units are currently under construction.
That means as soon as rentals become available, they’re being snatched up. Some buildings are fully leased as soon as construction is complete.
“These units are flying off the shelves as soon as they're done,” Powell Banz said.
The pace of new apartment construction has accelerated over the past two years, with 2,549 new units added. Those developments account for 57% of all new rental units added locally in the past decade, but still haven't been enough to meet demand.
Vacancies hit a 10-year low during the second quarter of 2021 at 2.34%, Powell Banz said.
And while the Salem area’s average rent remains below Corvallis, Eugene, Bend and Portland, rents are rising more quickly. At the end of 2021, the average one-bedroom apartment rented for $1,103 per month, and a two-bedroom for $1,219 per month.
Powell Banz said the rental market is seeing several impacts from the pandemic. Demand for larger two- and three-bedroom apartments has increased relative to studios and one-bedrooms because more people are working from home and are seeking extra space.
Data presented by Salem real estate appraiser Katherine Powell Banz at the 2022 SVN Economic Forum shows more new construction of apartments in Salem in recent years.
Other pandemic factors are helping keep vacancy rates low, she said.
“With the eviction moratorium in place, that has helped people who may have otherwise needed to move or find alternative paths and actions. It did help them stay in their apartments. Increased single family home prices have also kept a lot of people who would maybe be first time homebuyers (from purchasing a home),” Powell Banz said.
New home construction in the Salem area hasn’t kept pace with demand, resulting in high prices, said Mike Erdmann, chief executive officer of the Home Builders Association of Marion & Polk Counties.
The average price of a new home in the Salem area last year was about $428,000, up 13% from 2020.
“The inventory really is at record lows, right about a three-to-four-week supply of new homes in the (multiple listing service) and it's something that has been scraping bottom for a couple of years,” Erdmann said. A typical market has about six months of inventory, he said. “So this is very much a seller's market - very good for home builders of course, but it's not good necessarily in pricing.”
In the past decade, he said Salem has gone from being one of the more affordable housing markets in the U.S. to among the least, as home prices have risen far more quickly than median income.
A decade ago, Salem was in the top quarter of the nation’s 238 housing markets for affordability. Now, Erdmann said Salem ranks 213 out of 238. That’s worse than Portland’s ranking of 189th, because while homes cost more in Portland, the city also has a higher median income.
In Marion and Polk counties, 688 permits for new homes were issued in 2021, about the same as the 691 issued in 2020. But Salem saw a sharp decline in the past year - just 418 permits were issued in 2021 compared to 523 in 2020.
Erdmann said a lack of available building lots is the main factor.
Building affordable homes is a challenge when remaining lots, typically in south and west Salem, often cost $150,000 to $175,000.
Escalating costs for building materials is also driving rises in home prices, though that’s not unique to Salem. Erdmann said lumber cost increases alone added about $36,000 to the cost of building a new home last year.
“When you look towards the latter part of the year and especially in the fourth quarter, we are really starting to see new construction pricing go up much more significantly,” Erdmann said.
Contact reporter Rachel Alexander: [email protected] or 503-575-1241.
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