Big projects, large homes gain ground in Vancouver

It remains unlikely that the region will see much new lower-income housing soon

Construction boom

Clark County’s high-end housing market is booming like never before, but for just about everyone else the quest for affordable housing remains a rocky road.

Big construction projects and large homes have become the new staples of Vancouver and Clark County’s construction industry. But a rapidly growing population, rising costs of building materials and labor and the possibility of a growing trade war with China make it unlikely that the region will see much in the way of new lower-income housing from developers to meet the needs of the rest of the market, said Chad Eiken, the city of Vancouver’s community and economic development director.

“We only recently have seen an increase in new single-family building permits,” Eiken said. “We had a dip starting in early 2016.”

That dip meant little new housing was built from 2016 until the last six months or so. During the dip, the city was only getting about 10 or 15 single-family housing permit requests a month, compared to the median of about 25 to 30 a month. That’s a lot less compared to 2016 before the slump, when the city was getting about 60 of them per month, he said.

But the good news is starting in September the requests started to increase again. This March, the city got 40 requests, Eiken said.

“I’ve heard anecdotally from builders that it’s been really hard to find buildable lots,” Eiken said of the new boom. “Most lots already have houses on them.”

In response, the city has recently seen a host of new permits applications for subdivisions with 10 or more lots, and short plats, which can house nine lots or fewer, he said.

“When we see that kind of an increase it’s a sign there aren’t enough buildable lots – so they’re creating more of them to build on,” Eiken said.

In 2015, developers proposed 77 new lots; in 2016, they proposed 209; and in 2017, they proposed 365 of them. So far, in 2018, the city has received 156 proposals in three months.

“That puts us on pace for over 600 new lots this year,” Eiken said.

Majority of construction going on in top parts of the market

Still, most of that construction is going on in the top parts of the market, said Tracy Doriot, owner of Doriot Construction, a luxury custom homebuilder in Clark County.

“It’s good to be us in this world at this period of time,” Doriot said. “We’ve got more projects than we’ve ever had before.”

He noted that the company right now has six houses on the market for more than $1 million each.
“It’s the best it’s been since the dark ages of 2008,” Doriot said.

That’s also true for Aaron Marvin, one of the owners of ACT Builders, a custom home and residential project builder in the county.

“It’s going crazy,” Marvin said of the market. “We’re eight years into recovery (from the Great Recession) at this point, and Clark County is one of the fastest growing areas of the country.”

Building costs are more easily absorbed in more expensive homes, which is why that type of home is dominating, he said.

Part of the problem with building lower-income housing is that the pricing just isn’t feasible while the costs of many building materials have spiked.

In the past year or so, lumber prices have increased 10 to 12 percent, some sheet products like plywood have gone up 100 percent and a host of other prices are in flux due to the threat of a trade war with China, Marvin said.

“One reason is the natural disasters that have taken place with the California fires and hurricanes,” Marvin said.

Labor costs have also gone up, due to new minimum wage and sick and safe leave laws that provide employees with more paid time off. Calculating a typical production home build of 90 days, under the new wage and time off laws, the cost of that home will go up by about $30,000, Marvin said.

“Steel pricing always affects us as well,” Marvin said. “That includes a lot of things we use, like building materials, but also heating and cooling units, appliances, plumbing fixtures and other items.”

And the industry is also facing a contractor shortage, because many contractors left the industry completely after the Great Recession created a huge slump, Doriot said.

“We lost a lot of mechanics, framers, dry wallers, pretty much everybody in the trade – we lost all of that in the recession,” Doriot said. “Nobody is back to filling that labor shortage yet.”

Proposed solutions for lower-end housing

As for lower-end housing, some have proposed tiny homes or tiny home villages as a potential solution to the shortage, but so far no developers have been interested in building them here, Eiken said.

“I’m not seeing anyone trying to build tiny home lots,” Eiken said. “For some reason it just hasn’t caught on yet by builders or people interested in buying. It seems like we need a demo to show that it can work.”

Part of the reason that hasn’t happened yet is that costs and zoning for the tiny homes can be challenging, Marvin said.

“By the time you do the zoning, apartments end up being a more affordable option,” Marvin said. “Actual tiny homes are generally moved around on a trailer. They’re more like portable units, and that makes permitting significantly different.”

Tiny house villages need a different set of regulations from normal homes or subdivisions. And each tiny home requires its own permit as a separate dwelling unit. The homes also require different energy and seismic codes, which adds cost, Marvin said.

“The city would like to see this, but the challenge is that to develop a tiny house lot would create end prices that are semi-unattainable,” he said.

The small square footage of the units also skews neighborhood housing appraisals. If you sell a 125-square-foot tiny home for $125,000, then the unit is selling for $1,000 per square foot, whereas large houses in the area will sell for about $200 to $300 per square foot.

“That makes it four to six times more expensive,” Marvin said.

And if you buy a 5,000-square-foot lot for $100,000, and you put a $30,000 tiny home on it, you have to recoup $130,000 from the buyer before you make any money. That’s not a winning proposition for home builders, who make more by building a larger home on the same lot and selling it for $350,000 to $400,000, Marvin said.

“People ask why are houses so big and lots so small,” Marvin said. “That’s why.”

Another alternative that seems to be slowly growing in popularity are accessory dwelling units, or ADUs, which are small homes built on the lot of a larger home, often used by grandparents who want to age in place.

“People haven’t been doing that in big numbers either, though,” Eiken said. “We get maybe 10-15 permits for those a year. We’ve seen that increase to 20-25 in the last year. So, the numbers are growing a bit, but we’d like to see even more of that.”

Rural ADUs are starting to grow popular in other parts of the county. The units were once only allowed in cities, but a new ruling now allows them in certain areas of Clark County under certain conditions, although again rising building costs are also a barrier to that market, Marvin said.

“A lot of people like the idea of that,” Marvin said. “I’ve been contacted by several people who want to build accessibility dwellings. However, the cost to build right now is at a height where building these small homes is still cost prohibitive.”

Low supply of apartments has led to rising rents, increasing demands

Apartments are generally where people interested in lower-income housing have ended up for the moment. And that’s another area where a lack of supply has led to rising rents and increasing demands in a trend that’s continued over the last four years, Eiken said.

There are about 4,300 apartment units under construction at any given time, and about 10,000 new people looking for apartments in that same timeframe, he estimated.

“That number hasn’t varied much when I check it,” Eiken said. “The population’s growing. Anecdotally I think younger people are turning to Vancouver because Portland has gotten far more expensive than we have.”

Millennials already make up a huge portion of the apartment market in Vancouver. The city has more Millennials per capita than the U.S. or neighboring Portland, he said.

“People in their late 20s, early 30s are looking for a place to live, and they’re getting priced out of Portland,” Eiken said. “That’s my theory, anyway.”

But Vancouver apartment rental rates, which have gone up significantly in the last several years, will likely continue to climb in the near future because there still isn’t enough supply to meet the demand, he said.

“Costs haven’t stabilized yet, and they’re still increasing,” Eiken said. “But vacancy rates have gone up a little.”

In 2017, the apartment vacancy rate in the city was 2.5 percent. It’s about 3.5 percent now, he said.

“My understanding is we need to be at 5 to 6 percent for rents to start dropping,” Eiken said. “I think rents may stabilize in a couple of years, but I doubt they’ll drop much unless we have a recession.”

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