Alon Levy, Pedestrian Observations:
The problem here is entirely political. Cities have the power to zone. Thus, supply depends entirely on whether local community leaders accept more housing. This housing, almost invariably, goes to outsiders, who would dilute the community’s politics, forming alternative social networks and possibly caring about different political issues.
When asking why things are the way they are, it’s always useful to ask, cui bono? In most American coastal cities today, developers like to sell expensive houses, current homeowners like to see their property values rise, and those who benefit from subsidized housing don’t want to have to compete against more outsiders for a fixed number of subsidized or rent-controlled units. Everyone wins, except the people who aren’t here yet: the migrants, the new college grads, and anyone else who is an outsider today but hopes to be an insider tomorrow.
Levy’s post ties these threads together really well. Read the whole thing.
How do the poor benefit from expensive housing?
If they’re rent-controlled, they neither benefit nor lose. Well, they do lose insofar as expensive housing gives landlords an incentive to evict them and decontrol the property, but it’s easiest to fight that through stronger tenant protections.
But then there are the political incentives. Newcomers upset the status quo, and often don’t care much for the local power structure. If I move to a new neighborhood, I’m going to go to the supermarkets, cafes, etc. that have the product I want at prices I’m willing to pay, which may not be the ones the neighborhood cherishes the most. Besides, if developers can’t build as-of-right, the community leaders can extract concessions like parks. The people who’d have lived in the housing that instead became a park don’t get a vote; the people who already live in the neighborhood do.
Rent control is illegal in the state of Washington so no one in Seattle is rent-controlled.
Expensive housing in no way benefits renters.
this isn’t a post specifically about Seattle.
Expensive housing benefits homeowners (47% of Seattlites, per the census).
In cities with rent controls, those who have rent controlled units want to prevent non-rent-controlled units from being built in large numbers, thus diluting their influence in the political process that gave them rent control in the first place. Thus, people in rent controlled housing are fundamentally opposed to upzoning.
“How do the poor benefit from expensive housing?”
They don’t.
The post title could be:
“Housing Is Expensive Because Everyone (that has a voice in the political system) Wants it That Way “
+1 Renters in general don’t want things this way. Fortunately, Seattle just tipped toward multifamily housing, where most of the renters are. Just over 50% of units are now multi-family units (despite only having 13% of land area zoning, unlike single family’s 62%). Unfortunately, there are more voters in single family housing than multi-family housing. So there’s a way to go until things even out politically.
When we look at how hard it has been for the economy — that of jobs and growth and technology — to come back from the Recession, part of that has been the very high costs of entry. If you want to know what it takes for startups to begin…it’s not business incubators or even lots of capital. It’s low start up costs.
These days, a “Steve Jobs” family could not afford his house, one with a big garage. They wouldn’t even be able to afford the garage!
However, there are many poorer homeowners, especially senior citizens, who of course vote in greater numbers compared to their population. They look at their homes as nest eggs and are less inclined to add more housing, particularly housing catering towards younger people with all the attendant noise and “unsavory” activities.
You also lose when half your friends move away because they can’t afford to live here.
This article pretty much gives to lie most of the “urbist” arguments about centralized spending benefiting Everyone.
It doesn’t. It forces people to build their own prison using their own money.
Rather than expanding regionally, the entire effort over the last 20 years has been to force everyone into smaller units at higher prices…all except the entrenched land-rich old timers.
John,
I don’t know anyone who has claimed that high housing prices (and density) in Seattle “benefit everyone”. Most people, however, are bright enough to understand that the laws of economics, primarily “supply and demand” are the cause of it (or “to blame” if you wish).
Barring a worldwide depression that strips the rich of their assets, Seattle will continue to attract people because it’s now known. The secret is out; people come here to live a beautiful life, not to get rich like in LA and New York. To do that and own property they have to have either “bring your own” money or a skill that’s highly valued by the local knowledge economy, It’s not a “conspiracy” or “fascist Urbanists”. It’s just that some people have more assets or skills than others.
Thank you Jefferson Airplane, Jimi Hendrix, and Kurt Cobain!
If they don’t have that BYO money or the valued skills they can rent small or go somewhere else,. There is no amount of social engineering that can change that reality now that the knowledge that the Great Rain Lie is just that is widespread.
Are you trying to tell me that the farmer born in 1940, with 20 acres on Kent East Hill has “more skills” than a software engineer who has to pay $600,000 for an air condo on a 200×400 plot?
These narratives get repeated so often that a whole generation takes your stupidity at face value.
No, Anandakos was talking about skills valued by the local economy, not some history-wide objective measurement. The 1940 farmer had a skill that was highly valued within Kent’s economy. Individuals might’ve said, even then, that they valued other skills more (e.g. aircraft manufacturing), but Boeing and others weren’t a large enough presence in the local economy then to drive out farmers.
The farmer born in 1940 to a family with 20 acres on East Hill has one form of “bring your own” money. That’s the most common type, but the other is accrued wealth from a successful life.
Whatever the source it’s being spent in Seattle for a peaceful and beautiful lifestyle. If a person of the accumulated wealth form of BYOM was still interested in piling up more, she or he would still be in the place that he or she piled it up.
There are a few folks who’ve made millions or billions in Seattle: Bill Gates, Steve Ballmer, Paul Allen, Bill Boeing, Jeff Bezos and some of the folks who work for them. But there are no fabulously successful authors, actors, musicians (well, some in the past, but except for Cobain they all moved away to “make it”). Not even any fabulously wealthy financiers or bankers.
People move to Seattle because of the life they can lead there. The software engineer on the hook for $600K for a condo would pay twice or even three times that in the Bay Area and not have as nice an environment. Sure San Francisco, Inner Oakland and Berkeley, and Marin are great, but most of the rest bar a few places on the Peninsula are uninteresting sprawl. That $600K condo in Belltown has walkable access to the Sound and Lake Union. Something with equivalent access in San Francisco would be $1.5 million.
You know why I moved to Seattle?
To get away from the 1980s.
Unfortunately it followed me here, took root, and blossomed.
Maybe Yakima is still uninfected, but no doubt 5 years after I land they will start touting “luxury farm condos” and gourmet vegetables.
Pugetopolis is vastly different than in 1940. The population has doubled or tripled, and that’s why there are no more cheap 4-bedroom houses east of Crossroads like there were in 1973 when my family bought one. Farming has become a lesser part of the economy as other professions have increased and pay vastly more. The farmer did “bring his own” wealth (or inherited his farm), but he needed only a fraction of today’s wealth to do so. A would-be farmer in Chicago in 1940 may have had similar problems to a would-be farmer in Kent now, and would have established his farm in outer Chicagoland the way our 2014 Kent farmer would go to Skagit County or eastern Washington.
Anakondos: some people move here mainly for the culture, or turn down jobs elsewhere because of it. But most probably come mainly because a job is here. When we have a downturn a lot of those transplants leave again. But there’s also climate change. Seattle is in the temperate band that will have mixed consequences from climate change (longer growing seasons, somewhat less water but not critical, less snow but more rain and storms). That contrasts with the southwest where droughts will make large-scale civilization and agriculture untenable, the east cost which will lose coastal cities to hurricanes and sea rise, and Mexico which will become hotter like the equator. So a lot of people will be moving here over the next century, probably at the same rate they’re doing now.
What does “getting away from the 1980s” mean?
Some people have successfully moved to small towns without descending into car-dependent, Walmart-dependent hell, if they think about walkability and where future trunk transit is likely to be. What are your most common weekly destinations, and where are the houses close to them?
In the 1940s it was easy because all neighborhoods were walkable with a frequent transit stop unless you specifically chose an isolated rural house. Now most areas are not walkable so you have to look carefully. Someone, maybe Jeff Speck (“Walkable City”) said he found a rural house that was nevertheless across the street from a high school and near a grocery store and bus stop. That sounds like incredible luck when I look at the opportunities in e.g., Vashon Island. Not much housing near the town center, and the old town of Burton south of it looks like its only general store/post office closed several decades ago.
Mike,
Like the 5% that tips traffic from slow-but-moving to stop-and-go the people who are moving to Seattle for reasons other than a job are who are pushing values skyward. It doesn’t take many to tip the balance to the seller side.
As Glenn pointed out, down here in Portland there are lots of cash, over the asked transactions. When 20% of the people are bringing enough available money to buy immediately, prices are going to rise.
To me it looks very much like the Amazonians, Microsofties, and Googlers who are driving up rents. If they were to vanish, it would create such a large hole that rents would start falling again as they did from 2008-2010.
There’s a lot of hand-waving in that article.
It’s one of the first posts I’ve seen that attempts to break through the miasma of cloudy thinking that has been pervading housing in the last 20 years.
How about this: It seems to me that the cities where housing is (deliberately) kept the scarcest and farthest out of reach of anybody but the super-rich all share certain point in common:
1. The scenery ranges from attractive to gorgeous.
2. The climate is more or less winterless.
3. There isn’t a lot of offensive and embarrassing stuff, like the ruins of our country’s former industrial base, and its decreasing number of residents, to bulldoze out of the way.
So easiest course of action for people who can’t afford to live in Seattle anymore start moving back to the cities a lot of us came from- where living costs are reportedly very low, though climate and human results of the last 40 years will take some work. Which requires exactly the kind of people who can’t afford to live in easier places anymore.
After four or five decades, our country may start to rethink its flight from itself, and start creating some incentive for energetic and productive people to move back. Repair of infrastructure and the jobs this provides, loans and assistance in raising capital, and assistance in renovating and repopulating neighborhoods that already have a large amount of pipes and wires underneath.
Detroit, Philadelphia, Baltimore and many dozen more all used to be not only good places to live, but productive enough win us two world wars, as well as providing for a huge amount of the wealth that eventually built the nice cities so many of us can’t afford to live in now.
Crime? Remember how much of that hell was let loose as the United States of America picked up and fled, taking its industrial capital with it. ,Along with the law, order, employment, and education that used to be provided by a city’s presence inside the borders of this country. The way this country handled its last piece of secession is a good precedent now.
Mark Dubln
+1 for Mark Dubl(i)n
Well, if that’s the case, then why was housing in Seattle well below the national average before 1992?
It is almost certainly proven that the major cause of the crime wave of the late ’60’s, ’70’s, and ’80’s was infant/toddler exposure to leaded paint in poor areas followed by leaded gasoline.
People can almost completely safely move back to the cities of the Northeast and Midwest with a few exceptions.
But “how ya’ gonna keep ’em down on the farm, after they’ve seen Paree?”
Seattle (and San Francisco, Portland and Eugene) is/are Paree.
Anandakos, while I don’t think exposure to leaded paint and similar gasoline, I doubt that it’s ever been established that these things are the major cause of massive increase in crime anywhere.
Otherwise, considering the number of decades before anybody even noticed the health hazard, if connection was that strong and serious, the crime accompanying the collapse of Detroit’s economy could never be called a “wave.”
In preceding decades, there is no doubt that many stupid and violent things occurred in the United States, especially where racial segregation was common and police chiefs had first names like “Bull.” Also, despite some great songs, the “Bottom Forty” in rock and roll could have been explained by leaded hair tonic. Further evidence of this is that in ’55 or so, top hit was “How Much is that Doggy in the Window?
Over time, however, it could be argued that the amount of concentrated leaded fumes spilling down Pennsylvania Avenue caused exactly what you’re proposing in the residents and users of certain large marble buildings located there. Which really fits the facts of our involvement in the Viet Nam war. Based on close range experience with tear gas, clearly remember how wind caused Attorney General John Mitchell being forced out of his own office by his own chemical weapon.
Correlation in Detroit is probably that an excessive number of people forced by lack of income to live in buildings and air pollution conditions did indeed suffer many of the ill effects of these chemicals. And the much deadlier disease of poverty, which in itself really has been proven to damage children and make more dangerous criminals out of the undamaged ones who can both think and aim.
“Paree?!” What’s French for “gimmeeeee a friggin’ break?” Like Homer and Jethro put in a song about their wives’ new sack dresses: “Maybe they mean Paris Tennessee!”
Mark
Anyone who doesn’t believe that these prices are concocted and have zero to do with free market dynamics, must have sniffed too much glue when they built model airplanes as a kid.
Mark,
Read some of Kevin Drum’s columns on lead exposure in MJ. You’ll be convinced. The correlation with a 20 year lag is stunning.
Now, that’s not to say that lead exposure is the root of all crime. It isn’t, and you can see a baseline level before 1940 (lead paint started being used in about 1920) and after 2000 or so (leaded gas started the phaseout in 1975; 90% fleet replacement was reached in about 1990).
And I think you’re old enough to know that song. It was popular after WWI, but I recall it being referenced in cartoons and other popular entertainment when I was a kid.
They sang it “Paree”.
And John, go take an Econ 101 class. In a widely owned market no cartel can suppress or inflate prices for more than a few weeks to months. If there is any market that’s “widely owned” it’s real estate.
JB: if you try to sell a house at twice the market rate, you’ll find no buyers. People can’t just concoct prices. Although they can cause a supply/demand mismatch by restrictive zoning.
Your explanation works for some West Coast locations, but not for New York. The neighborhood of Manhattan with the prettiest scenery is also the cheapest, because it’s the farthest from the center (Washington Heights/Inwood). What’s common to the most expensive cities isn’t climate (Boston winters, ugh), but wealth: New York, Boston, Washington, the Bay Area, and Seattle all have very high nominal incomes. It isn’t any easier to add supply in places like Philadelphia and Baltimore, but there the incomes are lower, and the back-to-the-city trend lags the richer cities, so rents aren’t as high.
Alon,
Folks don’t go to New York for the lifestyle, except for authors and performers. They go to New York to make a few million and then move to the beautiful.
Probably because California, which is a lot sunnier than here, and warmer too, whether our not it’s on fire, wasn’t full yet. Also when first LA settlers arrived, they noticed immediately that idea that it rained all the time here was just anti- newcomer propaganda, and passed along the word.
Also, since the timber industry and others across the mountains. Cascades and Olympics alike, weren’t quite dead yet, fewer people had to flee from burgeoning unemployment and the new meth economy that replaced it.
Found a book a couple of years ago called “Cold New World”- about how the end of the Cold War left the previously prosperous Antelope Valley headed toward a warmer Detroit. These things used to take time. I forget: what’s a unit of measurement of computer speed?
Mark Dub(l)in. Last time they had to attribute something, Seattle Times got it worse. Mark Durbin. Mistaken for Ben Turpin, the guy with the huge mustache in the Laurel and Hardy movies.
FLOP – Float Operations Per Second. I’m not sure I followed anything you said though.
Ben,
I think he’s more meaning Moore’s Law. Processor speed doubles every 18 months.
There is an article in today’s Oregonian that says some 28% of housing in the Portland area is now purchased by cash. As high as housing prices are here for the wages paid, there are people moving here from other areas with far more expensive housing. There are enough of them that no matter how expensive the housing may be for us, the price is cheap for them.
Maybe institute a multi-state region wide driver’s license exchange fee of $500,000 so that anyone from Oregon, Washington, and Idaho can freely move around, but anyone else gets to start at the bottom with all the rest of us?
Really, there is such a disparity in prices from California to the Pacific Noethwest I don’t see how else to do it. There is so much money involved it really doesn’t seem to matter how expensive housing is, there is always someone willing to pay even more.
Or, start running a massive advertising campaign about how great the weather is in Spokanne so everyone wants to move there instead?
Musical chairs
Maybe institute a multi-state region wide driver’s license exchange fee of $500,000 so that anyone from Oregon, Washington, and Idaho can freely move around, but anyone else gets to start at the bottom with all the rest of us?
I know this is tongue in cheek, but God, I hate this crap. All the anti-Californian sentiment I grew up with has always struck me as illiberal, reactionary, and just really ugly and small. Intra-state freedom of movement is a fundamental human right; countries that substantially restrict it (China, Myanmar, NORK) are properly understood as authoritarian despotisms. Restricting such a fundamental right to the very wealthy should be no more acceptable to anyone who cares about freedom as charging large sums of money to practice the religion of your choice or publish a newspaper without seeking prior approval from government officials of the content. I would never even joke about such things, even though how many people exercise those freedoms pisses me off (The Seattle Times and Scientology are social menaces in a way rich people moving in next door really aren’t). We have an obvious, straightforward solution, as Levy lays out; we won’t do it for selfish reasons. Under such circumstances we’ve got no business complaining.
People moving here are pretty much forced to overpay for housing due to the nature of the capital gains tax from the property they sold. If the money doesn’t go into overpriced housing, then it has to go somewhere else.
Locally we can’t change the defects of the federal tax law.
The only alternative I can come up with is some sort of solid gold driver’s license that could be treated as investment property. That way, those moving here would have something else to consume their surplus money.
Wow, you actually are serious. You’re willing to enact a policy that severely restricts internal freedom of movement for the non wealthy. I believe in and support the declaration of human rights, which happily the US has signed:
Article 13.1 Everyone has the right to freedom of movement and residence within the borders of each state.
Which other fundamental human rights would you chuck out the window to make life a little more convenient for people who had the good fortune to be born in a particular region?
No, I want an alternative to the situation where the defects in the capitol gains tax causes inflated housing prices in the destination location due to this movement.
There’s people living in tents in the San Juan Islands because today they are priced out of housing there. Thankfully for them there is a farmer who is willing to establish such a campground on one of his fields, and no local ordinances that prevent this.
It’s great that those that move here are able to have such a great increase in their wealth due to property values of where they come from, but I certainly am no supporter of the housing misery it can cause in the destination.
Capital gains tax has exempted gains from primary home for some time now. No need to plow it into a new house. http://www.forbes.com/sites/kellyphillipserb/2012/10/10/9-tax-related-myths-about-selling-your-home/
There have been also quite a few investors buying up housing (particularly detached single-family homes) and converting them into rentals.
“some 28% of housing in the Portland area is now purchased by cash”
The volume of sales is also far less than in the 2000s or 1990s. It’s like an off-year election where few people vote: those that do skew the results heavily. Many would-be sellers can’t sell or won’t sell at these prices, and many would-be buyers can’t buy or won’t buy what’s available, so only a few houses/condos come on the market, and those are snapped up by the rich cash buyers djw mentions. (If they’re in close-in or beautiful or wealthly locations. Otherwise nobody wants them or can realistically commute from them.)
Capital gains tax means that when you sell a house, you have to buy more house(s) at least as expensive as it within so many days, otherwise you lose a chunk of the difference.
Mike,
What you’re saying was true in 2011, but no longer. Portland prices are as high and higher than they were at the peak in 2007. Retirees increasingly see the folly of moving to Aridzona and burning up, so they want to come up here. Maybe they’ll spend three months renting in Mexico while their health holds up, but they don’t want to be inside all the time.
This is not true anymore. This is old tax law, from the late 1990s. Any gain on your house sale, up to $500,000 in gain, is free from federal tax. Anything above that is taxable, regardless of how the sale proceeds are used.
I cringe when economists start trying to explain the world in two dimensions. What I see going on is developers choosing only to develop buildings for the market they make the greatest margin serving, which is luxury units for wealthy young single childless people. You can build as much of that as you want and still not affect affordability.
The other thing I see is analogous to what we’ve been talking about in transportation for many decades: latent demand. The new supply of fashionable housing in places like Ballard creates more demand among tech elites who suddenly prefer cities to the suburbs they’ve flocked to over the past two decades. At some point there is a network effect, enough fashionable development to create a scene that attracts more people than the supply accommodates. If you’ve been a highway critic all these years, you have to acknowledge that sometimes supply creates more demand than it accommodates.
It’s going to be hard to convince people in Seattle that new development alone is the salve that will bring down prices. It’s just not consistent with what any of us are seeing around us. The Rainier Valley has been transformed, and so the people who used to live there now live in Kent and Auburn, chained to their cars. Ballard has seen a huge surge in development, and the rents have skyrocketed. People need to get out of their disciplinary blinders and their ivory towers and find explanations and solutions that square with facts on the ground.
I agree with your analysis, in particular the tendency of developers to build to the market with the highest margins. But what other “explanations and [more importantly] solutions” do you have to offer?
More subsidized housing? Well, the folks who are willing the lottery in the current system, incumbent Seattle homeowners, have shown a distinct displeasure with previous proposals to expand it. Plus it costs an arm and a leg.
Fewer zoning restrictions? Ditto the above with exclamations points! But at least it’s free.
Tax development as if whatever occupies a parcel were built to the maximum height and FAR? This is the fairest reform possible because everyone who owns will have the same incentives, not just those with access to large amounts of capital. BUT, and it’s a big “BUT”, you will scare the beejezus out of people. They’ll think a skyscraper will go up next door (shades of Houston….).
What I see going on is developers choosing only to develop buildings for the market they make the greatest margin serving, which is luxury units for wealthy young single childless people. You can build as much of that as you want and still not affect affordability.
Of course, because only a small chunk of demand is allowed to be served, so all servers focus on the most lucrative portions of the market. If a small percentage of demand for cars were allowed to be met, would anyone build a Ford Focus? No.
It’s going to be hard to convince people in Seattle that new development alone is the salve that will bring down prices. It’s just not consistent with what any of us are seeing around us.
Yes, Levy’s post lays this out clearly. You’re not disagreeing with him here; he’s perfectly aware of the political difficulties associated with promoting the “let supply meet demand” contingent.
The Rainier Valley has been transformed, and so the people who used to live there now live in Kent and Auburn, chained to their cars. Ballard has seen a huge surge in development, and the rents have skyrocketed.
The flaws associated with a neighborhood-by-neighborhood approach to the development/rent relationship seem so obvious and clear they shouldn’t need to be elaborated. Obviously, when serious new development is only allowed in a tiny fraction of the city and at a level far less than overall demand, it’s going to significantly transform and disrupt those neighborhoods. That’s a great argument for not restricting development so much in the other 80% of the city–if the new housing needed could be built in a variety of places and formats, there would be less disruptive transformation of neighborhoods.
Sneering at an academic discipline and tossing off analytically useless, cherry-picked data isn’t helpful or constructive in any way. Do better.
I like economics. I just have trouble with the disciplinary blinders *some* economists are saddled with (like other disciplinary purists). And I don’t mean to pick on this author; supply and demand is the two-dimensional argument that’s occurring everywhere around housing affordability issues. The microeconomic analysis says that more supply should result in lower prices, but the places we’re seeing supply increase the fastest also correlate with the places where prices are skyrocketing. So theory needs to explain what we see around us.
I’m not a housing expert, but I’d venture to guess that answers to affordability are not just providing incentives for more private-sector supply. Inclusionary zoning seems like one approach; increased public housing seems like another. Incentives for accessory dwelling units might help. The answer the urbanist community keeps throwing up is developer incentives for more supply, and in a hot market those incentives are mostly pocketed as profit rather than funneled back to tenants and homeowners.
The microeconomic analysis says that more supply should result in lower prices, but the places we’re seeing supply increase the fastest also correlate with the places where prices are skyrocketing. So theory needs to explain what we see around us.
This is breathtakingly easy to explain. We get, finally, some (but never enough) housing growth during boom times as a result of increased political pressure to let it happen, given the obvious need for it. It’s the booming economy and attendant increased demand that leads to both increasing prices and more development. You’ve got your causality all backwards. Your way of thinking about this is a classic case of spurious correlation.
While I think Levy is more or less correct, I’m a bit more of a fan of measures like inclusionary zoning and increased public housing. But they’re helpful only at the margins, given the numbers we can reasonably hope for. Of course accessory units are great, I doubt you’ll find much resistance to sensible incentives for them amongst urbanists. The main thing is volume.
>>> I cringe when economists start trying to explain the world in two dimensions. What I see going on is developers choosing only to develop buildings for the market they make the greatest margin serving, which is luxury units for wealthy young single childless people. You can build as much of that as you want and still not affect affordability. <<<
The law encourages luxury units. Is that your point?
Most of the zoning restrictions are based on the number of occupants. For example, a design review is required if you build a high rise building with more than 20 units*. This means that you can easily build a 6 story building with only 2 units per floor. Each unit can be a very large three bedroom condo, with thousands of square feet of space. This saves the developer plenty of money (the design review is expensive). If I'm not mistaken, the number of parking spaces is also tied to the number of units. So, for a big building, this means the developer has more flexibility.
But we aren't seeing that. Quite the opposite. Developers are using a loophole in the zoning rules to try and squeeze in MORE units, not less. The so called "Apodments" are a reaction to that. Sharing a bathroom doesn't save that much money, but it allows the developer to build many more units. Imagine if the law was changed to allow an unlimited number of occupants (as long as it didn't endanger the health and safety of the residents) as well as an unlimited number of bathrooms. We would see a lot more buildings with a lot more units.
It is obvious that demand for units exceeds supply. I'm talking about ordinary units (and in many cases, very small units) not luxury units, It is also obvious that demand for these units exceeds the regulatory limits. This is what is driving up the cost: demand from ordinary people not being met by the market — a market limited in large part by regulation.
It isn't just Apodments, either. Without a doubt there are plenty of places where normal sized houses are replaced by much bigger (so called "monster") houses. But there are plenty more places where developers would gladly retrofit the house so that it could be used by more people. It wouldn't cost much to convert a bunch of four bedroom houses to duplexes or triplexes, but it is illegal.
Because of the law, it is a mix. Some developers work the expensive paperwork to try and satisfy the demand of all those who want to live in a smaller unit. Other developers take advantage of the Apodment loophole (while it still exists) to do do the same. Meanwhile, some developers take the easy way out (regulation wise) and build luxury units.
* http://clerk.ci.seattle.wa.us/~scripts/nph-brs.exe?s1=23.41.004&s2=&S3=&Sect4=AND&l=0&Sect3=PLURON&Sect5=CODE1&d=CODE&p=1&u=%2F~public%2Fcode1.htm&r=1&Sect6=HITOFF&f=G
[Note: I'm no lawyer, but that is my interpretation]
>>> The other thing I see is analogous to what we’ve been talking about in transportation for many decades: latent demand. The new supply of fashionable housing in places like Ballard creates more demand among tech elites who suddenly prefer cities to the suburbs they’ve flocked to over the past two decades. At some point there is a network effect, enough fashionable development to create a scene that attracts more people than the supply accommodates. If you’ve been a highway critic all these years, you have to acknowledge that sometimes supply creates more demand than it accommodates.
<<<
This is by far the best paragraph of your post. I've often wondered about this. Can new housing development, by itself, encourage others who like that development — so much so that new demand outstrips the new supply? This may be a factor, but I think a very small one. Consider who might move here given that scenario:
1) Young people without a job. Call it the "Portlandia effect". Lots of people hear or read about Seattle, think it is a cool place to live, and move here, hoping to do something eventually, I don't think this is happening in large numbers. If it was, then unemployment would be higher (like it is in Portland).
2) Rich retirees (young or old). If you don't have to work, then why not move to a cool city like Seattle? This could be happening, but I doubt it. I really don't think this is driving the demand for apartments that overlook 15th Ave NW and Market; nor Apodments, nor apartments in Rainier Valley, or Tukwila, or anywhere else where costs have gone up plenty in the last few years. I just don't think there are that many rich retirees, nor do I think they find this climate and this city to be that great (my guess is that folks like this drive up the cost of places in New York, L. A. San Francisco and Miami a lot more).
3) Middle class retirees. Again, I don't see it. This seems to happen a lot more in smaller cities, like Bellingham (which has a college) and Sequim (which has a nicer climate).
No, the reason people move here is because there are lots of jobs. There are plenty of people in that first group that move here without a job, but they soon find one. If they didn't move here, the unemployment rate would be even lower, and someone else would move to take that job.
In other words, I'm afraid that all of your ideas simply ignore the employment rate in Seattle. If the unemployment rate was really high, then your arguments would have merit. If there are no new jobs, then how else to explain the rapid increase in housing prices? But that isn't the case (quite the opposite). Rich people aren't moving here because it is cool — rich employees are moving here because they can get richer (and by rich, I mean being able to pay off their student loans while living in an apartment). It isn't just rich people, of course, it is middle class people (since the employment numbers aren't only for professional jobs). Sometimes the answer is so obvious it is overlooked. What is driving housing demand in Seattle is the same thing that is driving housing demand in North Dakota: Jobs.
Well, there is Jon Talton, who openly admitted he moved to Seattle to get away from the craphole that is Phoenix (and cashed out in 2007 right as the housing bubble began to pop – great timing). http://www.roguecolumnist.com/rogue_columnist/2009/12/phoenix-and-seattle.html
They didn’t “suddenly” prefer cities. It has been building up gradually since the late 1980s, but zoning and transit ignored it until it reached a crisis point of demand.
It’s also a natural swing of the pendulum. Boomers flocked to the suburbs in the 1950s and 60s, and their children came of age in automobile suburbs in the 1980s. Those are the people who powered the dotcom boom in the 90s and started moving to former warehouse districts in San Francisco, Vancouver, and London. The next generation the Millenials became even more enthusiastic for it. The “normal” demand between cities and suburbs is probably an equilibrium (with suburban centers densifying to become more like cities), and the pendulum will doubtless go back and forth from that.
Lest people forget, in the 1980s “Capitol Hill” (the white middle-class urban phenomenon) ended at 23rd Avenue on the east and somewhere between Denny Way and Pike Street on the south. Beyond that was the “black” area where Capitol Hillites felt unsafe. Capitol Hill had tons of inexpensive houses and apartments after suburban flight, so every urbanist could find a place there. The U-District was the same. Rainier Valley was a third white, a third black, and a third Asian, all mixed together, so it attracted multicultralists and the lower-paid. Ballard and Fremont were small “streetcar suburbs’, without any hipster attractions. (Fremont attracted leftists, while Ballard was a quiet place to raise a family.)
What happened in the 90s was that demand for middle-class walkable urbanism spilled over Capitol Hill’s boundaries into the CD and what’s now called Madison Valley. That’s an increase in demand. Now the CD is majority white again and prices are as high as Capitol Hill until they start coming down a bit around Cherry Street.
RossB: there’s a base value in every additional unit created, even small ones. We can generalize it as the price of an apodment. Large 2 BR apartments cost somewhat more than a 1 BR, but not as much as two 1 BRs in the same space. Likewise, four townhouses are more profitable than one single-family house, which is why you see conversions to townhouses but not the other way. McMansions in the city are usually built by their owner for personal living space, not primarily to sell. Again, the owner would get more money from townhouses. McMansions in the exurbs are built on virgin land, which is the only way they pencil out for developers. Likewise, a surface parking lot is not as lucrative as the building that could be there, and new surface lots are becoming less common in Seattle, although they still reign in the exurbs.
“McMansions in the exurbs are built on virgin land, which is the only way they pencil out for developers.”
Not necessarily. It could be attractive to a small builder to buy a small, depreciated house on a large lot, tear it down and build a large house there. AFAICT, this has happened a lot in places like Clyde Hill, Mercer Island, Lake Sammamish…
Okay, so those places might not be the exurbs. Substitute Duvall.
If by “depreciated” you mean a broken-down fixer, that was going to be restored or replaced anyway, and if it’s replaced the owner will either go big or multifamily. Multifamily isn’t allowed in Clyde Hill, and the extra-affluent buyers tend to like big. In exurbs like Duvall or highway 9 (north and south of Snohomish) that have a lot of space but not a lot of rich people, the calculus is more that people who live out there want single-family houses. (“If I wanted a townhouse I’d move to a close-in neighborhood!”)
That’s right. This blog needs to stick to transportation and stop relying on housing analysis from transportation experts. Seattle’s housing is expensive because it has a strong economy. Its land is expensive because its water restricted by Puget Sound and Lake Washington and built on hills. Labor costs for construction are high because the industry mix here pays good wages. Finally, there are numerous regs in place like requiring the use of fire retardant materials and the installation of insulation to protect residents and make their lives better. In low cost areas, frequently no such regs exist that’s why, in part, housing is cheaper in places like Jackson, MS.
Zoning has little to do with why housing is expensive in Seattle.. Mpls and Chicago have lots of zoning and their housing is cheap relative to Seattle. Its not due to Californians overpaying for housing or developers conspiring to build only expensive housing. Californians are much more savvy than Seattlites when it comes to housing prices and developers charge what their land and building costs plus profit margins require. Its not because housing production is too low or because there is not enough density.
Its simply because Seattle is an expensive place to build and live period. And STB needs to have developers who are active in the housing market start posting articles instead of people who only have a vague understanding of housing development.
The linked article blames rent control too much and sees market rates as the solution when in fact they are not necessarily so.
Home ownership can shield the advocates of housing supply restrictions from the price consequences of what they advocate as much as rent controls can. Perhaps even more — if you own your home, you don’t have to contend with the shenanigans of a landlord who wants to replace you with a market-rate tenant.
Restrictions on condo conversions are inevitably part of rent control legislation (for the obvious reason). Therefore, just getting rid of rent controls in rent-controlled cities could easily cause prices to remain high — replacing rent-controlled tenants with condo owners who are equally shielded from housing price increases.
There’s plenty of increasingly affluent and unaffordable suburbs where rent control plays absolutely no role in facilitating the process (it’s all home ownership). There’s no reason this dynamic could not also form in more urban areas. In fact, in Seattle (which has no rent control), I would argue that it already has formed.
But his critique of rent control is as political as it is economic. It takes a group of people who’d be a natural constituency for permitting supply to meet demand and makes them just the opposite–ardent supporters of a status quo that discourages new development. It also encourages ugly nativist politics of the sort Glenn from Portland demonstrates above, by pitting old-timers (rich homeowners and poor renters alike) against newcomers. It’s crucial to understanding what’s going on in SF, where advocates for a noble cause, affordable housing, attempt to achieve it through a chauvinistic, ugly exercise in identity politics against tech workers.
Home ownership has exactly the same properties: it also creates a demographic which supports limiting new development. Maybe even more so, since home owners can directly profit from housing price inflation when they sell.
Yes, of course. But home ownership is pretty much baked into the cake at this point, whereas rent control is one option among many to accomplish its goal (and one of the least effective ones, with some of the worst unintended consequences, including creating allies for restrictionist homeowners who otherwise might not be).
Why is it when the housing discussion rolls around, no one ever mentions the bankers getting getting rich on ever higher real estate prices?
Bankers fund development and construction. Bankers fund mortgages. Bankers are the biggest winners when real estate prices escalate.
I has certainly become evident that bankers control the real estate market in this country, and the higher they can escalate the value the more money they make.
Pretty simple. I never see anybody in Seattle talking about it. Everybody seems to want to find some other wonky scapegoat. There isn’t one.
Certainly, bad bank behavior played a very important role in the bubble inflation; this is well-understood now I think. I’m not sure what, precisely, this particular fact adds to the discussion underway. But this:
I has certainly become evident that bankers control the real estate market in this country, and the higher they can escalate the value the more money they make.
Seems like too much. What do you mean? I want to sell my house. A real estate agent tells me what I can sell it for, given the current market. I price it and sell it. Yes, most buyers couldn’t buy without loans from banks, but that’s true in a lot of markets. What do you mean when you say the bankers “control” the market?
Bankers control the supply?
Bankers control the zoning?
Bankers pull the strings for NIMBYs?
Did bankers make your tin foil hat too?
Oooh! Bankers are EVIL!!!
Bankers did manipulate the price of houses during the bubble, with practices like groups of people who sold the same property back and forth to each other at an ever-higher price to increase the prevailing price in the neighborhood, or putting subprime mortgages into equity packages with A+ ratings (which is what encouraged builders to build more and charge ever-higher prices), or foreclosing and selling houses they didn’t even have a mortgage claim on, etc. It’s debatable how much nefarious practices like this continue, probably much less than in the 00’s, but probably not zero either. But still, these are manipulations by sleight of hand or misinformation that trick people. It’s not some magical power to set arbitrary prices and all shall obey and none shall question.
Bankers didn’t do that, the Clinton and Bush administrations pushed those efforts.