byÂ Prashant Gopal and Shobhana Chandra
They were fed up with Seattleâ€™s home bidding wars. They were only in their late 20s but had already lost two battles and were ready to renew with their landlord. Then, in May, their agent called.
The U.S. housing market — particularly in cutthroat areas like Seattle, Silicon Valley and Austin, Texas — appears to be headed for the broadest slowdown in years. Buyers are getting squeezed by rising mortgage rates and by prices climbing about twice as fast as incomes, and thereâ€™s only so far they can stretch.
â€œHome prices are plateauing,â€ said Ed Stansfield, chief property economist at Capital Economics Ltd. in London. â€œPeople are saying: Letâ€™s just bide our time, thereâ€™s no great rush. If we wait six or nine months weâ€™re not going to lose out on getting a foot on the ladder.â€ That means â€œweâ€™re now looking at a period in which prices move more or less sideways, or increase no more quickly than growth in incomes, over the next few years.â€
This new wariness was noticeable in the latest consumer-sentiment data from the University of Michigan. In its preliminary July survey, 65 percent of Americans said itâ€™s a good time to buy a home, the lowest since 2008, when the economy was still in recession.
The US housing market has an inventory problem
What is more notable is the persistence of a trend that has come to define the U.S. housing market since it bottomed in 2012. And that is the lack of supply.
In April, the median existing home price rose 5.3% over the prior year, the 74th straight month thereâ€™s been an annual increase in the price of already-built homes, according to the data from the National Association of Realtors.
Additionally, the amount of homes for sale fell over the prior year for the 35th consecutive month to a total of 1.8 million.
At the current selling rate, which in April hit an annualized pace of 5.46 million, there are just 4 months of unsold inventory on the market and homes were for sale for just 26 days in April with 57% of homes sold remaining listed for less than a month.
â€œInventory shortages are even worse than in recent years, and home prices keep climbing above what many home shoppers are able to afford,â€ said Lawrence Yun, chief economist for the NAR.
â€œWhat is available for sale is going under contract at a rapid pace. Since NAR began tracking this data in May 2011, the median days a listing was on the market was at an all-time low in April, and the share of homes sold in less than a month was at an all-time high.â€
So while one of the most pervasive economic memes of the post-crisis period has been of the basement-dwelling millennial â€”with this week’s not doing the generation any favorsâ€” improvements in the labor market and wages havenâ€™t been enough to overcome a housing market that is disadvantaging new entrants.Â Namely, millennials looking to own their first home.
â€œWith mortgage rates and home prices continuing to climb, an increase in housing supply is absolutely crucial to keeping affordability conditions from further deterioration,â€ said Yun. â€œThe current pace of price appreciation far above incomes is not sustainable in the long run.”
Tight supply, rising prices undercut on U.S. home sales
By Lucia Mutikani,Reuters
WASHINGTON (Reuters) – U.S. home sales unexpectedly fell in January, leading to the biggest year-on-year decline in more than three years, as a chronic shortage of houses lifted prices and kept first-time buyers out of the market.
The supply squeeze and rising mortgage interest rates are stoking fears of a lackluster spring selling season. The second straight monthly drop in home sales reported by National Association of Realtors on Wednesday added to weak retail sales and industrial production in January in suggesting slower economic growth in the first quarter.
“There may be some headwinds ahead for home resales with rising mortgage costs affecting how much the buyer can afford and this could put a damper on existing home sales and take some of the wind out of the economy’s sails,” said Chris Rupkey, chief economist at MUFG in New York.
Existing home sales dropped 3.2 percent to a seasonally adjusted annual rate of 5.38 million units last month, with purchases declining in all four regions. Economists polled by Reuters had forecast home sales rising 0.9 percent to a rate of 5.60 million units in January.
Existing home sales, which account for about 90 percent of U.S. home sales, declined 4.8 percent on a year-on-year basis in January. That was the biggest year-on-year drop since August 2014. The weakness in home sales is largely a function of supply constraints rather than a lack of demand, which is being driven by a robust labor market.
The shortage of properties is concentrated at the lower end of the market. While the number of previously-owned homes on the market rose 4.1 percent to 1.52 million units in January, housing inventory was down 9.5 percent from a year ago.
That was also the lowest inventory for January on record. Supply has declined for 32 straight months on a year-on-year basis. At January’s sales pace, it would take 3.4 months to exhaust the current inventory, up from 3.2 months in December.
A six-to-seven-month supply is viewed as a healthy balance between supply and demand. The median house price increased 5.8 percent from a year ago to $240,500 in January, marking the 71st consecutive month of year-on-year price gains.
The PHLX housing index <.HGX> was trading higher, tracking a broadly firmer U.S. stock market. The dollar <.DXY> strengthened against a basket of currencies as yields on shorter-dated U.S. Treasuries rose.
ECONOMIC GROWTH RISK
“It looks likely that real residential investment will decline in the first quarter and we see downside risk to our forecast for 2.5 percent real GDP growth during the quarter,” said Daniel Silver, an economist at JPMorgan in New York.
The economy grew at a 2.6 percent annualized rate in the fourth quarter. Making housing expensive for some first-time home buyers, the 30-year fixed mortgage rate rose to an average of 4.38 percent last week, the highest level since April 2014, according to data from mortgage finance agency Freddie Mac. It was up from 4.32 percent in the prior week.
Mortgage rates are increasing in tandem with U.S. government bond yields on worries about rising inflation. In contrast, wage growth remains stuck below 3 percent on an annual basis despite the unemployment rate being at a 17-year low of 4.1 percent.
“We have hoped that the rise in rates motivates home buyers to act soon but the move in rates may have been so drastic that they are now waiting to see if rates start to make a move down,” said Brian Surgener, a senior vice president at BBMC Mortgage in Lombard, Illinois.
“Americans are not saving more and as home prices rise more of a down payment will be needed.Â So with more savings needed and payments increasing many home shoppers may be back on the fence until we see one of these trends turn around.”
A separate report from the Mortgage Bankers Association on Wednesday showed applications for loans to buy a home decreased 6 percent last week from a week earlier. There are also worries that caps on the deduction for mortgage interest following a recent overhaul of the tax code could hurt demand for houses.
First-time buyers accounted for 29 percent of transactions in January, down from 32 percent in December and 33 percent a year ago. Economists and realtors say a 40 percent share of first-time buyers is needed for a robust housing market.
Economists expect supply to remain tight this year, which together with pricey home loans could result in modest home sales growth in 2018.
But housing supply could improve in the coming months as government data last week showed the number of homes under construction surged to near a 10-1/2-year high in January. Single-family home completions were the highest since June 2008.
In January, houses typically stayed on the market for 42 days, up from 40 days in December and down from 50 days a year ago. Forty-three percent of homes sold in January were on the market for less than a month.
(Reporting by Lucia Mutikani; Editing by Paul Simao and Chizu Nomiyama)
I was once again afforded the opportunity to share my experience with law students in the Small And Solo Practice Class at University of Washington School of Law.Â The class itself is very pragmatic in terms of the nuts and bolts of creating, owning, and operating a small law firm.Â In speaking with students my goal is always to foster honesty about the legal world, and also to encourage them to create a more client-centered, more civil, kinder, and more compassionate legal profession.
US mortgage rates climb to a nearly 4-year peak
By AP Economics Writer
WASHINGTON (AP) â€” Long-term U.S. mortgage rates jumped this week to their highest level in nearly four years, a sign that the prospect of higher inflation is steadily increasing the cost of borrowing to buy a home.
Mortgage buyer Freddie Mac said Thursday that the average rate on 30-year, fixed-rate mortgages rose to 4.38 percent this week, up from 4.32 percent last week and the highest since April 2014.
The rate on 15-year, fixed-rate loans rose to 3.84 percent from 3.77 percent last week.
Recent wage gains and rising prices are stoking concerns about inflation picking up, which has caused investors to seek higher interest rates. Mortgage rates are closely aligned with the yield on 10-year U.S. Treasury notes, which has climbed above 2.90 percent from 2.78 percent just two weeks ago.
The low mortgage rates had eased some of the price pressures facing would-be homebuyers. The shrinking inventory of sales listings has caused prices to increase at roughly double the gains in average hourly earnings, making it harder to save for a down payment and purchase a home.
But homebuyers had the benefit of average 30-year mortgages that were 3.78 percent in September. If mortgage rates keep rising at a quick pace, it could limit what people can afford to pay and cause demand for housing to fall.
Thereâ€™s a brilliant $150 million â€˜Teachers Villageâ€™ in Newark
from Yahoo Finance! by Melody Hahm Thu, Feb 1 12:56 PM PST
Thereâ€™s a luxurious 400,000-square-foot complex in downtown Newark with a consignment store, nail salon, fitness center and cupcake shop. At first glance, it might appear to be a glossy page out of a playbook to revitalize the city.
But, the former parking lots were transformed with a very specific demographic in mind. The six buildings actually make up Teachers Village, a new development of three charter schools, a daycare facility, residential apartments marketed to and subsidized for teachers, and retail space that accommodates 20 different businesses.
â€œI love being around other educators because we can share stories, talk, and learn from each other. One of my neighbors is the head of the Essex County Community College. Weâ€™ve been able to work out some things with my middle school kids, introducing them to the idea of college. Itâ€™s nice to have this kind of pipeline,â€ she said. â€œPlus, the gyms are really nice,â€ said Irene Hall, Principal of Discovery Charter School, who lives at Teachers Village.
The $150 million, five-year-long project is the brainchild of Ron Beit, founding partner and CEO of Newark-based RBH Group. Having previously focused on commercial and residential projects across Newark, Beit first started playing around with the idea of a Teachers Village in 2007.
â€œWe had a front row seat to the struggles that teachers were facing. We saw that teachers were coming to teach from all over the region, and I got inspired. Once we scratched beneath the surface, we found that only about 15% of teachers lived in Newark,â€ Beit told Yahoo Finance.
With the help of state tax credits and investments from high net worth individuals and institutional investors like Goldman Sachs, TD Bank and Prudential, RBH Group embarked on a mission to create a space where teachers could live comfortably without feeling burdened by the cost.
Reduced rates for teachers
Teacherâ€™s Village has 204 residential units ranging from studios averaging at $1,000 per month to two-bedrooms that go for $1,900 a month. Seventy percent of the rooms are specifically reserved for teachers and priced 10%-15% cheaper than the aforementioned market rates.
The remaining 30% of the units are open to all others (who have to pay full price). This was part of the financing arrangement, likely to hedge against too many vacancies and underwhelming demand from teachers.
The outreach extends beyond those who work at the charter schools in the neighborhood. The surrounding area houses six different universities, making up a community of 50,000 people.
The mission was to create a vibrant community that operates 24 hours a day, seven days a week.
â€œWhen we first started constructing our master plan, the first phase was thinking through the residential, retail and commercial components. With 92% surface parking lot, how could we create a community? We quickly became fixated on housing for teachers and schools would fit the commercial criteria,â€ said Beit.
After district schools passed on the opportunity to move their schools into the development, Beit connected with three existing charter schools that needed more space and better facilities. They then built a new early childhood learning center for an additional 1,000 students.
Hall, who lives in a one-bedroom unit, said sheâ€™s the only Discovery Charter employee who lives in the Village. She hopes to see more of these communities for fellow teachers. Just like popping down the hallway of your college dorm to chat with a classmate, Hall said sheâ€™s been able to collaborate with like-minded folks who are just a few doors away.
â€œItâ€™s a beautiful space. Before, [Discovery Charter] was in the bottom of an alleyway. While we had fixed it up nicely, this is a major upgrade and a great opportunity. It was a no-brainer, really,â€ she said. â€œIt brings a lot of attention to the school and we love being a part of this community.â€
Addressing the plight of teachers
Itâ€™s a universally shared sentiment â€” educators like Hall are responsible for molding the future minds of America and are therefore invaluable members of society. Yet, they arenâ€™t well compensated.
The average salary of a U.S. high school teacher is $58,030. Middle-school teachers make about $54,720 annually. The average starting salary is closer to $36,000 and often additional degrees or certificate programs are required to earn far beyond that threshold. The vast majority make too much to qualify for low-income housing but not enough to live comfortably.
More than one-third of U.S. households live in rental housing. And while the overall market for renters has started to cool down, Americans arenâ€™t feeling flush with cash.
One-half of all renters, or about 20.8 million individuals, are currently cost burdened, which means more than 30% of their income is used on rent and utilities, according to data from Harvardâ€™s Joint Center for Housing Studies.
â€œCost burden is common among lower-income folks, but if you look back at the last few years, that burden has extended up the ladder to moderate-income renters â€” those making between $30,000 and $75,000 per household,â€ said Whitney Airgood-Obrycki of Harvard. Among renters who work in the field of education,22.1% are moderately burned and 13% are severely burdened.
Of course, teachers arenâ€™t alone in feeling overwhelmed by the cost of living, but they are a group that is hit the hardest, said Stockton Williams, Urban Land Instituteâ€™s executive director of the Terwilliger Center for Housing.
â€œThe challenge of housing affordability is that a lot of urban school districts are contending with the real barrier of attracting and retaining teachers. Itâ€™s part of a much broader story of housing affordability for big segments of the workforce,â€ he said.
According to the Learning Policy institute, 90% of open teaching positions are created by teachers who leave the profession. One-third of teachers are retiring, but the other two-thirds leave for other reasons.
â€œIn the high cost urban areas, thereâ€™s evidence that the sheer cost of living near these schools is one major reason teachers leave the profession,â€ said Williams.
And projects like Newarkâ€™s Teachers Village are the first step toward providing a practical solution that ultimately helps schools attract and retain talent.
â€œIf urban school districts and individual schools are motivated to keep teachers, they need to enable as many as possible to live near the school. If there are a wider array of housing choices, itâ€™ll help with recruiting new teachers,â€ he pointed out.
On paper, teachers appear to have it easy with short work days and summers off. In reality, teachers are stretched thin with limited resources and have to put in hours before and after school to make lesson plans, grade papers, attend development trainings, and meet with parents.
â€œSo many teachers work many more hours, on the weekends, early in the morning, late at night. The most dedicated teachers are at the school round the clock. By offering closer housing choices, this makes their lives a little bit easier,â€ said Williams.
Is this a scalable model?
While Newarkâ€™s project is the largest to-date, teacher neighborhoods have been sprouting up across the country over the last few years.
In Baltimore, a former tin can manufacturer has been gutted and transformed into 40 units for teachers, complete with exposed brick walls and bamboo floors.
Last year, the city of San Francisco committed $44 million in public funds toward building 100 to 150 affordable housing units for teachers.
Indianapolisâ€™ school house block
In Indianapolis, a small nonprofit, Near East Area Renewal (NEAR), is working to get teachers on the path toward homeownership. Collaborating with Mayor Joe Hogsett, who ran for office in 2015 promising subsidized housing for teachers, NEAR worked with several contractors to break ground on the project in November. The organization received $2.6 million through a housing partnership with the city and a $500,000 grant from the U.S. Department of Housing and Urban Development.
The project includes 24 houses that will be rehabilitated or built in a two-block area in St. Clair Place, a neighborhood just east of downtown Indianapolis. Homes will be priced between $130,000 and $180,000. The median value of a home in Indianapolis is $142,300, but NEAR Executive Director John Franklin Hay said houses in St. Clair skew higher and are selling in the $200,000s.
There are two layers of income restrictions â€” teachers who make less than 120% of Marion Countyâ€™s median income ($58,000 a year for a single person) are eligible to purchase half of the homes; those who make less than 80% of the countyâ€™s median income ($39,000 a year for a single person) can apply to buy the other half.
â€œMost of Indyâ€™s public schools are within a 3-mile radius of downtown. Teachers canâ€™t afford to live anywhere near downtown. They canâ€™t find safe or adequate housing and have to go way out in the suburbs, driving one and a half hours each way. Thatâ€™s the perspective weâ€™ve heard,â€ Hay told Yahoo Finance. â€œOur interest is in helping teachers plant their roots here and to make it a great place to live.â€
Teachers are required to live at their homes for a minimum of five years and will be fined if they sell or transfer the property before then.
The first homes will be available in April, and so far, 120 teachers have attended information sessions and expressed interest, and 13 have submitted applications.
Coming to a city near you?
After its success in Newark, RBH Group is venturing outside New Jersey to develop similar residential units for teachers across America. Beit has even trademarked the name Teachers Village. Currently, RBH has two projects under construction â€” one in downtown Hartford, Conns., and one in East Humboldt Park in Chicago. Neither development incorporates schools in the complex like the one in Newark.
â€œHaving schools is not a traveling part of our model. But there will be a value-added component at each of our Teachers Villages. Weâ€™ll offer all kinds of coursework for the communities that we build in. Our vision is that you can sit in a European-style piazza, sipping on a cappuccino and learn in one space,â€ said Beit.
In each new market, RBH Group is working with local developers to help with occupancy, design, construction and financing.
â€œWe always looked at this as a dual mission project â€”Â community impact with respect to recruiting and retaining teachers, but the other aspect is to catalyze economic development,â€ said Beit.
The hottest housing market of 2017
Not only is Washingtonâ€™s largest city home to internet juggernaut Amazon, it also holds the title for the city with the fastest-growing home prices. Since September 2016, Seattle has been leading the S&P CoreLogic Case Shiller Home Price 20-City Composite Index and has maintained that spot each month. Thereâ€™s no doubt that Amazon has been fueling the cityâ€™s real estate market but population and job growth coupled with high demand and low inventory are also lifting prices.
â€œSeattle is consistently outpacing the rest of the country,â€ said Lawrence Yun, chief economist at the National Association of Realtors. â€œHigh-tech workers are concentrated or were concentrated in the San Francisco, Silicon Valley area where prices got way too high. Seattle provides an alternative for people.â€
Median sales price in Seattle was $478,500 in the third quarter of this year, up 13.4% from the same time last year, according to the NAR. Thatâ€™s not exactly cheap since the median sales price in the U.S. was $254,000, but itâ€™s still half of the price of a home in San Francisco, where the median sales price was $900,000.
Seattle has been at a 5.9% annual price increase or greater since November 2011, â€œthatâ€™s when mostly everything had bottomed out,â€ and at a 10.5% increase or more for a year and past three quarters, said David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices.
Â â€œHome prices are driven by population and employment,â€ said Blitzer.
For the first time since 2013, Seattle had the fastest one-year population growth rate, 3.1%, among the 50 most populous cities in the U.S. in 2016, according to an analysis of U.S. Census Bureau data by The Seattle Times.Â Since the start of the decade, Seattle added an average 15,658 people a year, and in 2016 it topped 700,000.
MeanwhileÂ the unemployment rate has been below the national rate, hovering around 3% for a few years now. Job growth has been strong mainly due to tech companies like Amazon. It helps thatÂ Starbucks is also headquartered in Seattle and Microsoftâ€™s home is in nearby Redmond, Wash. Microsoft recently revealed multibillion-dollar plans to redevelop its 500-acre campus. Last year, Amazon had the most job postings in Seattle with 19,766 openings to fill, according to job market data provider Burning Glass Technologies. The University of Washington and Starbucks were far behind with 5,156 and 1,992 job postings, respectively.
â€œWe see evidence that these large companies with a lot of employees contribute to a strong housing market,â€ said Sarah Mikhitarian, an economist at Zillow, an online real estate database company headquartered in Seattle. â€œThe strong labor market drives people to want to live there. At the same time, strong jobs put more pressure on price of homes.â€
According to Amazon’s website, 15% of its employees live in Seattle and 20% of its workers walk to work. Microsoft didnâ€™t break out how many workers it has in Seattle, but its website said the company has 47,121 in the Puget Sound Washington.
Amazonâ€™s fortuneÂ â€œflows down to employees who have extra financial resources to purchase property,â€ said Yun.
Tech workers are flocking to Seattle
Seattlehas become a top destination for professionals in the tech industry, not just folks who want to work for Amazon. Seattle tech firms added 23,575 jobs in 2015 and 2016, accounting for 93% of all office jobs in the city created during that time period, according to a report by real estate firm CBRE. The total number of tech jobs created topped any other major office market in the U.S.
It helps that tech workers who live in Seattle appear to have more disposable income than those situated in other metropolises. A report by LinkedIn and Zillow found that Seattle tech workers who own their homes can expect to have about $2,000 more in disposable income each month than tech workers in the Bay Area. Seattle tech workers keep an average of 59% of their income after paying taxes and housing, while San Francisco Bay Area tech workers pocket only 37%. Those figures made Seattle the No. 1 â€œsweet spotâ€ for tech workers looking for a job and housing.
High demand, low inventory
But itâ€™s not easy to find a home to buy in Seattle. Thereâ€™s a scarcity of homes for sale in Seattle. Eighty percent to 90% of new home listings sell within the first 30 days of the posting, normally only 30% of listings sell, said Lennox Scott,Â chairman and CEO of brokerage John L. Scott Real Estate.
â€œBuyers are waiting for each new listing to come on the market,â€ said Scott. â€œWe are down to about 15 days of inventory in the mid-price range [$500,000-$600,000] of homes.â€
Similarly, even first-time homebuyers will have a hard time finding a place to buy. There are 35% fewer homes online than a year ago in the entry-level range, homes with a median sale price of $293,000, according to Zillow. And Seattle isnâ€™t exactly the go-to city to find a deal on your first home. An entry-level home in the U.S. is almost half the price of Seattle home at $118,200.
â€œThat shows you how hot the Seattle market is,â€ said Mikhitarian.
Further exacerbating the supply of for-sale homes in the market is the lack of new condo developments. A majority of new construction in Seattle is for apartments for rent. Thatâ€™s where investor money has been focused on, said Scott, who added that there isnâ€™t much activity in condo projects.
As a result homeowners are hesitant to put their place on the market in fear of not being able to find a new home to buy before someone snaps up their current home, said Scott. â€œThereâ€™s seller gridlock,â€ he said. Most think home prices will remain elevated since the city is still considered affordable compared with the nation’s other tech hubs and inventory will remain low. However, a slow down of tech hiring may change things. According to the Seattle Times, the city’s largest employer Amazon may be pulling back a little in their hometown. During the week of Dec. 3, Amazon had 3,503 job postings–the lowest in three years and down from more than 9,000 just six months earlier.
Sign of a slight cooling down
Most think home prices will remain elevated since the city is still considered affordable compared with the nation’s other tech hubs and inventory will remain low. However, a slow down of tech hiring may change things. According to the Seattle Times, the city’s largest employer Amazon may be pulling back a little in their hometown. During the week of Dec. 3, Amazon had 3,503 job postings–the lowest in three years and down from more than 9,000 just six months earlier.
But, so far, all signs indicate that the cityâ€™s housing market will remain sustainable. There might be a slight slowdown, given that employment growth is projected to slow through 2020. NARâ€™s Yun said we may see single-digit rate of appreciation instead of double digits in 2018.
Â â€œThe Seattle market is a magnet because of its natural beauty,â€ said Scott, touting the cityâ€™s mild temperatures and lush environment. â€œThatâ€™s why individuals like to move here when they do have a job opportunity. It is an attractive city.â€
Itâ€™s called the Emerald City for a reason.
Bucking the luxury housing trend, $500M in new apartments designed to help Seattleâ€™s shrinking middle class
Seattleâ€™s record apartment construction boom almost exclusively has produced luxury buildings â€” the kind with $2,000 rents accompanied by concierge services, high-end appliances and yoga rooms. Thatâ€™s left a huge void for middle-class renters looking for regular housing.
Now two Seattle companies are making plans to put $500 million into building new apartments aimed at firefighters, teachers and other midlevel workers.
The initial projects are just being planned now, and the first units are scheduled to open in 2019, with others likely to debut over the following five years at various locations.
As part of the deal, Laird Norton will leverage up to $150 million of its own money to borrow additional funds. The partners also plan to save on big land costs by giving property owners a partial stake in their projects. Spectrum has completed more than a dozen urban projects like the rebuilt Publix Hotel and apartments over its nine years in Seattle. Laird Norton, which traces its roots back to partners in the original Weyerhaeuser timber operation, is venturing into development for the first time but owns hundreds of completed buildings across the country.
Spectrum and Laird Norton insist their plans make good business sense, but say their main motivation is to help ensure the middle class wonâ€™t be pushed out of Seattle any further.
Already, just this decade, the number of people living in the city who make above $75,000 has grown 11 times faster than those making less than that â€” partially because those with lower pay are moving out to somewhere cheaper.
â€œWhere are our teachers and health-care professionals going to live in this city?â€ said Jake McKinstry, a principal at Spectrum. â€œWe want the people who contribute so much to be able to live here.â€
The need is huge: About 92 percent of the 31,000 new market-rate apartments that have opened in Seattle this decade have been luxury units, with an average rentÂ just under $2,000 a month, according to the rental firm RealPage.
Only 2,400 workforce housing units have been built this decade in Seattle. Those apartments have rents that average about $1,300 a month, RealPage found.
Spectrum and Laird Norton estimate their rents will be somewhere in between.
Two workforce apartment buildings built by Spectrum last year in First Hill included one-bedrooms ranging from $1,200 to $1,800, depending on the size. The typical new luxury-building unit in that neighborhood averages $2,000 a month, though across all types of apartments, the average is $1,650.
At the first building planned by the partnership â€” the 80-unit Canton Lofts at Third Avenue South and South Washington Street, at Pioneer Square â€” a new loft (basically a two-story studio) will be aimed at people making the median income. Rent starting in summer 2019 will be $1,600 â€” also cheaper than the average new building there, but pricier than most old buildings.
At those rents, someone earning the cityâ€™s median income would spend about 30 percent of their pay on rent, which is the standard recommended limit nationally to be considered affordable. Many renters wind up paying a higher percentage of their income on rent, eating into other costs like health care.
And they hope to arrange deals with property owners to save on upfront costs, since buying properties for development can cost tens of millions of dollars.
At the Canton Lofts, landowners and philanthropists John and Shari Behnke contributed the property in exchange for being long-term co-owners in the project. The developers also sweetened the deal for the landowners, who have donated to the arts in the past, by deciding to lease a small retail space in the project to the local nonprofit Path with Art.
Jeff Vincent, CEO of Laird Norton Properties, said the business case for investing in this type of housing hinges on long-term returns, which they expect to be 6 to 8 percent.
While many developers sell their buildings quickly after opening, Vincent said the partners see workforce housing as a slow, steady profit maker.
Thatâ€™s still a contrarian view. The banks and investors that generally finance apartment construction remain focused on the luxury buildings that have proved to be good moneymakers in recent years.
McKinstry said that before connecting with Laird Norton, his firm had trouble finding a willing partner with the money to allow Spectrum to embark on its workforce housing plan.
Some neighborhoods, like South Lake Union, already have land costs so high that Spectrum and Laird Norton say theyâ€™ll be off-limits for their purposes.
Peter Orser, a former homebuilder who is now chair of the University of Washingtonâ€™s Runstad Center for Real Estate Studies, said building new housing for middle-class people is very difficult in a place like Seattle, where land and construction costs are so high. But if developers are able to meet the conditions laid out by Spectrum and Laird Norton â€” like small buildings with no underground parking or luxury perks, and landowners and borrowers willing to take smaller initial profits â€” then it could work.
â€œIf you can do all those things, I think you got a shot at being able to keep your rents lower,â€ Orser said. â€œI think they might be on to something.â€
â€œIf it was easy (to build workforce housing), people would be doing it,â€ Orser said. â€œBecause, frankly, the risk is lower â€” there are many more renters making 100 percent of the median income than 200 percent. At some point youâ€™re going to run out of people making $123,000.â€
Greg Willet, RealPageâ€™s chief economist, concurs: â€œI certainly would expect a bulk of development to remain focused on that luxury product.â€
How other developers react to the deal is important because the 1,000 units planned in the joint venture, while significant, wonâ€™t alter the apartment boom on its own.
The city is on track to get as many as 60,000 new apartments this decade, more than in the previous 50 years combined. But about one-third of those units havenâ€™t been built yet, meaning developers still have time to decide how fancy they want their buildings to be.
â€œWe would like others to join us and expand beyond the $500 million,â€ Vincent said. â€œWhy canâ€™t the industry and private landowners turn this into a billion-dollar initiative to develop workforce housing?â€
â€œWe think thereâ€™s a big part of our population that canâ€™t afford luxury,â€ Ferris said. â€œItâ€™s something our community really needs. Otherwise, theyâ€™re getting pushed out.â€
Grant added: â€œWeâ€™re really committed to this area, civically. We all have deep roots here.â€
Vincent said he signed on in part because of what he saw in a past professional life in Chicago, where some neighborhoods grew expensive and homogeneous. He said he didnâ€™t want to see gentrification take hold here any more than it already has.
The joint venture may also look at building student housing as part of its plans, another big need locally that universities have struggled to keep up with.
Vincent noted the student housing is particularly important because so many of the new, high-paying jobs here require four-year degrees, but not everyone can afford the expenses of getting one. As a result, he said, the region imports a lot of its tech talent, from places like California and overseas.
I attended the King County Bar Association’s Volunteer Appreciation Reception this evening.Â Seeing so many legal volunteers working collaboratively toÂ ameliorate societal problems is inspirational.
I attended a Continuing Legal Education workshop for the King County Bar Association Alternative Dispute Resolution Section this eveningÂ regarding using mindfulness and willfulness to cultivate civility in relation to “other”-that which is different from our own experience or frame of reference.Â The workshop focused on developing and using this skill in the mediation context.