Rents at newer luxury “Class A” apartment buildings in Seattle are rising at twice the rate of rents at older “Class C” buildings, despite having twice the vacancy rate. Which which is weird because…
The data seem to defy the law of supply and demand. I asked Cain about it; he believes it has something to do with the different types of ownership models at luxury apartment buildings compared with the older ones.
Premium Class A properties are typically owned by institutional investors and managed by a national property-management company.
In contrast, Class C properties are usually owned by people with a connection to Seattle — either a family (though that’s become a lot less common in recent years) or a small group of local investors.
“Also, these owners seem to hold the properties longer,” Cain says, “and as a result, they have lower debt coverage ratios.” The less debt they have to service, the less pressure to push rents to the maximum.
In other words, many of these landlords aren’t jacking up rents to whatever the market will bear. It’s a refreshing change from the all-too-common stories of brutal rent hikes forcing tenants to relocate.
Except, of course, it’s not weird. Because there is no “law” of supply and demand. Supply and demand is a useful construct for describing, in general, how markets tend to work. But it’s not a law. People—and thus the markets they create—are a lot more complicated than any three-word phrase can describe. So no, merely adding more supply is not the only (or even an adequate) solution to Seattle’s growing affordability crisis.