New Housing in Portland Fills Need While Surrounding Towns Feel Pressure of Shortage

Nov 14, 2016

The Portland-area housing market has been on a roll the past several years — or a steamroll for many middle income residents. 

Vacancy rates are low, rents have outpaced income growth, and some renters have been forced to move to less expensive areas. That demand has driven some fast-paced development in Portland and increasingly, in neighboring communities as well.

Early this year, a federal study projected that within two years, the Greater Portland area would need some 2,000 new rental units to meet demand.

That’s no secret to the developers who’ve been on a construction and conversion binge. Jonathan Culley and Tom Watson have teamed up to build the biggest new market-rate rental building Portland’s seen in at least three decades, here, over the longtime home of Joe’s Smoke Shop.

“Yeah it won’t be called Joe’s Smoke Shop Apartments,” Culley says. “We’re kicking around some names.”

Culley stands in the open-framed top floor of the building-in-progress. The view is impressive, panoramic — across the sparkling Back Bay to the faded White Mountains beyond, over the city’s bustling West End and, down below, the 19th-century brownstones of historic Longfellow Square. Seven stories, 110,000 square feet of housing and amenities, 40,000 square feet of parking, 139 market-rate units.

Looking at the Portland skyline from the window of an apartment complex under construction at the former Joe's Smoke Shop location on Congress St.
Credit Fred Bever/Maine Public

“Of all the projects that I’ve permitted in Portland this is probably the least controversial, because it is in such a dense urban block,” says Culley. “Where this building is very consistent with the other buildings in terms of size, scale, mass and density, the building I just built on Andersen street is the first large apartment building in that neighborhood. And so it was a little more challenging to sell that vision to the neighborhood.”

“One of the things we talk about when we talk about the housing crisis is that we need to build more units,” says Culley’s partner, Tom Watson.

His company, Port Property Management, is the single-largest landlord in the city, renting more than 1,000 units. When he started out in the early 1990s, he says he had trouble renting up the first multi-unit he bought, a few blocks from here. Different story now, when average rents have run up more than 40% over 5 years or so. He and Culley hope to rent these units at $1,100 to $1,500 per month.

“We can make the argument that for a lot of folks, that’s not affordable,” says Watson. “But what happens is, as long as the units are built, you’ll get a number of the folks that will rent here will migrate from some of our apartments in the west end. And that will create a vacancy in some of my other apartments and drive that rent down. Building more units will drive vacancy elsewhere, and suppress rents.”

Portland officials say that over the past two years, some 800 units — for rent or for sale — have either been built in the city or are soon to come on line. That influx of new stock might just act as a brake on rents and prices. Kevin Bunker, who develops affordable and market-rate housing in Portland says The Joe’s Smoke Shop Project is being closely watched. He says how fast it rents up, whether it can command the rents the developers are asking for — could prove a bellwether for where the city’s overall rental market is headed, and how eager banks will be to finance more new units.

“I don't think anybody thinks there’s going to be a crash or even a correction,” Bunker says. “But it sort of seems that the go-go glory days are coming to an end.”

And some of the pressure is being exported to Portland’s neighbors — to Westbrook, for instance, where contentious debate has broken out over a potential development moratorium. In Scarborough, a national development group and a local land owner recently proposed a 300-plus unit apartment complex on Route 1 — near the Scarborough Land Rover dealership.

Tom George is a vice president at the Newman Development Group. He says his company is looking for sites to build new multi-units in various Greater Portland communities, such as Scarborough, Falmouth and South Portland, where rents do seem to meet developers’ expectations.

“If not out-perform,” George says. “And so that usually means that there’s not much supply or not enough competition. And those are in some dated properties. Properties that are 20, 30, 40 years old that are commanding pretty strong rents and are fully leased up. So we look at things like that and all those indicators point to a good market.”

It’s been decades since any new multi-units were constructed in Scarborough. But town officials say the Newman group isn’t the developer eying their community, — another is considering a similarly-sized project, just a few miles down Route 1.