Seattle’s boom in high-end apartments may actually be helping the city’s affordability because of a “filter-down” effect as buildings age, some say. The key to easing rents? Keep building, they advise.
Is Seattle’s unprecedented luxury-apartment boom driving up rents — or is it actually keeping us from turning into the next San Francisco?
Depends whom you ask.
As The Seattle Times reported in November, some affordable-housing advocates are troubled by new apartment construction in the city that has resulted in the demolition of more than 2,000 older housing units. Naturally, these amenity-laden new apartments have significantly higher rents.
But many urbanists have a different take: Today’s market-rate apartments, they counter, are tomorrow’s affordable housing. As a building ages, it no longer commands the top-tier rents of new construction, so it gradually becomes more affordable.
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From the urbanist perspective, the key is to keep building. According to Joe Cortright of the Portland-based think tank City Observatory, even luxury-apartment construction will help ease rents:
“What really matters is not whether new housing is created at a price point that low- and moderate-income households can afford, but rather, whether the overall housing supply increases enough that the existing housing stock can ‘filter down’ to low and moderate income households.”
There is no question that this “filter down” takes place — but how long does it take, and does it happen fast enough to help?
I asked Tom Cain of Apartment Insights, a Seattle-based rental-market research firm, to look into this phenomenon here in Seattle.
His data, limited to buildings with at least 50 units, show that the depreciation starts quickly: Average rental price per square foot drops 13 percent between properties built in this decade and those built between 2000 and 2009.
“There is a premium for a brand-new unit that has never been lived in and everything is perfect,” Cain says.
“There’s less demand for a unit that is even 3 years old.”
In Seattle, rents decline for each subsequent decade that a structure was built, the data show, until they bottom out in the 1960s-era apartments. A new apartment rents, on average, for 71 percent more per square foot than one built around the time of the Seattle World’s Fair.
The biggest decade-to-decade depreciation in rent occurs between apartments built in the 1990s and 1980s — an 18 percent drop in the per-square-foot price. Cain says that’s due, at least in part, to the dated style and materials typical of buildings from the 1980s — plush wall-to-wall carpeting and oak cabinets, for example, that are distasteful to many modern-day renters.
The filter-down process seems to stop for buildings from the 1950s and earlier. That’s partly explained by the average size of these older apartments — they tend to be much smaller, many of them studios. The per-square-foot rent is always higher for smaller units, regardless of when they were built, according to Cain.
Also, once buildings reach a certain age, “dated” turns into “period charm.” That’s happening with 1950s midcentury moderns now, and Cain says vintage brick apartment buildings from the late 1920s to early 1930s are highly desirable in Seattle. “The floor plans are good,” he said. “Nice hardwood floors, lots of tile, and they are charming.”
Cain notes that one factor may decelerate the filter-down process for Seattle’s newest buildings: luxury.
Seattle — unlike, say, New York — does not have a tradition of wealthy apartment dwellers. That’s changing now. And so we’re seeing a new class of apartment buildings that have all sorts of high-end features, such as rooftop gardens and fitness centers.
And in the last decade, high-rise towers have popped up in Seattle.
“They can have wonderful views,” Cain says. “Some of these buildings have floor-to-ceiling windows, something we never had before.”
These luxury units might hold their rental value longer than their more modest predecessors.
On my original question — is Seattle’s boom in apartment development ultimately helping or hurting affordability? — Cain thinks it’s helping.
“Certainly if you demolish an old building to put a new one there, it’s going to impact affordability. But percentage-wise, there are not that many new buildings being built that are taking out old apartments.”
The situation would be worse if our rental stock wasn’t keeping up with the demand, Cain says. “Just the fact that we’re building more units and adding to the supply is helping rents be more affordable. If these units weren’t being built, rents would go way through the roof — much more dramatic increases than there are right now.”
You don’t have to look too far to find an illustration of that point: In San Francisco, the steep rise in rents is blamed, at least in part, on the lack of new housing stock. According to Zillow, the median rent there is $3,338 now — 73 percent higher than in Seattle.