Institutional investors are pouring money into Seattle’s apartment rental market, according to the Seattle Times, not building apartment buildings, but buying them: $3.8 billion worth last year alone!
The Seattle region’s rising rents, stoked by strong job growth and low apartment-vacancy rates, have made apartments attractive to pension funds, real estate investment trusts and other investors.
Some apartment buyers have also said that given the price they paid for buildings, they need to raise the rents.
Investors have swarmed the Seattle area and bid up prices. Developers of new apartments and longtime owners of older apartment buildings have found it a good time to sell, but renters in those buildings often face much higher rents or even displacement due to massive renovations.
I mean, why invest in building affordable housing when you can make much more money by buying existing housing and making it unaffordable? Hooray for rational self-interest!
Seattle City Council member Kshama Sawant gets ridiculed by the serious people for advocating for rent control. And yes, I know that poorly done, rent control risks unintended consequences, and that it is currently preempted by state statute. So it wouldn’t be easy either politically or in practice. But you gotta admit that rent control would put a damper on this sort of speculation and the skyrocketing rents it produces.
To bad we’re not allowed to have a serious conversation about rent control, because even talking about it is crazy or something.
A nearby tweet refers to ‘rampant speculation’ as a driving force impacting Seattle apartment rents. I don’t think it’s speculation when the oldest and least desirable buildings have low vacancies in Seattle and we’re all told there’s more growth to come.
We’ve heard repeatedly that building is slow, due to various claimed reasons such as challenging regulations, NIMBYism, and limited availability of suitably zoned properties. Limited inventory and increasing demand will inflate rents.
Further, there is very little else that income-oriented investors can put their money into these days, unless it’s dividend-generating stocks. Bond yields are stubbornly low. Older bonds are being called, especially in places like California, the home state to some of the companies most responsible for the recent apartment buys in Seattle. Called bonds leave the investor with ready cash and no significant income-producing investments unless it’s real estate.
None of this has anything to do with whether or not rent control is a good idea, but the underpinnings of rapidly rising rents in Seattle are not speculative. Solid growth + low vacancies in existing complexes + many apartments in need of renovation + few options for income-producing investments are going to impact rents.
The sad thing I’d that Sawant is interested in notereity to propose any rational solution.. as one example, the city coukd do a lot more to support non profit coconstrictioan to insist that developers pay more if he real costs if infrastructure.
Is there anywhere that has implemented rent control well? What is the model of good rent control?
I would be all in favor of limiting rent increases to once per year, making the notification period be dependent on the increase (one month per 7.5% increase, up to 12 months), and requiring landlords to pay relocation assistance to anyone (regardless of income) when there is an increase greater than 25%, of two months rent or so. All numbers pulled out of my ass.
It would make life easier for those being pushed out, it would smooth the rents, and it would discourage the speculation and buying buildings to quickly renovate and raise rents.
It may also mean that landlords would need to raise rents a bit more aggressively when they can, however, since the value of their property is effectively lower if the rents are below market.
Hop on over to Green Lake Park and dig a hole. Dirt is free here!
@2 “Further, there is very little else that income-oriented investors can put their money into these days, unless it’s dividend-generating stocks.”
Last time I checked, there was no shortage of dividend-generating stocks. I already have over 10,000 shares, but I can buy more anytime I want to.
@3 “I would be all in favor of limiting rent increases to once per year”
Easy to do. Just sign a 12-month lease.
Also, RE the state prohibition: Isn’t a local politician whose policies are hampered by state/Federal law supposed to speak out against it? I mean without Googling it, I assume the city has a lobbyist in Olympia, at least during the session, and it’s at least part of her job to ask them for things.
Seattle has always been an expensive place to live, and housing is most people’s biggest expense, so you need a strategy to cope with the cost of living here. I can have a serious conversation about rent control, but it isn’t the answer. Right now a “perfect storm” of circumstances is driving rents higher, but this is cyclical and rents will level off, probably quicker than a coalition for rent control legislation gets organized. Rent control might provide temporary relief, but isn’t a long-term solution to Seattle’s housing problems, because it will result in less rental housing. People in rent-controlled units would be unable to move, and new arrivals wouldn’t be able to get rental housing. A housing strategy that historically worked well was to buy a home you can afford that will meet your needs for 40 years, then stay in it, and use extra disposable income to pay off the mortgage instead of buying “stuff.” With this strategy, I ended up with 4 bedrooms, main and master bathrooms, a 2-car garage, and a yard that I can live in for $700 a month (for taxes, utilities, and insurance). For the first 20 years, there also was a mortgage payment, but not anymore. That seems like a long time when you’re starting out, but it’s a huge financial advantage when you get there. There’s no landlord hassles, and no worries about rising rents.
Roger,
You presume a few things here:
1. There are houses for sale in a neighborhood you want to live in.
2. One can actually afford the houses that are for sale.
3. One has a suitable down payment. 20% is a lot of money when the average house goes for north of $500k
4. One has good enough credit to qualify for a mortgage.
@8 I’m not assuming anything. The fact I didn’t discuss the numerous barriers to homebuying (in order to keep my comment to a manageable length) doesn’t mean I’m unaware of them.
A real estate broker I knew many years ago once told me there’s always something out of whack in the housing market. Either there’s not enough houses, or financing is hard to come by, or something else. Rarely, if ever, do the stars align perfectly. Buying a home nearly always involves compromises and workarounds. For example,
1. If you can’t find the house you want in the neighborhood you want, you may have to accept a less-than-perfect house to get the neighborhood, or a different neighborhood to get the right house.
2. Affordability is ALWAYS a problem, and there are various ways to deal with it: Buy a smaller house (and add on later), buy a fixer (and invest sweat equity), move farther out (the suburbs are cheaper), etc. Also, don’t overlook refinancing to take advantage of declining interest rates; almost always, the best deal is through your existing lender. We refinanced our present house several times, dropping the monthly payment each time, and used the difference to make larger prepayments of principal in order to speed up the payoff. It took us four refinancings and 18 years to kill our original 30-year mortgage. The original payment was $1,400 a month, and after the lasting refinancing, the payment was $400 a month, but we kept paying $1,400 a month.
3. Most people making 20% down payments are doing it with equity from a previous house. Options for first-time buyers include programs that offer little or no down payment (e.g., FHA, VA, etc.) (but you usually have to pay a mortgage insurance premium, and maybe a higher interest rate), or you can get creative. Mrs. Rabbit and I didn’t have the down payment, but she had an aging mother who couldn’t live alone anymore, so we raised the down payment by selling her house and moving her in with us, and taking care of her until she died. She owned 1/3 of our house, which she paid with the cash proceeds of her house, and we owned 2/3, all of which was financed with a mortgage. When she died, Mrs. Rabbit inherited her mother’s 1/3 interest in the house, which she retains as separate property, and the marital community owns the other 2/3, which is now 100% equity as the mortgage has been paid off. There are lots of other inventive ways to do this, for example, maybe you can get the 20% from a parent or relative and put them on the title, with the property records reflecting their ownership of a 20% interest in the property. Then, when the property is sold, they get 20% of the proceeds, not their original cost, so it’s an investment for them.
4. We last refinanced around 2004, and paid off our mortgage in 2008, so I have no personal experience with the mortgage market since 2008. I hear stories, that’s all. People I know who’ve bought houses recently told me they didn’t have trouble getting loans, but these are older people with stable jobs and six-figure (or higher) net worths. Young people of household formation age face a different world: A difficult job market, less job security, more frequent job changes, stagnant incomes, high debt, and banks that are reluctant to lend and are imposing stricter lending standards in the wake of the subprime disaster. A buyer facing difficulty getting a conventional mortgage nonetheless has some options. Seller financing is sometimes a possibility. Or a co-signer (usually a parent). Sitting down with a real estate broker can be helpful. S/he may tell you that, realistically, you’re not in the market until your financial situation improves. But s/he may come up with some alternatives and possible solutions you didn’t think of. Brokers also have a good grip on what financing is available, and where to get it, including alternative financing options. So don’t give up or assume you can’t buy before talking to a broker. Buying a home is a problem-solving exercise. This is our third home, and all of them required overcoming hurdles and jumping through hoops.
there’s many forms shades and varieties of rent control.
one form is a ban, forever, on raising rent. this works for some lucky tenants and does not work for the rest of society.
another form is limiting the increase in rent annually; or that plus a bigger increase allowed if new tenant; this is the halfway rent control and I think we should put something like that in in seattle.
another form is more controls on rents meaning greater notice period, stronger help for elderly tenants who have to move — I would REALLY favor that, it kind of is a lefty thing plus a make-the-market-work more thing, few elderly can go shopping around for a new place in say, seatac, they can’t even imagine moving or do it or afford it in the first place.
the taxing all new housing to create subsidized housing seems a strange policy as it raises housing costs for most people, why on earth would we do that, and ends up building low income housing in the priciest area, ie seattle.
all this is in conjunction with good policies for transit and land use that would make burbs more walkable, and connect them to downtown better, if we do that, if out in burien or seatac or kent you can get a cheaper place but (a) walk to grocery store and (b) hop on sounder or light rail to downtown or somehow get to first hill for medical appointments, well then, what’s wrong with living in kent?
our whole area is awesome and it’s one big old region. people should be okay with moving several times in their life or even in retirement, it’s not a tragedy if you can get help, maybe a little cash aid, to you know, afford it. locational value is great in seattle; better to tax the yuppies living there, like they do in sweden, use money to help poor people we know are poor instead of just mandating rent control which helps even rich people stay in a place with sub market rent.