This article is part two of a four-part series about Amazon's effect on housing and rental markets in Seattle, and its potential impact on each of the proposed cities for its second U.S. headquarters. Read part one here.
While Seattle’s rents pre-2010 were on par with the national average, rents soared once Amazon built its corporate campus there. By 2017, the median rental rate in Seattle had increased 41.7% in seven years, compared with a 17.6% increase in the national median rental rate. This is undoubtedly on the minds of planners and politicians in the 20 cities that are vying for Amazon's second U.S. headquarters, dubbed HQ2, to be selected later this year.
Because rental values have risen so significantly, many older, less desirable apartment buildings that would be considered affordable have been bought, refurbished, and put back on the market at a much higher rental rate due to the lack of inventory. Consequently, many low-income renters can no longer find an apartment they can afford to rent in downtown Seattle.
“You've got a number of people that are thrilled that our market has recovered so heavily, and that we've got a tremendous amount of equity inside of our homes," says Todd Britsch, Metrostudy regional director for the Seattle market. "On the other hand, you have a number of service providers, waitresses, bartenders, etc., who are essentially struggling because the rental rates have skyrocketed as well."
According to Britsch, the price of a high-end apartment has also risen, from roughly $2.25 per square foot to more than $4 per square foot, and prices are even higher than that for condominiums.
In contrast to Seattle's shortage of new and resale homes—caused primarily by severe land constrictions and demand that significantly exceeds supply, respectively—the shortage of condominiums in the multifamily sector is being perpetuated by the Washington Condo Act, according to developers. They say the legislation includes unrealistic warranties of quality that essentially overprotect buyers and make litigation so easy (and frequent) that builders, developers, and architects are afraid take the risk.
In fact, defect litigation issues have caused the cost of insurance and labor for condo construction to rapidly exceed the norm for what it costs to build a single-family home, with units in downtown Seattle now selling for roughly $1,300 per square foot.
The reason why Seattle's condo shortage is so relevant to rental rates—and housing in the region as a whole—is because condominiums typically offer prospective buyers in expensive markets an alternative option to homeownership when they're priced out of single-family homes. This results in rental rates rising even more—residents have no option but to sink their money into expensive rentals that don’t build equity if they can’t afford a home.
While rental rates have eased slightly in 2018, the rise of housing costs in Seattle over the past decade is in many ways connected to its role as a hub for several major tech companies in addition to Amazon, like Microsoft and Expedia.
Thankfully, the underlying factors driving the condo shortage are unique and fairly insulated to the Seattle market. According to Zillow, the share of homes available for ownership that are condos is much higher in Boston, Washington, D.C., Miami, and New York. Those cities are comparable to Seattle in terms of affordability, so the impact HQ2 has on rental rates in those expensive markets could be less dramatic overall, simply because the demand for housing would be more distributed.
Housing experts in Seattle discuss lessons learned from Amazon's growth in part three of the series. Read on >>
