Apartment Market Tightens: Panic, Ye Renters!

Yet another study was released this week that allegedly shows the local rental scene “tightening.”

The apartment market continues to tighten in King and Snohomish counties, thanks to robust job growth and a trend toward converting units into condominiums, according to a new report from Seattle-based Dupre + Scott Apartment Advisors Inc.

Overall, landlords are optimistic, the research firm said, with three in four surveyed planning to raise rents by 4.7 percent over the next six months. Buoyed by the economy, the average rent for the Puget Sound area is rising, up 5.6 percent to $856 from $811 a year ago.

In preparing its apartment vacancy report, the research firm surveyed roughly 80 percent of properties with 20 or more units. Results do not include new apartments or properties undergoing extensive renovation.

I find it quite interesting that this study only focuses on complexes of 20 or more rental units. What this means is that it totally fails to account for individual condos or homes being rented out. As flippers become unable to sell, and 100%-financed families find themselves unable to afford their homes, it would seem that individual units are likely to come onto the rental market in greater numbers. Also, as I’ve said before, a 5% increase in rent is hardly going to break the bank for most people.

In my opinion, one of two things will have to happen to make owning a better choice than renting once again (the way things should be).

  • 15-20 years of 5% rent increases, while home prices stay flat
  • a few years of 5-10% home price declines

Or some combination of the two, which is what I believe is most likely.

(Puget Sound Business Journal, 09.25.2006)

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.


  1. 1
    Grivetti says:

    I find it quite interesting that this study only focuses on complexes of 20 or more rental units

    I do as well. This basically focuses the study like a red-hot blow-torch on the impact of condo conversions and NOT the impact of said ‘robust job growth’ which is a catch-all leftover from the heady-days of Realtor™ speak. Hmm… yes, what an amazing finding. As you take away supply artificially demand and prices go up!!! Voulais!

    This isn’t rocket science. Condo conversions are the blight of the housing bubble and one of those reprecussions that seep like a bad disease from the euphoric zealot “gotta get in! gotta get in!” crowd to us wise bubble sitters…

    It will settle out eventually, but I think that most of the rental market in Seattle is fairly nominal and considering the ground its had to make up just to match inflation over the past 6 years of the bubble, 5% is nothing really.

  2. 2
    Mikhail says:

    Rental data we are seeing from around the country bears out the thesis that there is going to be some anomalous pricing behaviour as the housing market straightens itself out.

    Rents might go up as more people decide to hold off on purchases, and rental investory is taken off the market by landlords hoping to cash out by selling at high prices. Eventually, however, there will be a huge rise in rental inventory as home-owners start feeling the pain of holding property, with no income stream, that no one is interested in buying (at the prices they expect).

    In the meantime, welcome to the roller coaster life of renting. But at least it isn’t as nauseating as owning. :)

  3. 3
    Eleua says:

    Eventually, however, there will be a huge rise in rental inventory as home-owners start feeling the pain of holding property, with no income stream, that no one is interested in buying (at the prices they expect).


    I just rented a gem. The LL probably would have chartered a limo to bring my family to sign the lease.

    Don’t believe this tightening rental crapola. Perhaps apartments are tightening, if you reduce your sample size enough, but the SFH market has more and more popping up every day.

    45 days until the gray, wet, dark, sloggy, gloom sets in over the PNW. Every day, more Californians get trapped, more FBs readjust to higher payments, and the weather marches onward to December-February.

    Got cashflow?

  4. 4
    Oddleif says:


    Hilarious. Trapped in a dismal grey void with a 2000k cloud deck with occasional wetness and horrible traffic conditions… Seattle in the winter… Didn’t anyone ever wonder why grunge sounded like depressed, drunken, Led Zep?

    I just moved into a 3bd home in Des Moines on the waterfront that sat with a 4Rent sign for 5mos. before we came into it desperate for a place to live since we only had a three week closing period.

    That’s right, 5 months. Another house directly behind us that is actually bigger, has a garage, and doesn’t front on an arterial with a boardwalk where people, motorcycles and stereo systems don’t go bye at all hours has been 4rent for 3mos now… Another is down the road…

    I know there is a price difference between renting a house and an apt, but it can’t be that large a gap. What’s the target audience of that data? Is that article supposed to justify rising rents to the tenants or the landlords?

  5. 5
    SeattleMoose says:

    Having just gone thru the summer “looking for a place to rent” all I can is that I was “out in the field” and what I saw directly contradicts this “study”.

    As the summer wore on, I saw increasing numbers of places for rent, desperate owners (many from out of state) emailing us begging us to rent, and yep….prices even dropping as flippers realize they were getting no bites at their outrageous initial offerings.

    Had to post as my “BS Meter” went into the red when I read this article.

  6. 6
    Towelie McTowel says:

    Yeah, Oddleif, should we be surprised that ‘impartial’ industry folks are trying to drive the rental market up so that the current house prices can be justified? I’ve been seeing similar articles for years, but this is the first time my rent has gone up since 2000. Oooh, I’m scared.

    I agree with Mikhail about inventory coming back online. What about all the condo conversions that may come back on the market as rentals. That scenario is playing out in other cities. We all may be able to get great apartments with granite countertops soon!

  7. 7
    NotMyRealName says:

    I was looking for a 2-bedroom apartment in the capitol hill area in May of this year. A circa-2000 building was renting a 2-bedroom apartment for 1600 or 1700 a month, +100/month for a garage spot.

    This building is now being converted to condos. The cheapest 2-bedroom condo they have available is $399,950 for the “upgraded” version. They will sell you the units without upgrades (i.e., the same finishings as was rented out)
    for a discount somewhere between 8k and 30k depending on the unit.

    This gives a window into what is driving the massive number of condo conversions, as we can compare the return on capitol for this unit between the renting scenario and the selling scenario.

    Assuming that I would have paid $1700/month rent plus $100/month for parking, their yearly rental income on the unit would be:

    (1700+100) * 12 = 21,600

    Assuming that they sell the unit “as-is”, and assuming the “as-is” price discount is 30k, and assuming that they get a 5% return on their capital after the unit is sold, their yearly return on their capital after selling the unit is:

    369,950 * .05 = 18,497.50

    The “renting” scenario income is somewhat higher, but this analysis doesn’t consider any of the costs associated with managing and maintaing an apartment building (real estate taxes, maintenance, months when the unit is empty, taxes on profits…). I’m not sure what are valid estimates for these numbers, so I’ll leave these as an excercise for the reader.

    Likewise, the analysis doesn’t consider the costs of taxes on the 5% return on capital. Although, I should note that 5% is very conservative estimate, and is zero risk (you can currently get FDIC-insured CDs at 5%).

    Thought it was interesting to actually look at this comparison.

  8. 8
    CRichard says:

    I looked into a few SFH rentals over the summer, as our current rental is getting a bit small. Two were new construction held by floppers with option arms, and the reduced rent was barely covering their housing costs based on the MINIMUM payment option (I checked their loans).

    One of the houses was renting for almost $2K less a month than I would be paying if I bought it with a 20% down, 30 yr fixed mortgage (the house sold 4 months earlier for $550K).

    In the end I decided not to move because I wanted a 2 yr lease and didn’t think that the floppers could hold on to the house subsidizing my rent for that long.

  9. 9
    PepeDaniels says:

    I’m living in yuppie Magnolia at the time. There has been a recent cycling in and out of tenants over the last two months and the “for rent” sign doesn’t seem to be coming down too quickly in this complex. I think it is often higher to rent here than some other neighborhoods in the area.

    It will be interesting to see how things play out here. When I lived in Florida there were some strange things going on at the height of the bubble there. For one, rental markets can start running in opposite directions. Much of it driven by overbuilding and the condo conversion “blight” others have mentioned here and elsewhere.

    The conversion of rentals to condo’s is as sure a sign of the end as any in my book. Everyone starts thinking they’re Donald Trump.

    For example, there was a glut of high end places to rent in Miami. If you made a decent buck you could rent amazing units for a song compared to a mortgage on the places. By contrast, there were almost no affordable (low to middle income earners) rental units available. At its worst there was something like a 2 or 3 % vacancy rate in rental properties. Basically apartment complexes and landlords were raising rents at will and if you wanted to stay you paid. That trend has reversed itself, I understand, in the last year with “bonus month” deals and so on to keep people. Basically, a lot of people say screw it and leave though. The upper end units for sale remained unsold and prices have plummetted.

    I have to laugh every time I hear the “steady jobs” as anchor argument. Florida’s a great place to get work, start a career etc. It has very low unemployment. Christ, there’s even sunshine there. Yet tens of thousands of teaching and other otherwise public & government type jobs go unfilled or are constantly cycling people in and out at best.

    Why? It’s that troubling issue of what’s affordable, what’s really worth trading in your hard earned money for? I hear many people having these discussions now and it’s starting to sound like the SouthEast. First, the euphoria of home owners who see fields of money sprouting on the lawns of their overvalued houses – now for sale. Next, more discussions by others about packing it in for less expensive alternatives. I fail to see why Seattle’s any different (let alone better) than other parts of the country.

  10. 10
    Eleua says:

    I have to go WAAAY back to my development class (’89), but I figure that the cap rate on my house is between 2 and 3 (provided I still know how to calculate cap rate).

    My memory is getting pretty foggy, but can you even have a cap rate with negative cash flow?

    Anyone out there know the definitive way to calculate cap rate?

  11. 11
    Eleua says:

    Never mind.

    Cap rate does not consider interest payments or taxes (EBIT).

    So, the cap rate for my place is 2.5, but it cashflows for -$2500+/-, so my FLL subsidizes my housing expenses to the tune of $30K (tax free) to live here.

  12. 12
    rentalbliss says:

    I am renting now from a longtime owner, who has multiple properties with refis on our house, so my question is isn’t there tenants laws that restict rent increases to certain percentage a year?

  13. 13
    synthetik says:

    Ouch, it looks like there are no caps on rent increases in Washington.

    I think the best way to control that would be to write it into the lease. I think a cap of 5% per year would be fair in this climate but if you can negotate for less, go for it.

    I was thinking of this issue because my wife and I were forced out of our San Diego condo (eh, we wanted to leave anyway) when our FLIPPER landlord decided to raise our rent $200 (more than 10%).

    If… and this is a big IF… I were to rent from a specuvestor/flipper again, I’d probably force him to sign a 2 year lease that guaranteed him a 5 or 10% increase after a year, but also would allow us to break our lease anytime after 12 months for, say a penalty of 1 month rent.

    They wouldn’t be able to boot us for 24 months. If the property goes into foreclosure, that’s another story.

    You’ll see some of those fantastic properties coming online shortly….

  14. 14

    […] should also be kept in mind that the Dupre + Scott report polls only apartment complexes of 20 units or more, and therefore does not account for the ever-increasing market of rentals created by condo and […]

  15. 15

    […] awfully familiar… maybe because it’s exactly what we have been predicting would happen, at least as far back as 2006: As flippers become unable to sell, and 100%-financed families find themselves unable to afford […]

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