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Booming Construction and Falling Rents in Seattle and Portland Show Laws of Supply and Demand Still Apply to Housing

Despite the claims of NIMBY activists, cities can build their way out of a housing crunch

Gino Rigucci/Dreamstime.comGino Rigucci/Dreamstime.comRents are mercifully beginning to decline in the high-cost, high-growth cities of the Pacific Northwest, thanks to urban construction booms that are adding new units at a rapid pace. Though places like Seattle and Portland remain expensive places to live, the trends show that the rules of supply and demand still apply to the housing market—despite the claims of NIMBY activists.

Portland and Seattle "are sort of the prototypical examples of basic economics in action in the housing market," says Igor Popov, chief housing economist for Apartment List. "In the last few years, they've had this record number of units come onto the market and it's finally giving price relief."

Portland added 4,419 unit of completed housing in 2016, a slight increase from the roughly 4,365 it added in 2015, which combined is more than all the housing units added in the five years prior to 2014, according to the Portland Housing Bureau's 2017 annual report.

Seattle, meanwhile, added some 8,400 units of new housing between 2016 to 2017, up from about 7,600 a year prior, and about double the amount of housing units the city added in 2012, according to data compiled by Washington State's Office of Financial Management. Seattle is tied with Denver for per capita construction spending on multifamily housing units, according to Apartment List.

As the number of apartment units being built has gone up, average rent across these cities has actually started to decrease.

Year-over-year average rents declined by a full 1.2 percent in the city of Portland, with average rents dropping to $1,140 per month for a median one-bedroom apartment, according to the yearly rent report from Apartment List. It's a similar story in Seattle, with Apartment List data showing rents declining 1.6 percent from where they were in 2017. The median monthly rent for a one-bedroom apartment in Seattle is $1,346.

These price declines may not even capture the entire picture, as landlords feeling squeezed by falling prices and rising vacancy rates are starting to offer sweeteners to potential tenants.

A June Seattle Times story found some 112 apartment buildings offering periods of free rent to new renters, with the average offer being a one-month pass. Other buildings were offering Uber Eats credits, Amazon gift cards, and memberships at nearby gyms to any tenants willing to move in, with some of these gift card deals reaching as high as $2,500.

It's the same thing in Portland, with some developers offering as much as eight weeks of free rent, along with $1,000 Amazon gift certificates and health club memberships.

It is important to note that these concessions and price declines are appearing at the top of the market first. Prices for newly-built, expensive apartments are starting to fall, while the prices for many units on the lower end of the market are still increasing.

Data from the economic consultancy ECONorthwest show rents declining by 2.4 percent between June 2017 to June 2018 in buildings where units are priced at over $2,000 a month, but rising 2.3 percent in buildings with units priced below $1,000.

There's still good reason to assume that the additional supply is arresting the growth of lower rents, even if prices are still increasing. Every renter accepting an Amazon gift card to move into an expensive, newly-constructed unit is one not competing for—and thus driving up the cost of—older, more moderately priced housing stock.

Prices for those new units will come down over time too, says Popov. "What often happens is new construction is geared toward the high end and then as it ages it becomes more affordable," he tells Reason.

This trend of rising supply and declining rents provides a clear lesson for high-cost, high-growth cities like Seattle and Portland, as they struggle with the issue of housing affordability: that more housing supply is needed to start bringing rents down for everyone, not just the upper crust of renters.

There has been a tepid acceptance of this fact over the past several years. Seattle has been upzoning some areas around its downtown at a snail's pace, allowing for the construction boom we are seeing today. A rising tide of YIMBY activism in Portland too is starting to have an effect. In September the city's Planning Commission recommended loosening zoning regulations to allow for more triplexes and duplexes where now only single-family housing is allowed. (YIMBY is an acronym for "Yes, in my backyard," and represents a very different way of thinking about zoning and new construction than NIMBY, or "not in my backyard.")

Yet for every policy that encourages more housing construction, these cities have also passed a series of laws that discourage housing production, and some of them might even push smaller landlords out of the market.

In 2016, Portland passed a strict inclusionary zoning ordinance, which sets affordability requirements for a certain percentage of new units in new housing developments. Applications for new building permits slowed considerably the law went into effect.

Seattle has banned landlords from using criminal background checks to vet tenants. Earlier this year, the city also reversed it's recent upzoning of a plot of downtown land to try and save an iconic music venue. The move prompted a $40 million lawsuit against the city, and undermines the developer confidence that the city won't try to hamstring other controversial projects. Homeowners have also fought tooth and nail against proposals to allowing more dense housing in the city's single-family neighborhoods.

The specter of rent control looms large in the politics of both cities.

Yet if housing affordability is the goal, the cities of the Pacific Northwest should embrace the laws of supply and demand—and not to mention property rights—and let people build what they want, where they want.

Photo Credit: Gino Rigucci/Dreamstime.com

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  • Fist of Etiquette||

    Every renter accepting an Amazon gift card to move into an expensive, newly-constructed unit is one not competing for—and thus driving up the cost of—older, more moderately priced housing stock.

    I was about to complain about this statement until I realized it could be read two ways. Also, Igor Popov is obviously an adult film actor's name.

    Yet for every policy that encourages more housing constriction, these cities have also passed a series of laws that discourage housing production, and some of them might even push smaller landlords out of the market.

    This statement I haven't quite figured out yet.

  • chemjeff radical individualist||

    The median monthly rent for a one-bedroom apartment in Seattle is $1,346.

    Outrageous

  • CE||

    way cheaper than here

  • BestUsedCarSales||

    I'm guessing there's a lot of weird cheap ones that I missed, as I was well above median. Maybe out in White Chapel it's driving things down. Can never remember if that's the same city or not.

  • operagost||

    "Seattle has banned landlords from using criminal background checks to vet tenants."

    They'll claim this is why rents are falling, through socialist logic.

  • Sevo||

    Pretty sure this is also pretty much non-enforceable. Prison records are public records; "Gee, I really don't like brown-haired people, convict #XXXXX".

  • BestUsedCarSales||

    You have to accept renters in the order they applied. So if they meet the criteria for your rental, and they came first, even if a safer candidate comes right after they applied, you legally have to give it to person one.

  • BestUsedCarSales||

    I believe that was King County as well, not just Seattle. How they defined the criteria one had to use I was not quite sure. Think it was largely income based.

  • Sevo||

    Just wait until CA legalizes 'rent control' across the entire state, and you'll get one more example.

  • Jerryskids||

    Yet if housing affordability is the goal,.........

    They want affordable housing for the upper-middle class they want to retain, they want the poors to GTFO. They all push this "Smart Growth" idea, it just means they want to limit growth to the right people. The right people are the ones who can afford the taxes to support the humble public servant class.

  • ||

    The right people are the ones who can afford the taxes to support the humble public servant class.

    ^ This. Cities have to be very careful about property values, because not only are their revenues directly tied to property values, but the amount of debt they can carry is also capped at a percentage of total property values in the city. A sudden significant dip in property values and a big, dense city like San Francisco is well and truly fucked.

    Stockton CA is an example of the end result.

  • Diane Reynolds (Paul.)||

    because not only are their revenues directly tied to property values,

    If you're referring to property taxes, that's not actually so. The tie-in to property value is a formulaic construction which guides the state (or the county) on how much you're going to get charged for taxes.

    I'm not sure if all 50 states do it this way, but in Washington, your property value only guides the state in what percentage of the pie you pay. And the pie is dictated by how big a meal the politicians have decided they're going to order at the drive-thru.

  • ||

    In CA your tax is a percentage of the assessed value, but is capped by a formula applied to the original purchase price (our famous Prop 13). Local authorities can then also toss on parcel taxes for things like schools and fire departments, which aren't necessarily directly tied to property values.

    The WA way probably makes more sense in certain ways, since CA agencies at all levels tend to get plunged into crisis every time there's a correction in the real estate market.

  • Diane Reynolds (Paul.)||

    The WA way probably makes more sense in certain ways, since CA agencies at all levels tend to get plunged into crisis every time there's a correction in the real estate market.

    It might, but if feels dishonest. That's why my assessed property value didn't go down for something like three years after 2007. That's when it became more widely known that your 'property value' is really just a number they use to plug into a larger, more complex number which allows them to achieve a desired outcome.

    County to assessor: I need a billion dollars, go find it in property values.
    Assessor: Right away, sir.

    *tweak tweak tweak tweak tweak*

    Assessor: By increasing middle class home values by 11.5% we found your billion dollars.

    County: Nice job.

    Constituents: It's 2009 and there's blood running in the streets, why did my home value go up 11.5%?

  • ||

    They're actually gaming the assessments to get the amount of money they want? Yeah, that's kinda fucked up - I thought you were saying they just use relative property values to figure a sort of progressive property tax based on budget needs.

    They're actually pretty good about assessments in CA, but I suppose that's why they want to get rid of Prop 13 so badly.

  • Just Say'n||

    "but the amount of debt they can carry is also capped at a percentage of total property values in the city."

    The crux of the matter.

  • ||

    The crux of the matter.

    Yeah - I mention the tie to property tax revenue on the "this should be mentioned, too" principle, but I suspect the debt limit is the real thing.

  • CE||

    So they assume the city owns your house.

  • ||

    They do seem to be implicitly offering it up as collateral.

  • EirkKengaard||

    The "housing problem" will not be "resolved," even when we have millions living in usagi goya ("rabbit hutches").
    For the foreseeable future, because of overpopulation, it will not be possible for working class Americans in the California Bay Area to own, or even rent, a home (as envisioned by most Americans, and as defined by " and as was the case in the first half of the last century, before California's population passed the tipping point).

  • ||

    I don't think that's true. CA does not lack space. It lacks building permits.

  • Diane Reynolds (Paul.)||

    I remember reading a hand-wringer in the Seattle times about how enrollments were shrinking in Seattle schools.

    By now you can already guess that smaller class sizes were suddenly a major problem.

  • Just Say'n||

    Enrollment is shrinking in Seattle because there are about twenty families that still live in the City. It's an issue that a lot of cities in the north are experiencing.

  • Uncle Jay||

    The government should be the only ones who own housing.
    Just look at all the wonderful government housing projects in our larger US cities and the results they produce.
    No one should look any further than that as proof how well government housing protects and nurtures citizens.

  • EirkKengaard||

    /S

  • EirkKengaard||

    "It's the dream of leftists everywhere to have everyone packed like sardines in apartments, a la Eastern Block countries. But it simply isn't happening.
    People still like having a plot of land to call their own, a yard, a pool, a garage, greenspaces, etc."
    Mr. Landlord August 11, 2017 at 6:57
    http://www.doctorhousingbubble.....hip-rates/

  • CE||

    Now Portland just needs to do away with that "urban growth boundary" thingy.

  • EirkKengaard||

    The supply of land is fixed. The number of people is determined mainly by immigration (since birth rates have come down). Rent wasn't a problem until the country became overpopulated.
    Of course rent will be lower for people willing to live in rabbit hutches, but most people want realo homes.

  • ||

    Rent wasn't a problem until the country became overpopulated.

    Where are rents higher, Santa Barbara or Mexico City? Which one is more "overpopulated?"

  • Fairbanks||

    Overpopulated in what way?

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