6 ms·

As thousands of new apartments open, Seattle's rental market weakens

46 points by ra7 11y ago

Zigurd 11y ago
> The issue of slowing rents is most acute in Seattle neighborhoods that are experiencing an unprecedented amount of development, according to Dupre + Scott Apartment Advisors. The Seattle apartment tracking firm said that rents rose 5.6 percent region-wide from March through September, and were up 8.3 percent from a year prior. How odd to think of housing as something that should always go up in price.
- pc86 11y ago
  If it doesn't then there is almost no legitimate financial reason to buy a house. Nobody will buy a $200k house if chances are it will be worth $180-220k in 40 years before inflation.
  - Jach 11y ago
    There's still two big reasons I can see: a place to live and for your children to inherit, and a place to rent out.
  - davmre 11y ago
    The reason to buy a house would be the same as the reason to buy a car, or any other item: because you want to use it. If housing prices are guaranteed to increase, it means owners of housing are extracting unearned rents from the economy. Houses decay over time and eventually need to be renovated/rebuilt, so you should on average take a net loss from owning and occupying a house, just as you would a car.
    - refurb 11y ago
      The difference between a car and house is the house can't be replaced, a car can. If someone wants to live in San Francisco, they can't just substitute it by living in Portland. If more people want to live in San Francisco, then the price goes up due to the limited supply.
      - theseatoms 11y ago
        The land itself cannot be replaced. The physical house that sits on the land can.
        refurb 11y ago
        True, but most of the value is in the land. A derelict house in San Francisco is worth over $1M, but $800K+ is the land.
        theseatoms 11y ago
        Yes, San Francisco is fairly unique in this regard.
        nasalgoat 11y ago
        Not really, it's the same thing here in Toronto. Developers regularly buy tear-down bungalows on 50' x 120' lots for $1.2M and proceeds to put two tiny houses on the lot that sell for $1M each.
    - theseatoms 11y ago
      There are a variety of reasons to buy a house. One is to use, or consume, the shelter that it provides. As a human, you'll always be a "natural buyer" of shelter. (Though not necessarily always where you own shelter.) Another reason to own property is to speculate on the valuation of the land or the house itself. These two aspects of home ownership are very often conflated. It's actually shocking how infrequently this distinction is discussed, especially given how common home ownership is.
  - apalmer 11y ago
    OK? I dont mean to be snarky but financial investment isn't necessarily the ultimate motivator for all things. Also fundamentally, we are talking rental property, rental income is a legitimate financial reason to buy rental property. Spend 5 million today, rent out for 500k a year, make your money back after 10 years, literally get money for nothing for every year after that... thats not a good enough financial reason? basically real estate is a very slow moving ponzi scheme, perhaps one can argue its a ponzi scheme that cant fail as long as the human population continues to increase.
    - refurb 11y ago
      thats not a good enough financial reason? Your scenario (buy for $5M, rent for $500K/yr) actually sounds quite terrible. At even nominal interest rates you're probably paying 150% of the purchase price, so you won't breakeven until almost 15 years in. And with the time value of money, making a big investment now for $500K per year 15 years from now must be an absolutely awful return. I do see your point thought. There is nothing wrong with buying a house because you want it. However, that's not why most people buy houses (at least in the US). There is the pervasive perception that housing is a "good investment".
  - pyoung 11y ago
    You are still building equity as opposed to throwing money away to a landlord. And there are a lot of other intangibles such as stability (no more rent increases or evictions) and freedom to modify/alter/improve the property. These are probably much more important features to potential home owners (especially ones considering/having children). And another thing to consider, for most homeowners a hot real estate market only benefits them if they are willing to move to a lower priced market or downsize their home. Moving laterally or trying to upgrade during a hot market means you are exposed to the same percentage of price increases as everyone else. The only people that really benefit from hot real estate markets are investors and landlords.
    - refurb 11y ago
      You are still building equity as opposed to throwing money away to a landlord. That's a fallacy. Whether or not you rent a place (pay another person to buy it) or you buy it yourself, buying is not always better than renting. There are many situations where if you rented your whole life you'd be better off than owning, even assuming housing appreciates. I was renting (after owning for many years) right before the housing crash in 2008. I paid ~$30K to rent a place over two years. I know folks who bought who lost 3 times that owning a house. When I wanted to move I just gave the keys back. The landlord took the hit, not me.
    - dionidium 11y ago
      There is no such thing as throwing money away to a landlord, unless you also believe that every other case in which you use money to buy something you desire is "throwing money away."
      - Jtsummers 11y ago
        Whether it's throwing money away or not depends on the future value of the good, expected duration of ownership, and the utilization rate. Same as the purchase versus rent decision on every other purchase.
  - enjo 11y ago
    I'd still buy the house. A 30 year mortgage on that $200k house @ 6% is going to cost me $1,199 a month or $431,676 over the life of that mortgage. If the house devalues to $180k my actual out of pocket money spent is $251,676. If I do a 15 year mortgage under the same conditions I spend $1,688 a month, but my total cash out is down to $303,788 over the life of the loan or $123,788 out of pocket (again assuming the house is worth $180k in the end). Now lets pretend like I can find rent at $1k a month for something similar. That's unlikely to be true over that period (rents tend to rise at least with inflation), but lets just go with it. Over a 30 year period I will have spent $360,000. That's $108,324 more than my 30 year mortgage and a whopping $236,212 over my 15 year mortgage. That's not even counting the interest deductions I get to take on the mortgage interest I'm paying. Now I know I'm discounting a bunch of things like property taxes and maintenance on the house (in return I'm giving unrealistically low rent). Those costs for your average house aren't going to be anywhere near the difference in rent... If you're relatively stable in your life, buying almost always makes more sense than renting because at the end of the day you have to pay someone to live somewhere and some of that might as well end up in your bank account.
  - thrownaway2424 11y ago
    Another way to put it would be that the future appreciation is priced in at purchase time. If the asset is not expected to appreciate, its price will be less.
  - revelation 11y ago
    I don't get it, you lived in it for 40 years. Why would it be worth more? Do you buy food?
  - joesmo 11y ago
    What about living in that house and retiring in it? You definitely can't rent in many places on social security payments. Though of course that requires taxes to at least be affordable on social security, something that isn't true in a lot of places.
api_or_ipa 11y ago
I wonder how much of an impact this might have on the Vancouver housing market. Detached houses are fetching well north of 1M with no ceiling in sight. Perhaps a commute, with a NEXUS card could look attractive to some residents.
- nathanvanfleet 11y ago
  I wish it would. I'm Canadian and want better weather Vancouver is basically the only place for it. But I wouldn't even try at the state of the market.
brudgers 11y ago
A good model of real estate development patterns is: 1. A research firm studies a local market [and all real-estate markets are local, that's what makes it real property, i.e. non-fungibility]. 2. The information is sold to first movers. Some act on the information and put projects in the pipeline. Local real-estate warms up. 3. It becomes generally disseminated to those lower down the chain. Some act and they put projects in the pipeline. Local real-estate gets hot. 4. First projects come online and do really well. Local real-estate gets white hot. 5. Later projects come online and the market becomes overbuilt. The market cools. 6. Delayed projects fold. The market goes cold. For Seattle, imagine the market report said that there was demand for 20,000 units. 16 early moving developers look at building 2000 units each. 8 get built and there's still demand for 4000 units. 32 downstream developers look at the demand for 20,000 units and investigate building 2000 units each. 16 proceed, 8 get built and 8 fail and now there is a 12,000 unit surplus and 8 deals being floated. 4 of the deals get bought at pennies on the dollar, two get built and now there are 16,000 surplus units. In twenty years those will be absorbed and the market will heat up again.
- the_cat_kittles 11y ago
  basically like this: https://www.youtube.com/watch?v=JHGKPAgBpOg https://www.youtube.com/watch?v=JHGKPAgBpOg, where the developers are the ball, and demand is the box
- hsitz 11y ago
  "32 downstream developers look at the demand for 20,000 units and investigate building 2000 units each. . . ." I don't think it works like this. Surely their investigation would turn up the existence of the 16 early mover developers along with already-existing plans for 16k units?
hristov 11y ago
I do hope rents start falling. In this economic environment of prolonged super low interest rates we shouldn't have shortage of housing.
- klodolph 11y ago
  From what I understand (which is not much) the relationship is fairly complicated. For example, with interest rates this low, it changes whether investors want to buy bonds and instead move their money somewhere else... such as real estate.
ulysses 11y ago
Oh no! It will take longer for lower-income* renters to be priced out of the market. * By lower income in Seattle I mean households making less than 50k a year... how awful that they might be able to continue to afford living in the city.
peatmoss 11y ago
I know it's typical to speak in those terms, but I still can't get over how value-laden a statement like, "rental market weakens" is. Clearly the market is weaker / less good if you have property to rent out, but I know a "weak market" is cause for celebration for many here in Seattle.
- tosseraccount 11y ago
  Landlords pay for the ads in the news outlets.
  - theseatoms 11y ago
    And tenants don't? Though I suppose tenants' interests are far more heterogeneous and disperse.
    - thrownaway2424 11y ago
      Huh? Landlords literally buy ad space in these papers. Tenants do not advertise.
      - bmelton 11y ago
        I suspect that the parent was saying was that the tenants pay the cost of that advertising spend, eventually. He's absolutely right, though I'm not sure where his response came from.
- newdaynewuser 11y ago
  I was thinking same thing. To me, this shows sign of development and progress.
- theseatoms 11y ago
  You'll hear the same regarding stock market valuations, as if the magnitude and direction of the broad stock market on any given day is directly indicative of national prosperity, regardless of the absolute level, path (or "trend"), volatility, etc.
Animats 11y ago
Amusingly, the author is complaining about "slowing rents". They mean "not increasing as fast", not "falling".
seibelj 11y ago
In a previous article about crazy rents in SF I argued that increasing supply of housing reduced the price of rent [1], aka, supply and demand. HN commenters went apoplectic. It amazes me how basic economics is so hard for many intelligent people to understand. [1] https://news.ycombinator.com/threads?id=seibelj&next=10188683# https://news.ycombinator.com/threads?id=seibelj&next=1018868...
- intopieces 11y ago
  It's not that intelligent people can't understand basic economics, it's that basic economics isn't enough to explain the situation in San Francisco, so that refrain gets pretty tiresome. Take a look at the responses you got to your comment to understand why "just build more housing" does not get the round of applause you're expecting. I also encourage you to consider the massive differences between Seattle and SF, geographically, politically, economically, and socially. With all of these factored in, I think you'll better understand why "basic economics" is not enough.
  - seibelj 11y ago
    If you disagree with the sentiment that having 200k more units in SF would reduce prices, then you fail to understand basic economics. Now, if you are saying that building 200k more units is impractical, I wouldn't disagree. I'm just saying that the solution boils down to 3 options: increasing supply, reducing demand, or both. That's all there is. You can warp natural economics and impose rent control, mandated affordable housing, etc. but nothing but those 3 options will make any real difference.
    - intopieces 11y ago
      Everything you say is correct, but so lacking in complexity and detail that none of it bears repeating. Do you have any particular insights into how to overcome any of the challenges specific to San Francisco? "It's simple supply and demand" is so often repeated as the catch-all solution it's practically achieved meme status.
- 11y ago
suyash 11y ago
We need more development like that in bay area to weaken the rental market here. It's a bubble slowly getting bigger.

46 points by ra7 11y ago

> The issue of slowing rents is most acute in Seattle neighborhoods that are experiencing an unprecedented amount of development, according to Dupre + Scott Apartment Advisors. The Seattle apartment tracking firm said that rents rose 5.6 percent region-wide from March through September, and were up 8.3 percent from a year prior. How odd to think of housing as something that should always go up in price.

pc86 11y ago
If it doesn't then there is almost no legitimate financial reason to buy a house. Nobody will buy a $200k house if chances are it will be worth $180-220k in 40 years before inflation.
- Jach 11y ago
  There's still two big reasons I can see: a place to live and for your children to inherit, and a place to rent out.
- davmre 11y ago
  The reason to buy a house would be the same as the reason to buy a car, or any other item: because you want to use it. If housing prices are guaranteed to increase, it means owners of housing are extracting unearned rents from the economy. Houses decay over time and eventually need to be renovated/rebuilt, so you should on average take a net loss from owning and occupying a house, just as you would a car.
  - refurb 11y ago
    The difference between a car and house is the house can't be replaced, a car can. If someone wants to live in San Francisco, they can't just substitute it by living in Portland. If more people want to live in San Francisco, then the price goes up due to the limited supply.
    - theseatoms 11y ago
      The land itself cannot be replaced. The physical house that sits on the land can.
      - refurb 11y ago
        True, but most of the value is in the land. A derelict house in San Francisco is worth over $1M, but $800K+ is the land.
        theseatoms 11y ago
        Yes, San Francisco is fairly unique in this regard.
        nasalgoat 11y ago
        Not really, it's the same thing here in Toronto. Developers regularly buy tear-down bungalows on 50' x 120' lots for $1.2M and proceeds to put two tiny houses on the lot that sell for $1M each.
  - theseatoms 11y ago
    There are a variety of reasons to buy a house. One is to use, or consume, the shelter that it provides. As a human, you'll always be a "natural buyer" of shelter. (Though not necessarily always where you own shelter.) Another reason to own property is to speculate on the valuation of the land or the house itself. These two aspects of home ownership are very often conflated. It's actually shocking how infrequently this distinction is discussed, especially given how common home ownership is.
- apalmer 11y ago
  OK? I dont mean to be snarky but financial investment isn't necessarily the ultimate motivator for all things. Also fundamentally, we are talking rental property, rental income is a legitimate financial reason to buy rental property. Spend 5 million today, rent out for 500k a year, make your money back after 10 years, literally get money for nothing for every year after that... thats not a good enough financial reason? basically real estate is a very slow moving ponzi scheme, perhaps one can argue its a ponzi scheme that cant fail as long as the human population continues to increase.
  - refurb 11y ago
    thats not a good enough financial reason? Your scenario (buy for $5M, rent for $500K/yr) actually sounds quite terrible. At even nominal interest rates you're probably paying 150% of the purchase price, so you won't breakeven until almost 15 years in. And with the time value of money, making a big investment now for $500K per year 15 years from now must be an absolutely awful return. I do see your point thought. There is nothing wrong with buying a house because you want it. However, that's not why most people buy houses (at least in the US). There is the pervasive perception that housing is a "good investment".
- pyoung 11y ago
  You are still building equity as opposed to throwing money away to a landlord. And there are a lot of other intangibles such as stability (no more rent increases or evictions) and freedom to modify/alter/improve the property. These are probably much more important features to potential home owners (especially ones considering/having children). And another thing to consider, for most homeowners a hot real estate market only benefits them if they are willing to move to a lower priced market or downsize their home. Moving laterally or trying to upgrade during a hot market means you are exposed to the same percentage of price increases as everyone else. The only people that really benefit from hot real estate markets are investors and landlords.
  - refurb 11y ago
    You are still building equity as opposed to throwing money away to a landlord. That's a fallacy. Whether or not you rent a place (pay another person to buy it) or you buy it yourself, buying is not always better than renting. There are many situations where if you rented your whole life you'd be better off than owning, even assuming housing appreciates. I was renting (after owning for many years) right before the housing crash in 2008. I paid ~$30K to rent a place over two years. I know folks who bought who lost 3 times that owning a house. When I wanted to move I just gave the keys back. The landlord took the hit, not me.
  - dionidium 11y ago
    There is no such thing as throwing money away to a landlord, unless you also believe that every other case in which you use money to buy something you desire is "throwing money away."
    - Jtsummers 11y ago
      Whether it's throwing money away or not depends on the future value of the good, expected duration of ownership, and the utilization rate. Same as the purchase versus rent decision on every other purchase.
- enjo 11y ago
  I'd still buy the house. A 30 year mortgage on that $200k house @ 6% is going to cost me $1,199 a month or $431,676 over the life of that mortgage. If the house devalues to $180k my actual out of pocket money spent is $251,676. If I do a 15 year mortgage under the same conditions I spend $1,688 a month, but my total cash out is down to $303,788 over the life of the loan or $123,788 out of pocket (again assuming the house is worth $180k in the end). Now lets pretend like I can find rent at $1k a month for something similar. That's unlikely to be true over that period (rents tend to rise at least with inflation), but lets just go with it. Over a 30 year period I will have spent $360,000. That's $108,324 more than my 30 year mortgage and a whopping $236,212 over my 15 year mortgage. That's not even counting the interest deductions I get to take on the mortgage interest I'm paying. Now I know I'm discounting a bunch of things like property taxes and maintenance on the house (in return I'm giving unrealistically low rent). Those costs for your average house aren't going to be anywhere near the difference in rent... If you're relatively stable in your life, buying almost always makes more sense than renting because at the end of the day you have to pay someone to live somewhere and some of that might as well end up in your bank account.
- thrownaway2424 11y ago
  Another way to put it would be that the future appreciation is priced in at purchase time. If the asset is not expected to appreciate, its price will be less.
- revelation 11y ago
  I don't get it, you lived in it for 40 years. Why would it be worth more? Do you buy food?
- joesmo 11y ago
  What about living in that house and retiring in it? You definitely can't rent in many places on social security payments. Though of course that requires taxes to at least be affordable on social security, something that isn't true in a lot of places.

api_or_ipa 11y ago

I wonder how much of an impact this might have on the Vancouver housing market. Detached houses are fetching well north of 1M with no ceiling in sight. Perhaps a commute, with a NEXUS card could look attractive to some residents.

nathanvanfleet 11y ago
I wish it would. I'm Canadian and want better weather Vancouver is basically the only place for it. But I wouldn't even try at the state of the market.

brudgers 11y ago

A good model of real estate development patterns is: 1. A research firm studies a local market [and all real-estate markets are local, that's what makes it real property, i.e. non-fungibility]. 2. The information is sold to first movers. Some act on the information and put projects in the pipeline. Local real-estate warms up. 3. It becomes generally disseminated to those lower down the chain. Some act and they put projects in the pipeline. Local real-estate gets hot. 4. First projects come online and do really well. Local real-estate gets white hot. 5. Later projects come online and the market becomes overbuilt. The market cools. 6. Delayed projects fold. The market goes cold. For Seattle, imagine the market report said that there was demand for 20,000 units. 16 early moving developers look at building 2000 units each. 8 get built and there's still demand for 4000 units. 32 downstream developers look at the demand for 20,000 units and investigate building 2000 units each. 16 proceed, 8 get built and 8 fail and now there is a 12,000 unit surplus and 8 deals being floated. 4 of the deals get bought at pennies on the dollar, two get built and now there are 16,000 surplus units. In twenty years those will be absorbed and the market will heat up again.

the_cat_kittles 11y ago
basically like this: https://www.youtube.com/watch?v=JHGKPAgBpOg https://www.youtube.com/watch?v=JHGKPAgBpOg, where the developers are the ball, and demand is the box
hsitz 11y ago
"32 downstream developers look at the demand for 20,000 units and investigate building 2000 units each. . . ." I don't think it works like this. Surely their investigation would turn up the existence of the 16 early mover developers along with already-existing plans for 16k units?

hristov 11y ago

I do hope rents start falling. In this economic environment of prolonged super low interest rates we shouldn't have shortage of housing.

klodolph 11y ago
From what I understand (which is not much) the relationship is fairly complicated. For example, with interest rates this low, it changes whether investors want to buy bonds and instead move their money somewhere else... such as real estate.

ulysses 11y ago

Oh no! It will take longer for lower-income* renters to be priced out of the market. * By lower income in Seattle I mean households making less than 50k a year... how awful that they might be able to continue to afford living in the city.

peatmoss 11y ago

I know it's typical to speak in those terms, but I still can't get over how value-laden a statement like, "rental market weakens" is. Clearly the market is weaker / less good if you have property to rent out, but I know a "weak market" is cause for celebration for many here in Seattle.

tosseraccount 11y ago
Landlords pay for the ads in the news outlets.
- theseatoms 11y ago
  And tenants don't? Though I suppose tenants' interests are far more heterogeneous and disperse.
  - thrownaway2424 11y ago
    Huh? Landlords literally buy ad space in these papers. Tenants do not advertise.
    - bmelton 11y ago
      I suspect that the parent was saying was that the tenants pay the cost of that advertising spend, eventually. He's absolutely right, though I'm not sure where his response came from.
newdaynewuser 11y ago
I was thinking same thing. To me, this shows sign of development and progress.
theseatoms 11y ago
You'll hear the same regarding stock market valuations, as if the magnitude and direction of the broad stock market on any given day is directly indicative of national prosperity, regardless of the absolute level, path (or "trend"), volatility, etc.

Animats 11y ago

Amusingly, the author is complaining about "slowing rents". They mean "not increasing as fast", not "falling".

seibelj 11y ago

In a previous article about crazy rents in SF I argued that increasing supply of housing reduced the price of rent [1], aka, supply and demand. HN commenters went apoplectic. It amazes me how basic economics is so hard for many intelligent people to understand. [1] https://news.ycombinator.com/threads?id=seibelj&next=10188683# https://news.ycombinator.com/threads?id=seibelj&next=1018868...

intopieces 11y ago
It's not that intelligent people can't understand basic economics, it's that basic economics isn't enough to explain the situation in San Francisco, so that refrain gets pretty tiresome. Take a look at the responses you got to your comment to understand why "just build more housing" does not get the round of applause you're expecting. I also encourage you to consider the massive differences between Seattle and SF, geographically, politically, economically, and socially. With all of these factored in, I think you'll better understand why "basic economics" is not enough.
- seibelj 11y ago
  If you disagree with the sentiment that having 200k more units in SF would reduce prices, then you fail to understand basic economics. Now, if you are saying that building 200k more units is impractical, I wouldn't disagree. I'm just saying that the solution boils down to 3 options: increasing supply, reducing demand, or both. That's all there is. You can warp natural economics and impose rent control, mandated affordable housing, etc. but nothing but those 3 options will make any real difference.
  - intopieces 11y ago
    Everything you say is correct, but so lacking in complexity and detail that none of it bears repeating. Do you have any particular insights into how to overcome any of the challenges specific to San Francisco? "It's simple supply and demand" is so often repeated as the catch-all solution it's practically achieved meme status.
11y ago

suyash 11y ago

We need more development like that in bay area to weaken the rental market here. It's a bubble slowly getting bigger.