At first blush it might seem unlikely that Seattle affordable housing activists and real estate professionals would have much of anything in common. But as the latter are quick to note, wider availability of affordable starter units for first-time buyers boosts social mobility and over time, sales of higher-priced units.
In socially-conscious Seattle, housing affordability appears to be a concern shared by those who’ve already “got theirs.” It’s a very good bet that property owners in the city will this August 2 once again choose to tax themselves – as they’ve done repeatedly over the last 35 years – to make a small dent in the city’s supply of affordable housing for the least well-off. An ordinance approved by the City Council last week will put a $290 million, seven-year affordable housing levy on the primary election ballot.
Almost $400 Million From Seattle Taxpayers Since 1981
Since 1981 Seattle voters have approved a series of similar albeit smaller multi-year housing levies totaling $388 million. The funds have: purchased 12,500 apartments for the elderly and low- and moderate-wage workers; helped 800 new homeowners seal deals; and bailed out 6,500 households with emergency rental assistance.
Yet despite the hundreds of millions of taxpayer funds spent, the benefits spread over 35 years have been modest, and limited to a city now dwarfed in population by the rest of the region.
More than that, the state’s growth management law restricts the region’s housing supply. It seems to be serving as a proxy for sorting one’s neighbors by income, and arguably, race.
A Growing Housing Affordability Crisis
Seattle and Central Puget Sound are beset by a growing housing affordability crisis manifest in ever-rising prices and an ever-tighter supply. It is most acute in Seattle-King County and neighboring Snohomish County, to the north.
The more restricted the supply, the greater the upward pressure on prices. Russell Hokanson, CEO of Seattle-King County Realtors, says an average market has a five- to seven-month supply of housing. Supply is calculated by dividing the number of units on the market during a month by the number bought in the same time. For the Seattle region, with historically high demand over the last two decades, a three-month or even two-month supply is considered healthy enough.
Little More Than A One-Month Housing Supply
But last week in a market update the Northwest Multiple Listing Service reported the housing supply in King and Snohomish counties in April was little more than one month. Median sales prices for April were $475,000 in King County and $357,000 in Snohomish County. Across the 23-county Northwest MLS territory in Washington April supply was 1.85 months and median sales price was $325,000.
For all of 2015, the Northwest MLS Annual Report shows housing supply was 1.3 months in King and 1.77 in Snohomish. For the full four-county Seattle region the 2015 supply averaged 1.7 months, “far below levels for a balanced market,” according to the annual report.
That’s been the new normal in Puget Sound. Hokanson said, “We’ve been suffering from a dramatic lack of supply in the last three years.”
The imbalanced market remains at top of mind for the region’s buyers and realtors. According to MLS realtors tight supply is driving bidding wars and an erosion of due diligence by many buyers, as tech transplants escaping urban California’s even less affordable housing market seize the relative bargains here.
According to Ken Anderson, President and Owner of Caldwell Banker Evergreen Olympic Realty, the seller’s market will press higher still, given the paucity of new homes being built.
Seattle: The Next San Francisco?
Although Central Puget Sound prices aren’t yet at San Francisco levels, we’re on a similar trajectory. It’s one that could ultimately temper robust projections for population and jobs growth here by 2040.
“Soaring housing costs stemming from a chronic shortage combined with an overwhelmed transportation system and grinding traffic are taking a heavy toll on Bay Area residents, with one third saying they are likely to bolt the region in the next few years…The urge to leave is strongest among residents who have been here the shortest time, those making lower incomes and those paying a larger share of income for housing.”
Washington state has remained one of the top destinations for the net outflow between 2007 and 2014 of 625,000 Californians to other states, according the California Migration report released in March by the non-partisan, non-profit policy center Next 10 and authored by Beacon Economics.
Land-Use Regulations Raise Costs, Restrict Supply
A companion report on housing supply and costs in the Golden State done by Beacon for Next 10 noted, “The cost of development and stringent regulations imposed on developers has contributed to the lack of homebuilding in California. Tough environmental and zoning laws sometimes create an obstacle for homebuilders that are seeking approval for development activities, especially along California’s coastal cities. Although these laws reflect good intentions and were enacted to preserve the state’s natural land, they are well past due to be reevaluated, as they are often poorly implemented and abused.”
GMA’s Market Distortions
In Washington, Seattle-region real estate experts have been accenting to state legislators the harmful effects on consumers of Washington’s Growth Management Act (GMA). It is intended to preserve rural land against “sprawl” but has sharply restricted housing supply and spiked prices. Far more than the continuing population influx, analysts say, GMA’s market distortions have driven the current affordable housing crisis that’s particularly evident in King and Snohomish counties.
The phenomenon is not limited to Puget Sound and the Bay Area. Writes the Wall Street Journal, “Across the country, a divide is emerging between cities that are growing outward and remaining affordable and ones that are hemmed in by geography and onerous zoning codes and are becoming more expensive.”
WSJ cites the related research of Issi Romem, Chief Economist of the BuildZoom, an online service which connects homeowners with remodeling contractors. Romem writes about cheaper “expansive cities” with rules allowing outward growth like Austin, Raleigh, Las Vegas and Atlanta versus “expensive cities” in regions with sharp growth boundaries and ex-urban density limits – such as Seattle, Portland, and San Diego.
‘A Sorting Process That Yields A More Affluent Population’
In these ultra-expensive metros, BuildZoom’s Romem writes, “housing price growth sets in motion a sorting process that yields a more affluent population, which is prone to tightening land use regulation.”
In addition to months of housing supply, another key indicator of expensive housing regions is the median housing price as a multiple of median household income – known as the “median multiple.” Under 3 is affordable, more than 3 is not. According to Demographia 12th Annual International Housing Affordability Survey: 2016, Seattle’s is 5.2, or “severely unaffordable.” Portland’s is 5.1, San Diego’s 8.1, San Francisco 9.4, San Jose’s 9.7 and Vancouver’s 10.8.
City Journal reports that high median multiples in growth management-heavy regions are particularly disadvantageous to minorities with lower household earnings who are nonetheless striving to move up the economic ladder, including African-Americans.
A time-lapse visualization by Romem shows that for Central Puget Sound outward growth in the housing market peaked in the 1970s and 1980s and began to slow down for good in the 1990s. GMA was enacted in 1990.
GMA reform has been broached in the Washington state legislature but hasn’t gained any real traction yet. If that holds, then perhaps it is only a matter of time until some major suburbs, like Seattle, have more dogs than children.