In the wake of the news that Expedia will be moving its offices to Seattle’s waterfront, there’s been a lot of chatter lately that Chinese online retail giant Alibaba may be looking for up to 80,000 square feet of Seattle office space in which to set up its US headquarters. But why would Alibaba pick pricey Seattle? At least partially, because we’re cheaper than San Francisco!
In addition to much lower rents than the San Francisco Bay area and cheaper housing for workers, the region is filled with e-commerce and cloud computing talent thanks to Amazon and other growing Seattle tech companies, and Sea-Tac has recently increased the number of flights between Seattle and China. Alibaba could benefit from the four daily nonstop flights to China from Seattle-Tacoma International Airport.
Hear that? “Much lower rents!” I guess it’s all relative.
I’ve had this running argument with some in the urbanist crowd over Seattle’s growing affordable housing crisis. Free up developers to build more housing faster, I’ve been lectured, and the market will do its magic—you know, supply and demand, and all that. But I just don’t believe that the market can address this problem on its own.
Freed from neighborhood NIMBYism and municipal interference, no doubt developers would build more housing faster, substantially bringing down the price of luxury housing. But since developers will almost always target the top of the market first (in order to squeeze as much profit as possible out of any piece of buildable land), we won’t get many new units aimed at median income or below households. In fact, we may see a loss of affordable units as older buildings are torn down or converted to meet demand from more affluent renters and buyers.
But as Alibaba’s decision-making process demonstrates, our residential and commercial real estate markets don’t exist in a vacuum. Global financial capital is pouring into Seattle’s real estate market seeking a higher rate of return, pushing up real estate prices and rents with them. And when it comes to attracting high tech companies like Alibaba, Facebook, and HBO, Seattle is competing with cities like San Francisco and New York where office and housing costs are much higher. Ironically, the more supply we build, the more competitive we become, increasing demand, and pushing prices back up. And as more high tech companies locate here, attracting more talented high tech workers, Seattle becomes even more attractive, especially to companies doing business with Asia. Even our growing traffic congestion bumps up in-city demand by incentivizing the choice to live closer to work.
In this scenario, it’s not clear that the market alone can ever build itself out of our affordability crisis as long as there is such a huge cost disparity between Seattle and San Francisco. It’s kinda like attempting to build our way out of traffic congestion by just adding more freeway lanes: build it, and people will come.
So, yeah, I’m all for lifting height limits and other NIMBYist restrictions, particularly around transit centers. And of course we should be smart about streamlining the permitting and approval process. But I’m convinced that if we want to substantially add and retain middle and low income housing in Seattle than we’re going to have to build and retain tens of thousands of units outside of the market.