Just because rent is decreasing on the high end doesnt mean it’s decreasing on the low end apartments.
Apartments are built to a less restrictive code than condos. There aren’t many condos being built in seattle from reading other articles. Similarly there’s much debate about building more homes / townhomes / improving transit.
Amazon supposedly had a hiring freeze recently, and close by (in SLU) I’ve seen folks dancing with “now leasing” signs.
Just because rent is decreasing on the high end doesnt mean it’s decreasing on the low end apartments.
There is a knock-on effect although depending on the spread it might be small.
Ontario (Canada) just raised minimum wage by 20%+ in one shot to $15/hr. Lots of drama happening now as business owners try to adjust.
What I found interesting is that workers who were making $15/hr before the increase are now asking for a raise. It was a restaurant where the front-end made $15 and the dish washers $12. Now the front end says "I should be making more than the dish washers" and it goes all the way up the chain.
The psychology of relative status garners a lot of attention to understand inequality. Of course there is backlash to front-of-house folks seeing their relative status decrease, despite the fact that nothing has changed for them. A difficult, but crucial adaptation needs to happen in a wide variety of industries: The people working the less glamorous, less visible, but equally crucial roles in operating these businesses should have been treated as peers / relative equals all along.
The converse is also true in software engineering. Questions like whether programming is "more difficult" than graphic design are largely irrelevant. Humans will always be playing status games, but denigrating labor based on some perceived skill level is a habit we should actively be trying to get rid of. Meanwhile...
> There is a knock-on effect although depending on the spread it might be small.
Can you provide more specific detail where knock-on effects like this have been observed? It's nearly guaranteed that a decrease on low end rents will be vanishingly small. Margins can only go so low, which is why developers are attracted to luxury projects in the first place.
(Likewise, a million dollar paycut from a CEO can only raise 480 person-hour-dollars in wages. But those margins matter a hell of a lot more for the line worker's lifestyle than upper management's.)
> Of course there is backlash to front-of-house folks seeing their relative status decrease, despite the fact that nothing has changed for them.
Well, their purchasing power is about to go down because when they go out to eat they're going to be paying for $15/hr dishwashers instead of $12/hr dishwashers.
> A difficult, but crucial adaptation needs to happen in a wide variety of industries: The people working the less glamorous, less visible, but equally crucial roles in operating these businesses should have been treated as peers / relative equals all along.
But they're not really. A dishwasher needs to be able to scrub dishes, load & unload a mechanical dishwasher, show up more-or-less on time, not get into fights with the other employees — that's about it (incidentally, I know whereof I speak: my first job was washing dishes).
The front-of-house staff need to speak the local language, be polite & friendly to customers, have good memories, have attention to detail, be able to manage relatively complex situations, be reliable &c. It's a very different — and rarer — skillset.
You don't even really need to have a functional IQ to be a successful dishwasher; you need to be reasonably sociable & quick on your feet to be a successful waiter or maître d'hôtel.
It's eminently reasonable and fair that a job anyone can do will pay less than a job fewer people can do.
> It's eminently reasonable and fair that a job anyone can do will pay less than a job fewer people can do.
That’s strongly a matter of opinion. Almost anyone is physically capable of being a home health care aide for a dying child, and almost nobody is physically capable of being an NFL quarterback — but I don’t really find it “fair” that the latter is paid a thousand times the salary.
> It's eminently reasonable and fair that a job anyone can do will pay less than a job fewer people can do.
No, it isn't.
You don't have to agree in any substantial way with anything else Marx says, to recognize that "from each according to his abilities, to each according to his needs" is eminently reasonable and fair.
Everything you're saying to glorify front-of-house roles is also true of back-of-house roles. True, the best possible server in a restaurant can improve the bottom line X% more than the best possible dishwasher can. But comparing the worst possible dishwasher with the worst possible server is also important. Can you say with any confidence which "problem employee" will have a larger negative effect on the bottom line? Probably not.
What if it's just a slightly below average dishwasher? What if the server is "only" sexually harassing coworkers a little bit? Gauging the range of human performance by the wages they use for sustenance is stupid, but apparently necessary.
> Well, their purchasing power is about to go down because when they go out to eat they're going to be paying for $15/hr dishwashers instead of $12/hr dishwashers.
Again, a claim missing some crucial substance. How much is their purchasing power going to go down? Will the price of a hamburger or an apron really go up more than a couple of pennies?
That's a whole lot of stretching to justify the communist approach. Are you really arguing that a dishwasher is worth just as much as a server? I don't think any businessperson will agree with you.
You might be more successful by just arguing that value shouldn't be tied to wages (which is what your quote is really pushing.)
It is interesting that you are gauging my "success" on whether my comment is changing minds about economic theory. Please consider that I explicitly excluded anything else Marx wrote from assent, to reduce the likelihood that anyone would mistake my argument for Fully Automated Luxury Communism or whatever the kids are calling it these days.
I am explicitly arguing that value and wages are not tied to each other, today, with examples.
Generally speaking, we treat the value of labor in accord with the cost of developing a skill. Whether by correlation or accident, this seems to mean we dramatically undervalue softer skills involved in working with other people. (NB: This is related to, but very different than the customer service face front-of-house puts on.) There are kitchens where the entire morale of the restaurant staff rests on the good natured attitude of the dishwasher. That person leaves, and soon afterwards, everybody hates working there, and nobody can figure out why.
I think any sane businessperson knows this, and does agree with me. Most businesspersons also know that everyone in a restaurant is completely replaceable. Right?
Respectfully, I believe you are wrong about value of labor.
It seems to be much more based on supply & demand.
If everyone could do it, and there were no demand, the value would be low.
A quick way to check this is to look at expensive college programs where people come out making much less than the cost of their education. If you were correct, then such situation would not occur.
(And yes, I’m aware you said “generally”, because must even generally I think it’s incorrect. )
How does anything I typed conflict with the basic macroeconomic pressures of supply and demand? Labor markets have those tensions, and the useful thing to understand are the factors influencing supply & demand.
Applying market theory to labor/employer relations, says that wages should tend to go up, if the demand (job openings) for a particular kind of labor exceeds the supply (pool of people who can & will do those jobs). But talking about how labor gets priced by markets doesn't explain anything about why governments choose the minimum wage (if any) that they do. Minimum wage is an explicitly moral consideration where we compel the demand side to observe a floor on the price of your time.
> If everyone could do it, and there were no demand, the value would be low.
That just muddles the separate mechanisms. If everyone has the skill for a job, the potential labor pool is as large as it possibly can be, so supply pressure is naturally higher. You are correct to say that demand pressure is what then drives a negotiated wage. But that's just table stakes to understand what an economy is actually composed of. Does this region have a highly skilled workforce, with demand outpacing the supply of workers, thus driving wages up? Congratulations! This means your region has a proportionally lower supply of low skilled workers, which creates upward market pressure on wages. Using the lens of supply and demand means you now need to look for explanations when the demand for unskilled labor doesn't go down, which is what it would take to keep wages constant.
And the value a supplier (worker) assigns to their own time? Demand pressure only indirectly influences a person's perception of value. People get born into a variety of different financial circumstances that alter their negotiating position.
> A quick way to check this is to look at expensive college programs where people come out making much less than the cost of their education. If you were correct, then such situation would not occur.
As respectfully as possible: this is nonsense. There are all sorts of externalities involved in paying for an education that would never be captured by the labor market model. If somebody is paying a lot of money to develop some skill that has low ROI in the labor market, the only thing that signals is that the person getting the "useless" degree must value having that skill for non-monetary reasons. This kind of thing is always a problem when talking about economics as the science of rational agents. Even if the market demand for a particular skill is zero, some people will use money to develop that skill anyway. This observed fact does not remotely invalidate anything I've said.
In answer to your first question, I keyed in on this comment that you made in the OP: "Generally speaking, we treat the value of labor in accord with the cost of developing a skill."
Physics degrees are awfully hard to get, and yet for every physicist, there are surely many more sales people who get paid more.
OMFG the market works the way you'd expect. Actually, I shouldn't be so sarcastic: the news in this article is that Seattle let the market work. If only we could get this message through the Bay Area NIMBY's numb skulls.
The market didn't "Just work," in Seattle. There is a long history of things not going right. The city had to do a lot to get this current housing boom to get going, including a lot of subsidization.
They also got a lot wrong (no where near enough low-income housing .. and a lot of the decent low income housing requiring you to be below the poverty line -- leaving the middle class in really tough spots paying Amazon employ rent while barely making enough to pay it.)
It's still not really working. The homeless problem is still insane. There are still a ton of one unit dwellings that no one is bringing up to code; the ones that use to house the very low income around places like Belltown.
Another thing that didn't "just work" was Amazon giving new employees discounts in certain condos. Turns out someone in HR didn't realize these types of deals were illegal, since private groups can't offer housing discounts or subsidizes or it violates various Fair Housing laws.
It is literally illegal to add to the housing supply in most of the city; a majority of Seattle land is zoned exclusively for detached single-family hones.
I wonder, if you count agents in a market economy as having not just money to spend making rational purchases, but also political power as a sort of alternate currency (represented by a vote each), is NIMBY really a rational market reaction. If you start in a fully free market state, and enough actors combine their political power to limit the market, then that results seems just as important, if not more important, than one where there is a limit placed on the system to prevent such actions. Even the US Constitution, which could be considered a very strong limiter in what combined political power can do on a city, state, or even federal level, can be modified by enough people combining their political power.
> I wonder, if you count agents in a market economy as having not just money to spend making rational purchases, but also political power as a sort of alternate currency (represented by a vote each), is NIMBY really a rational market reaction.
The problem comes when you realize what you have to do to get a vote, which is to buy a house. If you can't afford to live there then you can't vote for policies that will reduce housing costs there because you aren't a resident. And once you have a vote because you own a house, now you want housing prices to go up rather than down.
There is no way for the people who need less expensive housing to vote for it, and the opposite incentive for the people who could vote for it to actually do that.
I was more just thinking about how political actions/will/impacts can be simulated as a second resource in an economy much like how we simulate money. Think simulation/exploration/explanation of the idea, not recommendation.
I've developer a few simplistic economic simulations in the past for fun, some of which included land ownership, but I never considered adding each agent having the ability to modify the law of land ownership as part of the simulation. The comment made me think of what would the impact of adding it be, and if there is less validity of models which don't include it.
I think this is one reason why smallish homeowners are not comfortable with developers bringing in lots of high density housing (at whatever price). They feel pretty well aligned with their neighbors and don't want the balance of power to shift. Maybe a proportional representation system at the council level could help defuse tensions in some markets.
> The franchise isn't restricted to homeowners; renters too can vote.
Only if they can afford to pay the rent there. Which is difficult in an area zoned almost entirely for single family homes, because hardly anybody can afford to rent an entire house but not afford to actually buy it.
Especially because we have a whole collection of policies to encourage people to buy rather than rent, which causes disproportionately many of the people who can afford to live in areas with high housing costs to be owners rather than renters and therefore vote for policies that keep prices high.
If something is a rule then the majority decided it should be that way. If you don't like it, then you are in the minority. If that surprises you, then you may not be accurately measuring the real majorities and minorities, and it would benefit all of to try to understand what the real rules are.
- People often want to limit housing in their particular city/neighborhood, but
- They agree that there should be more housing built somewhere, just not near them
It's like being for pollution regulations, except that you demand that you yourself (and your buddies) be exempt. Normally that wouldn't work in a democracy, but imagine that only the polluters get to vote: that's how land use regulations get decided (because the beneficiaries of lower housing costs would be largely potential residents, and you have to live there to vote).
In practice, the solution is to have zoning decisions made at a higher level; at the metro area level is probably the best one, since they tend to function as economic units, and that mimics how people tend to choose housing.
>If something is a rule then the majority decided it should be that way.
Few systems are direct democracies. Isn't it more likely the people decided the rule maker should be who the rule maker is (or makers are) and the rule maker(s) then decided what the law should be. And that is just some of the political systems you can model.
Think of like how congress like a <25% approval rating but most of them keep getting voted back in.
Not quite sure what this comment means but it feels like you are saying “these rules exist Because a democratically influenced process came up with them so we shouldn’t change them”, which if true is not great reasoning for the following reasons:
1) things change over time, policies that at one time protected people move on to be things that increase inequality or worsen outcomes.
2) Politics has a long history of excluding less powerful voices. Right now in cities, there is a movement to “re-enfranchise” the people whom have often been ignored, minorities and renters. Often times the will of the people changes because those who were locked out of the decision making process 10/20/30 years ago now hold much more political power and able to influence outcomes.
3) if your bias is “current policy is best policy” then you are biased to favor the voices of the moderately wealthy white home owners who created modern urban land use policy over the past 50 years at the expense of renters and minorities.
There is a field of political economy called collective action, which has been around in its current form for roughly a century now, which aims to study exactly why what you just wrote is so frequently not true. Check it out.
It wasn’t Amazon giving those discounts. It was the apartment companies themselves, and they were often available to employees of any major employer in the area, including Google or Boeing.
I'm curious about the details? Are you in a newer building? When did you start renting?
I keep an eye on rents in SF and I've definitely noticed the trend downward over the past year or so. It was common to see 1-beds go for $3000+ and now most seem to be in the high $2000s.
Just my observation so I didn't know if it went as far as people renegotiating their rents down yet.
I just rented a 1BR for 2300. If you want cheap rent, set up an alert on Craigslist. 90% of the listings on CL are above a market clearing price and have been on CL for 6+ weeks. When the prices are lowered, they get snapped up in 12 hrs or less. I’d say market clearing price now is probably between 2300 and 2700 for an older building in the eastern neighborhoods.
Wow. That's a significant drop. Maybe 2 years ago I spent a few days combing through Craig's list and 90%+ were over $3000. Once and a while you could find a crappy in-law suit for $2900.
Edit: Just took a look at units in the Mission. Holy crap are there a lot of them (124 1-bedroom units). A few years back there were maybe ~20 max at any given time. Lots of new buildings and recently renovated. Even units in prime locations (close to Dolores Park) are sub-$3000 (although not many).
Rich people moving in to a working class neighborhood makes the neighborhood more attractive to other rich people, both directly and by bringing in rich people amenities. So building high end housing can ultimately cause more demand and higher bids for the existing housing in the neighborhood.
Yes, but many of those people will be moving from other neighborhoods in the same city; when they move they vacate an older, less attractive, lower rent dwelling.
The history of US housing is (with a few exceptions, notably the post WWII housing boom) a story of people building premium housing that, as it ages, becomes affordable housing. Thing how many big old houses end up converted into duplexes or townhouses.
But lately we've 1) used zoning to stop the conversion of premium housing into cheaper housing and 2) used zoning and planning permission to stop the construction of premium housing and then wondered why we don't have enough affordable housing. What a mystery!
> It is complicated, though.
It's a complex system with many different forces in play, yeah, but it's not that complicated. If you build more housing, the price of housing drops. Building expensive apartments in a neighbourhood doesn't magically create affordable apartments in the same neighbourhood, but it certainly doesn't hurt.
The exception would be if, somehow, building 100 units of housing somehow attracts more than 100 families into the city from outside the area, which...I dunno, it could happen, but is it? Has it ever? It sounds unlikely at first glance.
> Yes, but many of those people will be moving from other neighborhoods in the same city; when they move they vacate an older, less attractive, lower rent dwelling.
You should probably provide a source on that one. Rents are sticky. Its equally likely they are already wealthy and want to move to a "hip" neighborhood which tend to be recently poor/urban. Rents don't fall as quick in the place they left but rise quickly in the place they're headed, which just raises the average rent in both places.
It also creates demand for people who wanted to live in the former neighborhood and can now move there because there is a vacancy (or after any slight reduction in rent brings otherwise marginal renters).
This is all just conjecture without data, and there is very little data studying this because, as the previous poster says, its complicated and there's no way to do a controlled experiment.
> if, somehow, building 100 units of housing somehow attracts more than 100 families into the city from outside the area
The problem in some cities (London) is that this does happen at some level: 100 units of housing attract enough investors to start a speculative price rise, as they buy multiple units each. Maybe 50 of those units will stay empty forever, but average prices in the area will have been pushed up for good, compounding the problem.
The British media is definitely working overtime to make this seem like a problem, but I'm not entirely sure I believe there's smoke under all this fire. The headline I've seen over and over is that there are 20k empty homes in London. But from the 2017 Housing in London report, prepared by the Mayor of London's office[1]:
> The number of recorded empty homes in London is far below its long-term average, at 1.7% of total stock.
From the same report:
> In the last two decades the number of jobs in London has grown by 40% and the
number of people by 25%, but the number of homes by only 15%
So if the number of people is increasing faster than the number of houses, and the percentage of empty houses is falling, then offhand I'd say your numbers are a bit exagerrated. Yes, certainly some people buy property as an investment and leave it empty, but even in London, it's not that many. And as for this:
> average prices in the area will have been pushed up for good, compounding the problem.
Asset price bubbles are a thing, but so far, everyone who's ever believed that prices were going to stay high forever has been burned, badly. What will keep London house prices high is that they're not building very many. If that changes, prices will fall. (And fall all the quicker when the people buying Mayfair properties as an investment decide to liquidate them before the price falls any further. As, again, is the way of asset bubbles.)
I've seen plenty of numbers on empty housing in London defined as "we asked the owners whether they live there and they said 'yes'".
Anybody who doesn't think this is a problem just needs to take a look at one Hyde park. Nearly empty. Prime location. You could demolish that and build high rise flats for a thousand people there, maybe more. The problem isn't just how many prime location empty apartments there are but how big they are too.
> You could demolish that and build high rise flats for a thousand people there, maybe more.
That sounds like a big argument in favour of "building more units will fix the problem" then. :)
> Anybody who doesn't think this is a problem just needs to take a look at one Hyde park.
I'm going to stick with data over anecdotes. If the data we have is flawed, then we need better data in order to make decisions; it doesn't mean we should just ignore data.
>That sounds like a big argument in favour of "building more units will fix the problem" then. :)
It's an argument in favour of building units people will live in (e.g. council housing) and against big units that consume large amounts of land that people won't live in (e.g. yet another block of luxury flats treated as gold-bar-like stores of wealth).
The amount of property tax paid on those apartments is pitiful and amounts to a market distortion. It needs to be raised about 100x before the owners will be incentivized to yield hoarded land to more productive use.
>I'm going to stick with data over anecdotes.
So you think if the data is simply based upon asking people if they live in their properties that it is to be believed?
That's an easy 'problem' to solve. Empty housing has no need for public services like roads / schools and they still pay property taxes. Just keep building housing and let the speculators subsidize city services. Until, the bubble bursts and suddenly you get lot's of cheap housing on the market.
Doesn't work that way in London: there's public revenue in the form of "stamp duty" for the sale of a property, but no ongoing property tax from an empty property. City services are funded by "Council tax", which is levied on residents, not properties.
So, yeah, "easy" to solve if the market is structured right. It often isn't.
London has direct property taxes. They are set low, but empty property does not require a much in the way of city services.
Granted, increasing property taxes would put pressure to rent out empty property. However, the occupancy rate is also very high so it's not currently a meaningful issue.
> That's an easy 'problem' to solve. Empty housing has no need for public services like roads / schools and they still pay property taxes. Just keep building housing and let the speculators subsidize city services. Until, the bubble bursts and suddenly you get lot's of cheap housing on the market.
Property taxes are part of the problem in many cases. When property taxes are low that doesn't really happen, but when they're high nobody wants to build new housing. Because the net present value of the future property tax comes out of what someone will pay for a new building, making it less profitable to construct one.
The property taxes are very low, which is part of the problem. It isn't property owners subsidizing us it's us subsidizing them - the value of the land, predicated upon the value of the community surrounding is not being paid for through taxes.
Raising property taxes would definitely solve the problems but the political forces arrayed against that are very powerful.
Induced housing demand is common in the majority of cities across the US. The act of creating urban housing makes an area in higher demand than the housing just built could actually supply. The action of creating 100 units of supply simultaneously generates ~120+ units of demand.
Most people refer to this as "gentrification", even if that label isn't totally accurate. It obviously doesn't last forever, you can't generate more demand indefinitely. But it absolutely does happen -- we see the results all the time.
And to be clear that's not an argument against new housing -- we obviously need to build more housing. But it's a common observation that new 'market-rate' urban housing does not lower prices, but raises them in short and medium length timeframes (yes even in non-coastal cities, yes even in small towns, etc).
We see this in Seattle too. Seattle rents are 4.5% higher than last year, or 50% higher than they were 5 years ago, according to the articles own data. They'll be even higher next year, and Seattle Times will write an article about the winter slowdown in leasing, and rents will rise even higher again a year later. Until the bubble pops, the cycle will continue.
Please accept my apologies, I should clarify. All the data I've ever seen on induced demand in major US cities suggests very strongly that building units in major cities does not create demand for a greater number of units than are constructed.
The last study I saw on the subject in San Francisco showed that for 100 units of newly constructed supply, about 85 would be consumed by extant demand, roughly 15 would be consumed by new migrants, and less than 10 new units of demand that would not have existed otherwise gets generated. This is admittedly not obvious, and generally looks like purely generated demand when viewed at a very coarse level.
Incidentally, induced demand is an idea I often see advanced as an argument against constructing housing.
While that's intuitive, that's not an argument against building high end housing.
I do agree that it's complicated, though!
As someone who lives in New York, I can attest that affluent people will just rent the apartments that already exist in the neighborhood and drive the prices up for everyone. The difference is that the shitty tenement one bedroom gets bumped to 3k/month because the affluent will displace the current occupants.
If you build luxury buildings, the affluent will move into those. Sure, that will have a second order effect on the desirability of the neighborhood (which is what I believe you are arguing), but I am of the belief that that is a separate issue. Gentrification is its own bag of worms.
A while back someone said "Luxury Housing is future middle class housing" and that rings pretty true. The economic incentives are to build nice properties and over time those properties get old. A good percentage of them get divided up into smaller places or simply rented for less as new inventory comes on line.
Alternative conclusion: So building high end housing can ultimately cause the rich people move to the high end housing away from the working class neighbourhood, making room for lower income people.
The problem is that there are more jobs than housing. Existing homeowners oppose residential construction because it lowers their property value. They don't oppose commercial construction because it increases their property value.
If these people truly valued the "character" of their city then they wouldn't try to make it more attractive to other people. They want those new people and they want them to buy their overpriced property.
..and create whole areas like Capitol Hill which are mostly tech people moving in, pushing out others .. or what's going on in Freemont where homes that people bought for $120k now go for $800k (and you see low-to-middle income workers like cashiers, nurses, hair-stylists, cash out on their houses and move way out).
This is a good start, but I hope they don't stop building and complete all the existing projects. The prices are still high. ST3 will help make it easier to live where you want, with a lower income, and still be able to commute reasonably, by train, to work.
Can someone explain the economics of this? Presumably the landlords in the working class neighbourhood are already charging as much rent as the market will bare. When richer people moving in, are they outbidding locals? Are the landlords looking at the new tenants and noticing they can charge more? Why is the rich person willing to pay more if, presumably, the apartments/houses in this neighbourhood aren't as nice as ones in other areas?
Is it a slower, more secondary effect where over a period of time more rich people move in and somehow raise demand which leads to overbidding by a second wave of newcomers?
Maybe I'm presuming too much, but I don't understand why rich people would be willing to overpay for "low quality" housing in the working class area? Are they actually paying market rent, but what's happened is that all of the current residents are somehow paying below-market rent?
If the market rent increases in the neighborhood because its not more hip or desirable, the landlords can renovate the apartments to sale or rent with higher prices. Before they wouldn't necessarily have economic motivation to do it.
It's also worth noting that rents have been declining in hot US markets since (at least) Q3 of 2016. The trend is nationwide, and owes more to macroeconomics than to construction in a particular market:
Hasn't the Chinese government been clamping down more and more on "capital flight"? I read articles a few years ago how that [capital flight] was driving up rents in some markets. However, I imagine that would only have some impact in the so called "hot investment cities", but not /nationwide/. Any idea what the macroeconomic causes are?
So, I've also been told that rich Chinese people were buying up condos and letting them sit empty.
That's the thing, though, I kinda don't believe it. I mean, sure, people from China buying US real estate; I can totally believe that one (and that would increase demand and thus put upwards pressure on sale prices)
The part I have a hard time swallowing is the idea that they'd let them sit empty. The real estate agent they bought from would be super happy to hook them up with a full service property mangement company that could deal with renting the things out; I'm sure said agent could (for a hefty cut, of course) set it up so the owner need not be bothered at all.
I mean... I guess there could be something I'm missing, but the idea of people buying up some of the most valuable realestate in the world and then letting it sit empty (and supposedly paying somene to come by and check on it, etc...) just seems really unlikely vs. buying and renting it out.
It's a thing in Seattle. One of my friends lives in a wonderful neighborhood in South Bellevue. Multi million dollar homes. At least 40% sitting empty.
I think it's more than just wear-and-tear... There are a lot of legal protections that make it hard to displace existing renters. Presumably most of these unoccupied homes are owned as rainy day assets, to either be sold or occupied in an emergency, and renters would limit this ability.
(It's hard to find data on how prevalent this is... From one article, it looks like a Palo Alto realtor estimated in 2015 that about 20% of home sales were to Chinese investors, with about half of these leaving the house unoccupied: http://sanfrancisco.cbslocal.com/2015/04/28/realtors-printin... )
Interest rates. The reversal of quantitative easing. Both have been propping up asset bubbles across the US (including, you guessed it: tech investment) -- which are now beginning to slowly deflate.
I think that's a fine point! Interest rates going up is def going to cool off investment. However, there can be more than one cause for an economic effect. Seattle had very low inventory and I'd be surprised if hundreds of new units coming online didn't put downward pressure on prices.
But yeah, I haven't done the digging to attempt to quantify that effect.
My second point remains, however. Building more housing does not inflate prices. (and yes, I know it's not quite as simple as econ 101 supply and demand, but)
I knew someone in Seattle who worked closely with some of the big housing agencies (like Pillar and the like). He tried to tell me a lot of these larger property managers were held by Chinese companies, and they intentionally kept a lot of completed or renovated units empty to drive up the price.
Apparently they'd keep enough of these units off that they could keep the 1 bedroom price around $2k, but not too many so the city wouldn't catch on.
I couldn't find anything else though, either in the news or other people in knew in real estate, to corroborate that; so maybe he was blowing smoke or taking tokes.
I worked on some pricing recommendation/forecasting software for apartments. Many things come into play, but yes the general multifamily goal is to sustain ~95% occupancy. That, along with competitor info, is primarily what drives the prices. Anything that increases vacancy or makes the competitors cheaper drops prices...kind of obvious of course.
"Last year I was in Seattle and all I heard was complaints about all of the highrises going up as if that was what was causing the high rents."
Well, no. People are complaining about the change in their neighborhoods, of which high rents and new construction are both observable qualities.
But not to worry...if rents are truly declining, the new construction will rather quickly stop. Real estate investors are smart enough not to build into falling markets for long. They will leave holes in the ground before they complete a project that won't pencil out on financing -- just as they did in Seattle and San Francisco during the last bust.
(Edit: you guys...really. The article itself says that construction has already slowed down:
"Developers and banks that lend money for new construction have taken notice of the market cooling. While tons of new buildings are already approved or under construction now, the pipeline for future projects that exist only on paper is shrinking."
If rents decline from new construction, it happens over years of economic shifts, not because developers rush headlong over the cliff like a bunch of lemmings.)
Sigh, not sure why I feel the need to respond to posts like these, but this pattern, where a poster expresses haughty distain that others dare downvote them, then posts "evidence" that likely misses the point of the downvotes in the first place, is annoying.
I don't think anyone who understands supply and demand thinks that new construction won't slow - it's pretty self evident that if demand slows that people will stop adding supply. If anything, I think folks are objecting to the tone of your post that makes it sound like declining rents will leave a wake of "holes in the ground" instead of a normal and healthy adjustment.
"not sure why I feel the need to respond to posts like these, but this pattern, where a poster expresses haughty distain that others dare downvote them, then posts "evidence" that likely misses the point of the downvotes in the first place, is annoying."
I didn't post "evidence" (scare quotes yours). The quote is right there, in the article. It's something that's actually happening, and I quoted it because of the irony.
Likewise, I lived in SF during the last crash. I saw the holes in the ground, with my own eyes -- developers pulled construction equipment out of foundations, and left them there, at mid-Market, in downtown San Francisco. I lived near two of them.
Nothing I'm saying here is even remotely theoretical. The real issue is that there's a certain popular narrative here, and any facts that disagree with that narrative are immediately ejected from the conversation. It isn't "haughty disdain" to observe that people are rejecting facts that don't fit their biases.
You're not wrong, people are just objecting to your bombast.
Also note, 2008 was unusually dramatic; one of the big projects in downtown sunnyvale went bankrupt and changed hands several times before completion. Yes, declining home prices do sometimes leave long term holes in the ground, but mostly only when prices decline a lot more quickly than expected, as they did in 2008.
I was here in 2001, too, though (or a little up the peninsula) and there was a bigger drop in rent (though not sale prices) then than in 2008. In 2001, sure, you saw 'for rent' signs, but as far as I remember, the 'holes in the ground' as you put it, of buildings who's builders had gone bankrupt partway through were rare.
Nah, people are objecting because they don't want to hear facts that contradict their preferred narrative. They want to believe that construction instantly lowers prices, and any information that contradicts this narrative is voted into the dirt on HN.
I grant you that 2008 was exceptional, as recessions go...but it's not rare to see projects abandoned. I saw it in Seattle in 2001 as well. It just depends on the state of the projects when the recession hits -- you might not get "holes in the ground" unless the decline hits quite suddenly (as in 2008), but you definitely see projects abandoned. That's universal.
Certainly here in Portland that's what people complain about. The rent here isn't as bad as, say, New York City or San Francisco. But it does mean that over time people can no longer afford to live in the neighborhood they grew up in, and it means change that the existing residents don't want.
The significant takeaway for me as a Vancouverite is that these are apartments and they're reaching renters and rental vacancy is increasing.
In contrast Vancouver is also building more substantially more multi-unit residences than ever before, but somehow Vancouver's vacancy rate remains sub 1%. In a reverse from Seattle, Vancouver predominantly builds condos, and this could be a factor.
Vancouver, likely needing the assistance of the provincial and federal government for legislative changes, needs to start doing things differently, and Canadian governments need to find a way to incentivize developers to build rental apartments instead of condos.
Then they just aren't building enough. To be sure, if Vancouver added ten million units, vacancy rates would go up. If vacancy rates are staying flat now, that just means the number of units being added now is insufficiently close to ten million to effectively meet the demand for housing
The problem with the "simple" solution of "just add more supply" is that supply creation is physically restrained by real world factors. It's not lines on a chart like in econ 101 class.
New development is constrained by available trades, construction times, design time, and city review time. Already the City of Vancouver has increased development application fees in order to hire more persons to review development applications faster.
In my neighbourhood there is a high rise under construction that is still not completed but already one year over due. The development industry is continuously stating that more supply is required, but they can't even finish building their own buildings.
> supply creation is physically restrained by real world factors.
Yes, but regulatory factors usually dominate those in these high-cost markets. Like in Seattle's case, it's literally illegal to add to housing supply in most of the city; a majority of land is zoned exclusively for detached single-family homes. What new density there is comes in little strips, which means it tends to come in larger buildings, which have higher base costs to build. It's impossible to make "affordable housing" in a skyscraper.
If more cities allowed more "missing middle" type housing throughout their area, they could make a serious dent in housing prices. But, SFH areas are sacred cows in America (and I'm guessing much of Canada too).
Vancouver multi-unit under construction is about 33k units, which is 10k above the 23k Seattle had under construction in July of 2017 (the first figure I found on google).
"Units under construction" seems like a pretty useless metric. Like, skyscrapers take way longer to build than, say, townhomes, so they'll remain in the under construction pool a lot longer.
Why not use "units started" or "units finished" instead?
At some point, sure. But not at the point where you're just doing 50% more than Seattle. Get back to me when your ratio of new units to immigrants is double or triple that of Seattle on a sustained basis. If the price still isn't going down then, maybe we'll have something to talk about. 50% more just isn't much of a difference.
As a former Vancouverite myself, I want to bring to attention of people that there are a lot of cities in the world with both very high vacancy rates, and high housing price, despite progressively growing housing stock.
You can say that a lot of those cities fall under the category of "fancy towns" where people come not to earn money, but to spend them. There, markets can remain irrational for a loooong time: Sydney, Dubai city, Hongkong, Shenzhen
On my memory, Shenzhen had an astronomic ~20% vacancy rate 5 to 6 years ago while already being the most expensive city in China. Rentier and property investors decided to wait out, expecting prices to go up even further, and they did!
Yes, it's possible for the market to remain irrational for a while, but eventually prices have to come down if supply continues to outpace demand.
That said, according to a quick Google search, Sydney -- which is going to be the most similar of the cities you mentioned to American/Canadian ones, for obvious reasons -- apparently only has a 1.9% vacancy rate, which is very low.
After apartment hunting for months last year, I came to the conclusion that... a lot of the new apartments being built are tragically boring. Many units are alike -- cave-like, and give the impression that construction was rushed while passing off the design as "urban".
So I found "fancier" places alluring, but in reality they are just apartments with a bit more than the bare minimum design. I sometimes wonder if there is a business scheme behind this contrast but I try not to feed into my paranoia.
Anecdotal, but in my building and several of my friends the landlords are just letting units sit open for months, as they flat out refuse to lower rents. They're actually remodeling one of them in an attempt to justify the(really, honestly ridiculously high) rents.
So they may be dropping on the high end, but across a lot of people i've talked to the low to mid end is stubbornly holding strong and refusing to see the writing on the wall that a beat up older apartment building just... isn't worth this much.
I have seen rents overall dropping on craigslist, especially for larger harder to rent units. They're down quite a bit from this summer if you're willing to split a 3+ bedroom apartment or house, when they were absolutely stratospheric before(often close to the same as just renting multiple cheap studios)
arent a ton of people gonna move here when ali babba opens in that building downtown? (assuming the person telling me that wasnt full of shit)
seems like 10k more tech workers could probably have a pretty big effect on the rental market
Alibaba used to own a quite huge office in DT LA, but people in Alibaba I knew said that they never had more than ~40 full-timers and contractors in USA. They came to US for the talent, haven't found it, and mostly bailed the idea.
Just because rent is decreasing on the high end doesnt mean it’s decreasing on the low end apartments.
Apartments are built to a less restrictive code than condos. There aren’t many condos being built in seattle from reading other articles. Similarly there’s much debate about building more homes / townhomes / improving transit.
Amazon supposedly had a hiring freeze recently, and close by (in SLU) I’ve seen folks dancing with “now leasing” signs.