Despite our real-estate angst, Seattle remains much more affordable than San Francisco and is building more homes. But many worry that we’re headed to the same extremes.
Talk to just about anyone about local real-estate prices and there’s a good chance you’ll hear this: Seattle is becoming the next San Francisco.
Sure, housing prices and rents are skyrocketing here, but are we really doomed to a fate where million-dollar homes and $5,000-a-month rents will soon be the norm?
Don’t count on it. Seattle is nowhere near catching up to San Francisco’s brutal housing market, the data and interviews with experts show. And Seattle is unlikely to get there anytime soon — if that’s any consolation.
Seattle is roughly half as expensive as San Francisco to rent or own a home, a fact that has stayed constant through housing booms and busts of the last two decades. Almost like clockwork, every time home prices have grown a dollar in Seattle, they’ve risen two dollars in San Francisco.
Seattle’s home prices are where San Francisco was 15 years ago. And based on historical cost increases, at this rate it will take nearly 20 years to reach San Francisco’s current average price of nearly $1.2 million per home.
Another stark data point: Just 10 percent of families in the San Francisco metro area can afford to buy the median home, compared with 50 percent in the Greater Seattle area, according to the National Association of Home Builders and Wells Fargo. And the typical San Franciscan now spends about 60 percent of his or her income on housing, compared with about 35 percent in Seattle, Zillow says.
Essentially, San Francisco has become almost exclusively for the rich, while Seattle is a place where it’s difficult but still possible for the middle class to thrive. That helps explain the fear over becoming “the next San Francisco” — if such a transformation were to take place, it would dwarf anything the city has ever seen.
Different, at least for now
The good news is Seattle has been adding homes twice as fast as construction-averse San Francisco for the last decade, which could help stave off the extreme housing shortages that have driven up costs in California.
And there are still many affordable options in the suburbs for people priced out of the city here, unlike the greater San Francisco Bay Area, where several outlying counties are already among the priciest in the nation.
“Seattle is dealing with a lot of the same themes that San Francisco is dealing with, but we’re not as extreme,” said Svenja Gudell, chief economist for Zillow. “I don’t think we will rise to the level of San Francisco anytime soon.”
Nonetheless, some developers and others are predicting a “San Francisization” of Seattle happening much sooner: If local prices don’t fall back to Earth but instead continue their current unprecedented growth for another half-decade — a phenomenon that no city has ever experienced — then we’ll be at San Francisco price levels in the early part of next decade.
And there are signs that the housing-construction boom in Seattle hasn’t helped much yet. For the first time, the city has recently seen prices rise faster than San Francisco.
“I look at San Francisco as really an image of Seattle’s future because it has the same land restraints, it has the same driving economy that is hiring six-figure millennials,” said Peter Orser, director of the University of Washington’s Runstad Center for Real Estate Studies. “They’re blood brothers; they’re twins.”
No crystal ball
The comparisons between the two West Coast cities are certainly easy to make, But the long-running idea that San Francisco is a crystal ball that predicts where Seattle’s housing prices are going in the next few years hasn’t been true historically, and that isn’t likely to change now.
Consider the last housing boom, in the middle of last decade, when home prices in both Seattle and San Francisco broke records and there were heightened fears from residents of both cities of being priced out — just like today.
The cost of the typical San Francisco home grew rapidly, from about $560,000 in 2002 to $830,000 in 2007, according to Zillow data. Yet Seattle never came close to matching that, peaking at $420,000 before the recession hit — less than what San Francisco cost at the start of its boom.
Then, during the recession, median home prices in San Francisco dropped to around $700,000. Yet fast-forward to today, and Seattle is still well below that, even during the current record boom.
In both cases, San Francisco at its cheapest was still much more expensive than Seattle at its priciest.
Now, San Francisco’s median price for all home types ($1.17 million) is double that of Seattle’s ($560,000), just as it has been for the last 20 years, through booms and busts.
There’s been a similar pattern for rents. The average rental in San Francisco is about twice as expensive as one in Seattle, a fact that hasn’t changed during the recent surge. Apartmentlist.com’s latest data, for instance, show it’ll run you $4,650 to rent a 2-bedroom in San Francisco, or $2,250 in Seattle.
March to $1 million
So where are we headed? No one knows, of course, but Zillow crunched the numbers using Seattle’s historical housing-price growth rate for a rough idea of future home values.
It found Seattle isn’t on pace to hit the million-dollar median-home number until 2031 and won’t reach current San Francisco home values until 2034 or 2035. By then, based on past average wage growth, the typical King County household would make about $130,000 a year, up from $73,000 now.
The difference, of course, would be if Seattle’s recent torrid pace of housing-cost growth of about 10 percent a year somehow continues unabated. There’s no precedent in any city for such eye-popping increases to continue indefinitely. But if they do, Seattle would hit the million-dollar-home mark in about six years.
Glenn Kelman doesn’t think it’ll come to that. The CEO of Redfin has lived in both cities and seen each region’s housing crisis firsthand.
Decades ago, his mom bought a home in Bellevue armed with a modest income for a job she got with an associate degree.
“We could never afford our home now,” Kelman said.
After moving to San Francisco, he saw the city “put its head in the sand” and fail to address the crisis.
“I think Seattle will be different,” Kelman said. “It won’t be as severe as San Francisco because we’re doing something about it right now.”
Avoiding a housing shortage
Since 2005, San Francisco has added just 24,000 housing units, compared with about 50,000 in Seattle, which benefits from having a larger land mass and fewer residents. And forecasts for each city indicate the trend continuing.
Why does that matter? In San Francisco, one of the biggest culprits of skyrocketing costs has been the lack of construction — the region is famously nervous, even more so than Seattle, about changing the character of neighborhoods by building new homes or knocking down old buildings. The political process is so heated in the City by the Bay that many projects there take years and require several alterations to even be considered, and some even require voter approval.
“We like the city government, candidly, a lot more in Seattle than in San Francisco,” said Paul Menzies, CEO of Bay Area-based Laconia Development, which has done projects in both cities. “It doesn’t mean you get everything you want, but people are more reasonable.”
With the supply of new homes remaining stagnant in San Francisco, what’s left is extreme competition for the few available homes, driving up prices.
A similar situation has begun to play out in Seattle now. But all those extra homes, from new apartment towers to stacks of town homes popping up in place of torn-down single-family houses, could ultimately help Seattle stave off the severe supply-and-demand imbalance that has long plagued San Francisco.
“That’s what’s going to keep housing relatively affordable,” Gudell said. “Seattle is just on the cusp where now is the time to talk about some of these things.”
Seattle is hoping the added housing will help over the long-term, but the benefits clearly haven’t shown up yet. It now has some of the nation’s fastest-rising rents and home prices, while in San Francisco costs have finally begun to show signs of plateauing.
“Both Seattle and San Francisco are creating jobs at a rate faster than we can supply housing,” Orser said.
Could this boom be different?
There are plenty of developers banking on Seattle turning into Silicon Valley North, and Orser, for one, thinks it’s ultimately inevitable — the question is how long it might take.
“I call it the San Francisization of Seattle,” Orser said. “It’s real.”
He’s certainly not the only one who thinks that way. In recent months, The Wall Street Journal has declared Seattle not the next San Francisco but “the new San Francisco.” The Stranger proclaimed the transformation as “pretty much game over.” National outlets such as The New York Times, TechCrunch and Fox Business have run stories on the topic.
Menzies said “it’ll take awhile” for Seattle to catch up to San Francisco prices, but he believes the overall trend points in that direction.
“Whether San Francisco is a bellwether for Seattle, I think to some extent it probably is,” Menzies said.
Many blame the well-publicized migration path from Silicon Valley to Seattle, as more tech companies set up shop here, for luring Californians tantalized by our lower housing costs. The actual number of people making that move increases the local population only by a fraction of 1 percent, but their outsized influence in bidding up home prices has fed worries that the Bay Area is spreading its housing-crisis contagion north.
But Seattle has one more ace up its sleeve that San Francisco doesn’t: affordable options outside the city.
Seattle is actually cheaper than nearly all the outlying suburbs across the San Francisco Peninsula and Silicon Valley, and is now even cheaper than Oakland, long an affordable refuge in the Bay Area. The median-home cost across the hourlong drive between San Francisco and San Jose has topped $1 million, about two to three times as much as most towns within an hour’s drive of Seattle.
Maybe one last advantage Seattle has: It can learn from all the mistakes made in San Francisco, before it’s too late.
“I do think,” Kelman said, “we need to be worried about affordability as the city’s No. 1 issue.”