If Seattle is to “build its way of out” its affordability crisis, the market seems to be indicating that Capitol Hill, for now at least, has done enough. Design review, the most public component in Seattle’s development process, has slowed to a trickle in the East District covering Capitol Hill and parts of the Central District. There is only a single project on the East review board’s calendar this month; last year there were six. After a small pulse of activity in January, looking ahead, the calendar doesn’t appear much more robust. In 2017, there were more than 30 reviews scheduled for major projects in the area.
The simplest explanation could be that we’re simply built out. Liz Dunn, the Capitol Hill-based developer behind Chophouse Row, said she wasn’t sure what might be behind a slowdown, except that all the sites just might finally be built.
There are other indicators that also point to a construction slowdown. The number of active cranes dropped over the past six months. We still have more than any other city in the US, but this is the first time the number has gone down in years.
Seattle has built more than 300 new apartment buildings since 2010, many of them in this area. Recently, some analysis suggests rents have stabilized, and even dropped in parts of the city, a possible indicator that supply has finally caught up with demand.
And the supply is going to keep going up in the neighborhood in the near term. The development at Capitol Hill Station, the Bonney-Watson project, a building on what used to be Piecora’s, new development at 23rd and Union and more at 23rd and Jackson, mean there will be hundreds of new units available in the next couple years.
Only time will tell if this is a blip or the start of a trend, but people who study development issues across the city and on Capitol Hill point to a number of possible reasons.
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John Feit, an architect and chair of the Pike Pine Urban Neighborhood Council, agreed that availability is a factor. All but one or two of the large sites in the neighborhood are either built or in active development, meaning there’s few places for developers to easily put up the larger projects we’ve seen over the past few years.
Brad Augustine, developer with the Capitol Hill-based Madrona Real Estate Group, suggests it might just be that we’re at the end of a business cycle. Real Estate, like the economy in general, is cyclical, Augustine said, and the current expansion is getting a bit long in the tooth.
“It just feels like it’s probably a good time, as a developer, to get your horse in the barn and get ready for a storm,” he said.
Development projects, he noted, take a long time to build. In Seattle, from the time a builder has the property in hand and starts the process until they get a building permit and can start shoveling dirt can take two years and cost $1 million.
He was quick to note that he was quite supportive of the design review process which eats up most of the time. Though he does wish there was a way to expedite non-controversial projects.
After permitting, construction will take another 18-24 months. So, a project starting now might not actually open its doors for four years. And the state of the economy in four years is anybody’s guess.
Augustine said that larger factors could also be at play. The changes to tax law could have large companies repatriating vast sums of money, which could affect inflation and, in turn, interest rates. Small moves in either of those numbers could end up having a large impact on the cost of a project, he said.
Augustine said he’s still very bullish on Seattle, and Capitol Hill is a “sweet spot” for multi-family buildings. Even so, the time might not right to bet on what things will be like in four years.
“Why would anybody take that much risk?” he said.
Augustine and Feit both pointed to construction costs as another factor. With all of the current construction, contractors and subcontractors are booked, and it’s difficult to find qualified workers. Augustine noted that projects that a few years ago might have cost $145 per square foot to build could now cost $185 per square foot.
Feit noted that contractors can sometimes lock in multi-year contracts, so those costs can sometimes remain higher even after the overall market has cooled a bit.
Another factor could be the coming affordable housing regulations. Those rules, part of the “Grand Bargain” forged by former mayor Ed Murray and the Housing Affordability and Livability Agenda task force, are currently under litigation, which raises uncertainty. Developers hate uncertainty.
Roger Valdez of Seattle for Growth suggested that some builders may have been rushing their projects through the process in order to beat the implementation of those new regulations. Now, he thinks some may be waiting to see what the final rules will look like. Until a developer knows what the rules will be, it’s difficult to know what projects will be profitable.
Until more certainty returns, Valdez said, there may be a bit of a slowdown, but he suspects it will be temporary.
“I would not read into it that we are about to go into a downturn,” he said. “This is not a cliff, more a dip in the road.”