Why are Salem apartments, rental houses so expensive?

Mid-Willamette Valley,

Article Author: Jonathan Bach, Salem Statesman Journal

Monthly apartment and house rent in the Salem area now exceeds what 84,000 Marion and Polk county residents can afford to pay.

To afford a two-bedroom home in Oregon, you need a job paying at least $21.26 an hour, according to a new report from the National Low Income Housing Coalition.

In the Salem area, specifically, renters must earn at least $12.85 an hour to pay for a one-bedroom home or apartment. They need $17.04 an hour to afford a house with two bedrooms.

Oregon's standard minimum wage is only $10.25 an hour. And almost 13,000 workers relied on minimum wage jobs in Marion and Polk counties last summer, according to the most recent Oregon Employment Department data.

But rising rents aren't just a problem for Oregon's lowest wage earners.

People earning $13 to $15 an hour — typical pay for local retail and service jobs — also can fall short, risking eviction if their bills suddenly skyrocket after their car breaks down or they're hit with medical bills.
Nearly 84,000 Marion and Polk county workers earned less than $15 a hour as of last summer, state data show.

Those workers aren't right at minimum wage, but "they're not high on the hog either," said Patrick O'Connor, a regional economist with the Oregon Employment Department. The Salem-area rental market still offers a slight edge over Portland suburbs, but not by much.

One-bedroom apartments run from $727 to $952 a month in the Salem area, according to the latest data from a Keizer-based real estate firm. Adding a second bedroom costs from $928 to $1,034. Three bedrooms can reach $1,300.

Affordable housing advocates have been warning that, every month, additional Salem families and individuals fall behind on rent, lose their housing and join the area's growing homeless population — recently estimated at almost 2,400 people.

The latest housing report "shows that without meaningful action by state lawmakers, Oregonians living on low incomes do not stand a chance in Oregon’s housing market," said Alison McIntosh of the Oregon Housing Alliance.

"Too many people are having to choose between paying rent and putting food on the table," she said.

Advocates say they will again attempt to pass renter protections against no-cause evictions during the 2019 Legislature after a similar bill failed in 2017.

'No hope of owning a home'

Karen Cole makes $2,439 a month as a state employee.

Cole, 27, knows that for some, that's considered a "handsome salary" with "lavish benefits." But in reality, it's not enough to get her into an two-bedroom apartment with a bathtub. She lives in a rental in northeast Salem, which she applied for with the expectation of finding a good roommate who could help cut costs.

Cole said she's already gone through four. "Perhaps it's my own fault for not choosing the best roommates, but believe me when I tell you the ones I chose were the only ones who didn't have children that they were hoping to fit in an 8-by-16 bedroom," Cole told the Statesman Journal.

Compounding the problem was the recent news that her rent was going up. Cole said the landlord was planning to raise it to $850, citing the going rate for a two-bedroom in Salem.

But the place doesn't have a dishwasher, washer, dryer or bathtub. "I had to fight with her knowing I had the weaker hand because should they choose not to let me live there, I had nowhere to go and no savings to find a new place." Eventually, rent went from $750 to $795 a month, and Cole considers that a victory.

Still, "I have no hope of owning a home because I can't save up the money for a down payment," she said.

"I can’t possibly afford a family when cost of living makes it difficult to even feed myself," Cole said. "I cannot contribute to the economy because I'm forced to lose 80 percent of my income just on housing, transportation and food — forget about savings."

Short supply drives prices up

Behind today's high rents is one of the lowest vacancy rates in Oregon, which turns the market against tenants.

Construction screeched to a halt with the Great Recession, worsening a shortage of apartments generally occupied by baristas and department store clerks, called workforce housing.

The Salem-Keizer area's apartment vacancy rate was squeezed to a paltry 2.3 percent as of last December, according to the latest survey by Keizer-based SMI Commercial Real Estate of more than 13,000 Willamette Valley units. That's a 1 percent year-over-year improvement.

But when rates fall below 5 percent, it's what industry insiders call a landlord's market. Rents escalate as tenants rush to get whatever they can find. Move-in incentives, such as limited periods of free rent, become scarce.

That's when things get more difficult for tenants, said SMI apartment broker Gabe Johansen. "You either need more units or less tenants."

If the population keeps growing as expected, he said, developers need to build more units. Johansen said that as the vacancy rate relaxes to 4 or 5 percent, "it becomes more of a competitive marketplace" for landlords.

An updated survey from SMI is still in the works, but a new estimate from Tigard-based Multifamily NW estimates Salem's vacancy rate at 3.6 percent, among the lowest in the state.

With the recession in the rear-view, fresh apartment construction on the horizon could flip the market in renters' favor as developers relax the supply strain.

Still, the last time the vacancy rate exceeded 5 percent was the summer of 2010, when it hit 6.25 percent, according to SMI data.

Downtown Salem housing coming

More housing is on the way in downtown Salem, where shops and a stylish footbridge across the Willamette are on renters' doorsteps.

The Peter Courtney Minto Island Bicycle and Pedestrian Bridge was a big draw for Cathy Reines, chief executive of Washington-based Koz Development, which has laid plans for the old McMahan's Furniture site on the corner of State Street and Commercial Street SE.

After earlier plans for 260 State St. faltered, Koz Development is attempting to build 148 apartments there, hoping to attract anyone from Willamette University students to state officials to downtown workers. Most of the apartments will be studios.

Reines expects construction to kick off this fall. The six-floor, 78,000-square-foot complex could be renter-ready by early 2020. Reines said Koz will be applying for city of Salem grant money for the project, but will not be applying for state incentives.

"Rents will be driven by the market," she said.

According to SMI figures, studio rents in central Salem for pre-1990 builds are $563 a month. No SMI data were available for newer construction.

Email jbach@statesmanjournal.com, call (503) 399-6714 or follow on Twitter @jonathanmbach.