A phenomenal onslaught of the wrong kind of supply.
Crane-counters in the metropolitan area of Seattle have long had an exciting time as cranes keep popping up on new construction sites. Some are condo towers, others are apartment towers. Not counting condo towers, this is what’s coming:
- Currently under construction: 25,164 apartments in buildings with over 50 units.
- Planned but construction has not yet begun: 34,800 apartments in buildings with over 50 units.
This makes for a total of 60,000 apartment units, planned or under construction, just in buildings with more than 50 units, according to the Q2 report by multifamily property data provider Apartment Insights.
Among the submarkets with the most units:
- South Lake Union: 3,384 units under construction; 3,561 units planned
- Redmond: 3,188 units under construction; 1,730 units planned
- Seattle Downtown: 2,696 units under construction; 9,390 units planned
- Central/South Seattle: 2,618 units under construction; 4,665 units planned.
There are about 325 of these types of projects either under construction or planned, according to Apartment Insights.
Among the largest projects currently under construction:
- 843 units at 120 John Street, Seattle. Construction began in November 2017, estimated to open in November 2019
- 532 units at 2309 Jackson Street, Seattle. Construction began in March, estimated to open in June 2020
- 461 units at 970 Denny Way, Seattle. Construction began January 2016, estimated to open in August
- 436 units at 121 Boren Avenue N, Seattle. Construction began in April 2017, estimated to open in April 2019
- 400 units at 600 Wall Street, Seattle. Construction began this month, estimated to open June 2020.
Among the largest planned projects where construction hasn’t started yet (including projects that have entered or satisfactorily completed the development/design review process):
- 620 units at Redmond Square, Redmond. Construction to start later this year, estimated to open in March 2020
- 1,096 units at 2300 6th Avenue, Seattle, no dates available yet.
- 1,649 units at 1901 Minor Avenue, Seattle, with 943 units Building 1 and 706 units in Building 2, no dates available yet.
This comes after 10,500 units were delivered in 2017.
The vacancy rate for the counties of King and Snohomish combined, including apartments in newly opened buildings that are trying to find tenants, rose to 7.5% in Q1 (most recent data available) from 6% a year ago, according to Apartment Insights, cited by the Seattle Times. In newly opened buildings in the metro, about 40% of the units are vacant.
The vacancy rates by submarket in the list below include new construction that developers are now trying to fill:
- Downtown Seattle: 25.7%
- South Lake Union: 13.9%
- Central/South Seattle: 11%
- First Hill: 9.4%
- Bellevue West: 9.3%
- Fremont/Wallingford: 8.8%
- Queen Anne/Magnolia: 8.7%
- University District: 7.3%
- Capitol Hill: 8.2%
- Southwest Seattle 6.7%
- Bellevue East 6.6%
- North Seattle: 6.4%
- Mercer Island/South Bellevue 5.4%
- Kirkland: 2%
Cutting asking rents would be the obvious solution. But that is anathema to the industry. It would show that rents are declining, and it would engender price competition – a race to the bottom, so to speak – and potential tenants would hold out for even better deals, or negotiate harder, and existing tenants would ask for rent reductions or move at the end of their lease. And so landlords and developers layer on the deals to fill those units without having to cut asking rents.
In a review of for-rent ads posted in a 24-hour span, the Seattle Times found that 157 buildings in the city of Seattle offered “significant” concession – with one-month free being offered in 112 of those buildings – to lure potential tenants into the door:
Most of the freebies were in newer buildings that must fill up dozens or even hundreds of new apartments at the same time — including some buildings that haven’t even opened yet — but there were plenty of handouts at older buildings, as well.
Among the other common concessions were specials on deposits; free parking for up to the term of the lease; gift cards going up to $2,500; gym memberships, electronic gadgets, and Uber credits, or a combination.
At the moment, this strategy is still working, as developers would rather sit on empty units for now, than actually cut asking rents. At least it’s still working in the one-bedroom arena. According to Zumper, the median asking rent for a one-bedroom apartment in June matched the record in May of $1,990, up 4.2% from a year ago.
But in the pricier two-bedroom arena, resistance is being felt more strongly: median asking rent for a two-bedroom, at $2,530, was down 4.5% from the peak in April 2016.
So there is plenty of supply in the Seattle metro, thanks to this construction boom. But most of this supply is high end. And for many budgets, it’s the wrong kind of supply. This is a common thread in many cities with construction booms that generated loads of high-end supply that is out of reach for many households.
But eventually, if the market is allowed to do its jobs, the wrong kind of supply turns into oversupply, and landlord have to fill it or go broke. And when the banks end up with the building, they, or whoever they sell it to, will fill it, and cutting rents is standard procedure because their cost basis is lower. This is when push comes to shove. It puts pressure on rents in the entire market. But for now, hopes are high that it will never get to the point where push comes to shove though boom towns go through it inevitably.
Suddenly there are historic spikes in home prices in Seattle and other metros. But New York condos skid. Read… It Gets Spiky: The Most Splendid Housing Bubbles in America
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Don’t worry, it’s OK. It will be different this time. We promise. I wonder How this will end, just can’t be too much different than what’s happening in San Francisco.
But in the end, these mega towers will make for some nice low income housing. Oh excuse me, below market rate housing.
A quick search on Zillow for “apartments to rent” in Seattle came out with 1691 results, with a high concentration of them around downtown. Without the proper context, this is too coarse a datapoint to be meaningful.
The prices are steep, as Wolf says in the article. I guess that the question is whether wages will improve enough in the next 24 months to make the apartments more affordable.
1. just for fun, I checked Zillow and it said 2,072 units for rent. Tomorrow it’ll say something else.
2. New construction buildings have their own leasing offices and they don’t advertise all their 100s of units. Just a few of them per building.
I experienced this myself. Back in 2001, we moved to Manhattan. One new tower had one apartment advertised for rent. So we checked it out, but it wasn’t right for us. So we asked if they had something else, upon which they showed us a bunch of units and we picked the one we liked the most given what we wanted to pay (the price range was huge). There were only like 3 units occupied on our floor when we moved in.
And I bet every advertised unit claimed “LAST ONE!”
How are the streets going to accomodate 60000 more vehicles? Are they going to create 60000 more parking spaces?
Isn’t there any kind of regional planning and management?
Average length of car= 15 feet and thus
15 ft/car x 60,000 cars=900,000 ft
900000/5280= 170 miles of cars if we line them up end to end!
This sounds worse than Toronto!
On business trips I noted it barely accommodates the traffic and parking now, it will be insane after this..
I like Seattle, live in San Francisco, good luck with the parking, its one of the most unpleasant experiences of the city…along with the politics and flat out plundering of citizens….
No, you don’t understand Seattle leadership and their stance on cars. Namely they don’t like them. Period. Some of these apartment towers going up have no parking planned in them. Read that again. There are no planned resident parking spaces. They also don’t expect any additional street parking to occur. The residents won’t have cars is the plan. They have a lot of “data” and “studies” behind their stance, and are pushing forward. The Seattle City Council has even tried to pass laws to breakout parking costs from rent to help make it easier for people without cars to find cheaper housing.
It’s all very strange.
Yes it is strange but with the way our society is developing politically now ,that is to be expected. A lot of the people leading the Seattle area are DELUSIONAL & turning the “ Enerald city” into a chaotic nightmare !
If rents keep going up, people won’t be able to afford rent and a car anyways.
It’s actually an interesting situation. There is some regional planning, but from my outsider perspective (having lived here ~10 years) it’s as effective as herding cats. Counties are very weak entities in Washington state, and based on my understanding, they generally only control unincorporated parts of their county. So, each city and town is independent from each other. On top of that, the northern suburbs of Seattle extends into a different county, which just complicates things.
On the physical side, the large number of rivers and streams, wetlands, steep hills made of hard, young rock, the mudslide risks, the concrete-like glacial till layer that underlays the Puget South area, the active fault zones, and strong environmental laws, it all combines to make it really hard to do transportation projects.
If you live in town you don’t need a vehicle. Why would anyone living and working in a crowded urban area want a car?
Because just outside the city is one of the most beautiful natural playgrounds the world has to offer?
Gosh, if only it were possible to, I don’t know, rent a car on an as-needed basis instead of everyone owning (and needing to store) a giant machine they only have occasional need for…
Mass transit, car sharing, Uber, Lyft, several bike sharing companies and a walkable downtown make the need for a car and dedicated 24/7 parking space sort of an obsolete 20th century thing.
Like devoting an entire room of your house to a big black screen attached to a black box attached to a cable in the wall to watch prescheduled network television programming. Or landline phones, or newspapers printed out and hand-delivered. Totally obsolete.
It could all be grist for a Cascadia Subduction Zone mega quake .. and, hypothetically, one could watch it play out from the, um, comfort of their highrise condo ..
Don’t people realise what they’re living on ?!?
Sorry, but I’ll take single story building over a quivering towering inferno any day, any way .. not as far to fall !
Yep, been a couple 7.0’s in a single story…..a very relaxing experience…
28 floors in 6.8 not so much…..
A fire is more likely than an earthquake. In April, 2017, I was awakened at around 1:30 AM by a fire alarm at an AirBnB condo unit I was staying at while visiting Toronto. The condo was in a former upscale hotel, but walking down 20 or so flights of stairs was not what I was anticipating when I was planning my trip.
People who chose to live in congested cities, will increasingly not have a car or if they do have one, will not use it very often. San Francisco has had congestion pricing for its parking meters in place for years. Its gas prices are among the highest in the country.
25% vacancy rate in downtown Seattle is downright scary. Don’t these apartment builders have a way to get the new buildings filled on day one? I assume they are advertising like mad. Obviously, the plans did not include a 25% vacancy rate for very long.
Let’s see how long this vacancy rate lasts. With many new apartments coming on line all the time, I have to think the vacancy rate will get higher before it gets lower.
Any drop in rents dramatically changes the buy vs. rent comparison in Seattle.
As weird as it sounds I expect rents to continue increasing ,even if vacancies rise higher .
Because whoever financed the developers will demand their money and make sure that natural market forces do NOT drive rents down and with the right legislation/bribes this can be done !
Yes this will mean fancy apt buildings that are empty with a growing crowd of homeless .
Insane is an understatement for such a scenario but that’s where we are headed !
This is gonna be interesting…
Tons of condos coming online would basically suppress rent over time
This would mean over time prices to decline
I bus it past South lake Union on a regular basis and it appears from my window view to be just as many cranes and just as many holes in the ground where something once affordable once sat.
I lived (suffered) through the 2007-08 real estate bust in the greater Seattle area and read how amazingly resistant sellers were to reducing prices, apparently believing the talking heads on CNBC that it was all an aberration and growth would resume just any time now.. By the time reality became apparent those who could have sold months before at a somewhat reduced price found themselves selling for whatever they could get in a short sale. My guess, these developers/landlords will find themselves in a similar situation or worse because new construction is showing no signs of slowing down..
There must be consternation within the REIT (Real Estate Investment Trust) financial community, since these type of rental developments are favored, rather than say, strip malls.
To add fuel to an already combustible atmosphere, these same REIT’s are often involved in the derivatives sector as an ABS (Asset Backed Security). The very same type of financial product that broke the insurance industry and almost all the big banks in the crash of 08.
Landlords basically are betting on people being tired of moving. I moved last month from a 600 sq ft 1 br apartment on the East side where rent was going to go up from $1800 to $2000, but I had moved in with 1 month free so it was closer to $1600. I moved a little farther out to 2 bedroom condo from a private owner for the same $1800.
I spoke to many others who were there who just stayed and went with the increase because moving costs money and is stressful. I hope to stay where I am for a few years and hopefully rent will only go up a reasonable amount. I did get offered to keep the $1800 on the old apartment but only a week before move out and after I had already signed the lease of the new place.
Wages will not improve much as the government will argue US dollars have becoming a stronger currency due to how many other countries currencies are losing against it, even if the value of dollars inside the US itseft has gone down. Also you got tax cuts, right? What more do you want?
And stuff like that.
The real deal is that tax cuts must be paid somehow, so the government will put presure for wages to rise less.
Sadly the current trading war will just rise costs so there will be a push for highter wages…
Who said it was gonna be easy? Not me.
And I could keep giving arguments but to sum it up.
Tax cuts are never free, tax payers and the governments always end paying for them later, with interest.
In other words tax cuts are not real tax cuts, thry are a sort of credit that means in the future you will end paying more that if there had not been rax cuts to start with.
Be it by new taxes, raising existing taxes, economic policies the government took to afford the tax cuts, you name it.
Yet every time the US public just falls for it!
Tax cuts = tax rate cuts (not necessarily smaller tax bill)
Money not paid to IRS = more disposable income
More disposable income = higher GDP
Smaller slice of bigger GDP > Bigger slice of smaller GDP.
Thus, Tax cuts pay for themselves. Historically they have as well.
I like tax cuts as long as MY taxes are getting cut :-]
But this — “Thus, Tax cuts pay for themselves. Historically they have as well” — has been proven wrong every time throughout my entire adult life, and it is hard to believe that it is still being propagated, despite all the evidence to the contrary. It’s like people wake up in a new world every day and nothing that happened before actually happened.
Thank you for addressing. I seek truth, so very grateful if you can provide contradicting evidence.
In the meanwhile, here are the numbers (perhaps you can find better sources – CBO website or similar). If you look at the section ‘U.S. Tax Revenue by Year’ in https://www.thebalance.com/current-u-s-federal-government-tax-revenue-3305762 and match that to the years of major tax cuts (JFK: 1963, Reagan: 1981, GW Bush: 2001, 2003), you can see tax revenues increase whenever there were tax cuts.
Deficits and the national debt BLEW OUT after Reagan’s 1981 tax cuts. The US Gross National Debt more than tripled in 10 years, going from just under $1 trillion to $3.5 trillion. Jeez, how can people forget so easily!
To help you refresh your recollection, here is a chart of the US government debt over the period following the tax cuts of 1981:
Historicaly tax cuts ALWAYS end with people paying more in taxes and in other things too, like education, heath care, you name it. At least in the US.
And no wonder you like it Wolf, credit is the US citizens favorite drug and tax cuts are a form of credit, you pay less now and you end paying much more that if there had not been tax cuts later.
this is wonderful news! if we cut the tax rate to zero, taxes collected should logically be infinite. all problems solved.
Maybe someone else with a better memory can correct me but, when Reagan had one of the biggest tax cuts in (then) history, in his second term the gap was so big that his admin had one of the (if the largest at the time) largest increases to try to correct the deficit made by the first cut. It was a mess.
Hopefully Maybe then middle class families will have a chance A 50 percent reduction would be about right
Almost all the construction cited in the Seattle Times article – and by Wolf here, is aimed at the same potential market. The Seattle Times real estate writer is so wrapped in the world of the six-figured young techie, his articles are almost comical. We have thousands of homeless in Seattle now, with more in the surrounding area. Many of these very pricey apartments are being built where somewhat affordable housing used to be. But his pieces focus on the relatively young men and women who are negotiating move-in “deals” on these apartments, and who can move every year or two easily enough. Barely a thought is given to those who lack the incomes, or whose family needs (children? what children?? Schools? Elderly? Ha!) require something other than a $2000 month apartment.
Yep… the ‘fulfillment’ centers of Amazon pay a ‘handsome’ wage about $10 an hour … so if 3.5 amazon fulfillment center employees get together and share a 1 bedroom … they’ll do fine with only 1/3 of their monthly income going rent /sarc
That is because he writes for the Seattle Times, not the Tacoma News Tribune.
Developers think they will make more profit on high end development, and their financiers agree. So, high end construction is all that gets built out. City planners happily agree since they get more revenue in permits, fees, and taxes. Building owners prefer rent out to high-end customers since they are less risky. Insurance companies have lower premiums on higher income dwellings, since crime generally is lower.
There is no incentive anywhere in the system to build affordable homes, though it’s a great tool to be used by politicians to get votes come election time.
And check out some of the work by Thomas Frank. One of his theses is that journalists come from the same privileged, upper-middle class that high tech workers (and financiers, and politicians) all come from, from the same neighborhoods, went to the same upper-crust universities, and so on…. so it should be no surprise that the stuff one reads in the Seattle Times is for that audience.
Unless ‘this time is different’, a 5% vacancy rate is the line in the sand, on make it or break it, financially.
Perhaps Washington or Seattle should tax the better neighborhoods and businesses, use that money to subsidize these apartments and give them to the immigrants working their way north. I mean this is reasonable and the right thing to do, as seen on TV so it must be true. Spread the wealth and open borders is the new mantra, or am I missing something?
You are not missing much. Liberal Seattle will subsidize rents in these new buildings to keep the landlords solvent and the poor housed. They are building the new urban ghettos because once the property becomes mixed income, the high earners leave.
I honestly don’t believe the Cities of Seattle and Redmond can do anything about this.
Most of the new developments which came online over the past year cost between $100 and $190 million each. The new maxi-developments such as 1901 Minor Avenue are projected to cost north or even well north of the $200 million. Land purchase alone account for 9-10% of the costs.
This translates into a lot of money for the city council’s coffers in form of land sale taxes, impact fees and stamp duties alone. And that’s before property taxes and junk fees are paid: always remember high end housing, such as this new supply in the Greater Seattle is, pays a whole lot more than modest yet dignified dwellings, not to mentioned subsidized housing.
While the media have made a lot of EB-5 visa holders financing developments in Seattle, in reality the capital is overwhelmingly domestic.
Since we are so late in the cycle, it’s highly likely seasoned speculators and astute investors have already cashed out. They got in early, made a profit and now they are moving on if they haven’t moved on already.
This means the mega-developments will be financed and most likely owned by “dumb money”, that alliance of small banks, aggressive retail investors and poorly run funds which invariably forms late in a real estate bubble, when valuations are sky high but cracks are visibly forming.
On top of that it’s likely this “dumb money” has bought already available property at high or even very high prices hoping to cash in on high rents or even to flip the properties at a profit to a “dumb” landlord, maybe one of those Chinese investors the media keep on talking about.
Even if there’s no recession and the US economy continues to do fine (albeit with rapidly heating inflation), such a situation will pop. When vacancy rates reach 5% and keep on growing, you know there’s trouble ahead. That’s why those seasoned speculators are now most likely laughing their heads off while sipping pineapple juice in Galley Bay (Antigua): it’s a flick they have seen before, countless times.
When the bubble will start hissing air there will be a whole lot of people beating on their pans to demand the bailout they think they are entitled to.
It’s highly unlikely they’ll find much of a sympathetic ear anywhere.
Having lived through the financial crisis in south Florida, I saw million dollar condos become 100K condos over the course of a few months. Even as late as three years ago, I know of condo buildings full of renters because the owners or developers could still not get out. Some townhouse and apt developments became welfare and section 8 communities. The actions of local govt were almost entirely driven by the needs of the bigger landlords and developers. I don’t think Seattle will be any different. BTW, the subsidized renters could pay more than the rest of the working class.
To clarify, does the 60K unit figure include areas outside of Seattle that are also mentioned in the article, like Redmond? If the 60K is just Seattle, that’s nearly 10% of Seattle’s population, even without accounting for many of these units having multiple bedrooms. In any case, I hope every last unit gets built, and then some.
This is for the metropolitan area of Seattle and not just for the city of Seattle.
>>400 units at 600 Wall Street, Seattle.
This particular project is being re-marketed as a condo named “Spire” (as opposed to being an apartment building), just as construction started. But the list prices are beyond ridiculous. The cheapest unit on the lowest floor is 520ft at $450k. There is 41 stories and 37 residential floors. The rest is probably parking?
>>Floor plans for level 23 and below—ranging from “open one-bedrooms” to two-bedroom, two-bath units from 520 square feet to 1,170—will be offered at between $450,000 to $1.6 million.
Joke: They should rename it Space Needle II. Spire is seriously small footprint and very tall.
Off topic but of general importance: FRED just discontinued the time series MBST, with last datum on Jun 20. I found another time series called WHHOMCB which appears to be identical and that is continuing with a new Jun 27 value.
Long names for MBST and WSHOMCB:
Mortgage-backed securities held by the Federal Reserve: All Maturities (DISCONTINUED)
Assets: Securities Held Outright: Mortgage-Backed Securities (WSHOMCB)
Good catch! FRED can drive people nuts with these “discontinued” series. Its data base is full of them. Sometimes it’s obvious why they’d discontinue them. Other times, as in this series, it’s a total mystery to me.
Yet we see under-supply in the home market. Things would be more balanced if those construction efforts shifted to home building.
I’ll make a long term prediction: Apartment oversupply and profit margin tightening will halt new construction. Those construction companies will move into home building, taking advantage of the bubble. We will get oversupply, the recession will occur, and many homes will be left unfilled, causing a market collapse.
Is the Seattle a Chinese Potemkin Village?
The Chinese ghost town phenomenon, finally coming to Murica.
After that it’s 3rd world condition.
That is it exactly !
People mock the Chinese with their ghost cities but look at what we are doing !
But, but, but….Amazon! Is PRIME!
At least the Chinese got a city. All we got was a bank bailout of a bunch of crooks.
Investing in infrastructure is smart. Investing (if one can even call it that) in crooks is dumb.
With all those apartments under construction there are just as many millenials to fill them with their obnoxious techno music and their unrelenting quest to become public nuisances.
People have to move to where the jobs are.Are the
jobs in Seattle.If so,those apartments will be filled,
I dread going into Seattle next week. I lived in a 1940’s 600 ft apt on mercer island. Cost about 1800 a month right next to 1 90. So happy to have moved to the Olympic peninsula last year. And at 75 miles away and a ferry ride and we have commuter buses out here to Seattle!
I hate to deal with Seattle traffic. It’s ungodly about on par with the sf Bay Area
Everyday in the Seattle Times are stories about expensive housing and the hoards coming for the high paying tech jobs.
Hubs is a sr software architect and thinks down the road unless you are a high quality dev you will be replaced by API
Libraries and micro services. So there is no guarantee of this tech Manna forever
I remember in the 1980’s Silicon Valley boomed to the heavens with chips. Then poof. Now it’s software. Interesting times a coming
As an adendem to last post. Relatives had owned a business complex in downtown Redmond. The management company (excellent) told me whenever he sees so many cranes on the skyline he gets worried and very nervous Reminds him of the early 2000’s He told me this two years ago and I bet the cranes have doubled in number
Bellevue and the east side skylines are just as bristled as Seattle’s
Relatives sold a couple years back
Prolly a smart move
Have any cities on your radar considered penalty taxes on vacant homes and apartments to help reduce housing costs?
I’ve heard about the taxes on foreign buyers in Vancouver, or the employee tax in Seattle, but I’ve never heard about actual disincentives to keeping units vacant.
It seems to me that a big part of the problem is lack of competition … the owners and/or property managers are large enough that they have more to lose from rent reductions than from sitting on vacant units, so like a classic monopolistic system in basic Econ they restrict supply. I just wonder what the political and market consequences of such action would be.