On the other hand, Seattle sure does feel awful bubble-like lately, doesn’t it? There’s so much construction happening everywhere that I’m reminded of Seattle in 2000, or 2008. And worse, it’s all aimless, unfocused construction of the kind where everyone is building the exact same type of building over and over again—luxury condos, with retail on the ground floor—and some of them are certainly doomed to fail. How much retail-on-the-ground-floor does Seattle need? Shouldn’t we be smarter about growth, and consider holistically what this city needs? Even worse, all of the construction is aimed at the wealthy, and in today’s America, we all know that there are only a limited number of wealthy people to go around.
I call your attention to the post because Paul’s remarks do a good job of illustrating how most people think about housing supply and demand.
Paul is absolutely right to sense the outward manifestations of, if not a bubble, then at least a general frothiness in the Seattle real estate market. Cranes are everywhere. 10,000 units opened this year and nearly 15,000 will open in 2015. Housing prices are rising. Houses are getting multiple bids, often well above asking price. Coincidentally, housing prices are now almost exactly where they were when Seattle Bubble author Tim Ellis started his blog in 2005.
However, none of that proves we’re in a “bubble” per se. My best read of the market right now is that we have low supply and high demand driving prices up. In 2007, there were over 12,000 single-family homes on the market in King County. Today there are just 3,000, despite the increase in population. Real estate bubbles are typically fueled by large numbers of people borrowing easy money to buy a home that everyone assumes will appreciate wildly. Today, relatively few people qualify for a mortgage and even fewer can find a house to buy (in Seattle, anyway).
Also, to my eye there appear to be far fewer “luxury” developments than the last housing boom. What I see are mostly apartment buildings targeted at renters, not ornate condos like Escala in Belltown. I do agree that the style of multi-housing is fairly monotonous: 6-story “breadboxes” with retail on the ground floor. But that has more to do with the zoning codes than anything else. Will all that retail fill up? Hard to say. There are only so many tanning salons and Potbelly sandwich shops to go around (and many retail categories, from travel agents to bookstores, simply no longer exist). In the long run, though, I’m not sure how much it matters. On Capitol Hill, the auto repair shops of yesteryear have been converted to serve truffle fries and roasted brussel sprouts. Spaces can be adapted.
I also think it’s interesting to say that some of these developments are “doomed to fail.” Fail for whom? We overbuilt in 2000 and 2008, but the housing stock that was created during those periods was all filled up by 2003 and 2011, respectively. Some developers took it on the chin, no doubt, but that’s the game. Meanwhile, Seattle got more housing. In the long run, yesterday’s luxury housing becomes tomorrow’s middle-income housing.
Again, I don’t bring this up to pick on anyone. I think Paul’s expressing a common sentiment when it comes to real estate development. I just think it’s worth considering the costs and benefits of development from a few different angles.
66 Replies to “Bubbles and Housing Stock”
Thanks for picking up on my post! I certainly don’t feel picked-on, and I’m very happy to see your thoughtful comments and very useful links.
However, I am interested in this comment of yours: “…to my eye there appear to be far fewer “luxury” developments than the last housing boom.”
One of my major points in that post was that people are (or at least feel as though they are) being priced out of neighborhoods, and that this construction doesn’t seem to offer a middle ground between upper-class renters and apodments or subsidized housing. I wasn’t trying to declare a new bubble of the sort like we saw in 2008, but I do think that developers aren’t shooting for the middle anymore, only at varying strata of the wealthy, from a base level renter who makes about as much as a ground-level Amazon employee on up to the fabulously well-to-do. There are lots of folks below that base level who aren’t being served by these new buildings, and those people are wondering if they’re going to have to go live in Shoreline or Kirkland and bus into town every day to their jobs. To my eye, those folks are underserved.
New construction is generally being built for those making well over median income, and established buildings’ rents are rising too, albeit less steeply. But middle-income renters don’t have to go to Shoreline or Kirkland just yet, and I’m convinced that building so much in the core (even if they’re all expensive as hell) is keeping a lid on rents elsewhere, particularly in the south end. You can still easily find <$1,000 apartments in Beacon Hill, parts of the C.D., Columbia City, Greenwood, Delridge, etc.
It is a sad reality that folks under the base level Amazon employee simply cannot pay enough to make new housing for them pay to investors without an ongoing subsidy. Land suitably zoned is simply too scarce in Seattle and therefore costs too much. There’s no cabal of developers squeezing out the middle class. Believe me, if there were an economic opportunity, developers would be filling it.
They are underserved, but it’s not clear that there’s an easy way to serve them. “Affordable” means “old” — new construction by definition is going to be too expensive for the middle ground between “luxe condo” and “subsidized”. This is why even a new building of 500 apartments that displaces an old building of just 25 can reduce the affordability of neighborhoods. At least for now.
The only way out of this, unfortunately, is to build in cheaper, less attractive areas and move there, and create new (or revitalized) satellite centers that are cool enough, walkable enough, retail-oriented enough to satisfy the needs of some of the people who can’t afford the hipster zones in the center. Example: Burien — I could live there. Counterexample: Lynnwood — I COULD live there, but I wouldn’t like it.
Sorry, but I don’t think that is the only solution, nor is it the core of the problem. I don’t know what the break even point of an apartment is, but it has to be a lot less than what people are charging in the city. It is much closer to what people are charging in those places in the suburbs you mention. It doesn’t cost much more to build the building in the suburbs, rather than the city. In other words, if building a six story apartment in Lynnwood makes sense because you can charge $700 a month, then you could charge $700 a month in Seattle as well. But of course, you won’t, because you can charge $1200.
But if you can build more places in the city, then supply catches up. I have no idea if the cost per unit goes up as you go higher, but my guess is that it doesn’t until you get really high. In other words, a 12 story building will not cost twice as much to build as a six story building (correct me if I’m wrong).
Then you have the high cost of parking, which is substantial.
You also have huge areas in the city which don’t allow much in the way of apartments. These might not be areas you want to live (Wallingford or Maple Leaf — yuck) but you could easily see a lot of growth there without building a six story building. Ballard is a lot denser than most of the city precisely because of this kind of growth. Some of these areas will never be Capitol HIll, but they could prove to be extremely popular. A lot of these areas don’t need the overhaul that has occurred in Ballard, but just a little loosening of the rules (duplexes as long as they aren’t bigger than regular houses, town houses, mother in law apartments, etc.). One key part of this is to add density that is prettier. The easiest way to do this is to eliminate parking requirements. The growth in Ballard was especially ugly, which turned people off the idea of density. A big reason it was so ugly was because of the parking requirement.
“Ugly” is a bogus concern. In reality, after a few years go by, nobody notices if a building is ugly or not. There were REAMS of super-hideous buildings built all over the city in the 70s and 80s and 90s (the 50s and 60s too, but tastes have changed and those are now seen as cool again). There are dozens of uglier than hell buildings in my neighborhood that the most sensitive aesthete in the universe could walk right by and not see. Those four-packs and faux-Craftsman style thingies, you won’t even notice them soon enough.
“I have no idea if the cost per unit goes up as you go higher, but my guess is that it doesn’t until you get really high. In other words, a 12 story building will not cost twice as much to build as a six story building (correct me if I’m wrong).”
I’m no expert on the subject, but as I understand it, a six story building can be built cheaper becuse it can be wood frame structure on a concrete podium. A higher building will need a more expensive structure. That leaves out land cost, so whether the per-unit cost is higher will be site-dependent.
“In other words, if building a six story apartment in Lynnwood makes sense because you can charge $700 a month, then you could charge $700 a month in Seattle as well. But of course, you won’t, because you can charge $1200. ”
Right, but you paid a lot more for your land in Seattle. I recently looked into this for Seattle SF homes in a walkable area. Home prices were roughly the same as land prices. So if you look at a $800k house, likely that plot of land is worth around $400k and the actual house is worth $400k. That land value actually comes from demand, and you’d pay it even if there was no house on that lot. Of course, as you get into the multifamily land those values skyrocket because there’s so little MF land available. Increase supply of MF land (by upzoning SF land) and you’ll drop this land value.
@Matt, I purposely left out land prices because it doesn’t matter. Your land is worth more in Seattle because you think you can get more rent once you build (or more for your parking lot if you don’t). But it doesn’t change your decision as to whether it makes sense to build or not (unless you are really making a killing on that parking lot). The cost is the same, so you might as well build. Likewise, it doesn’t change how much you charge. You charge what the market will bear. As long as the market can handle the cost of the new building, it makes sense to build it (even if suddenly you are making Lynnwood profits instead of Seattle profits).
Now, it does change the dynamic as far as the value of that lot, which you mentioned. If we did a sudden upzone, then owners of existing buildings take a loss. Those that haven’t built yet can take advantage of the upzone. Which is why the political dynamics of zoning is interesting. Simply put, an owner will want an upzone for his lot, but not his neighbors.
@Fnarf — “Ugly” is a bogus concern.
Sorry, I completely disagree. Why do you think Capitol Hill is so popular? The short answer is lots of pretty old buildings. Yes, there are lots of people and clubs and so on there. But those people were attracted to the area in large part because of the building (forty years ago the U-District was a lot more interesting in terms of night life, bars, restaurants, etc.).
I agree that styles go in and out of fashion. Eventually, even ugly buildings can be interesting to look at. A great example of this is the UW campus. Ask just about anyone to walk around the campus and list their favorites and chances are they are Gothic style. But walk by a modern style building and a lot of people will go “hmmm, interesting. Nice to mix it up a bit”. But if the campus was dominated by buildings like that then it would not be so popular.
Simply put, cement is pretty boring. This is why cities with narrow streets are more interesting than those with wide boulevards (less cement). It isn’t just the style of the house, but what is in front. Seattle has really pretty neighborhoods. Middle class houses with interesting yards (which include a wide mix of interesting landscaping). There is a reason folks try and save this lifestyle. Walk through Fremont, for example, and you know exactly what I’m talking about. The Ballard duplexes destroyed this less because of their architecture, and more because of their wide swath of cement for parking. The city responded, but the extra layer of regulation has created its own problems (which, if I’m not mistaken was made better by the last round of regulation).
Here are some examples: Typical Fremont neighborhood. Not a duplex, put typical for 70s/80s Ballard. Much prettier example of density in a more dense part of Fremont.
Now, if you tell the people who live in the first Fremont neighborhood (with all of the houses) that their neighborhood will soon look like that part of Ballard, they will fight you tooth and nail. Frankly, I don’t blame them. Tell them that it will look like that third example, and you have a different story. By the way, there are some nice, newer buildings on that street (Linden) as well. Generally speaking it has a very interesting aesthetic (unlike those parts of Ballard).
All that being said, I think whining about the “sameness” of the buildings is also a bit exaggerated. As Frank said, zoning is partly to blame (funny how everyone builds exactly to the zoning limits — maybe that is a sign …). But many of the developers have done a really nice job within the limits. I especially like the Cascade neighborhood, which has (in my opinion) a lot more interesting buildings.
Anyway, zoning in general is all about compromise. I understand and respect the folks that want to limit on the sizes of buildings. But limits on the number of units (within that constraint) only increase the cost of housing, with little to no benefit for the general public. Parking requirements add to the cost and lower the aesthetics. Both should go.
My understanding is that the big cost inflection points for height are at 4 stories, 7 stories, 15 stories, and then again at much taller 40+ stories. At 4 stories you switch away from simple platform construction, 7 stories the mechanical systems get more complex, at 15 stories the building has to incorporate more complicated wind resistance, and at the much taller buildings they need to worry about sway and elevator efficiency. This is a bit out of date and does not incorporate some building code issues that change over time. With the building code now allowing 5 story wood frame buildings, I would expect that that is now the big cost inflection point.
““Ugly” is a bogus concern.”
We’ll know in fifty years whether drive-in drycleaners and 1970s housing and one-story strip malls have become desirable again. But what’s clear at this point is that pre-WWII designs have returned to timeless classic appeal, while most mid-century designs are as disposable as the plastic era that inspired them. Even the newer 1990s and 2000s construction, which is getting better, will probably be torn down before the pre-WWII stock is. Because contemporary buildings are designed for a 30-year lifespan, by which time the investors are paid off and the owner has gotten his initial profit and the building is depreciated, and consumer tastes will have presumably changed anyway.
Strip malls are enormously popular now and are the single greatest entry point of immigrants into the retail economy. This is largely because they’re unpopular with the New Urbanists, who think they’re ugly. But they tend to be full, while inch-deep store-front retail stuck across the front of these new buildings like decals sit empty for years, maybe decades.
All of the “hideous” dingbats in Ballard are full; the vacancy rate is as close to zero as it is possible to get — you give up those apartments when you die. Meanwhile, a block away, the big new Avas and Excedras or whatever they’re called sit empty — because they rent for twice as much, because they have to, to make their note.
The “return” to classic pre-war building is almost entirely cosmetic; the ground floors of those buildings are full of concrete parking garages, not old-style shops. They’re not even remotely a “return” to classic style, and in fact are mostly quite a bit worse than the midcentury stuff, which is more functional than you give it credit for. Visit any of Seattle’s remaining shopping strips, like Phinney and Greenwood Avenues, and look at what’s actually being USED — it’s much easier to build a shop in a crappy converted 1950s garage than it is in a new building.
But what I was referring to mostly wasn’t retail, it was apartment buildings. There are hundreds and hundreds of “crummy”, “ugly” apartment buildings throughout this city, dating back to the beginning of the last century but especially thick from the 50s through the 70s — and my point is that NO ONE NOTICES. When people complain about the “awful” faux-Craftsman four-packs that sprang up last decade, they’re reacting to newness, not architecture, and they won’t notice them either in a few years. This is why it makes me nervous when people start talking about “design review boards” and so on — none of those people, not even the professionals, understand what is really important on the ground. They only want to talk about the paint job and the windows.
In case you hadn’t noticed, the “plastic era” of midcentury design is the hottest thing going in real estate as it is in furniture and every other kind of design. Houses that were laughed at twenty years ago are now being painstaking restored and blogged about, and if you want to get one you will have to go to a realtor who specializes in them — and pay a premium. Every day I see houses that have been very expensively remodeled to look like absolute horsecrap, with their repulsive granite counters and paneled oak cabinets and disgusting glass-inset doors, that some “modernist” is going to have to come along and rip out.
Nobody knows what the future holds. Thirty years from now? You don’t know. A lot of those “plastic” 1950s buildings will still be here; they’re here now, well past their thirty-year lifespan. If you’re looking for affordable housing, that’s the kind of building you’re looking for. No design review board would ever allow them, nor do any of the people who walk past them every day ever see them.
You’re confusing desperation with desire. Strip malls and mid-century apartments are full because they’re the cheapest things around, which means they’re undesirable. Not just among new urbanists but most people. There aren’t enough new urbanists to have much impact on this. I used to think I’d never live in a tacky mid-century building, but then I did because it was cheaper than the alternatives. Since then I’ve grown to appreciate that at least these buildings’ tackiness is honest; they’re not promising to be anything more than practical. If we did start bulldozing them wholesale I’d say to leave a few for posterity so we don’t make the same mistake they did in the 1950s.
“The “return” to classic pre-war building is almost entirely cosmetic”
I wouldn’t even call it a return. That’s what I want to see and it hasn’t happened yet. Removing setbacks is an important step, but it alone is not a return to prewar styles or sensibilities.
“NO ONE NOTICES”
Yes they do. And they go on noticing for years and decades.
“Every day I see houses that have been very expensively remodeled to look like absolute horsecrap”
If you say so. I haven’t seen any of those.
To be clear, I’m not saying we should just rip out the mid-century buildings without a concern for affordability. But these buildings are the reason we’re having so much problems with affordability and walkability, because they’re so low density and have so much parking and open space around them. If they had all been built like prewar housing we’d be a lot better off now. So therefore, if we fix their mistake now we’ll be better off in fifty years, and if we don’t we’ll be in the same rut we’re in now.
I the problems Paul describes are basically a function of creating jobs in downtown and curing many of the ills of the 20th Century American city.
What’s happening in America is a convergence with the norm in many European cities: wealth in the center and the poor on the fringe. Unless one highly values seclusion,extra bedrooms, and a big lawn, all else being equal, homes to downtown jobs are clearly preferable.
There was a late-20th century trend, driven by some combination of racism, car-euphoria, and urban mismanagement, where wealth increased as you moved away from downtown. But racism and car-euphoria are ever-weaker forces, and crime keeps hitting record lows. God help us if we ever fix the schools.
What could keep people where they are? I suppose driving those jobs into the suburbs would do the trick, though not many want to do that and it would be disastrous for public services. I suppose a city income tax on salaries over something like Amazon’s entry level salary would cause some hires to choose the suburbs and drive in instead. But that really isn’t consistent with sustainability goals.
The most important thing is that we accommodate as many people is possible. Is it possible to find a growth rate to saturate the high-end property market enough that there is less price-pressure on older buildings? I hope so, but doubt the zoning process will ever give us the chance to try.
I agree with your statement, although I would say the schools are fixed and never were broken (the bad reputation was just another aspect of the racism; although the actual structures in many cases could use some work).
We don’t want to drive people into the suburbs. We want the suburbs to be more like the cities. The biggest problem with King County is not that downtown Seattle isn’t dense enough, it is that Shoreline isn’t dense enough. North and South Seattle aren’t dense enough. These are areas where huge lots are common. Replacing those lots with smaller lots and smaller houses would do a lot towards relieving the pressure on prices. It would also allow those places to have the same of amenities and lifestyle that people want.
You reminded me of this article about moving to the suburbs.
When that article was published, all the commenters immediately pointed out that the author’s suburban British neighborhood was practically the inner city by American standards. If our suburbs looked like that, we wouldn’t be having this conversation.
The difference, of course, is that most British suburbs started as small towns that grew up well before the automobile era. Our suburbia is harder to retrofit.
I grew up in a small town outside of Boston. My parents originally moved there because of the renowned school system. I hated it. It was a pressure cooker of popularity, with absolutely no room for a freak like me. My sister ended up having a terrible experience, too. I eventually went to a private school in the city, and we moved to Brookline where my sister went to public school, and both of our lives improved significantly.
You can figure out which schools get the best test scores, but that’s not going to tell you which schools will celebrate diversity (of all kinds), or which schools will teach children how to interact with people with tolerance and respect.
Couple of questions, for Martin and everybody else:
Is it possible that lack of housing that people can afford is also caused by a very large number of people not making enough money to afford them?
In that case, might one solution be to bring back, from China and the junk pile of History, some skilled manufacturing work and the unions that used to assure decent wages for it? BTW: tell me one place anywhere within the continental United States where anyone not living with their parents can exist on $15 an hour, let alone live.
2. Why is a housing market where housing is inexpensive enough for ordinary people to move in a bad market, while housing so expensive that no one but a millionaire can move in a good market?
Seems like Adam Smith and those guys would probably have sat around London coffee houses (too bad espresso hadn’t been invented yet) discussing the relevence of this question to classic theories of a market economy. Isn’t that supposed to work in both directions?
To answer your questions:
1) Yes, to a degree. The disparity of income problem we’ve been experiencing since we’ve embarked on this radical right wing experiment since 1980 has been well chronicled these last few years. But if you talk to anyone who makes 15 or 20 or 25 bucks an hour in this city, they will all say the same thing: rent is too high. A lot of these people are young. They will make more money later (because their fledgeling business takes off or their employer pays them more money). In the meantime, they should have a decent place to live, and not have to commute in from the suburbs.
1A) There are plenty of places where this is true. Small towns, suburbs, etc. 30 grand a year isn’t living comfortably, but it is living. Spend six grand on rent, twice that on food, another six on utilities and bus fare and you have another six left over. Double rent and you have nothing left over (thus the problem). Add a kid into the mix, though, and things get a lot tighter (even with the EITC).
2) Semantics. Things are summarized from a seller’s (not a buyer’s) perspective.
GREAT post about schools. Thank you.
BTW: tell me one place anywhere within the continental United States where anyone not living with their parents can exist on $15 an hour, let alone live.
Are you serious? Lots and lots of places. For one, where I am when I’m not in Seattle: Dayton, Ohio. A majority of citizens here live on that, actually: 15 an hour is 30K a year full time; the median household income here is is around 28K. Dayton is cheap, but it’s hardly unique. Similar stories could be told about Detroit, Akron, Fort Wayne, Cleveland, plenty of places all over the south, and so on. Unless you’re paying to be in one of the few good neighborhoods, there’s no reason to pay more than a 300-400 in rent for an apartment. You can buy an ordinary but non-dilapidated three bedroom house for half of what the down payment in Seattle would be. (Handy and willing to take on a serious fixer upper? Those are more or less free.)
Adam Smith was a Scot, so that would have been Edinburgh and Glasgow coffee houses.
If people are being priced out of their neighborhood, then it is because there isn’t enough housing being built. If you want middle class housing, then encourage housing of all types, and discourage restrictions. Perhaps an example will help:
I just bought a plot of land with a parking lot on it. I want to build an apartment building. The city says I can build at most a six story building, but it can only have 60 units, and I need to add parking for those 60 units. Guess what? I build 60 units. I don’t have to do anything fancy to charge top dollar (these are only luxury apartments by name). If it is fancy (e. g. nice counter tops) then the cost of those amenities are really minor compared to the cost of constructing a six story building with all the parking. In other words, I can charge $1000 a month in rent if I put in plain counter tops, so why not splurge for the fancy ones and charge $1100. It pays for itself within a few years.
Now imagine if the city allowed more units or taller buildings. For the price of the extra counter tops, you can double the number of units. So, now you can charge $500 a month and make the same amount of profit. The units are smaller, but they will work just fine. The fancy counter tops aren’t quite the same bargain for me, now, though. I have to build twice as many. Furthermore, the increase in price for the tenant is much higher (from a percentage standpoint).
I should add that either way you will have pressure on prices. There are simply a lot of wealthy people right now who want to live in Seattle. They will essentially bid up those $500 units. But if there are enough of them, it won’t matter.
Unless, of course, you have a high ratio of really wealthy people to middle class people. In other words, someone would rent that apartment and then want to rent the adjacent one and combine them. I don’t see that. I see the opposite. I see people paying good money to live in an Apodment. I see regular apartments going for 1000 dollars, not because people think that is an OK price, but because they see no alternative. In other words, the high price is being driven less by rich people, and more by middle class people and too little supply. Lots and lots of middle class people want to live in Seattle, and they are spending a huge percentage of their income on rent.
I see regular apartments going for 1000 dollars, not because people think that is an OK price, but because they see no alternative. In other words, the high price is being driven less by rich people, and more by middle class people and too little supply. Lots and lots of middle class people want to live in Seattle, and they are spending a huge percentage of their income on rent.
This can’t be said enough. Trying to turn this into a problem of too many highly paid workers is a serious misdiagnosis of the problem.
There’s plenty that could be done.
I term this as “let’s build more Seattle/(s)”
That is, we could foster the development of smaller, two-bedroom homes, but in far flung towns, suburbs and other Inland Washington Cities and inter connect them with fast rail and transit.
However, this has not been, nor is, the bent of the state planners in Olympia. The drive for the past 10 years has been density and centralization, mostly in Seattle.
They have spent billions on a few square miles of downtown, while letting the whole rest of the state lay fallow when it could be developed with rail, highways, more compact development. They could spur this development with zoning, push for more rail, more airports, more highways, more tunnels for year round transport. The could move more state jobs across the Cascades to then draw businesses.
So much could be done to “load level” Washington by meeting lifestyle demands of modern people, without having to cram them all in the same two square miles of real estate.
Have you seen the development in Greenwood? Ballard? Burien? Issaquah? Bellevue? Kirkland? It’s not like the only development is a few square miles of downtown.
Yes, some of those, Burien’s especially impresses me.
These are exactly what are needed.
But we need more and faster if costs are to come down.
And we have to link them up…with LINK…pronto!
The only thing holding those cities back is the cities themselves.
It’s hard to follow your logic when you say on the one hand development needs to spill over the Cascades (presumably with bullet trains) but at the same time you say Burien has room for growth. Let’s infill first before extending the periphery.
What is Kent’s optimum population size? How close is it to its potential? Where would you build these compact developments or whatever — in Kent. Not going out to Covington or Kangley. What would they be like? How would they not be the same thing as densification? Do you support the planned Midway development and Kent Station development?
Are there any parts of Seattle that can grow with your approval? You’ve mentioned Greenwood (by which I really meant outer Greenwood: Broadview). Where is the boundary between the area with too much concentration of resources and the area that should get more housing?
Most of the suburban cities would love compact urban development, and they have aggressive plans and policies in place to encourage it. But in most, the market’s just not there yet.
A few examples:
Federal Way: http://www.cityoffederalway.com/DocumentCenter/View/3684
The market for urban development will probably improve there, and if so the region could be a very livable network of compact urban centers as envisioned by the GMA.
It has been interesting though in the last recovery that development has retrenched more strongly to the core area of Seattle.
Paul, are you sure that developers are building luxury apartments? Maybe they are just building regular apartments and charging luxury prices. That might seem like a distinction without a difference, but its not. For example, if someone builds an apartment building with very few units, but the units are very large, then they are building to a luxury market. Likewise if someone converts a duplex to single house, or mows down a bunch of row houses to put up a mega-house. I don’t really see that happening — I see the opposite.
Basically, rent is high because of high demand and low supply. The city puts limits on the supply, which is why the market can’t respond.
The realtors seem to think that just putting a washer/dryer, dishwasher, and/or microwave in a unit is enough to qualify as “luxury”, even though in houses these things have been considered “normal” and “expected” for decades. But it’s a way to charge premium prices to all units except those that don’t have any of these things. And all multistory buildings now have elevators for ADA compliance, but that also probably makes it a luxury unit.
I rented an apartment in Belltown in the months after the bubble burst in ’08. Rents were tumbling and I was able to get a studio with condo amenities for under $700 a month. Today that same studio is easily over $1,000. If the bubble bursts it will be good for renters but it seems there’s no sign of oversupply anytime soon.
Same here. I was paying about $950 a month (when you factored in my first month of free rent) for a large 1br at Elliott and Bell. The next year, they wanted to raise my rent by over two hundred dollars a month.
I fled to Ballard, where rents are only now starting to rise to absurd levels.
Which is why I think caps on rent increases, perhaps typing them to inflation, make much more sense than rent control. I had no idea it was legal for them to increase my rent so much but by 2012 I couldn’t afford it anymore.
If a cap on rent increases were enacted, here are three effects you could depend upon.
1. Rents would have large increases prior to the restriction going into effect, at least for the leases that expire in the interim.
2. If there is oversupply and a high vacancy rate, base rents would not decrease as much as they would with no rental cap. Building operators might use rent concessions like “free” rent at the beginning of the lease term at attract tenants, but they would be reluctant to lower the base rent.
3. There would probably be a rent increase each year. The owners don’t want to pass up the opportunity to raise rents if it would limit their flexibility in the future. Maybe this effect could be minimized by allowing a deferred rent increase to be ‘banked’ for the future.
4. Construction would decrease. Banks lend based on long-term profit and risk. A cap on rent limits both.
5. For homes that are built, rents will start high. This will be related to #4 (limited supply raises prices) and #2.
Which is why I think caps on rent increases, perhaps typing them to inflation, make much more sense than rent control.
I’m not sure what you’re saying. What you’re describing *is* rent control: probably its most common form.
Plus it would also require a change to state law… is this how we want to spend our political capital?
It’s all about the jobs… In July 2013 the Seattle area saw the largest job growth in 13 years and Seattle saw the 3rd largest drop in unemployment anywhere in the nation.
Combined that with that fact that lots of the job growth is in the STEM fields which favors urban/walkable employment centers and a flat footed housing industry which essentially stopped building housing for two years and you have the perfect conditions for an huge wave of new housing development to catch up with pent up demand.
Yep. That and the fact that the city prevents common sense growth. Where I live (in Pinehurst) you can tear down a small house and put up a mega-house twice as big. But a duplex or quad the same size? Forbidden. How about a couple small row houses (the lot is plenty big). No! It’s like that for much of the city, of course. Oh, and good luck building a mother-in-law apartment. The rules are way more restrictive than Vancouver or Portland. That is just in the single family housing areas. Add in parking requirements, unit limits, size limitations, set backs, etc. and it is no wonder rent is so expensive. If not for the Apodments (which we are lucky to have) prices would be even higher.
Well you got it half right. Supply is very low. Just barely above the record-low levels we hit in 2012 and 2013, in fact. However, demand is not really all that high. In fact, sales are about 25% below the 2003-2007 average, and are currently on the decline, down 5% from last year.
I think prices shot up so much in 2013 because 1) supply was so low and 2) home prices had actually over-corrected in terms of affordability, thanks mostly to ridiculously low interest rates.
The long-term 1993-2002 average of King County’s affordability index was 107.6. After the bubble burst that shot as high as 143.4 in February 2012 before prices started shooting up. The latest read as of last month has it at 106.4–right at the historical average. Of course, interest rates are climbing, which will drive down affordability even if prices stay the same, which is probably why sales are starting to dip.
You’re half right as well. The housing market includes both owners and *renters*. The housing market is doing its own weird stuff because of low inventory and interests rates as you point out but the rental market is very strong for various reasons include strong job growth, previously mentioned weirdness in the housing market, and changes in consumer tastes for owning.
“Seattle sure does feel awful bubble-like lately, doesn’t it? There’s so much construction happening everywhere that I’m reminded of Seattle in 2000, or 2008.” I thought a real estate bubble had more to do with rapid increases in valuation than the amount of construction going on.
I’ve actually wondered this for a while: how common is it that apartments are built specifically targeting middle-income renters in city centers, or near them? Say, $1,100 one-bedrooms, $1,500 two-bedrooms, new? I can’t help but feel that we’re chasing after something that never truly existed.
As Frank wrote, the upper-income homes of today become the middle-income homes of tomorrow. This isn’t really the same market as the ownership market, and I feel like targeting the higher-end for new properties isn’t a new phenomenon.
Well, in past waves of apartment-building, affordable units were being built. The hundreds of dingbats in Ballard were never built for luxury. But conditions in the 70s were completely different; housing wasn’t anywhere near as valuable then. I mean, the biggest reason there are so many “classic” homeless (single men) on the street downtown is because you used to be able to get a cheap room in an SRO “hotel”, and live, perhaps not comfortably, as an alcoholic, but indoors. That’s all gone now; there’s no such thing as cheap housing anywhere for anyone. And even before that, all those medium-size brick apartment buildings, of which so few remain, were always affordable to ordinary working people.
Here, for instance: the average rent in WA state, adjusted to 2000 dollars, was $226; in 2000 (I don’t know the 2010 figure), it was $663, or THREE TIMES. That’s inflation-adjusted.
Similar to energy, food, higher education… everything is getting expensive. Plug one hole and another will push its way through.
No, many other things are cheaper in inflation-adjusted terms. Food, for instance, is much less expensive than it used to be. Clothing as well — MUCH cheaper. Gas is slightly higher, but as recently as 2009 gas was cheaper, adjusted for inflation, than it was in 1932.
The difference is that a family can make adjustments in their food and clothing budget, but you really do need a place to live — which takes a much greater bite than it used to.
Housing was cheap in Seattle through the 1980s, and was still pretty affordable for average workers until around 2006. It was in the 2000s that people gave up on buying a house on Capitol Hill, and it’s only in the past three years that people have started worrying they may not be able to even rent in the central neighborhoods. Food, higher education, and energy have not gone up nearly as much.
Meanwhile, landlords who were doing fine in 2000 and 2010 are now making huge windfalls.
You nailed it Fnarf. I would also question if people are building specifically for the upper class instead of simply charging upper class prices on middle class housing. Anyone know the answer to that? Put it another way — how many apartments are built with fewer than the maximum number allowed? Are people really building that many three bedroom, luxury apartments?
So if the developers are the embodiment of evil that everyone says they are, wouldn’t massive overbuilding and the bursting of a bubble be a good thing? Isn’t that the only way that developers lose money? Rents shoot down, and they have to sell units at cost or at a loss.
Exactly. You see that everywhere (hell, there are people saying that about the 80 units going in at the Bartells in Ballard). My response: probably not, but if so, good! That solves the affordable housing problem quite nicely, at least for a little while.
I asked on a different thread, but it really is an important consideration: Are developers building specifically for the upper class instead of simply charging upper class prices on middle class housing. Anyone know the answer to that? Put it another way — are developers really building that many three bedroom luxury apartments? Or are they simply charging more because they can.
I suppose you could say that anyone who builds anything other than an Apodment is building fewer than the city allows, but I don’t know if those are allowed everywhere. Even if they are, I would consider them a special case (since you have to share a bathroom). So, not counting shared bathrooms, how many developers are deciding to build fewer than the maximum number of units allowed? My guess is very few. Why would you? With demand so high, and supply so low, it makes sense to build as many units as the city will allow.
It’s been argued in the comments for other posts that there aren’t many 3 or 4 bedroom apartments being built at all. It makes sense. If you build smaller units, you can put more of them into the building footprint. You can’t get as much extra rent out of the big units compared to more rents on the smaller units.
Penthouse units might be an exception. But even there, the trend is to build more units that are called penthouses to get the premium rents. It seems to me that prior practice was that a building would have only one penthouse unit.
That is my understanding as well. In other words, the idea that developers are building high end apartments, and ignoring the middle class just seems bogus to me. They are building as many units as they are allowed to (by law). They are simply charging more.
Asked another way: How many rows houses are being torn down so that people can build mega-houses? How many duplexes are being converted to single, fancy, high end houses? If anything, it seems like the opposite. Keep in mind that the city restricts the opposite, but would do nothing to stop anyone from that type of conversion.
A.) There is some variety to the price point and level of luxury being built, but not much variety in number of bedrooms. Recently high end new construction with rents over say $2200 for a 1BR are in neighbs. closest to downtown and SLU, like Viktoria, Via6, and Stadium Place. The greatest luxury amenity is a view. These are high rises and also have high cost of construction. A majority of the units are still 1BRs with a few 2BRs.
Moderate rent new construction with rents in the 1700-2200 for 1BR level are out in ‘the neighborhoods’. Like Ballard, but also Columbia City, Roosevelt, Dexter, West Seattle. These are mostly 1BRs and studios in 5-over-2 construction that has somewhat lower construction costs.
Low rent new construction is in the form of micro-housing (Apodments) or similar very small studio apts. These go for 500-900, but tend to be under 400sf and with some shared features-like shared kitchens. They are in lowrise construction types (losers cost of construction) and close-in neighbs like cap hill, u district and Ballard.
So there is variety in the level of luxury between these. I’d argue there are few 2+ BRs because the market isn’t strong for those. about 40% of Seattle households are single persons. Most families with 1 or more kids, if faced with a decision of paying +2500 for a smallish 2 or 3 BR (a conservative estimate of what rent would be), and a mortgage of about 1000 less to own a home in Shoreline or Puyallup are choosing the latter. Developers know that calculus and aren’t providing a product for which there is weak demand.
Clearly it’s a big policy question on whether the public should subsidize creation of family sized units in one form or another to preserve a place for families with children in close-in neighborhoods. Maybe it is, but let’s be realistic that even a strong subsidy would be fighting the tide.
People said the same thing in 2012 and 2013. “There won’t be enough people to fill all those new apartments, and people want houses not apartments anyway.” But the new buildings opened, they filled up, the vacancy rate remained low, and neighboring rents kept going up. So they were wrong. And if they hadn’t built the last surge, the vacancy rate would have gotten extremely low. (5% is equilibrium, 3% is where Seattle gets during its price spikes, and 1-2% is what San Francisco chronically has and why it’s so expensive there.)
However, the pressure may be easing. A lot more buildings will open in 2014 than 2013. Rents slowed late last year. My building had vacancies snapped up within a few weeks last year, but it now has two openings for two months and counting. So hopefully my rent won’t increase much in June.
If the market does stabilize this year, it would probably be a return to normal rather than an oversupply crisis. Developers are still burned from 2008, so they’re likely to postpone projects as soon as they predict trouble filling them. That would leave a two-year window on already-started projects, but that would just lead to a modest oversupply rather than a crisis. Of course, “oversupply” is a strange word when people making 30% less can’t find housing, so they could fill the units instantly by cutting the price 30%.
It has been amazing here in North Wedgwood/Meadowbrook. The little bungalows are giving way to $800K 3400 sq. ft. homes. In an area w/o sidewalks!
The increased popularity of the center cities in major metro areas is found in most areas of the US (take a look at the recently released 2013 Census Estimates as opposed to the 2010 Census). Expensive housing is an outcome of the center cities becoming more popular. The “urban lifestyle” is more popular! The US is finally seeing what the major cities of the world has experienced for years – which is that people with less incomes are forced outward to the edges. In Seattle, that means that rents get quickly higher in places like Capitol Hill as it changes from a funky alternative neighborhood to one with trendy techies.
Because it takes 2 to 5 years for any developer to even begin a major project (property identification and purchase, development approvals, construction), the tight money from 2008-2011 is still influencing the completion of major projects . As projects get underway in some areas in the core and in transit corridors, the surge will subside a bit.
Developers are not stupid, and their strategists analyze where they are most likely to make their money. That’s how the “free market” generally works and residential development is one of the most “free market” industries out there. It may take a few years, but the developers will step up to the challenge because they can make more money and building is what they want to do.
I think that the best that we can do is to have clear neighborhood design requirements in place beforehand so that developers know what is expected of them at the outset. Then we have to promote rapid design negotiation and approvals. The result could be that more of the hundreds of thousands of dollars that a developer has to spend on legal fees and lobbying can instead go to build the sidewalks, parks, transit stops and lighting that make neighborhoods wonderful.
I would point out that in the years when affordable housing was in fact being built, it was quite a bit harder to get a home loan, and the assumption was that homes would be purchased on a single income family. In those days 2 and 3 bedroom single bathroom homes were the average new build.
Today, the assumption of many builders seems to be that all families have two incomes, two living rooms, two and a half bathrooms, and everyone needs a garage that fits at least three cars. That is the market they are aiming for. As states elsewhere in these comments, people have to live somewhere. If no smaller houses are being built then it will have to be in a larger and far more expensive house, and the household will have to survive off of less spare money for other things.
There are a couple of ways to encourage prices to come down (without a rust belt style economic cataclysm).
I know that there is resistance to creating multiple family dwellings in areas zoned for single family houses, but if you walk through any of the older “single family home” residential areas here in Portland, you will find that a number of these older homes (say, 1890s to 1910s or so) have been gracefully converted to multiple family houses without altering their character that much.
Take a close look at:
and you will notice that the house now has two front doors and two mailboxes by those doors, but otherwise is not really that noticeably different from its contemporaries further south.
Some of the older craftsman style houses work pretty well with this. I’ve seen a few converted to as many as four units, using methods sort of like this one (which is only two units, but I can’t find any good examples of the four unit versions right now):
There have also been a few cases I have noticed where these older houses are jacked up and a new floor put underneath them with an extended concrete foundation. Obviously, that changes the nature of the house. However, in cases where the existing foundation needs to be replaced anyway due to earthquake survival needs, this is one way they have added a new housing unit to the bottom floor of an existing single family house.
I’m not sure exactly how you go about writing a change to the single family dwelling zoning system to allow this type of house dividing. Maybe something along the lines of if a single family structure has existed in a location for more than 30 years (or maybe 50?) it may be converted to two or more housing units, so long as the total square footage on the lot remains the same?
One thing that has happened here in Portland that I think was a mistake as far as encouraging more density by dividing houses like this, is that if you have a rental unit in the city of Portland you have to pay the city of Portland business license taxes and fees. As best as I can tell this holds true even if you are living in the same building and renting a room to a roommate. Obviously those who incorporate as a business and have extensive real estate holdings should probably pay these fees, but I’m not so sure where you would want to draw the line between renting out a single room in a house as a bit of extra income as opposed to a vast empire of hundreds of apartment units. Unfortunately I don’t know the specifics of how the city of Portland ordinance is arranged. I only know what little I do about this because every once in a while I get a threatening letter from the city of Portland demanding that I pay business license fees for the house I own. Apparently it was somehow entered slightly different when I bought it, so that the city computer system thinks I am living in a different house than the house I own. Thus, the computer system apparently thinks I am renting the house to myself and thus need to pay business license fees for this privilege.
In any event, I don’t know how that particular feature of our tax system is set up, but it seems to me that particular piece acts as an additional barrier to those who would be otherwise willing to divide their houses into two units.
One of the first things I would do is liberalize the mother-in-law apartment rules. It isn’t exactly the conversion you are talking about, but it would still take us a long way. As it stands now, Seattle has much more restrictive rules than either Portland or Vancouver. This is crazy, of course. Unless you are worried about parking, you should push for more of those types of dwellings. They allow a home owner to make some money off of their unit, and allow someone else to rent a nice, quite place. Meanwhile, the neighbor shouldn’t care (same old houses).
In general I like the idea of house to apartment conversion. It isn’t allowed, which shows how crazy, and parking centric our zoning laws are. But it is certainly something worth pushing. It doesn’t cost as much as tearing down a house and putting up a duplex and it should please those (like me) who care about the looks of the neighborhood.
Dude, that house on Hawthorne is pretty tiny for a duplex! I guess it must be an over-under, but there’s not much useful room in the “over” with that roofline.
Smaller houses won’t make much difference, unless you also allow smaller lots — land is where the cost is. [That btw is one of the reasons why M-i-L liberalization is a good idea]
I’d like to chime in with a critique of “ground floor retail”. There are plenty of places on Capitol Hill, along 45th Street and in other locales that do ground floor retail right. New construction ground floor retail generally is poorly configured and over-priced to attract the kinds of unique and funky restaurants, coffee shops and other retail shops that turn ground floor retail into a vibrant street scene. 34th and Fremont ought to be a signature corner, what with its multitude of bus routes and plenty of action on Fremont and along Leary and 35th Street, as well as further down 34th by PCC. But instead you have two banks, which don’t attract a lot of street traffic during the day and none at night, plus a closed Peet’s. Instead of the old Safeway at 40th and Stone, we have a bagel shop that is only open in the morning and early afternoon and now a members-only athletic club, plus a lot of storefronts empty for a long time. I don’t have a solution, but empty storefronts or storefronts closed when people are actually home doesn’t strike me as the right result for giving bonuses for having ground floor retail.
I live on Eastlake and the fancy apartments across the street turned their street-level retail into more apartments, except for Little Water Cantina. It’s weird.
“…housing prices are now almost exactly where they were when Seattle Bubble author Tim Ellis started his blog in 2005.”
That was 9 years ago, I would have expect prices to double every 10-15 years.
My first (not shared) studio apartment in CA was $725 in 1991. It was in a cheaper Silicon Valley town called Mountain View (before the big names set up shop there).
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