regional economic and population forecast october 2016...2015 and at 4.0% for the first quarter of...

Northwest Economic Research Center College of Urban and Public Affairs

Regional Economic and Population Forecast

October 2016

ACKNOWLEDGEMENTS

NERC is based at Portland State University in the

College of Urban and Public Affairs. The Center

focuses on economic research that supports public-

policy decision-making, and relates to issues

important to Oregon and the Portland Metropolitan Area. NERC

serves the public, nonprofit, and private sector community with

high quality, unbiased, and credible economic analysis. Dr. Tom

Potiowsky is the Director of NERC, and also serves as the Chair of

the Department of Economics at Portland State University. Dr.

Jenny H. Liu is NERC’s Assistant Director and Assistant Professor in

the Toulan School of Urban Studies and Planning. Senior

Economists are Mike Paruszkiewicz and Peter Hulseman. Research

support was provided by Emma Willingham and Hieu Nguyen.


March 2016

Northwest Economic Research Center

Portland State University College of Urban and Public Affairs PO Box 751 Portland, OR 97207-0751 503-725-8167 [email protected]

www.pdx.edu/NERC @nercpdx







Cover image source: Joe Mabel [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0/)], via Wikimedia Commons

Table of Contents image source: Joe Mabel [GFDL (http://www.gnu.org/copyleft/fdl.html) or CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0/)], via Wikimedia Commons

Special Thanks to Our Sponsors:

City of Portland

[This page is intentionally left blank]

Regional and Population Forecast—October 2016 Release

Northwest Economic Research Center 1

By Visitor7 (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

Table of Contents

Executive Summary ....................................................................................................................................... 2

Macroeconomic Trends ................................................................................................................................ 3

United States ............................................................................................................................................. 3

Oregon ...................................................................................................................................................... 4

Portland MSA ................................................................................................................................................ 6

County Forecast: Clackamas ....................................................................................................................... 10

County Forecast: Clark ................................................................................................................................ 12

County Forecast: Columbia......................................................................................................................... 14

County Forecast: Multnomah ..................................................................................................................... 16

County Forecast: Skamania ........................................................................................................................ 18

County Forecast: Washington .................................................................................................................... 20

County Forecast: Yamhill ............................................................................................................................ 22

In Focus: Housing Affordability in the Portland MSA ................................................................................. 24

Data Sources ............................................................................................................................................... 27



Executive Summary After more than seven years of fairly strong US economic growth, many parts of the economy slowed considerably in 2016. This is expected-- economists have long anticipated a period of “full employment” for the domestic economy, wherein the labor supply alone constrains hiring and wage growth solidifies. Labor market measures (including the civilian unemployment rate) have plateaued, signaling a conclusion to the economic recovery.

Settling into a pattern of low, steadier growth, consumers continue to lead the expansion. Although consumer sentiment and expenditures slipped earlier in the year, both have rebounded, and job growth in consumer services is expected to outpace other sectors. Supply-side indications are mixed; the most recent data suggests an upswing to offset a troubling inventory spend-down and negative investment and export growth. Federal Reserve policy will be key; the leading expectation is that the central bank will target a modest interest rate hike in December. Real GDP grew at 1.4% in Q2, and the near term national forecasts call for a slight increase into 2017, barring an unexpected macroeconomic shock.

Meanwhile, the Oregon economy has charged ahead, reducing unemployment below the national rate. The state views recent upticks in its unemployment rates as positive signs of worker agency, and income growth has dramatically surpassed the US as a whole since 2014.

As on the national scale, Oregon’s manufacturing sector has lagged in the recovery; notably, layoffs at Intel dented employment growth in durables production. Hiring in the service sectors remains strong, and the outlook is for continued, albeit much slower, job growth. Driven primarily by frenetic activity in the Portland metropolitan region, housing growth has been quite strong. Several very large question marks loom over Q4 and beyond – the potential introduction of a $3 billion gross receipts tax on the sales of certain corporations in the state, the aggressive minimum wage ramp-up, and legislative personnel shakeups all pose risks to the economic status quo.

The Oregonians working and living in the Portland metropolitan statistical area (MSA) steer the state economy, and in recent years, metropolitan growth has been too rapid to be sustainable. While in years since the recession the area added two jobs for every new resident, the middle of 2016 brought rather abrupt changes in several labor markets. Manufacturers shed jobs for the first time in the recovery, and total hiring slowed, even in typically fast-growing industries like leisure and hospitality. There are signs that the Q2 gloom has subsided, with small but positive job gains in August and September. We expect near-term job growth to remain low for manufacturers, steady in the consumer services sectors, and slightly higher in construction (particularly in fast-growing counties). As in the state as a whole, wage and income gains for the Portland MSA should continue in the absence of a major disruption. The proposed policy changes outlined above will arguably have heightened impacts in this area, but increased economic activity provides a buffer.

Once again, housing dominates MSA growth. Home prices increased by double digits over FY 2015-

2016, spurring building activity. Residential construction does not show a clear upward or downward

trend in the near term, and may flatten or pull back in the coming year. After an uncomfortable few

years, rent growth has slowed in many areas, including the urban core. Generally, it appears that the

region is settling into a slower, albeit steadier, economic state.



Macroeconomic Trends On the state and national scales, signs point to a slowing of growth and stabilization on the macroeconomic level, as unemployment hovers around its natural level and the nation continues a decades-long shift towards a service-oriented economy.

United States The US entered its eighth year of economic expansion this past July. Following more rapid growth thru 2014 and the first half of 2015, the last year of growth has considerably slowed. For more than a year national forecasters have marked this period as the point of “full employment” for the domestic economy, where the labor supply constrains hiring and wage growth solidifies. A growing (but by no means overwhelming) number of indicators point to an expected plateau in the 2017 – 2018 time frame.

The evidence for such a transition began earlier this year, as the civilian unemployment rate bottomed out at 4.9 percent, and the broader “U-5” unemployment rate that includes marginally attached workers leveled off at 5.7 percent. Since February, all measures of national unemployment have essentially stayed at these numbers with a basically flat trend. It is noteworthy that the broadest U-6 rate (often called the “true” or “underemployment” rate), that includes people working part-time jobs for economic reasons, remains elevated relative to the pre-recession peak, suggesting that the recovery remains incomplete. Underemployment has featured strongly in recent commentary from the Federal Reserve’s Federal Open Market Committee.

Other macroeconomic indicators point to a steady short-term outlook with a growing set of notable exceptions. Consumers continue to lead the expansion; following a lackluster first quarter, real personal consumption expenditures ticked up to a seasonally-adjusted rate rivaling the highest peaks of the recovery in Q2. The most recent data from the US BEA shows a slight slowdown in wage growth and consumer expenditures in August, but these preliminary estimates are subject to revision. Consumer sentiment and expectations measures have basically stabilized, after more than a year of deterioration.

Business activity has been much more mixed recently. Inflation-adjusted nonresidential investment and export growth both slipped into negative territory in the second half of 2015 and the first quarter of 2016, only to move barely into the black in Q2. Changes in inventory– a reliable business cycle indicator – turned negative in Q2. Inventory spend-downs have almost always been associated with recessions, but they can also be temporary adjustments to better align with sales levels. The more timely Institute of Supply Chain Management (ISM) surveys from September allays some concern; while both manufacturing and non-manufacturing reports suggest that businesses have continued to tighten inventories, new orders have accelerated. Finally, industrial production contracted over the year ending August 2016, with the largest declines related to the Oil Patch, raw materials, and business equipment manufacturing. Recent indications suggest OPEC production cutbacks, which could buoy domestic oil sector activity and reduce its drag on other corners of the US economy. With technology lowering the cost of extracting oil, any increases in price may be met by increased supply of oil resulting in a surviving Oil Patch while keeping this form of energy at a lower cost to businesses.

“Consumers continue to lead the expansion; following a lackluster first quarter, real personal consumption expenditures ticked up to a seasonally-adjusted rate rivaling the highest peaks of the recovery in Q2.”



While geopolitical risks and the economic fortunes of China and Europe may influence the US economy, policy risk is more acute in the current outlook than at any point in recent memory. As uncertainty looms over the next Presidential administration, the Federal Reserve is under the brightest spotlight. At the time of writing, the most recent published Board of Governors minutes reiterate the Fed’s years-old position of “soon, depending on the data”. Comments from Fed members include the possibility that a period of extra-low unemployment could pull up the stubborn slack in the broader labor market and help spur equally stubborn inflation. At this point, there is an overwhelming consensus expectation for a small December rate hike.

On balance, the US economy is currently settling into a long-run growth pattern characterized by relatively small productivity gains and capacity constraints. Real GDP grew at a 1.4% annual pace in Q2, and near-term national forecasts call for a slight uptick over the next year. Barring an unexpected macroeconomic shock, a lumbering status quo should last at least through the opening months of 2017.

Oregon The recession is over, but the rapid-growth stages of recovery may be as well. While still growing, Oregon’s economy is starting to hit the constraints of full employment. With those who are marginally attached to the labor force finding employment and all measures of unemployment tending to fall to previous “full employment” levels, Oregon job growth cannot possibly retain the same rapid rate. While growth in total nonfarm employment grew at average annualized rate above 3.0% for the second half of 2015 and at 4.0% for the first quarter of 2016, the Oregon Office of Economic Analysis (OEA) forecasts growth of between 2.5 and 3.0% for the second half of 2016 and 2017, and a rate barely above 2.0% for the 2018. The behavior of the state unemployment rate is also symptomatic of reaching full employment: the rate fell from 5.1% in January of this year to 4.5 % in May, only to reverse course and rise to 5.5% in September. As the OEA notes, some of this is due to increases in the labor force participation rate, and there may be estimation issues which will be smoothed out in later revisions. However, the fact remains that we should not expect further large drops in the unemployment rate, as we are likely approaching the unemployment rate associated with full employment. While job growth will remain strong (although slower) over the next year, new housing starts are expected to jump up in the latter part of 2016 and through 2017. Underlying strength in income gains now showing across most income classes plus the anticipation of rising mortgage rates may push demand even higher while supply finally reacts to price signals.

Oregon manufacturing employment shrunk in the second quarter of 2016 at an annualized rate of .29%. This decline was largely driven by a loss of 1,000 computer and electronic manufacturing jobs in Washington County, largely due to layoffs at Intel. Declines are not expected to last through the year, and the OEA forecasts modest annual manufacturing job growth of .83% in 2017. Consistent with recent history, the OEA forecasts strong average quarterly annualized growth until the second quarter of 2018 for employment in Professional and Business Services (5.27%), Education and Health Services (2.91%), and Retail Trade (3.41%). After the second quarter of 2018, they expect the labor market to slow down considerably, with total nonfarm employment dropping from an average annualized quarterly rate north of 3% to south of 1.5%.

One benefit to being in the latter stages of a business cycle is that the strong labor market has finally rippled through to income growth. As Figure 3 shows, Oregonians have historically made less than the rest of the nation, but this narrative flipped dramatically in 2014. National income growth was magnified in Oregon as real median household incomes surpassed the pre-recession peak. This unprecedented wage growth indicates a strong economy, as well as one nearing the final stages of the business cycle.



By Sam Beebe (Joseph, Oregon) [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

Figure 3 – Real Median Household Income, Census

While national concerns (such as the stability of export markets or the decline in domestic private investment) certainly weigh on the state’s economic outlook, these risks are not unique to the Oregon economy. In Oregon, contrary to exhibiting signs of recession, economic indicators such as income, employment, housing starts, and labor force participation all describe a growing economy nearing the fabled level of ‘full employment’. Although it is difficult to see where robust growth will come from in the future, there is not much in the data to indicate a faltering Oregon economy. Closer to home, the data is yet to be recorded and economists are having a difficult time forming a consensus on the economic impacts of the newly implemented minimum wage and the proposed gross-receipts tax (Measure 97).

$45,000

$47,000

$49,000

$51,000

$53,000

$55,000

$57,000

$59,000

$61,000

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Oregon United States



Portland MSA Trends at the MSA-level follow those at the state and national levels, with a few notable differences. In general, we expect a slowing of growth across multiple economic drivers, including housing and employment. However, policy changes on the horizon could significantly alter the expected trends.

Employment Like the broader national and state economies, the Portland metropolitan area saw rather abrupt changes to job growth in several industries in the second quarter of 2016. In some cases, the change was much more pronounced for the MSA, when compared to the state. Both seasonally-adjusted durable and nondurable manufacturing employment declined for the first quarter since the depths of the recession, reversing modest upward trends over the previous two years. Of the service industries, financial activities saw the only employment losses, but hiring elsewhere slowed precipitously. Growth in the leisure and hospitality sector, typically among the fastest, fell to less than one third of its average rate over the previous year. Professional and “other” services also slowed significantly.

Figure 4: Total Nonfarm Employment, Historical and Forecast, Portland MSA (thousands)

Figure 5: Portland MSA Unemployment Rate

500

700

900

1100

1300

1500

1990 1995 2000 2005 2010 2015 2020 2025

Recession

Total Nonfarm

0.0

2.0

4.0

6.0

8.0

10.0

12.0

1990 1995 2000 2005 2010 2015

Recession

Unemployment rate



The extent to which a single quarter of rough numbers indicates a wider rough patch for the local labor market is questionable, perhaps because it was so abrupt5. In the first two months of the third quarter, total payroll growth rebounded, and both durable and nondurable manufacturing hiring inched (barely) back into net-positive territory. The recent quarter-long upswing in monthly unemployment numbers (which was largely due to labor force gains) likewise moderated in July and August at the MSA-level and at most of the area counties, although Columbia County’s unemployment rate remains slightly elevated. Average hourly earnings for private sector employees have climbed without interruption since 2014, and hours worked remains elevated even relative to the area’s pre-recession peak.

In general, our county-level forecasts call for a moderation in employment numbers for most sectors during the rest of 2016. Over the next year, we expect the manufacturing sectors to continue low or slightly negative job growth in the industrial centers of Multnomah, Clackamas, and Clark counties. The core services (health, private education, and professional) should maintain a steady pace across the metro region, while construction employment will tend to expand slightly faster in demographically-growing Washington, Clackamas, and Clark counties through 2017.

Figure 6: Manufacturing Employment in Clackamas, Clark, and Multnomah Counties

Per-capita income in the Portland MSA regained its post-recession momentum in 2014 and indications6 are that this trend continued in 2015. Once again barring a proper economic downturn, personal income and its components are set to follow a steady path over the next few years. It should be noted that an underlying outlook that includes inflation is embedded in the data, meaning some level of inflation is inherently included in forecasts of nominal income figures despite not entering specifically into our models.

Average wages and average incomes remain starkly uneven across the counties of the metropolitan region, largely following disparities in housing costs, and are projected to grow evenly over the next ten

5 It also should be noted that these numbers will be revised, perhaps reducing some of the abruptness. 6 The newest ACS data shows strong growth in median household income (which we do not directly forecast), and the average wage and total personal income both accelerated in 2014-15.

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2004 2009 2014 2019 2024

Recession Clackamas Clark Multnomah



years. After a very rocky few years, non-wage income (dividends, interest, and rent) is expected to stabilize somewhat to a middling growth pattern that will outpace the growth of wages.

Figure 7: Average Wage Across Counties ($Thousands)

Housing Overall, new residential building has continued a general upward trend since winter 2015, though even after seasonal adjustment, activity is too volatile to rule out a pull-back in the second half of 2016 for both single and multifamily permits. According to Zillow, median home values saw double digit growth over the year ending August 31st, 2016, with the highest growth in Multnomah, Washington, and notably Columbia counties. Amidst a host of housing affordability issues, median rents finally showed signs of slowing in most counties of the MSA, with a notable exception in Clackamas County.

Short Term Risks Though policy risk for the Portland metropolitan region has traditionally been of the long-run variety, at this moment several significant changes loom. The state’s path to one of the highest minimum wages in the country began in July and will steadily ramp up moving forward. It is too soon to gauge the pressure this will exert on business costs and consumer prices, but there will be an impact on heavily exposed industries such as retail trade, leisure and hospitality, and health care. The Oregon Office of Economic Analysis has already incorporated an impact into its job growth projections, and because Portland is the region that will face the steepest increases, our projections follow suit.

Portland is likewise exposed to one of the most debated housing challenges in the country, and several measures will come before voters and area governments in the next year, including affordable housing bonds, construction fees, , limits on rental evictions, and rent freezes. Setting aside its more extreme outcomes, housing affordability has likely become a stiff headwind to attracting the new prospective households that have long fueled local economic growth. At the same time, policymakers across the country are quite familiar with the unintended consequences of housing policies. The difficult decisions

$20

$30

$40

$50

$60

$70

$80

$90

$100

$110

$120

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

RecessionClackamasClarkColumbiaMultnomahSkamaniaWashington



on this issue made in the next few years could change the outlook in both the immediate future and for decades to come [see page 24 for In Focus: Housing Affordability].

Another potential variable is the gross receipts tax that the state will be voting on this November. Our center and Oregon’s Legislative Revenue Office have both recently analyzed the economic impacts that Measure 97 would have on the state economy. Both studies find a decrease in private sector employment (relative to a baseline forecast), particularly in the highly-exposed retail, wholesale, finance, management, and manufacturing sectors, in the tens of thousands over the next ten years, and a sizeable increase in government employment. Both studies likewise predict a decline in personal income and economic output across the state. As the center of many affected activities, the metropolitan region could experience the major portion of these impacts.

Long Term Projections On the surface, our long-run employment and income projections (out to 2055) echo the broader story of the US economy – a continuous transition away from a manufacturing base, increasing automation in accommodating sectors (such as warehousing, transportation, and wholesale trade), and an economy led by professional and consumer-facing services. However, the inherently dubious nature of long-range forecasting is not lost on the NERC staff. By projecting mid-range trends clear into the second half of the 21st century, we necessarily hold constant almost everything that really matters – the nature of work, commuting, household life, and technology, and so on. The next internet-caliber technological bombshell will surely belie these forecasts. What we can say with some certainty is that the defining characteristics of today’s Portland region position it very well for the plausible future. The current flow of well-educated and ambitious professionals to the region has already seeded the stock of human capital that the region will use to navigate demographic, climatic, and technological disruptions well into the future. A dynamic local business community will continue to lead the way as the global economy changes around us. And if we are lucky, forward-looking public decision makers will make sure that the economy has the infrastructure, housing, and policy environment for the long haul.

By Tony Webster from Minneapolis, Minnesota (Broadway Bridge Walk Symbol) [CC BY-SA 2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons



County Forecast: Clackamas

Housing Profile

Average household size (2015) 2.57

Total permits (2006-2016) 16,681

New households (2015-2025) 16,021

New households (2015-2035) 28,532

Single/multifamily split (2000-2016) 84% - 16%

Single/multifamily split (2016Q1-2016Q4) 80% - 20%

Demographic Profile

Population (2015) 397,385

Annual population growth (2014-2015) 1.50%


Percent of MSA population (2015) 16.80%


Mean age (2015) 40

Mean age (2025) 42

Net migration (2015) 5,152

Nonfarm Employment and Income

Annual employment growth (2006-2016) 0.56%




Average income (2014) $50,126

Health and Education Services is the largest and fastest growing sector.

Older population and average age to continue to rise.

Major Industries, 2016

Retail, 18,687

Health Services and Education,

22,078

Leisure and Hospitality,

15,353

Durable Manufacturing,

14,026

Local Government,

13,026

Other Industries,

71,008

Personal Income: Growth and Total

County Highlights

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%Forecast



80

90

100

110

120

130

140

150

2008Q1 2010Q1 2012Q1 2014Q1 2016Q1 2018Q1 2020Q1 2022Q1 2024Q1

Health Services and Education Retail Professional and Business Services

Wholesale Financial Activities Durable Manufacturing

Forecast

0

100

200

300

400

500

600

700

2000Q1 2002Q1 2004Q1 2006Q1 2008Q1 2010Q1 2012Q1 2014Q1 2016Q1

Single Family Multi Family

Housing Permits, 2-Quarter Forecast

Notable Fast and Slow Growing Industries, Indexed to Business Cycle Peak (2008Q1)



County Forecast: Clark

Demographic Profile






Mean age (2015) 38

Mean age (2025) 41


Housing Profile


Total permits (2006-2016) 22,653

New households (2015-2025) 30,405

New households (2015-2035) 62,009

Single/multifamily split (2000-2016) 78%-22%

Single/multifamily split (2015Q1-2016Q1) 73%-27%







Fastest population growth of MSA counties.

Very strong employment; currently lower than average income.

Consumer-oriented industries lead near-term growth.



Construction, 12,334

Retail, 18,497


25,444

Professional and Business

Services, 20,165

Leisure and Hospitality

15,122

Other Industries,

63,499

County Highlights

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

$40,000,000

-6%

-4%

-2%

0%

2%

4%

6%

8%

10% Forecast




60

70

80

90

100

110

120

130

140

150

160

2007Q4 2009Q4 2011Q4 2013Q4 2015Q4 2017Q4 2019Q4 2021Q4 2023Q4 2025Q4

Health Services and Education Professional and Business Services Retail

Leisure and Hospitality Nondurable Manufacturing Durable Manufacturing

Forecast

0

100

200

300

400

500

600

700

800

900

1,000

2004Q1 2005Q4 2007Q3 2009Q2 2011Q1 2012Q4 2014Q3 2016Q2






$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%Forecast

County Forecast: Columbia

Housing Profile


Total permits (2005-2015) 1,410

New households (2015-2025) 1,670


Single/multifamily split (2000-2016) 93/7%

Single/multifamily split (2015Q1-2016Q1) 100/0%

Demographic Profile






Mean age (2015) 41

Mean age (2025) 44

Net migration (2015) 144







Only single family homes were built from 2015 to 2016.

Trade, Transportation, and Utilities is currently Columbia's largest industry; growth is expected to slow to an average annual rate of .20% after 2020.

Health Services and Education will add 431 new employees, the most of any sector.




1,167

Retail, 1,421


1,244

Leisure and Hospitality, 1,257

Local Government,

1,679

Other Industries, 3,900

County Highlights



60

70

80

90

100

110

120

130

140

150

2008Q1 2010Q1 2012Q1 2014Q1 2016Q1 2018Q1 2020Q1 2022Q1 2024Q1

Health Services and Education Professional and Business Services Leisure and Hospitality

Construction Financial Activities Durable Manufacturing

Forecast

0

20

40

60

80

100

120

2004Q1 2005Q3 2007Q1 2008Q3 2010Q1 2011Q3 2013Q1 2014Q3 2016Q1





County Forecast: Multnomah

Housing Profile


Total permits (2006-2016) 36,643

New households (2015-2025) 51,589

New households (2015-2035) 86,567



Demographic Profile






Mean age (2015) 38

Mean age (2025) 40








Slow but steady manufacturing

Only county where multifamily building outstrips single family; density will only accelerate this trend

Fast-rising incomes, but uneven distribution



Retail, 43,070


74,711

Professional and Business Services,

78,984

Leisure and Hospitality, 56,483

Local Government, 53,456


County Highlights

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

$70,000,000

$80,000,000

-4%

-2%

0%

2%

4%

6%

8%

10%Forecast



60

70

80

90

100

110

120

130

140

150

2007Q4 2009Q4 2011Q4 2013Q4 2015Q4 2017Q4 2019Q4 2021Q4 2023Q4 2025Q4

Professional and Business Services Health Services and Education Local Government

Wholesale Financial Activities Durable Manufacturing

Forecast

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2004Q1 2005Q4 2007Q3 2009Q2 2011Q1 2012Q4 2014Q3 2016Q2






County Forecast: Skamania

Housing Profile


Total permits (2005-2015) 590

New households (2015-2025) 601




Demographic Profile






Mean age (2015) 43

Mean age (2025) 46



Annual employment growth (2006-2016) -0.36%






Oldest and smallest population of MSA counties

Leisure and Hospitality is, and will continue to be, the largest industry.

Government employment (a third of Skamania total nonfarm employment) is not expected to grow over the forecast.

Manufacturing, 280

Trade, transportation,

and utilities, 217


597

Local Government,

505

Other Industries,

654

County Highlights


$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%Forecast



0

20

40

60

80

100

120

140

2007Q4 2009Q4 2011Q4 2013Q4 2015Q4 2017Q4 2019Q4 2021Q4 2023Q4 2025Q4

Leisure and Hospitality Trade, transportation, and utilities Manufacturing

Local Government Construction State Government

Forecast

0

5

10

15

20

25

30

35

40

45

2004Q1 2005Q4 2007Q3 2009Q2 2011Q1 2012Q4 2014Q3 2016Q2

Single Family





County Forecast: Washington

Housing Profile


Total permits (2006-2016) 26,608

New households (2015-2025) 46,906

New households (2015-2035) 96,352



Demographic Profile






Mean age (2015) 37

Mean age (2025) 39










Biggest housing demand in the future

Professional and Business Services largest and fast growing

Single Family/Multifamily split now very small


41,994

Retail, 31,415


33,567

Professional and Business

Services, 53,288


25,166


County Highlights

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%Forecast



0

20

40

60

80

100

120

140

160

180

200

2008Q1 2010Q1 2012Q1 2014Q1 2016Q1 2018Q1 2020Q1 2022Q1 2024Q1

Professional and Business Services Health Services and Education Leisure and Hospitality

Durable Manufacturing Financial Activities Wholesale

Forecast

0

200

400

600

800

1,000

1,200

2004Q1 2005Q4 2007Q3 2009Q2 2011Q1 2012Q4 2014Q3 2016Q2






County Forecast: Yamhill

Housing Profile


Total permits (2005-2015) 4,665


New households (2015-2035) 13,199



Demographic Profile






Mean age (2015) 38

Mean age (2025) 41




Annual employment growth (2015-2016) -0.64%




Health Services and Education is the largest industry, and is expected to be until the end of the forecast period.

New single family housing permits will pick up in the latter half of the year, from a quarterly average of 76 for Q1 and Q2, to an average of 108 for Q3 and Q4.



Manufacturing, 6,281

Retail, 3,503


7,150


3,431

Local Government,

3,801


County Highlights

$2,000,000

$2,500,000

$3,000,000

$3,500,000

$4,000,000

$4,500,000

$5,000,000

$5,500,000

$6,000,000

$6,500,000

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8% Forecast



70

80

90

100

110

120

130

140

150

160

170

2008Q1 2010Q1 2012Q1 2014Q1 2016Q1 2018Q1 2020Q1 2022Q1 2024Q1

Leisure and Hospitality Professional and Business Services Manufacturing

Wholesale Transportation, warehousing, and utilities Financial Activities

Forecast

0

50

100

150

200

250

300

2004Q1 2005Q4 2007Q3 2009Q2 2011Q1 2012Q4 2014Q3 2016Q2





In Focus: Housing Affordability in the Portland MSA With Portland’s high-end coffee shops and renowned restaurants and breweries, it is easy for long-time residents to forget that theirs is the least expensive of the large West Coast metropolises. Part of the reason Portland may not feel like a “cheap” place to live is that incomes here have historically been lower than those in comparable counterparts. However, this is all beginning to change. Migration into Oregon, and specifically the Portland MSA, is relatively strong compared to other parts of the country. This migration is partially the result of a strong economy – the Portland MSA’s employment growth has surpassed the nation’s since June of 2010 – and also because of Portland’s relative lower housing costs compared to other desirable West Coast metros. While the level of personal income remains lower, growth is surpassing many other metros. Generally, these are very positive signs, but there can be a downside. Income and population growth, paired with a limited supply of housing, drives up home prices. Furthermore, since incomes and the cost of land are rising, developers are incentivized to increase their margins by selling to the highest income households. All in all, this means that house prices have risen quickly, and many longtime residents are being priced out.

Figure 1– Affordability and Price Health for large MSAs, Zillow

The West Coast Problem This affordability crisis is not unique to Portland. Seattle, San Francisco, Los Angeles, San Diego and to a lesser extent Denver all have their own variation of this gentrifying theme. Figure 1 has two measures that put Portland’s crisis in a national perspective. The vertical axis gives a measure of affordability. The higher an MSA is on that axis, the greater that area’s house prices are relative to incomes. The horizontal axis gives a measure of house prices ‘health’. The further to the right a MSA is located on the chart, the more expensive buying a house is relative to renting. Common sense says that rent prices and house prices should generally be in balance; if one becomes relatively expensive people will switch to the other (and vice-versa). It is when this relationship breaks down that a market is deemed ‘unhealthy’. The housing market becomes more bifurcated along income brackets when the ability to move from rental to home ownership is made more difficult. With Portland positioned towards the northwest quadrant in Figure 1, this may be the prevalent affordability issue.

N.Y.

L.A.

ChicagoDallas-FW

PhilidelphiaHouston

D.C.

Miami

Atlanta

Boston

San Francisco

Detroit

Riverside

Phoenix

Seattle

Minn.-St. Paul

San Diego

St. Louis

TampaBaltimore Denver

Pittsburgh

Portland

Charlotte

Sacramento

0

1

2

3

4

5

6

7

8

9

10

0.00 5.00 10.00 15.00 20.00 25.00

20

15

-16

Prc

e-In

com

e (A

ffo

rdab

ilitY

)

2015-16 Price-Rent (Healthy Prices)



Are Homes too Expensive? Another factor to take into account when discussing affordability problems is the question of whether or not housing in the Portland MSA is fundamentally overpriced. After the housing bubble burst, houses largely sold for under their ‘fundamental value’ (explained below). With housing prices once again rising rapidly, at what point would we know that prices have surpassed their underlying support measures and entered into a bubble scenario?

Figure 2 – Real Case Shiller Index, fundamental Home Price Index, Portland MSA

Figure 2 shows both the real Case-Shiller House Price Index (HPI) and an estimate for a fundamentally driven index (fluctuations in the index that can be attributed to income and population growth). It shows both a period of heavy overvaluation (the housing bubble) and a period of undervaluation (after the bubble burst). As of July the real Case-Shiller HPI finally surpassed the fundamental HPI. If we are not entering a speculative bubble, then the rapid rise in housing prices should be leveling off. This means that the ‘recovery effect’ is over, and, if rising home prices have been causing the greatest strain on affordability, the worst may be behind us.

What Now? In October 2015, Portland City Council declared a “housing emergency”. Since then there has been a wave of proposals and measures aimed at increasing the number of affordable units available. The statewide ban on inclusionary zoning (a law that requires a certain percentage of affordable units or incentivizes affordable housing) was lifted during the 2016 state legislative session. ECONorthwest and the Urban Land Institute (ULI) produced a study examining this subject in detail8. This study concludes that given “the right market conditions and with optimal availability of new incentives”, inclusionary zoning policies can generate affordable housing that otherwise would not be built. However, the authors also go into detail suggesting that even in perfect conditions, the result is not a complete

8 http://www.econw.com/media/ap_files/Final_IZ_Report%E2%80%94High_Quality.pdf

40

50

60

70

80

90

100

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Fundamental HPI

Real Case-Shiller HPI

Undervalued

Overvalued



Amos Meron [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

solution to a dearth of affordable housing. These incentives will be partially funded by a 1% excise tax on the permit value of all new construction (SB 1533).

Measure 26-179, the affordable housing bond measure, authorizes 258.4 million in bonds to “build new housing, purchase, [and] rehabilitate existing housing to maintain affordability”9. Should it pass, property taxes are expected to increase an estimated $0.4208 per $1,000 of assessed value, or $75 a year using Portland’s median assessed value for a home10. Lastly, there are discussions of lifting the statewide ban on rent control, a policy change that economists generally oppose11. Evidence to the efficacy of this rent control is sparse, and there are a plethora of unintended consequences that could arise should Portland adopt rent control.

There are also solutions that don’t rely on additional tax revenue, but are still controversial in their own right. Expanding the Urban Growth Boundary and rezoning residential neighborhoods are two actions that would increase supply and therefore decrease prices. Oregon’s long history of land-use activism and the natural incentives of NIMBY12ism make these particular policies difficult to implement. It is likely that some combination of these measures will come to fruition.

9 https://www.portlandoregon.gov/auditor/article/581552 10 https://www.portlandoregon.gov/auditor/article/585938 11 Whaples, Robert. "The policy views of American Economic Association members: The results of a new survey." Econ Journal Watch 6.3 (2009): 337-348. 12 “Not in my back yard,” a term to describe the unwillingness of neighborhoods to accept local changes that they might support elsewhere.



Data Sources

regional economic and population forecast october 2016...2015 and at 4.0% for the first quarter of...

Documents