What San Francisco’s magical rent equation says about Seattle affordability

Familiar Places. Familar Faces.

Screen Shot 2016-05-26 at 1.41.59 PMThe numbers from an online rental site claim Seattle’s rents jumped 11% this month compared to May 2015. Our last serious look in March revealed a continued rise despite a flood of new units coming into the market on Capitol Hill. Our quick and dirty sampling method shows about a 3% jump this May compared to May 2015 for 1BR and studio units. The only thing the various analyses of Seattle’s rents and affordability seem to agree on is the numbers keep rising.

Why?

Here’s what they’re saying San Francisco, Seattle’s “Ghost of Christmas Future” model city: From A guy just transcribed 30 years of for-rent ads. Here’s what it taught us about housing prices

(Image: Eric Fischer)

(Image: Eric Fischer)

This is as close as you’re ever likely to see to an answer to life, the universe and everything.

It’s a chart that almost perfectly predicts the San Francisco housing market using only three variables:

  1. The number of jobs located in San Francisco County.
  2. The number of places in San Francisco County for people to live.
  3. The total amount of money that is paid to everyone who works jobs in San Francisco County.

It’s all summarized in the formula at the top of the chart. If you gave me values for (1), (2) and (3) above, then I could predict to you with startling accuracy how much the median two-bedroom apartment in San Francisco will cost to rent in that situation.

 The “guy” posted here about his findings:

It would take a 53% increase in the housing supply (200,000 new units), or a 44% drop in CPI-adjusted salaries, or a 51% drop in employment, to cut prices by two thirds.

Looking for affordability answers for Seattle? You have four choices, apparently. Cut tons of jobs. Cut salaries. Make everything really, really expensive (OK, we’re working on that!), or build way more housing — somewhere around 50% more.

Seattle’s proposed housing levy is set up to help boost the creation of 20,000 new affordable units in the city in the next decade. But sounds like we might need a few new “un-affordable” ones, too — to the tune of several thousand:

Instead, I’m going to close with a lesson for cities that are adding jobs and/or wealth faster than homes but are not yet San Francisco: Portland, Seattle, Austin, Denver, Minneapolis. Maybe Oakland and Los Angeles and San Diego and DC still, too. For the love of god, keep adding homes. Keep adding homes so things don’t get any worse and you’re not trapped in a lose-lose-lose shitstorm like San Francisco.

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32 thoughts on “What San Francisco’s magical rent equation says about Seattle affordability

  1. This simplistic build-baby-build mentality is getting out of control. I know the densinistas, don’t like to hear it, but the housing affordability crisis is more complicated than supply and demand. Each new “luxury” building sets a new cost-per-square foot record. Eventually this ripples through to older units. Outside investors see the money to be made and join the Seattle development gold rush by building and flipping buildings or buying up properties. This in turn attracts more global capital and the cycle builds on itself. Seattle has become a first tier city and a place to store big money bags in the form of real estate. Who cares if anyone actually lives in them. Look to London, Sidney, Shanghai, and Vancouver, rather than narrowly at the dynamics of real estate in San Francisco. Explain why Vancouver’s unprecedented building boom over the last decades resulted in rents and home prices that are even higher than the Bay Area? I think extremely low interest rates are fueling this crisis.

    • “Eventually this ripples through to older units” source? I think you’re just making this up. Specifically, show that the rent increases in older units wouldn’t occur in a world where the new housing you’re referring to is built.

    • I support adding density by the way (a lot of it). I just want it done in a way that makes the city more vibrant rather than creating canyons of hardiboard gray boxes. To me this means revising code to add flexibility to build taller on small lots in exchange for repurposing old buildings and holding developers to a higher standard when it comes to finishing materials and design. They should be required to add more public amenities (setbacks, affordable housing, public spaces), better spaces for small business and the arts. Unfortunately they have convinced the densinistas that all these things will result in higher rents rather than just reduced profits for them. As a result we are going to end up with a characterless, bland city that is still going to be very expensive.

    • I can confirm that the older units are feeling the impact. I’ve lived in my apartment on the hill for 7 years and watched the prices in my old 1960’s building skyrocket. Last year move in rates were a little under $1400 a month, where this year the same unit went for $1550. I am paying significantly less then the current market value because of my long term tenancy . Part of what keeps me here is having a great relationship with my landlord who is a very honorable guy for not raising the rent on me or the elderly residents who can’t afford to live anywhere else. I’ve also been casually looking to move for the past couple years and have definitely noticed the rents getting ridiculously high. So I would have to agree with ADH.

    • “They should be required to add more amenities”

      Yes by all means add even more amenities and restrictions that will only continue to drive the cost of development higher. Because 30 years of already doing that has alleviated the housing crisis, right? Increasing development cost and risk will surely solve our affordability crisis!

      JFC.

      Talk about not getting it.

    • RZ: Yes, but are they going up because of the higher prices in the new buildings, or just because of old-fashioned supply and demand?

    • +1 to Eric’s question. How do you know that the new building CAUSES the rent increases in older buildings? It seems like people are just inventing this claim out of whole cloth.

    • @Zach, I’d like to rebut by asking you to prove that building ~90% market-rate/luxury hasn’t had an effect on rents for older stock apartments.

      New developments effect property values for adjacent properties. Not to mention, real estate isn’t a high school Econ experiment in a vacuum. Real estate speculation is a huge force in places like Seattle, Vancouver, or SF (which by the way has been building a lot more than anyone seems to realize. Hello Mid-Market, SoMa, Dogpatch).

      I’m not entirely sure why a lot of folks are so ready to be fed talking points by developers and speculators (does anyone remember who told us the recession wasn’t going to happen?). They make money off of displacement. That’s their bread and butter. They tell you building more that 8% below-market-rate is too much because they want to make more money. They tell you rent control (simply tying rent increases to inflation – that’s it) will ruin the economy, while in fact they’re really just worried about not being able to price gouge anymore. They’ll tell you to turn a blind eye to Airbnb units in your building, because it’s not mom & pop making money, it’s big business. Plus all of those units off the market make a better case for building more luxury housing.

    • @Zach, I’d like to rebut by asking you to prove that building ~90% market-rate/luxury hasn’t had an effect on rents for older stock apartments.

      New developments effect property values for adjacent properties. Not to mention, real estate isn’t a high school Econ experiment in a vacuum. Real estate speculation is a huge force in places like Seattle, Vancouver, or SF (which by the way has been building a lot more than anyone seems to realize. Hello Mid-Market, SoMa, Dogpatch).

      I’m not entirely sure why a lot of folks are so ready to be fed talking points by developers and speculators (does anyone remember who told us the recession wasn’t going to happen?). They make money off of displacement. That’s their bread and butter. They tell you building more that 8% below-market-rate is too much because they want to make more money. They tell you rent control (simply tying rent increases to inflation – that’s it) will ruin the economy, while in fact they’re really just worried about not being able to price gouge anymore. They’ll tell you to turn a blind eye to Airbnb units in your building, because it’s not mom & pop making money, it’s big business. Plus all of those units off the market make a better case for building more luxury housing.

    • normally those who are making the claim are the ones who provide the evidence. you, “Been There”, and your compatriots make stuff up about rents and refuse to be accountable for making stuff up.

      but luckily! we actually know, for sure, with no doubt, that new buildings disinflate rents. You can look up numerous studies from Ed Glasier or JM Quigley to see the academic evidence, or you can check out Washington DC, Houston, and Germany to see real-world examples.

      But fundamentally, you’re making a specious claim: new buildings don’t raise the rents on old buildings the same was new cars don’t raise prices on old cars.

      It’s really unfortunate that the Trotsky bloc of seattle voters have bought into the NIMBY talking points hook, line, and sinker because I don’t think you’re selfish like the NIMBYs are – you actually care about people succeeding near you. You just have backwards policy proscriptions which would achieve your goals – on your example of displacement, we know for sure, with no doubt, that lack on development is the thing that causes displacement and construction reduces it. See the recent study put out by the CA LAO for the evidence of that.

  2. Perhaps if we weren’t losing so many units to airbnb and other vacation rental websites there would be a fraction of relief. Just a few minutes on airbnb I found 40 units on 12th Avenue East within a few blocks of each other including some dude with 31 units at 12th East and Roy supposedly built as “workforce housing” Somehow I doubt the tourists are here to work…………………..

    • Airbnb and other vacation rental sites actually keep the rent in my Capitol Hill building completely affordable. There are about 20 units in the building, five of them are used as short term rentals (advertised on Airbnb or wherever), the rest have regular tenants. Prices for the short term rentals are the normal jacked up prices tourists are willing to pay… Those have gone up and up over the years while my rent has stayed the same. My landlord basically uses that to cover property tax and other increases instead of having those costs taken on by the regular tenants. I know this is probably the exception to the rule but it’s worth mentioning. It really works in my building.

    • @Boo

      I think Maximum’s point is that Airbnb takes a surprisingly enormous number of rental units off the market – often by flouting city or start hotel laws (if you are renting a unit and not living there, it’s a hotel).

      In SF, for example, Airbnb was flouting laws for years until they worked with a crooked Supervisor to draft a law that lets the company off the hook. Only this month has the city actually been able to start really regulating the company that has taken, by city estimates, around 20,000 rental units off the market. In Paris it was even worse until they started cracking down.

      Here in Seattle our legislators seem to lean a bit libertarian when it comes to this stuff and haven’t even bothered to research the effect that “homesharing” has on our rental stock, but as Maximum points out, there were 40 on just a small stretch of 12th Ave E. It’s entirely possible that Seattle has just as many or more units off the market thanks to Airbnb as SF does

  3. That 50% figure only applies to San Francisco. It’s not accurate for Seattle. A more accurate statement reflecting the study is that we need to build enough new houses for all the new workers. So, from memory, about two thousand more units per year than what we currently do.

  4. Another formulae might start with the cost of buying a 2bed condo, then figure out the monthly mortgage + property tax + home owners.

    Sadly $2500 month on a $400k condo isn’t a great investment (say $1600 interest only + $350 tax + $400 hoa), before we get into insurance, maintainence etc etc.

  5. I think the City could start limiting the number and/or types of jobs that are being created so that it balances somewhat with available and pipeline housing stock. I know, the free market is god and so are the large companies moving here and paying taxes, but the current system isn’t working for a lot of cities on that list. When you have massive demand for workers and housing no amount of rezoning is going to save everyone else.

    • This is the most ridiculous idea I’ve heard. Unfortunately we don’t have the “right” to live anywhere. Just because you want to live in SoMa or Chelsea doesn’t mean the neighborhood has to accommodate you.

      Limiting the number jobs of “particular type” is coded language. I wonder how far your prejudice actually goes. Software developers? Foreigners? Anyone who doesn’t look like the white Caucasian hipsters you cherish in your neighborhood?

    • Wow, talk about taking a simple thought and taking it too far. Pretty much the “poor people don’t deserve anything, get out of my newly adopted city (Chelsea and SOMA?)” response I was expecting, with some racism accusations sprinkled in.

    • Truly. I don’t think I’ve ever heard a sillier idea, ever, to address this problem.

      What I’d like to see, on the part of the City, and employers, and everyone clamoring for cheaper or subsidized housing, is some attention paid to the fact that so few people have the JOB SKILLS TO FILL THE JOBS that Seattle is creating hand-over-fist. There are so many jobs going begging but we still keep trying to make housing cheaper, so people in low paying jobs can afford it. Why don’t we EVER hear about efforts to help low-paid workers become higher-paid workers? How bout we ask companies to help train workers for the jobs they need to fill, in exchange for a break on property taxes, etc.? No, it won’t fix the housing crisis by itself, but it should be a small part of the equation. And we’re not doing any of it now– not even talking about it. Just trying to help lower paid workers who can’t afford expensive apartments afford ever-more-expensive apartments. That’s a losing battle.

  6. Correction/Refinement:l to the story/article:

    The Housing Levy will create 2,750 affordable housing units over 7 years (for people making 30% AMI). Of course we expect it to get renewed, so hopefully it’ll create ~4,500 over 10 years.

    The mayor’s total target for affordable housing production is 20,000. The policy that’ll create the most units is the Mandatory Housing Affordability Program, which will create 6,100 affordable housing units for people who make 60% of AMI.

  7. This article seems to argue against the idea (expressed often on this blog, and elsewhere) that we can stabilize or reduce rents by building more and more units. This has not been the case in other cities, and it won’t be here either. It’s a pipe dream.

    • oh but DC not only experienced rent disinflation, but rent *deflation*. Houston has problems with things like gov’t subsidies on highways and high parking minimums, but it does indeed have cheaper housing costs thanks to lower land regulations.

  8. Common sense and basic economics suggest that supply and demand matter. I have gone through a number of cycles in Seattle where jobs go away, people leave and rents decline. Since we see people coming into the area, if there is a deficit of housing the existing supply becomes more precious. Rents will go up either when people leave or supply of housing increases. Want lower rents, consider Detroit or Cleveland – but good luck finding a great job along with your low rent. I personally have zero intention of voting for my taxes to subsidize the housing choices of others and fully agree that there is no inherent right to occupy prime, central view property in Seattle. I urge others to similarly vote a resounding no on the upcoming levy.

    • DC rents are going back up again btw. Your info is out of date Zach. I support building a lot more units and the housing levee. I just don’t like the build-at-all-costs bullshit and overly simplistic supply and demand analysis, because there are huge costs to quality of life in the city if we don’t do it in a smart way and a low probability that it will suddenly make the city affordable.

    • Low income people should be allow to live in the city too and not have to drive from Burien to their service jobs that the wealthy demand (more congestion anyone?) I’m fine paying a bit more in tax to keep Seattle more economically diverse.

  9. Regarding the 30yr trends in SF. I like the study conclusions, but put me down as skeptical of any chart that’s in log scale.

  10. Tuck says above:

    “Low income people should be allow to live in the city too and not have to drive from Burien to their service jobs that the wealthy demand (more congestion anyone?) I’m fine paying a bit more in tax to keep Seattle more economically diverse.”

    Rephrased he/she is saying – homeowners, renters and property owners should be forced to write checks for higher taxes so those who wish, regardless of their own efforts and life choices (such as the Somali immigrant moms with 8 children), should be free to live at our expense in a high cost neighborhood.

    Sorry. There is no compelling reason for this and a number of reasons why it is unfair, and rewards personal decisions with the prudently earned savings and earnings of others. There is nothing wrong with Burien, SeaTac or heaven forbid – Tacoma.

    • Data Driven and others seem to suggest that if people can’t afford the high-end rents they’ve made poor life choices and have not expended sufficient effort, and I love the fact that Data Driven has to mention immigrant moms here. This is elitist nonsense often spouted by those who happen to be skilled at jobs that are now more economically rewarded than others (such as computer jobs). Not everyone is good at such things, and the field discriminates against women besides. There are plenty of college-educated people (many with advanced degrees) that have worked hard, done everything right, and have still not been economically rewarded, and it gets so tiring to hear people comment with a long-winded version of “I’ve got mine, screw you.” If anyone needs to leave Seattle, it’s people like that.