Can Building Housing Lower Rents? 

Seattle says "yes."

Page 8 of 8

Not Becoming San Francisco

As Seattle housing prices exploded, a scary idea emerged: Was Seattle becoming as expensive as San Francisco? Dan Savage, an editor and columnist for the Seattle newspaper The Stranger [whose work also appears weekly in the Express], wrote a Jan. 19, 2016, column titled "When It Comes to Housing, San Francisco Is Doing It Wrong, Seattle Is Doing It Right, Cont." Savage quoted a housing activist who visited San Francisco and was struck by "how little construction is going on compared to Seattle. ... Considering the extreme housing crisis in the Bay Area, the amount of new housing is clearly inadequate."

Savage cited a November 2015 story from the Puget Sound Business Journal that found "it's not demand that has Seattle apartment landlords worried. It's supply. More than 11,000 new units are expected to open this year in the region, and it's forecast that an equal number will open next year. For landlords this tsunami of new apartments comes at a terrible time with the market showing signs of weakness."

San Francisco landlords have never had to worry about excess housing supply.

Savage noted that by 2015, even without rent control, the Seattle neighborhoods with the most new housing saw slowing rent increases: "Rents rose 5.6 percent regionwide from March through September, and were up 8.3 percent from a year prior. But in the core of Seattle, rents went up just 3.9 percent year-over-year in September. That's down from 8.4 percent a year earlier." The report expected "rent increases to slow further as more new units open over the next years."

Savage concluded, "So if you want to see rents come down, if you want apartments in the center of the city to become more affordable, then you should be delighted each time you see a new apartment building going up. The faster they build them, the more units come online, the cheaper they get."

Mike Rosenberg's provocative July 2016 story in the Seattle Times dismissed fears that Seattle is "doomed to a fate where million-dollar homes and $5,000-a-month rents will soon be the norm." Rosenberg noted, "Seattle is roughly half as expensive as San Francisco to rent or own a home, a fact that has stayed constant through housing booms and busts of the last two decades. Almost like clockwork, every time home prices have grown a dollar in Seattle, they've risen two dollars in San Francisco."

To what did Rosenberg attribute Seattle's lower costs? "The good news is Seattle has been adding homes twice as fast as construction-averse San Francisco for the last decade, which could help stave off the extreme housing shortages that have driven up costs in California." He added, "Since 2005, San Francisco has added just 24,000 housing units, compared with about 50,000 in Seattle. ... The political process is so heated in the City by the Bay that many projects there take years and require several alterations to even be considered, and some even require voter approval."

John Rahaim, who went from being a deputy planning director in Seattle to running San Francisco's planning department, observed in 2014 that San Francisco is "in a crisis partially created by many years of underbuilding." In a San Francisco Business Times report, he blamed a lack of "consensus about what change is needed."

Today's Tony Bennetts aren't just leaving their hearts in San Francisco; they are also leaving their wallets. San Franciscans pay over 50 percent of their incomes for housing, while Seattle homeowners and tenants pay around 30 percent. This huge affordability gap explains why many leave the Bay Area for Seattle. Seattle builds twice the number of units as San Francisco despite having 200,000 fewer people.

Upon returning to Seattle, Mercy Housing's Bill Rumpf saw a crucial difference between Seattle and San Francisco in his social interactions. "San Franciscans regularly turned conversations to real estate values: how much this house had sold for and what properties were worth. I found San Franciscans far more obsessed with keeping track of their own property values than people in Seattle."

Does Rumpf think that if San Francisco were to build housing at the rate of Seattle, it would increase affordability? "Absolutely. San Francisco has just choked off supply. And if Seattle built at San Francisco's rate, our affordability would be horrible."

Still Battling for Affordability

Despite building roughly 2,350 units a year, a remarkable number for the city's size, Seattle has not kept up with demand. The reason is Amazon. Amazon alone added 35,000 Seattle jobs from 2010 to 2017. No city could build enough housing to avoid rising rents and home prices from such massive local job growth.

As a result, although Seattle opened more apartments from 2011 to 2016 than in the prior 25 years combined, from July 2015 to July 2016, Seattle rents rose the fastest in the nation, even faster than those in San Francisco. In 2016 Seattle ranked eighth nationally in rent prices, with San Jose and San Francisco topping the list. Seattle's housing market is unquestionably better than it would be if the city had not built so much housing, but far too many Seattle residents still remain priced out.

Nick Licata has lived in Seattle since the 1970s and served on the city council from 1998 to 2015. I asked him to explain why Seattle has an affordability crisis despite the new housing. He had an obvious answer: Seattle was creating jobs faster than new housing units. Amazon's expansion alone has brought thousands of well-paid jobs to Seattle. With the average tech job now paying roughly $100,000 annually, excess housing demand continues to bid up prices. Licata told me that in 2017, the greater Seattle area ranked third in the country in the number of homeless persons, having added 1,000 in the past year alone.

Licata ran for city council in 1997 on a platform supporting rent control. He sees the Seattle City Council in 2017 as "amazingly progressive when it comes to renters." Seattle is not only building housing at a record pace, it is doing what it can (given the state ban on local rent control and just-cause eviction laws) to prevent tenant displacement. Seattle "hasn't experienced anything like this before" in terms of the current affordability crisis.

Soon after my conversation with Licata, Amazon announced it would be opening a second headquarters. Cities across the nation rushed to promote themselves as Amazon's ideal location. But there was less interest in Seattle. As longtime Seattle resident Nancy Anderson explained in an October 2017 letter to The New York Times, Amazon has brought an "influx of transient, well-paid workers that has turned Seattle into a city of horrendous traffic and outrageously expensive housing that has lost its quirky, middle-class character. ... The city is now unaffordable for young families and the flight to the suburbs is accelerating."

Seattle has been remarkably proactive in building new housing to match future job and population growth. Amazon's rapid and unexpected growth does not undermine this. With 2018 projected to be another record-setting year for apartment construction, Seattle rent increases are expected to slow in future years.

Although Amazon was home-grown rather than recruited, Seattle's experience nevertheless highlights how important it is that cities consider housing impacts when pursuing large employers. Cities eagerly competed to host Amazon's second headquarters without considering where the new workers would live or their impact on local housing prices. The "winner" of this competition may be in for a rude awakening.

Seattle's overheated economy will not last forever. But the city's commitment to building housing to increase affordability is secure. After Mayor Murray resigned from office in the fall of 2017, Interim Mayor Tim Burgess moved forward with the plan to increase density in at least 27 neighborhoods across the city, including most city land zoned for multifamily use. In the city's 2017 mayor's race, the two top vote getters in the November runoff were both pro-housing. The establishment supported Jenny Durkan, who was endorsed by Murray and backed his housing polices. She was opposed by progressive urbanist Cary Moon, who showed her pro-housing stance by arguing that single-family zoning was a "socio-economic exclusion tool like redlining was a racial exclusion tool." Durkan prevailed, confirming that the city's pro-housing future is secure.

In January 2018, Seattle saw its biggest drop in rents in the past decade. Rosenberg reported in the Seattle Times that the "biggest rent decreases were mostly in the popular Seattle neighborhoods that are getting the most new apartments." Rents in neighborhoods in and around downtown Seattle fell an average of $100 per month for new tenants, with a $50 decline region-wide. The decline came "as the number of new apartments opening across the area has hit record levels and has begun to significantly outpace the number of new renters."

Seattle's rental price slowdown then continued into the spring, as the city saw "its smallest springtime rent increase of the decade," Rosenberg continued. While rents were still 59 percent higher than in 2011, experts attributed the cooling market to the fact that "a record number of new units opened last year in Seattle." Even more are expected to open in 2018, so that the Seattle rent slowdown is now seen as "indicative of a longer-term trend."

Seattle will not return to its days of easy affordability. But the city is doing what it can to stop the pricing out of the working and middle-class. 


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