Since we’re on a roll, I’ll add my opinion to this discussion. I started thinking about this last month at the equitable growth dialog but haven’t until now been able to put it in a good context. This discussion has done that.

Simply put Martin and Sherwin are both correct, the problem is they are thinking about afforable housing (and in some ways affordable commercial/retail space) at two different physical and temporal scales. This lack of scale  definition in my opinion is the crux of the problem when talking about affordable housing. Martin and Sherwin each describe one of the two opposing forces that I see playing out with affordable housing, one short term and site specific, the other long term and region wide. Note, for this discussion I’m not talking about single family houses, I’m talking about apartments, condos and townhomes.

In the short term, new housing in the city is almost always more expensive than old housing, unless it is subsidized. This is because it is more expensive to build housing now than it was before, and developers will target the most lucrative market, and cheap housing usually isn’t it. New housing simply demands a premium. So yes new housing is more expensive than old housing.

However, in the long term housing prices are mostly determined by supply and demand. Once housing is built, regardless of the price to build it 15 or 20 years ago the market will determine it’s value. The larger the difference between supply and demand, the higher housing prices become. Additionally, over the long term, new housing become old housing, and old housing is cheaper. I would venture a guess that a large majority of the affordable housing in Seattle is just our older housing stock, not subsidized housing. Old housing in desirable neighborhoods may still be expensive, but building less housing 15 or 20, or even 100 years ago in those neighborhoods wouldn’t make them any cheaper now.

Thus to me I only see a two fold solution. First restricting large increases in housing where we want it (around Link, urban centers, etc) is guaranteed to increase prices in the long term, there is no other possible outcome. Period. Second affordable housing that is lost from a new project should be replaced, through programs like the housing levy and incentive zoning. This is the only solution I see that preserves affordable housing in the short term and builds up an affordable housing stock for the long term.

78 Replies to “Conflated Afforable Housing Arguments”

      1. Thanks guys. I threw this together quickly and didn’t have the chance to properly proof it.

  1. I think it also helps if you channel residential development into lots that aren’t already residential. This allows existing residents to stay in their current homes, at least until neighborhood gentrification makes their rents rise too much. But it’s a real tragedy when affordable housing is torn down to build market-rate housing, even if there are guarantees to replace that housing unit for unit. If we sustained high levels of residential construction then in the long run the city would be affordable for people of widely varying economic backgrounds, instead of the haven for young rich people that it can be during periods of renewed residential development after a long pause. And enough people would stay in neighborhoods to be invested in the long-term well-being of those neighborhoods.

  2. The economic drivers for development are usually the prospect of selling the property for more than it cost to develop or acquire. That means a built in bias towards inflation in housing values AND rents.

    With personal incomes suffering and stupid attacks on middle class wages such as those of bus drivers, there’s a disconnect here. You say supply will manage prices, but it is the lack of supply that motivates developers.

    My question is, what economic model will allow the motivation of development activity but maintain “stable” market pricing of housing?

    I can only conclude that under current practices, density costs – that is, it creates inflation.

    1. I fail to understand how increasing the number of housing units can cause inflation, where inflation is understood to be a national or regional or even citywide phenomenon. In the worst case, where no affordable housing restrictions are in place and an area redevelops very rapidly, it can cause the average rent to go up sharply in one particular area. But those units are filled with people who either vacated a place elsewhere in the city or are newcomers who would compete for housing anyway.

      1. It is the “scarcity” of housing in a given area that causes prices to rise given a constant demand. Developers want this. That is the “inflation” I was referring to. Naturally, when prices rise, developers will seek to add units to profit from it. Unfortunately, rising prices have a deleterious effect on the rest of us whose wages are declining.

    2. Property is not just a speculative investment. Even if the value of a property never goes up, if rents exceed costs then you make money. Property is also a hedge against inflation–if there’s a rise in prices that erodes savings, you can counteract that somewhat because your property will rise in nominal value accordingly.

      It’s a bad investment when the general economy is more or less deflationary and housing prices are crashing, which is the case now. But the flip side is that interest rates are low in times like that and if you can afford to wait for the market to recover you can build a lot more with the same amount of capital, and make a lot more in the long run.

      So you have it pretty much backwards. Housing is an inflation-hedging investment, and building more housing puts downward pressure on rents over time. In fact, if you build too much just before a market collapse you will contribute to sharp drops in rent after the collapse. Just look at what happened to condos–too many were built, the market crashed, now many of them are converted to apartments with much lower rents.

    3. Of course developers have to make money off their development, but that is the case anywhere it is done, in the city or in the suburbs, doesn’t matter. Simply saying no to new housing doesn’t change that, and it is unrealistic to think that we can subsides all the new housing in Seattle so it is affordable.

      I don’t understand your question about maintaining a stable market. That is essentially the definition of demand and supply. If they aren’t balanced price increases or decrease depending on which way. You will certainly have inflation but our entire economy has inflation.

      1. Also if you adjust for general inflation in the economy, housing prices are about where they have been historically. The nominal price is higher but in terms of actual purchasing power the price is similar. For lower-income people housing is more expensive relative to income but that’s a result of income stagnation and inequality and not higher house prices. If someone thinks they can’t afford a house it’s not because the house is too much relative to the economy as a whole–it’s that their income is too low because it hasn’t kept up. Blaming gentrification is easy but it’s misplaced.

      2. We don’t need to subsidize “all the new housing in Seattle so it is affordable”.

        We made a mistake decades ago in stilling housing development in the city. Had we not, we’d have buildings aging into affordability now. We have a choice today which affects how much affordable housing we’ll need in 20 years – let developers build, meaning we’ll need less later, and not letting developers build, which means we’re creating problems for ourselves later.

      3. We have a choice today which affects how much affordable housing we’ll need in 20 years – let developers build, meaning we’ll need less later, and not letting developers build, which means we’re creating problems for ourselves later.

        Exactly, though I don’t think we need to wait 10 years. Blocking developers means blocking housing, means making housing more expensive. Full stop.

      4. Unfortunately the John Fox crowd seems to believe that if you don’t allow any new development in Seattle somehow you will stop gentrification and keep housing prices stable.

        I’m with Ben here, more housing means lower prices in the long run.

  3. I appreciate you trying to bridge the gap between microeconomics and macroeconomics, but I think you’re still missing a point. Building more capacity reduces the price of housing in a given market. Period.

    It sounds nice to require affordable housing if you’re replacing affordable housing. But how do you make it affordable? If your claim that new housing is always more expensive (translation: the market will pay more for it) than old housing, then how do you get the market to pay less for this housing? Sell or rent it for cheap, and give it to the first people through the door? The market sets prices – not the developer.

    I’ll disagree with another claim you make, that housing costs more to build than it used to. In absolute dollars, of course, but our factory-based materials and power tool methods have dropped the price of construction per home on a relative basis. Newer housing sells for more either because it’s better (more window area, higher quality construction, views in tall condos, elevators, air conditioning, etc.), or because it’s bigger (Ben has argued this – that developers in a constrained market build for the rich). The first problem is not a problem – we’re adding value to our housing stock. The second problem would go away if we removed some of our constraints.

    All of that said, I could imagine using zoning muscle to require developers to build smaller units. And that’s a reasonable compromise until we can agree to reduce zoning constraints.

    1. I appreciate you trying to bridge the gap between microeconomics and macroeconomics, but I think you’re still missing a point. Building more capacity reduces the price of housing in a given market. Period.

      You’re making two gross simplifications here: you’re ignoring the true elasticity of demand, and you’re treating all housing as fungible. If there’s no demand for housing of a certain price range, or in a certain location, then building housing of that type or in that location does nothing to lower prices. It might as well not have been built at all.

      1. And you’re illustrating the opposite and also grossly implausible and simplistic situation, namely that there would be no demand for housing in any area of Seattle where anyone would think to build. You could build almost anything in any plausible price range and people would fill it. Developers aren’t stupid and they aren’t going to build outside that range.

      2. No, I said that if there is no demand for a certain type of housing, building it doesn’t lower prices. I never said anything about the existence of that demand.

      3. Ok, then I’ll spend the effort to rebut. Build a house in your theoretical market where housing is completely elastic and non-fungible. Then house is free, and affordability hasn’t improved. But wait! That also means that we’ve solved homelessness. (or built a house that even the homeless don’t want)

        Any more fungible than this extremely ridiculous model and overall housing costs go down.

      4. Kyle, if there’s no demand for a certain type of housing, a developer isn’t building it. Duh. The fact is, there’s a lot of demand for housing across the board, and we don’t need to dictate what sort the market should provide, just let them build supply to meet whatever demand they can.

      5. Kyle, if there’s no demand for a certain type of housing, a developer isn’t building it.

        This is not true. Speculation is very much a part of the development industry. And as we’ve seen all over town, and was pointed out in other threads on this topic, it’s not unheard of to buy land for a multifamily project that never pencils out financially.

      6. Matt, I didn’t say the demand of housing was completely elastic. My point was that the shape of the curve is probably very strange (I’d wager pooled around certain prices)—and that’s only if we assume homebuyers and renters are rational.

      7. I wouldn’t be surprised if the curve isn’t linear. That doesn’t change the fact that building more capacity reduces the price of housing in a given market, which is what you argued against.

      8. Depends on how you define “given market”. When developers take a ’60s era home and barn on two acres in Bellevue and put up two multi million dollar lot line to lot line mansions there might be downward price pressure on other million dollar homes (usually not) but the price of the existing “affordable” homes goes up. That’s because the neighborhood is deemed “improved” and because the supply of tear downs for future mansions decreases. Same thing happens on a different scale when new highrise buildings go up in Seattle (or Bellevue). This is plainly obvious to anyone that wants to live near the transit center in Bellevue.

      9. [Kyle] Until we’ve solved homelessness, there is always some demand.

        You’re confusing the demand schedule with the quantity demanded. There will always be demand for housing, but if nobody’s willing to sell at the price that people are willing to pay, then it doesn’t do a lick of good.

      10. [Bernie] Even in your extreme and heartbreaking example, there’s one more family living in Bellevue that wanted to live in Bellevue. Overall the housing price went down, and that one additional family could move in from an outer suburb.

        [Kyle] If nobody’s willing to sell at the price people are willing to pay, then that’s a temporary situation. Like the empty housing stock right now – owners are waiting for the market to correct. But a decade from now these owners will have made mortgage payments and tax payments on a property without income for, well, a decade. Eventually they will sell at whatever the market wants to pay.

      11. @matt no, you’re out of touch. The latest houses “sold” aren’t housing anybody. They’re completely empty and just a market anomaly. Investors bought them to get them off the market. I live here, nobody lives in many/most of these “sold” properties. The price doesn’t drop. The owner doesn’t have to sell. It can be a tax dodge since WA doesn’t have an income tax.

      12. [Bernie] Market forces still apply. Owning an empty house means paying mortgage and taxes on that house. A decade of that and you approach the original cost of the home. Anyone clinging to a large empty mansion is speculating – and even speculators have to sell sometime (and usually at a loss).

        If it’s a tax dodge to avoid income taxes, why wouldn’t they have bought a little house? Now they have to pay real estate taxes on a huge place.

      13. Matt, it’s senseless to come up with theories that try to deny reality. The more mansions that are built the higher the prices have become. Even over the last three years when the market has basically ground to a halt prices are 3x what they were a decade ago and they just broke ground on a new spec mansion. New development, unless it’s government subsidized “low income” housing means rising prices. Developers don’t develop if they can’t build something worth more than what they tear down.

      14. I absolutely understand this viewpoint, since it’s built on what you see around you – new homes are built and prices rise – therefore the two must be connected. But the connection actually goes the other way. New homes are built because demand rises (as does price). The correct way to look at it is “the higher prices have become the more mansions that are built”. Builders work to meet market demands. They don’t create them.

    2. Yes more housing equals cheaper housing, but maybe not on a case by case basis. It depends on the specifics.

      On the second point there are two ways, through the incentive zoning program which gives developers more height or FAR for including housing that is required to be “affordable” from some time period. The other way is through the seattle housing levy and other federal and state tax incentive programs.

      http://www.seattle.gov/housing/levy/
      http://www.seattle.gov/planningcommission/docs/SPC_IncZon.pdf

      Your point about cost is a good one.

      1. No, always, even on a case by case basis, increasing the square footage available decreases the cost of a given square foot. The number of dollars available to purchase or lease is independent of the number of square feet available.

      2. In my opinion it really depends more on the specific situation. A single house converted to townhouse development will have different economics than a 2 story building going to a 20 story building.

      3. No, Ben, it does not. As I mentioned above, property is not fungible. We’ve all heard the mantra “location, location, location.”

      4. It is fungible to a certain extent, and to that extent decreases the cost of housing elsewhere. There are lots of people who’d love to live in studios or apartments in Pioneer Square, for example, and by increasing the housing stock there, we open up more housing in further-out neighborhoods of the city and so on. That is what transit advocates should want — higher density, at every point in the city where it doesn’t conflict with industrial use.

      5. I’d be reluctant to argue for higher density everywhere simultaneously. There is little point to sticking a new multifamily megaproject on Magnolia Bluff, because in order to recoup their investment the developer would need to price themselves out of the market of people who want to live in multifamily housing. Then the project fails.

        Failed development projects dry up liquidity, which stakes further growth and development. Developers are risk-averse for a reason.

      6. I’m going to take the liberty of quoting a message from the last thread (too many discussions of the same thing in different places…)

        True, but where I was going with it is that so much of Seattle is zoned for single family only, that people who would take a townhouse in RV or Greenwood are pushed out to single family homes in the ‘burbs.

        Sherwin is correct to say that we can’t just build gobs of housing downtown to fix all our problems. We need to build high- and mid-rise apartments in the city center AND upzone a notch (from houses to townhouses, say) in the “suburban” areas of the city where it makes sense, so that families with kids have a place to live too.

        Property is somewhat fungible. Somewhat. Can’t we all just meet the middle here?

        This is what I’m arguing for and I hope we could all agree on. Increase density a notch in the places it makes sense. That means among other things (and yes, some of these things have been done already):

        * In places like Magnolia that are basically suburban, allowing backyard cottages and making other minor changes that don’t upset the people who live there.
        * In designated urban villages, upzone to allow more apartments and townhomes. Encourage both density AND a diversity of unit sizes, from studios to three bedrooms, discourage parking. Designate more urban villages as time goes on, if the people who live there are OK with it.
        * Relax the prohibition on residential use in the downtown core.
        * Encourage mid- and high-rise development in places where that zoning is already in place like Belltown, SLU and First Hill.
        * Pioneer Square has to be handled specially because of its historic nature, but I believe it is the last really underutilized bit of property and it can be developed without compromising its character too much.

      7. Kyle, property is indeed fungible – it’s just fungible in a way you’re ignoring, the way Bruce points out. If you don’t build the $500,000 condo downtown, the same person buys a $500,000 house. In either case, the impact on the overall market is the same – someone is displaced from a suburban house they can’t afford anymore the same as they’d be displaced from an apartment downtown they can’t afford anymore.

      8. Ben, you need to think beyond the simple transaction of square feet for cash. First, we need to start with the assumption that someone who is willing to spend $500,000 on a single family house is at all willing to spend any money on a condo.

        Then we need to consider where this housing is built. A condo in Interbay ioverlooking the freight yard s not the same as a condo downtown looking over the bay. Even if they were priced the same, they are valued differently. Yes, important distinction: value is not equal to price!

      9. In order for a dwelling unit to be fungible in the sense that we’re using that word in this discussions, it is not necessary for it to evaluate favorably against every other possible housing choice, or even a majority of other choices. Yes, it’s absolutely possible that a given person with a half-million-dollar budget will be interested in a luxury unit downtown, vs a big house in Magnolia. They aren’t going to care about either the apartment in Interbay or my cheapo apartment downtown, but there are plenty of other people who will care about that choice.

        The big segmentation in the market is between people with kids and without. Those two groups of people have different needs, although they overlap somewhat. We need to provide for both, and we can do that by building more apartments and condos in the city, which will have the most benefit for people without kids although have some indirect benefits for families, and we need to upzone a notch in the neighborhoods so that families can have transit-accessible places that meet their needs.

      10. I think we’re all in agreement that Seattle could certainly stand a small across-the-board upzone. But it would not make sense to upzone all of Seattle to 120′ or even higher, with the hopes that it gets treated as a theoretical maximum to be reached in the far future. Such a policy would radically disrupt the land market.

      11. Kyle, you keep bending over backwards to find “reasons to limit” growth in the city – when the alternative is *always* growth in the suburbs. I think you need to come to terms with your fear.

      12. Ben, I’m performing analysis. We are at state X. What are the effects of moving to state Y?

        You can’t simply say “state Y supports desired outcome Z, so we should move to state Y.” That relies on the untested assumptions that moving to state Y does in fact support outcome Z, and that moving from state X to state Y will support outcome Z.

      13. Kyle,
        Why wouldn’t removing all height and density limits in the city of Seattle work? Most developers aren’t going to plop down a 50 story condo building out in South Park just because they can. The big buildings are going to go where the demand is and where the land values are high enough for 50 story towers to make sense. The same thing with townhouses, or 5 over 1 “bread loaf” buildings.

    3. I hate to come off here as a market fetishist, but housing is priced like anything else: by the intersection of (sorry, but I just gotta say it) supply & demand.

      It gets a bit more complicated, though no less true, when you look at dense urban neighborhoods, particularly if you like old buildings and don’t want a parking space. As Mr. Kunstler points out, they don’t make ’em like that anymore. So if you really want a central location with walkable scale and transit convenience, you’re gonna pay. And you’ll likely pay a lot more than you would have 2 decades ago, when not as many people wantd to live in Seattle.

      But as always, the answer to lowering the cost is to increase supply. So if you want to lower the cost of housing, do what you can to see that more gets built.

      1. TLjr, we’re in the same boat. I hate coming off as a market fetishist (or a libertarian, big L or small), but in this case, housing supply limits are EXACTLY what has been pricing people out of the market, and I’m ashamed that we’re even having the discussion on the blog this way.

      2. Ben we have much more dysfunctional discussions on the blog than this. I think it has been a fairly productive and interesting day if you ask me.

      3. TLjr:
        I hate to burst your bubble, but housing is NOT priced like anything else. Sure supply and demand have something to do with it, but housing supply and housing demand are manipulated by non-market forces so it’s hard to compare housing to any other consumer good.

        On what other product can you get a 30 yr government subsidized loan? Housing is both a market good and a merit good. It is subsidized in a variety of ways, but mainly skewed toward suburban single family homes, which is not surprisingly, what mainly gets built.

        Unfortunately, location of your house determines many many other factors that figure into your economic well-being, not all of which are included in the price of the house: health, future income potential, education, etc., so there’s no reason that housing should be like other market goods.

        just sayin’

      4. @J Koteen: Housing’s unique in a lot of ways, yes, and there’s a lot that can manipulate that particular market–much of it, as you point out, that encourages development of single-family houses on the urban periphery. Other policies, of course, discourage the construction of rental housing.

        But my point remains that housing prices are not pushed upward by new supply. Though if you’re aware of a particular characteristic of the housing market that would make this so, I’d be very curious to hear about it.

  4. Local effects are important. For an entire market, more units of housing means cheaper housing overall, which is good up until the point that you create an oversupply and end up with empty buildings or empty lots that were cleared for development that never happened. But if you increase desirability of a neighborhood for more affluent residents you will make rents go up locally for people in existing housing. Of course, those people can move to the newly affordable housing in other parts of town or out of the city. But the city and specific neighborhoods pay a price for that. Too much development too fast in one neighborhood decreases diversity. You lose lower income people, including long-term residents who have a stake in their own neighborhood, and those people are often diverse in ways other than income. And you create a huge stock of buildings of the same age, which means that you are setting the neighborhood up for a fall down the road when those buildings simultaneously reach the end of their useful life. This is how a neighborhood falls victim to its own success. To a degree it’s inevitable–neighborhoods wax and wane–but if you can set up a pattern of continuous but selective redevelopment then you can sustain the good years for a lot longer.

    So that’s why you need limits on development, and encouragement for affordable housing. You want to keep existing neighborhoods intact while brining in enough changes to keep them vital. It’s a wave that’s hard to surf, but you can’t surf without new waves coming in (and the old ones breaking), and you can’t surf in a tsunami. There’s a balance that well-meaning people often fail to appreciate (from both sides). One thing that was great about Jane Jacobs is that she understood this tension and described changing cities with incredible insight and detail. I think most people see one side of the process and fail to appreciate the dynamic.

    1. Indeed, well said. Reading these threads I can’t help but think that the “induced demand” we’re always talking about with regard to highways may apply to housing as well. One of the factors in my decision to buy a condo in Belltown was that half my friends at the time lived in Belltown. Adding housing supply may lower prices in the short-term, but over time adding more residents can increase the desirability of living in a neighborhood and contribute to an increase in demand for housing there.

    2. I’m not sure what you mean about increasing the “desirablity” of a neighborhood. I think you’re referring more to changes in demand. Craftsman houses in Wallingford got very popular and very expensive some years ago, but there wasn’t much that changed about the neighborhood.

      On another topic, I think the discussion of fungibility is more a question of substitution. Barrels of oil of given grades are fungible; one’s exactly as good as another, and if a hurricane hits Texas, a barrel of Saudi crude will work every bit as well.

      Housing isn’t fungible for many reasons. For one, it’s not portable, unless you live in a trailer park, and even then, not very. Throw in things like amenities, school districts, etc., and there’s a lot more to a given square foot of housing than the old joke about location, location, location.

      But housing substitution is very common. If a one bedroom is too pricy, you might choose to live in a studio, or with mom & dad. If you’d prefer to live in Queen Anne but can’t afford it, you’re likely to look looking elsewhere.

  5. Perhaps it’s obvious, but one of the biggest reasons for Transfer of Development Rights is the fact that older buildings are more affordable, as Roger Valdez points out (Martin linked this too):
    http://bit.ly/feIRVV
    They also add “neighborhood character” of course.

    At least in South Lake Union a lot of the older housing stock is owned by non-profits like LIHI or CHH. There was a TDR program (unfortunately expired now) used in the Amazon Phase IV buildings. After a quick search I found this Vulcan press release about it:
    http://www.vulcanrealestate.com/content/Docs/VulcanGroundbreakingRelease.pdf
    “In return, Vulcan received Transfer of Development Rights from Capitol Hill Housing that provides 36,000 square feet of space as part of the increased building height approved for the new headquarters. Capitol Hill Housing will use the funds paid by Vulcan towards making critical improvements to the 35-unit Brewster Apartments built in 1916 in South Lake Union, which will be maintained as an affordable housing complex for the next 50 years serving households below 50% of area median income.”

    I also have to point out that it’s obviously possible to build brand new apartments for median income workers–they’ve been going up all over the city over the past decade! Yes they’re more expensive when new than a 1920s apartment, but they at least provide an option to live in the city. (Full disclosure, I used to live in a 1920s one-bedroom apartment but now live in a two-bedroom in a 2003 LEED-certified building.)

  6. The average home price in America right now is $179,000.

    Almost no homes in Seattle proper are at or lower then that, hence Seattle is not affordable to any company or person who has a choice.

    However, in South King County, there are many new homes that are on the market starting at about that rate (here in Kent for example).

    Still those are the smallest units in the new communities.

    1. “hence Seattle is not affordable” would only be true if Seattle had America’s average income.

    2. Another way to look at it is, fewer people want a house in Kent, that’s why the prices are lower.

      House prices everywhere fall the farther you get from the central city and frequent transit lines. Amazingly, people pay for housing as if they want proximity to transit, even if they don’t. The only exceptions are extraordinary houses (million-dollar mansions with water views) and blighted inner-city areas (Detroit, Cleveland).

      1. House prices everywhere fall the farther you get from the central city

        Bingo! The higher the density (in America, it’s of course skewed if you bring in impoverished neighborhoods in cities like São Paulo and Mumbai) the more it costs. It’s more expensive to provide basic services like sewer, garbage, etc. which disproves the notion that density == efficiency. If you want to create a city that’s basically a cattle lot then sure, density is efficient. If you want a quality urban environment it cost big bucks.

      2. [Bernie] Housing prices are simply a measure of desire – not cost to build. Yes, we spend more money constructing our houses on a per square foot basis, but that’s because the cost of construction is actually quite small compared to the cost of the land. And the cost of the land comes from how much people will pay to live in the city compared to the suburbs.

        It’s also far cheaper to provide services in the city than the suburbs.

      3. What construction are you talking about. Typically a lender wants the value of the land to be about 1/3 the cost of a new home being built with exceptions for things like waterfront. When you start building highrises the land value as a percentage is tiny. Here’s the 2011 appraisal values for the Columbia Tower; $35,559,600 for the land, $260,404,400 for the improvements.

      4. And you’ve just shown a great example of why we build up. $35M looks tiny next to that $260M number. But that’s for 1.5 million sf. If you had just built a 2-story suburb style office there the cost would go from $191/sf to $1,033/sf. Most of that $1,033/sf is from the value of land. Even though it’s expensive to build up, it dramatically drops your per sf cost – even in extremely expensive examples like the Columbia Tower.

      5. Matt, what are you on about now? The reason the patch of dirt the Columbia Center sits on is worth $35M is because zoning allowed the building of a highrise tower. It’s true that the base land value as a percentage is less with a highrise than a two story office building but the cost of building up greatly outweighs any savings per square foot. I just ran the same calculation for the two story office building I work in; it comes out to $94 per square foot. The higher the zoning the more expensive it’s going to be to build; both total project cost and price per square foot. But the land will almost always be much smaller than the cost of construction.

      1. Russel moved from Tacoma to Seattle because they got a screaming good deal on an empty building of which they occupy only a small portion. No forklift drivers are on the payroll and even though there is a lot of empty space there won’t be any distribution centers moving back into Seattle. I wouldn’t be surprised if Russel sells the property (at a huge profit) when the economy recovers. They may lease the space, move to Bellevue or back to Tacoma.

      2. I was making a rather smart-ass reply to Bailo’s “Seattle is not affordable to any company … who has a choice” comment.

        The point is Russel chose Seattle, Safeco chose Seattle, Amazon chose Seattle, and even Microsoft has been leasing space in the downtown Seattle core.

      3. Well Safeco has been bought out by Boston based Liberty Mutual. That’s going to leave a bigger hole than Russel can plug. Microsoft has been leasing space where ever they can find it because construction and acquisition on the main campus hasn’t been able to keep up. But they are slowing pulling back leased space except in Bellevue where they can put their name on a great big tower. Cities and States compete to pull in big name companies. Seattle has been able to hold it’s own but only in the last couple of decades has it had any real regional competition for class A office space. What Bailo was pointing out is that Seattle has become too expensive for a lot of light industrial users. The Kent valley has been transformed from farmland to tilt-ups and parking lots even though there’s a wealth of empty warehouses in South Seattle.

  7. Adam is basically correct. Newness is an expensive characteristic in housing. Increasing zoned capacity should be good for affordability, not for the individual new units produced, but for the impact they have via increased supply on the whole spectrum of the housing market. Other interesting margins are movement through time, household formation, and income growth by households. The housing and household markets are quite flexible and atomistic. Households are forming and reforming; consider the self storage business. Many individuals move through different housing types as their incomes grow or shrink and they form households, have children, divorse, etc. Increasing supply is good. We need to make our urban centers and villages attractive places so they become dense and even more attractive.

  8. It basically boils down to this; a housing unit that doesn’t exist is a housing unit that no one can afford.

    1. So if a $750,000 home is bought and redeveloped into a $4.2 million dollar unit somehow that becomes a unit “someone” can afford? I’m guessing all of the people arguing for more supply don’t own property and haven’t followed the market for the last 30 years; or even been alive for 30 years. Let’s talk about sustainability.

      1. Nope and nope. That doesn’t mean I’m unqualified to discuss the property market. That’s one more housing unit available to someone, although probably not the people who lived there before. If it’s the situation that you describe above where the market is vastly overbuild and investors are holding empty houses for tax reasons or something else, that’s a distortion created by some other piece of law that we should get rid of. If it’s a temporary situation where investors are holding out for a buyer, that’s just the market at work: eventually either someone will get it or they’ll come down in price.

        Regardless, whatever Bellevue’s problems may be with housing overstock, I assure you no such problem exists in Pioneer Square or any of the urban areas of Seattle.

      2. Your hypothetical is, well, pretty hypothetical. But yeah, if it were built, it’s a fair assumption that someone can afford it. Developers build with the expectation that they’ll sell what they build, and it’s not a $4.2M unit until it sells for that. Which it might. Zillow shows about 25 units for sale in the $4.2M and up range, a rather tiny fraction of the housing supply in the city and the region.

        But you have provided a nice example of the conflicting goals of American housing policy. On the one hand, we want everyone to have a house. On the other hand, we want everyone’s house to go up in value; which practically demands some constraint in supply. I expect this is one of many reason we in the US have settled on a compromise where existing markets are frozen in time, and new housing is allowed only at the urban periphery.

      3. Hey old man, this topic originated with a discussion of upzones in Pioneer Square, not McMansions in Bellevue. I’ve owned three houses here and lived here for the better part of three decades, but that doesn’t make me a know-it-all, I was just saying what my view of the situation is. Limiting housing supply limits affordability, period.

      4. Sure, if you create a bubble with insane government lending policy you’ll see a steep rise followed by a correction. Everyone seems to be ignoring the demand side. Demand is created by population and employment; not by upzoning. Housing doesn’t appear because you zone it so even if you do spend billions on a rail system. Wanting density around Link Stations is great. It’s needed to make the investment seem worthwhile. But a transit system doesn’t create demand (it may concentrate it). The whole process of trying to steer demand by building transit is backwards. Transit should be built according to demand.

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