December 16, 2015
Let’s make homes warmer in this hot market
by Zack Barowitz
As tourist season segues into heating season a familar routine settles into Portland:
You sign a lease on a house. It needs a few repairs but the location is good and the price is affordable, so long as you can keep three other roommates. June through September you pay rent but the heating bills in October and November start to cut into your going-out budget, still your liver thanks you. Then the December heating bill hits and you run to the hardware store to get plastic film for the windows. By February, the thermostat is at sixty (except for that one roommate who keeps turning up to 68) and you’ve hung blankets in front of all the windows and doors. Spring comes, but to little joy, as the four months of burning money has taken its toll. You do not renew your lease.
In other words, there is a certain portion of the housing market which seems affordable but, due to winter energy costs, isn’t. And the only thing the hot real-estate market heats up is the debate over how to meet the demand for housing that people of low to middle incomes can afford without subsidies.
What should not be a matter of debate, however, is that building and maintaining housing is expensive.
Some numbers:
One local developer of high end/luxury housing cites their costs as $180-$200 sq/ft for new construction and $15/sqft in soft costs (architects, engineers, permits), plus land which is another $20,000 per unit if not more (if on the Portland peninsula). This comes out to roughly $150,000 for a 600sqft apartment, which may sound reasonable, until you consider that in order to make a profit they need to sell it for upwards of $200,000 or collect a rent of upwards of $1300/month.
Whether the addition of luxury units lowers housing prices by adding to supply (the trickle down effect) or raises prices (by increasing land costs, demand for services, and expectations) is a matter of debate. But to a certain extent, both sides may be right
Subsided housing is a little cheaper to build, but not substantially. Most costs (such as labor, land, and materials) are fixed no matter what type of housing is being built and there are additional regulations and compliances that builders of subsidized units must meet. A local non-profit housing organization cites their square foot costs at $140 to $165 plus soft costs and land costs, which figures out to be around $130,000 for a 600sqft unit. In order to cover costs, this unit might rent for $1,150/month of which the tenant might pay $750 (according to federal mandate). The remaining $400 would be paid for by subsidy so it must be covered by other means, including tax dollars.
The problem is that too many people in Portland are being squeezed. Households earning a moderate income are unable to compete with much wealthier people for the limited pool of decent market rate (which is often code for “expensive”) housing; while at the same time their tax dollars help pay for subsidized housing which they don’t qualify for. Many end up in substandard housing as an affordable market rate “solution.” (It should be noted that tax breaks and incentives given to homeowners amount to a far greater subsidy overall than those given to renters, such is the unfair nature of the system).
In other words, unless you are very rich or very poor, the public doesn’t get much bang for the buck when it comes to building new housing, although job creation, increased tax base and addition to the supply are factors. (This is not to suggest that building affordable housing isn’t necessary or that developers are “bad” people.)
This is an area where the city’s affordable housing policy can step in and literally fill the gaps. A program of low interest loans or grants (in the range of $5,000-$20,000) for homeowners to upgrade their energy efficiency could be given in exchange for keeping the units at an affordable rate for a period of time. The cost of the energy savings would go directly to the tenants while the landlords would gain home equity and stable tenants; and Portland gets affordable housing units for an investment of 10 percent of what it costs to build a new unit. What is more, the units come online in a matter of days or weeks instead of months or years.
[In my ill-suited career as a blogger, the closest thing I had to a gone-viral piece was to advise that you purchase a pair of insulated coveralls (the kind that snowmobilers or roofing-guys wear), set the thermostat to 50 degrees, and be done with it.]
By saving money on energy winter might become more enjoyable, you might even be able to afford a ski pass.