MULTI-FAMILY TREND

Salem-area construction shifts from single-family to apartments

By James Day

The housing mix in Salem is changing significantly. For more than 20 years a tectonic shift has been taking place in the construction market as builders are now producing far more apartments and multi-family projects than single-family homes.

“Historically, Salem’s mix of single-family and multifamily housing has been about 2/3 single-family and 1/3 multifamily,” said Mike Erdmann, CEO of the Home Builders Association of Marion & Polk Counties (see graphic element below). “However, for the last few years, Salem is building far more multi-family units than singlefamily units, and that trend has been clear for the better part of twenty years.”

Erdmann and his home builders association members cite a series of reasons for the change:

• Higher housing prices are putting ownership out of reach for many;

• Higher land and construction costs make it difficult to build affordable rental homes;

• Higher down payments that come with higher home prices mean many rent longer;

Higher interest rates are make ownership more challenging for those looking to buy;

Not enough new single-family homes are being built to meet the housing shortage;

• There is a shortage of land for single-family homes; and

• It is increasingly challenging for some subcontractors to handle large multi-family projects.

The trend has produced a string of challenges for Jordan Schweiger, founder and principal broker for Good Well Real Estate in Salem. Schweiger’s firm builds mixed-use, multi-family and other residential housing up and down the valley.

Salem Single - Family vs. Multifamily Housing Starts

“We are building more multi-family and mixed-use housing, as single-family lot availability dries up and because of the long timelines it can take to get entitlements for new subdivisions,” Schweiger told Chalkline.

The list of challenges is lengthy, he said.

“Higher interest rates, inflation, and supply chain constraints make it more challenging to build,” he said. “ It means we have to plan far ahead and constantly check to make sure that the products we need haven’t developed long lead times or simply become unavailable.

“Every project seems to present a new type of constraint. One project it’s long lead times for electrical switch gear. The next project it’s roofing material. It has taken supply chains a long time to catch up and ramp up production to pre-COVID 19 levels.”

All of these individual challenges add up to one overwhelming collective one, affordability.

“The current environment is making housing less affordable,.” Schweiger said. “There is a shortage of all housing types, and building more multi-family only won’t solve the problem because housing units are not ‘fungible.’ For example, people expecting to buy a home in the $700,000 to $800,000 range will sooner move outside of their preferred area to buy the home they want rather than rent.”

And one of the key costs to wrangle with is the money itself. “For multi-family projects, for example, projects that made sense in an environment of sub 4% interest rates don’t pencil out without more money into the project when market interest rates are 6.5% or 7%-plus,” Schweiger said. “As credit tightens, the amount of capital lenders have to lend in their respective buckets starts to dry up.”

Schweiger also sees some larger, societal concerns as key facets of the equation.

“Growth is migrating outside of the larger jurisdictions to cities that impose fewer restrictions on development and building,” he said. “This leads increasingly to more people commuting to work rather than living in the city they work in. This trend could be reversed with fewer restrictions on development and building and quicker paths to approvals for new projects.”

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