Oregon Office of Economic Analysis
Article by Josh Lehner
We know Oregon has underbuilt housing by about 5 years’ worth of new construction in recent decades. The household formation boom during the pandemic likely pushes that to more like 6 years’ worth of new construction that we are behind. Our office’s housing starts forecast does not make up for the existing shortfall. Our forecast is more of a population, demand-driven outlook. To fully address Oregon’s housing shortage there will need to be significant changes made to the supply side of the housing industry. This includes addressing the availability of land to build on, turning the available land into buildable lots, allowing more development types and units on the buildable lots, the cost of and timeliness of permitting new construction projects, and a bigger workforce to actually build more units.
Tackling any one of these major supply constraints can be thought of as a necessary, but likely insufficient condition to truly boost housing supply in Oregon. There are a number of efforts currently underway looking at some of these, particularly around zoning following the passage of HB 2001 (duplex legalization) and HB 2003 (regional housing needs analysis) back in the 2019 session. This process can take time, both administratively to implement policies on the ground, and then for the market to respond in a meaningful way to the extent that it does. Given these ongoing efforts, our office recently looked at one of the other constraints to try and help gauge the future needs of increasing housing production.
In order to build more housing, Oregon will need more workers to do so. The construction industry has experienced essentially zero productivity gains in recent decades, and has a growing share of the industry in management positions, with a corresponding declining share in actual construction (building) occupations. This means a larger workforce truly is needed to increase production. Our office did some scenario work to try and figure out how many more construction workers would be needed if the state were to make up for the existing shortfall over the next two decades. We took two different approaches. One was to use National Association of Home Builders estimates of the number of jobs per housing start, allowing for differences between single family and multifamily starts. The other was to look at total residential construction employment and estimate new construction versus remodeling and repairs based on industry spending patterns. Over the past 10-15 years both approaches showed essentially the same employment needs here in Oregon. It works out to about 1.4 or 1.5 jobs per housing start.
Taking these methods and applying them to the existing shortfall shows that after a multiyear ramp-up period, Oregon will need approximately 13,000 additional residential construction workers in the years ahead. This would allow Oregon to build about 9,000 more housing units a year above the baseline forecast. Looking at existing staffing patterns, obviously the vast majority of the needed workforce will be actual construction workers like carpenters, electricians, laborers, painters, and the like, but there will be a need for increased business operations, office support, and management type jobs as well to handle the larger workloads.
An overall increase in the number of construction firms is likely needed as well. Even as construction employment today has fully rebounded, both overall and as a share of the economy, the same cannot be said for the number of construction firms. Yes, the number of contractors is at an all-time high, but remains about one percentage point smaller as a share of the overall number of Oregon firms. This implies Oregon has about 1,100 fewer residential construction companies than expected when compared to the pre-housing bubble era. What this really means is there was industry consolidation when the bubble burst, and then no real increases in new business formation to make up the lost ground over the past decade. This has likely been a housing constraint in recent years as well.
We know that recruiting and training workers is challenging in a tight labor market. The good news is that the number of young Oregonians working construction today is essentially as large as it has been. Even so, one challenge here is that residential construction tends to pay wages that are 15 percent below the average of all industries. The higher construction wages are paid for nonresidential work, which is about 30-40 percent above average.
Finally, when it comes to workforce needs we know that local governments will need to increase employment in their planning and building departments in order to approve more plans, issue more permits, and inspect more projects. Estimating the need here is harder. After combing through budget and personnel reports across a handful of major Oregon cities, it appears that current staffing ratios are about 0.04-0.05 FTE per new residential permit. These are inclusive estimates of all type of occupations within these departments after adjusting for commercial vs residential and the like. If any city or county wants to share their own estimate, please let me know.
What this means is that local governments will need to hire about 450 additional workers to handle the increased workload. However, in order to both handle the increased workload and increase timeliness, the employment increases may need to be even larger. One challenge here is the decentralized nature of this work. These additional workers are needed at the local level in building and planning bureaus or departments across the state. Every city and county in Oregon will need to hire a couple to a couple dozen such workers.
Below is an expanded set of slides based on what I presented to the House Committee on Housing on 9/21/22.