
As thousands of new apartments open, Seattle's rental market weakens - ra7
http://www.bizjournals.com/seattle/blog/2015/11/bad-timingas-thousands-of-new-apartments-open.html?ana=twt
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peatmoss
I know it's typical to speak in those terms, but I still can't get over how
value-laden a statement like, "rental market weakens" is. Clearly the market
is weaker / less good if you have property to rent out, but I know a "weak
market" is cause for celebration for many here in Seattle.

~~~
rogerbinns
The headline should be "renters will have more of their income available to
spend on other things, which will improve the local economy, diversify it, and
make it more resilient". I've never understood the US obsession with
increasing housing costs being a good thing. As a thought experiment it would
be far better for them to go down by 8% a year than the 8% increases that keep
being welcomed as in this article.

~~~
bmelton
It's not that people want housing to be more expensive, but they do want that
housing to be in demand. Housing is in demand when an area is desirable --
offering good schools, providing efficient social services, vibrant and
diverse markets are contributing factors to a desirable area, so when housing
prices increase it is a sign that the area is desirable. As an area becomes
more desirable, the price of housing goes up as the result.

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brudgers
A good model of real estate development patterns is:

1\. A research firm studies a local market [and all real-estate markets are
local, that's what makes it _real_ property, i.e. non-fungibility].

2\. The information is sold to first movers. Some act on the information and
put projects in the pipeline. Local real-estate warms up.

3\. It becomes generally disseminated to those lower down the chain. Some act
and they put projects in the pipeline. Local real-estate gets hot.

4\. First projects come online and do really well. Local real-estate gets
white hot.

5\. Later projects come online and the market becomes overbuilt. The market
cools.

6\. Delayed projects fold. The market goes cold.

For Seattle, imagine the market report said that there was demand for 20,000
units. 16 early moving developers look at building 2000 units each. 8 get
built and there's still demand for 4000 units.

32 downstream developers look at the demand for 20,000 units and investigate
building 2000 units each. 16 proceed, 8 get built and 8 fail and now there is
a 12,000 unit surplus and 8 deals being floated. 4 of the deals get bought at
pennies on the dollar, two get built and now there are 16,000 surplus units.

In twenty years those will be absorbed and the market will heat up again.

~~~
hsitz
"32 downstream developers look at the demand for 20,000 units and investigate
building 2000 units each. . . ."

I don't think it works like this. Surely their investigation would turn up the
existence of the 16 early mover developers along with already-existing plans
for 16k units?

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Animats
Amusingly, the author is complaining about "slowing rents". They mean "not
increasing as fast", not "falling".

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Zigurd
> _The issue of slowing rents is most acute in Seattle neighborhoods that are
> experiencing an unprecedented amount of development, according to Dupre +
> Scott Apartment Advisors. The Seattle apartment tracking firm said that
> rents rose 5.6 percent region-wide from March through September, and were up
> 8.3 percent from a year prior._

How odd to think of housing as something that should always go up in price.

~~~
pc86
If it doesn't then there is almost no legitimate financial reason to buy a
house. Nobody will buy a $200k house if chances are it will be worth $180-220k
in 40 years before inflation.

~~~
davmre
The reason to buy a house would be the same as the reason to buy a car, or any
other item: because you want to use it.

If housing prices are guaranteed to increase, it means owners of housing are
extracting unearned rents from the economy. Houses decay over time and
eventually need to be renovated/rebuilt, so you _should_ on average take a net
loss from owning and occupying a house, just as you would a car.

~~~
refurb
The difference between a car and house is the house can't be replaced, a car
can.

If someone wants to live in San Francisco, they can't just substitute it by
living in Portland. If more people want to live in San Francisco, then the
price goes up due to the limited supply.

~~~
theseatoms
The land itself cannot be replaced. The physical house that sits on the land
can.

~~~
refurb
True, but most of the value is in the land. A derelict house in San Francisco
is worth over $1M, but $800K+ is the land.

~~~
theseatoms
Yes, San Francisco is fairly unique in this regard.

~~~
nasalgoat
Not really, it's the same thing here in Toronto.

Developers regularly buy tear-down bungalows on 50' x 120' lots for $1.2M and
proceeds to put two tiny houses on the lot that sell for $1M each.

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seibelj
In a previous article about crazy rents in SF I argued that increasing supply
of housing reduced the price of rent [1], aka, supply and demand. HN
commenters went apoplectic. It amazes me how basic economics is so hard for
many intelligent people to understand.

[1]
[https://news.ycombinator.com/threads?id=seibelj&next=1018868...](https://news.ycombinator.com/threads?id=seibelj&next=10188683#)

~~~
intopieces
It's not that intelligent people can't understand basic economics, it's that
basic economics isn't enough to explain the situation in San Francisco, so
that refrain gets pretty tiresome. Take a look at the responses you got to
your comment to understand why "just build more housing" does not get the
round of applause you're expecting.

I also encourage you to consider the massive differences between Seattle and
SF, geographically, politically, economically, and socially. With all of these
factored in, I think you'll better understand why "basic economics" is not
enough.

~~~
seibelj
If you disagree with the sentiment that having 200k more units in SF would
reduce prices, then you fail to understand basic economics.

Now, if you are saying that building 200k more units is impractical, I
wouldn't disagree. I'm just saying that the solution boils down to 3 options:
increasing supply, reducing demand, or both. That's all there is. You can warp
natural economics and impose rent control, mandated affordable housing, etc.
but nothing but those 3 options will make any real difference.

~~~
intopieces
Everything you say is correct, but so lacking in complexity and detail that
none of it bears repeating. Do you have any particular insights into how to
overcome any of the challenges specific to San Francisco? "It's simple supply
and demand" is so often repeated as the catch-all solution it's practically
achieved meme status.

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hristov
I do hope rents start falling. In this economic environment of prolonged super
low interest rates we shouldn't have shortage of housing.

~~~
klodolph
From what I understand (which is not much) the relationship is fairly
complicated. For example, with interest rates this low, it changes whether
investors want to buy bonds and instead move their money somewhere else...
such as real estate.

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suyash
We need more development like that in bay area to weaken the rental market
here. It's a bubble slowly getting bigger.

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ulysses
Oh no! It will take longer for lower-income* renters to be priced out of the
market.

* By lower income in Seattle I mean households making less than 50k a year... how awful that they might be able to continue to afford living in the city.

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api_or_ipa
I wonder how much of an impact this might have on the Vancouver housing
market. Detached houses are fetching well north of 1M with no ceiling in
sight. Perhaps a commute, with a NEXUS card could look attractive to some
residents.

~~~
nathanvanfleet
I wish it would. I'm Canadian and want better weather Vancouver is basically
the only place for it. But I wouldn't even try at the state of the market.

