Bend’s Development Code in Conflict with Housing Goals

 Note: This post first appeared as a guest column in The Bend Bulletin, April 14, 2024. Photos of the projects mentioned have been added.

            Bend elected officials and city administrators all say they’re working diligently to create more housing in what is in the top tier of Oregon’s fastest growing cities.
            Now a proposal for new multi-family housing in the middle of a single family neighborhood is bringing to a head some of the arguments that swirl around where new housing should be built. It has also highlighted deficiencies in the Bend Development Code that could allow units thought to be for apartment rentals to be individual condos or nightly rentals - even before a building is occupied.
            At first glance the opposition to the proposed Compass Corner mixed-use project at the north end of NW Awbrey Road might be dismissed as a typical NIMBY attitude of nearby residents. And a resident presenting himself as leader of a stated housing activist group, Bend YIMBY, has spoken in favor of the project.
            The project is proposed as a four-story structure with 40 plus apartment units and a lower floor of “Convenience Commercial.”  Nearby residents of single family homes are opposed to the building scale and design aesthetics covering most of a 1.02 acre site. These objections are not considered factors in city planners’ interpretation of the BDC, which is weighted heavily to encourage more dense housing.
             But a greater concern with the Compass Corner project is that the code allows them to be transitioned from permanent apartment housing to a wide variety of lodging—including short term rentals.

Compass Corner aerial illustration

            This possibility emerged in the city planning department review of the Compass Corner proposal that responded to several of more than 250 opposing comments prior to a public hearing April 4.
             The planning staff final report and recommendations emphasizes that the developer could complete apartment units, then apply to change the use to lodging by filing a “Change of Occupancy” request with the city’s Building Safety Division.
           Is it possible the developer, whose principals already are Bend hotel owners, might take this opportunity? Although a representative has said this is not the intent, it remains a possibility.  What would this do to create permanent apartment housing if that happens? 
            And the implications of Compass Corner extend across the city.
            Consider the more than 300 units now under construction as the Jackstraw project along NW Arizone south of downtown, and another 246 permitted in the Everpine complex nearby to the south of there. What would be the impacts if the same standard applied to Compass Corner is used for those much larger projects?

Jackstraw under construction

            Several Bend Bulletin articles describing Jackstraw and Everpine have referred to them as apartments for the rental market. This is impression left with much of the public.
            However, city planners note that the different zoning classifications for Compass Corner, compared to Jackstraw and Everpine, nevertheless permit individual ownership of “residential units” in that each provides for mixed residential and commercial uses.
.           This loophole in the BDC runs counter to any effort by the City of Bend to ensure projects expected to be full time residential apartment units will remain as such. It opens the way for a patchwork of nightly lodging interspersed with permanent housing throughout various zones within the city.
            One step could be a code amendment that requires development applications to clearly define the “residential” use after construction. If the use is for apartment housing then the project should be restricted to apartment rentals for a defined number of years.
            A code that is open to ambiguous interpretations and provisions conflicting with city objectives is a rocky path to achieve more housing at the expense of wider public support.
            This is an opportune moment for planners and the City Council to add clarity to a development code that has apparently had conflicting and unintended consequences for Bend housing goals.
            Any housing, any place, at any time with few restraints is not workable for the future.

 

Lee Hicks is a resident of Bend, and a former wire service, weekly and daily newspaper journalist and newspaper owner- publisher.

 

Is a generational divide joining interest rates as factor in housing?

             Are younger potential homebuyers stuck with renting their home or condo - with scant chance of finding something affordable to buy??
            Could it be that grandma and grandpa – and maybe mom and dad – are locking the kids out of the housing market?
            That along with mortgate interest rates that have been stuck above 6% for some time are often blamed for the shortage of homes available for a younger generation dreaming of a place of their won.
            By some theories, an equity rich older generation is either staying put in their homes or selling and rolling the cash into another home, thereby driving up prices and competition for buyers, and squeezing more affordable inventory out of the market.
            In some cases retirees may be splitting that equity between a couple, or more, places—maybe a condo in Palm Spings and a smaller house Bend, after escaping the urban turmoil and traffic of Seattle, San Francosco or Portland.
            All that said, let’s take a look at the Bend real estate market for the 12 months of 2023.
            The Beacon Report complied by Beacon Appraisal Group of Redmond, OR and a continuing weekly Market Action Index distributed by First American Title together offer insights into where the market is now, where it has been and maybe where it could be heading.

            On a rolling 12-month basis median prices for single family homes in Bend on less than an acre rose a modest 1.24%, to $732,000 from $723,500 for the comparable period of 2022.
            Total sales dropped to 1,565 for the period, with 208 homes listed at year end, equating to a two-month supply of homes for sale based on the average of the past 12 months. That remains considerably below what professionals say is a balanced market of 5-6 months inventory. By comparison there were 2,033 sales in 2022 and 226 listed at year end, translating to an inventory then of only 1.5 months.
            In Redmond, Central Oregon’s second largest home market, median prices dipped from $512,000 to $486,000 for the 12 months, $26,000 or 5.08% under 2022. Redmond’s total sales sank from 782 in 2022 to 598 in 2023, with 134 homes available, or a  three months supply. That represents an increase from two-months inventory at the end of 2022.       

   Some observers say the marginal differences in year to year  median prices and inventory are reflective of a national trend wherein sellers are staying put and new home building doesn’t match potential demand. The inventory keeps the market balance on the
sellers side, except fewer owners are selling.
            That’s the conclusion in the January 24 Market Action Index snapshot of Bend housing by First American Title, which has Bend moving slightly more into a sellers market which could mean more upward pricing pressure.
            In Bend the lack of more affordable houing in relation to median incomes has led to a push to create deed restricted workforce housing. In some situations, employers are participating with non-profit housing groups to improve inventory.
            Local initiatives dovetail with an aggressive housing initiative backed by the Oregon governor, with some bipartisan legislative support. That would potentially loosen state funding that could improve affordability through incentives for entry and mid-level housing construction.

A mostly static market: But million dollar sales on rise

             With more than half of 2023 behind us the Bend real estate market trends appear to be tracking much the same as with the past few years --- from the pandemic boom and the ensuing spillover in 2023 and 2022.
            But listing prices are often being adjusted downward– rarely the case in the recently overheated market. Open houses have also proliferated, when before many single family homes would hit the MLS of Central Oregon as pending sales within days of a listing
agreement.
            Other key markers in the August report by Beacon Appraisal based on MLS statistics:

 

·         Inventory as calculated by averaging sales of the previous 12 months continues in a tight range of about two months.

·         Median single family home prices on a specific monthly basis continued to hit new highs in June, $785,000,  and July, $800,000, after falling to $660,000 in February from a high of $773,000 in February of 2022.

·         Even with a new monthly high price, on a rolling 12-month basis the median closing price at the end of July was $690,500, down $12,000 or 1.71%, from the previous 2021-2022 period.

            As widely reported across the country, prices in traditionally more heated markets have continued to hold well above pre-pandemic levels, with some moderate downward adjustments as noted in Bend.
            The overarching factor, the consensus appears, is continued high interest rates reaching 7% for a 30-year mortgage. Existing owners are reluctant to sell when they may have loans of 4% or less, thereby squeezing inventory while new homebuilding has not kept up with demand.
            When existing owners do sell, they’re holding years of built-up equity and may push prices higher with the extra cash when they buy another home.

            One trend noted in the Beacon Appraisal report is a rise in Bend sales above $1 millon--46 of the total 141 sales, or about 32% in July. And inventory at the $1 million plus level was only two months. For the 12 months including August of 2022 through July 2023 there were 381 of  a total 1,705 sales above $1 million, or more than 22%.
            However, the report said inventory for sales in the $1.6 to $1.8 million range stood at five months, and above that price level at six months.
            A report by First American Title Company provides another snapshot of the Bend market. As of August 16, the FATC Market Action Index categories Bend as a “slight seller’s market.”

            “In the last few weeks themarket has achieved a relative stasis point in terms of sales to inventory. However, inventory is sufficiently low to keep us in the Seller’s Market zone so watch changes in the MAI. If the market heats up, prices are likely to resume an upward climb,” the report concludes.
            In Redmond, Central Orgon’s second largest housing market, the Beacon report shows a median price increase from June to July from $473,000 to $500,000, but below the $542,000 monthly peak in August of 2022.
            On a rolling 12 months through July the median as $470,500, down $21,000 or 4.27% from the same period of 2021- 2022.
            Overall Redmond inventory, as in Bend, was approximately two weeks but jumped to seven months in the $600,000 to $700,000 category and six months in the $550,000 to $600,000 range, Beacon reported.

Bend home price rise slows; Sales dropping but inventory remains tight

            A quick glance at Bend’s residential real estate market appears to show more of the same in terms of tight inventory and gradually increasing sales activity entering the traditional Spring sales cycle.
            But at the end of March the once superheated 12-month rolling median price increase of single family homes sold on less than an acre has slowed remarkably compared with the same period of 2021 to 2022. The new numbers come from the April report of Beacon Appraisal, based on MLS of Central Oregon data.
            The median price of sales ending March 31 of this year was $706,500, up 8.61% from the $650,500 for the 12 months ending March 31, 2022. However that rise was dramatically below the leap from the previous 12-month period  when the median rose by 21.59%, or $100,500 from $535,000.

            Most national, regonal and local market observers say pandemic-fueled housing price increases that began in 2020 appear to be abating. The question, though, is the extent to which markets may return to more normal price appreciation.
            The fact remains that in Bend, and many areas of the country, prices are beyond the reach of many families in the workforce.
            The key component for direction into the rest of 2023 and beyond will be interest rates for the mid to lower market price sectors, affecting not only first-time and move-up buyers but also builders relying on the commercial lending environment.
            For the first three months of 2023 inventory of single family homes on less than an acre remained steady at only a single month, dropping from a high of 2.06 months in July of 2022 and down from 1.5 months in December of last year. There were 1,890 sales in the past 12 months, 613 fewer – or 24.49% down – from the 2,503 for the same period ending in March of 2022.
            In Redmond, Central Oregon’s second largest home market, the 12 month median sale price was $491,500, $41,500 more than the same period from 2021 to 2022 – a 9.22% increase. That was below the 23.80% jump during the 12 months in 2020 to 2021.
            There were 693 sales in the 12 months ending March 31, 2023, a significant drop of 54% from the 1,506 single family sales in the 12 months ending March 31, 2022.
            The 93 Redmond listings at the end of March translated to an inventory of 1.6 months, still considered a seller’s market – although slightly less constricted that the supply of available homes in Bend.

A Tax on Activity That Creates the Problem: The Real Estate Transfer Tax

            Note: The following commentary first appeared as a guest column in the Bend Bulletin.
              Housing affordability for working families is near the top of 2023 agendas for Bend and other Oregon cities that have experienced rapidly appreciated home prices.
            How to address the challenge, wherein a free market sets prices, will require cooperation by government, nonprofit and private sectors – all of which will benefit from strategies to improve livability of a community.
            In Oregon, one of the most effective and least burdensome methods that could help fund affordable housing is—for now-- not possible. It’s called an excise tax in some states, a transfer tax in others.  Significantly, the tax can draw revenue indexed to inflated housing prices that have created the affordability problem, in turn serving to mitigate it.
            In Oregon a state law specifically prohibits a tax on the sale of real property unless it was enacted prior to March 31, 1997. Only Washington County, with a tax of 0.10% of closing prices, was grandfathered under that legislation.
           Oregon is one of 14 states that don’t tax the sale of real estate, according to the recent data from the Lincoln Intitute. https://tinyurl.com/2omsj9j9
           Even though state law already prohibited a transfer tax, Measure 79 passed by voters in 2012 by an approximately 59 to 41 percent vote embedded the prohibition in the state constitution.
           According to campaign reports, by December of 2011, a year before the vote, substantial funding to support the measure had come from from the National Association of Realtors, which reportedly gave $735,000 and the Oregon Association of Realtors, $332,140.
           At a recent Bend Neighborhood Leadership Alliance meeting, board members heard Bend housing director Lynne McConnell note two of the major challenges for creating more affordable housing in the city – money and available land.
            A board member raised the question of why a transfer tax, or another measure could not be implemented to create funds for affordable housing.
            To that issue, at the meeting assistant city attorney Ian Leitheiser explained state law and the constitutional barrier to a transfer tax.
           In Leitheiser’s words, there is, “…a large well-equipped industry or two with powerful lobbyists in the state that will squawk pretty loudly when people start talking about transferring their bread and butter of selling real property.”
            Given that the rolling median price of a Bend single family home sold in 2022 was $723,500 it’s unlikely that a transfer tax rate similar to Washington County’s 0.10%, or $723.50 in this case, would significantly impede real estate sales.
            The tax could be paid by either buyer or seller, or shared between them. Sales subject to the tax could also be tiered to reduce impact in lower price ranges.
           The MLS of Central Oregon database shows 2022 sales in Bend of single family homes on less than an acre $1,908,095,782. A modest transfer tax of 0.10% would have yielded $1,908,096. The sales do not include single family homes on more than an acre, townhomes and condos or undeveloped lots.
           A local option tax for cities and counties would allow them to target strategies for their specific needs. Provisions could require that the tax sunset or have to be reauthorized after a defined period. Proceeds not deployed could be returned to a housing trust fund and redistributed to qualified projects, maybe to reduce infrastructure costs for new construction.
            Funds might also be used with other sources to provide transitional shelter opportunities for homeless populations.
           A ballot initiative to repeal the Measure 79 constitutional roadblock to a transfer tax would be a step in the right direction, while concurrently repealing the related 1990s legislation. Perhaps the industry groups that backed the transfer tax ban could come together to support its demise.
            The financial impact on home buyers and sellers, and real estate and building industries, would be minimal. The benefits for more affordable housing could be substantial.
-by Lee Hicks