Seattle Bubble

The battle over proposed changes in the real estate excise tax is heating up, and depending on which side you listen to, the change would either drive prices up, or drive prices down.

The Washington Association of Realtors has launched a $1 million campaign aimed at squashing a proposed tax increase on real-estate sales.

“We are committed to doing whatever it takes to prevent any increase,” said Steve Francks, the association’s executive vice president. “I’ve never seen our members this mobilized.”

The group has started running TV, radio and newspaper ads warning that the tax increase would cost homeowners thousands of dollars in “hard-earned equity” when they go to sell.

But in their fight, the Realtors face an unlikely foe: the typically anti-tax Building Industry Association of Washington (BIAW).

The homebuilders group, which — like the Realtors association — wields a lot of clout in Olympia, supports the increase because it would be used to replace so-called “impact fees” that local governments assess on new construction.
…
Homebuilders have long viewed impact fees as onerous and unfair.

Tom McCabe, the BIAW’s executive vice president, said impact fees require new homeowners to pay for roads, parks and schools that everyone uses.

It makes more sense, he said, to spread that burden more widely by taxing all real-estate sales.

The trouble with listening to either of these groups is that while they are masquerading as “consumer interest” groups, they both clearly have only their own interests in mind. The realtors claim that replacing impact fees with excise taxes would drive up house prices, but if this were true, wouldn’t that be good for them, since they would make higher commissions? On the radio yesterday I heard a BIAW spokesman claiming that the change would cause house prices to decrease, since expensive impact fees on new construction would go away. But if the builders aren’t going to pocket at least some of that difference, why would they care?

Realtors want to “protect” sellers, builders want to “protect” buyers—they both claim to be interested in protecting people, but (pardon my cynicism) what they’re really interested in is protecting themselves.

(Ralph Thomas, Seattle Times, 11.28.2005)

Seattle is a good place to put your money if you want to invest in apartments, or at least so says the Center for Real Estate Studies:

The Seattle area has been ranked No. 10 on a list of the nation’s top markets for apartment investing.

The Center for Real Estate Studies bases its ranking on forecasts for growth in rental rates and median sales prices.

In Seattle, rents are expected to increase 2.1 percent over the two-year period ending Sept. 30, 2007, according to the study. The median sales price per unit in the Seattle area during that period will be $88,500, the center said in a news release.

Increasing rents would mean lower supply and/or more demand. More demand seems plausible, if recent local population growth trends continue, but supply seems to be skyrocketing just as fast. Of course, 2.1 percent over a two-year time span is actually less than the average rate of inflation. Perhaps that was factored into the study, but it doesn’t indicate it this article.

(Puget Sound Business Journal, 11.28.2005)

While the median price of Seattle-area homes has skyrocketed and the number of active listings on the market has decreased, the number of realtors out there trying to sell them has surged in recent years:

The nation’s sizzling housing market has attracted droves of home buyers, but it has also drawn many who are looking to get a piece of the action in another way — by joining the growing ranks of real estate agents.

Consider this: as of Nov. 18, Washington state had a total of 40,680 licensed real estate agents and brokers, including 17,185 in King County.

That’s a real estate agent or broker for every 105 King County residents — counting both adults and kids.

Nationally, one in every 266 adults are real estate agents, the National Association of Realtors reports. The Chicago-based organization says it has more than 1.2 million members.

Okay, that’s comparing apples to oranges, which is rather annoying, but still you can get the picture that Washington has way more real estate agents per capita than the rest of the country.

In Washington state, the total number of licensed real estate agents and brokers has increased by 7,839 so far this year, through the first three weeks of November — an average net gain of more than 712 new agents a month, said Chris Anthony, a spokeswoman for the state Department of Licensing.

In 2004, the number of licensed real estate agents and brokers in Washington state grew by 8,438 — an average increase of 703 a month.

In 2003, the number of licensed real estate agents and brokers in this state rose by 1,533 — an average increase of only 128 a month.

8,000 new real estate agents per year. Does Washington State’s housing market justify that?

(Clayton Park, King County Journal, 11.27.2005)

It seems that if not for the real estate bubble, the Seattle Times would have continued their recent in-the-red streak:

The Seattle Times Co. has posted a $24 million one-time gain on its books from the June 2004 sale of 6 acres of South Lake Union real estate.
…
In January, Times Co. officials said their Seattle paper had lost $12 million in 2004. They cited that loss, and growing losses over the four previous years, for eliminating about 100 jobs, raising the single-copy price to 50 cents from 25 cents and cutting back distribution to outlying areas of the state.

For The Times Co., the one-time gain means its flagship paper, The Seattle Times, will show a profit in 2005.

“Technically, it will cause us to show a gain for 2005,” company spokeswoman Jill Mackie said, “but that is the result of a one-time transaction and does not speak to the profitability of our operation.” Mackie said that without the land sale, The Times would have posted a loss for the year.

Maybe they should get out of the newspaper business and form an REIT. Heh.

(Bill Richards, Seattle Times, 11.22.2005)

The city of Seattle is considering a proposal that could ever so slightly ease the financial pain that come with soaring housing costs by allowing detached rental apartments in single-family-zoned neighborhoods:

…detached rental apartments and backyard cottages have long been outlawed in Seattle’s traditional single-family neighborhoods. Some have worried they’ll cause parking problems, erode neighbors’ privacy and eat up back yards.

They’re currently only allowed in areas with multifamily zoning, such as New Holly, but Mayor Greg Nickels is working on a proposal to allow them in all southeast Seattle neighborhoods. There, residents concerned about affordable housing have embraced the idea.

It’s a scaled-back version of a plan that was nixed by the Mayor’s Office.

Of course, as with any change, there are those who are opposed in a vehement, dramatic fashion:

Wallingford resident Greg Hill modeled what would happen if everyone on his street built a detached rental unit in his or her back yard. What was once a collective reservoir of green open space became a crowded row of tenementlike buildings.

“It just becomes a ghetto — there’s no open space, there’s no gardens,” Hill said. “There won’t be any tomato growing going on in the city if this passes.”

That would be too bad. I like home-grown tomatoes. On the other hand, there is clearly some potential benefit here for first-time homeowners:

Tom Smith, 38, who works in business development for community radio station KEXP, said it was a “huge struggle” to find a house he could afford within the city limits.

He felt lucky to get a small, 1950s-era home near Columbia City. But it could prove to be an even better deal if the city allows him to convert the two-story garage, which he currently uses for storage, into an apartment.

“I would be psyched,” he said. “It’s really tough to get a house in Seattle as a first-time home buyer, and having a detached (rental) would make it a much easier proposition.”

Would the change really have a noticeable effect one way or the other? It seems doubtful, but that certainly won’t stop people from getting emotional and upset on both sides of the issue.

(Jennifer Langston, Seattle P-I, 11.21.2005)