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Multifamily production fell 5.2 percent in Portland in 2019 as developers reacted to rising costs and a flood of project deliveries by pulling back.

The Bureau of Development Services issued permits for projects comprising 4,634 multifamily units last year. That was down from 4,887 permitted units in 2018.

鈥淚 think it’s going to slow down even more,鈥� said Sam Rodriguez, senior managing director at Mill Creek Residential Trust, a major multifamily developer in the city. 鈥淭he deals have gotten thinner. Cost has gone up. Construction costs are escalating across the board at about 5 percent a year, and then rents have flattened. And there’s still concessions in the market.鈥�

Multifamily housing production has fallen far from 2017’s high mark of 5,993 units permitted. That year, developers racing to get ahead of inclusionary housing requirements pushed projects across the finish line at a clip that was an astonishing 44.4 percent gain from the prior year.

That boom in housing production continues to echo, with new buildings stabilizing slowly and competition for tenants holding the lid on rents.

While lower, 2019’s housing production rate was in line with the years prior to 2017.

The Bureau of Development Services does not regularly publish permit data totals. The city agency released the numbers in response to a 91视频 public records request.

The multifamily market has bifurcated since inclusionary housing requirements took effect on Feb. 1, 2017, according to developers and permits. More small multifamily projects are moving ahead with fewer than the 20 units that trigger inclusionary housing requirements. Weekly permit intakes released by BDS are replete with 19-unit building proposals.

Other projects that are moving ahead tend to be large: full-block or superblock developments such as Security Properties‘ Pepsi Blocks and Press Blocks projects, and NBP Capital‘s RiverPlace development. Conspicuously missing are the midsize projects that characterized multifamily development before 2017.

鈥淚t’s a pretty difficult environment,鈥� said Gus Baum, director of development for Security Properties. 鈥淐onstruction pricing continues to be unpredictable, but high.鈥�

Within weeks, Security Properties is planning to seek permits for Pepsi Blocks’ first phase, Baum said. The first phase includes an approximately 200-unit multifamily building and construction of a woonerf, a shared street through the property at Northeast Sandy Boulevard and 25th Avenue.

Security Properties is phasing the project to allow the bulk of market-rate units to hit the market later.

鈥淭he Pepsi Blocks, because it’s a planned development, we’ll hopefully do a greater than minimum share of affordable units in the first phase,鈥� Baum said.

Funding for affordable housing is washing over the housing market in the wake of the city’s $258.4 million housing bond and Metro‘s $652.8 million bond.

鈥淭here’s a lot of money for affordable projects because of the bonds, and that’s taking away resources for market-rate projects,鈥� Baum said.

For now, flat rents and steadily escalating costs give little reason to expect a turnaround in Portland multifamily development, developers said.

鈥淚t’s still a pretty soft market to be delivering product,鈥� said Chris Nelson, co-founder of Capstone Partners, a Portland-based developer.

After years of steep increases, rents in Portland have flatlined, making multifamily development less enticing. Average rent for a two-bedroom Portland apartment was down 0.1 percent in February compared to a year ago to $1,330, according to an Apartment List report.

Rents nationally grew 1.7 percent during the same period, led by Phoenix (3.5 percent), Austin, Texas, (3.4 percent) and Charlotte, North Carolina (2.5), Apartment List reported.

Developers have reacted by diversifying their portfolios by product type and geography. Capstone is one developer that has looked to the suburbs, building a multifamily project in downtown Tigard.

Tigard and Beaverton have worked to attract developers including Capstone and Rembold Properties to bring urban-style projects to the suburbs.

鈥淚t’s been a strategic focus of those municipalities to activate their urban cores, and part of that is bringing households to the urban cores,鈥� Nelson said.

Otherwise, Capstone has largely stepped back from multifamily development, instead building industrial facilities for Amazon and other users, and some office spaces.

Policymakers and developers are evaluating the city’s inclusionary housing policy. In the past three years, the city has permitted or is in process to permit at least 601 units from 91 projects. The City Council softened certain requirements, but developers have called for further changes.

Other regulations have added costs, developers said. A requirement for bird-safe window glazing in the Central City has dented project pro formas. For one Mill Creek project, the cost for the window package almost doubled, from $500,000 to $900,000, because of bird-safe glazing, Rodriguez said.

鈥淭hings like that are just making it more difficult,鈥� he said.

Portland multifamily permits

Apartments/condominiums in projects with three or more units

2019: 4,634

2018: 4,887

2017: 5,993

2016: 4,149

2015: 4,582

2014: 4,344

2013: 2,763

2012: 1,835

2011: 900

2010: 638

Source: Bureau of Development Services