Rents Reverting to Mean, Condos Repartmenting

I should at least mention the local news reports about the latest Dupre + Scott rental survey. Here’s the meat of the report, courtesy of Aubrey Cohen at the P-I:

The King County vacancy rate hit 3.8 percent this month, down from 3.9 percent in March and 4.2 percent in September 2006, according to Dupre + Scott Apartment Advisors, a Seattle company that tracks the rental market.

“That’s not the lowest rate we’ve ever seen, but vacancies weren’t lower very often in the past 20 years,” report co-author Patty Dupre said in a statement accompanying the report.

The average apartment rent in the county is $1,001, up 6 percent from the spring and 9 percent from last fall.

Elizabeth Rhodes also had an article on the report, but it’s not even worth quoting, as the entire thing is nothing more than the most extreme cherry-picked statistics all strung together.

As I said when last quarter’s report came out, the current trend in rising rents is entirely predictable and to be expected. As home ownership took off, rents have been artificially low. One would expect them to correct up as the ability to commit financial suicide diminishes, thus keeping people renting and sending never-should-have-been home “owners” back into the rental market.

It’s possible that with the current turmoil going on in housing, rents will slightly over-correct, but in general I still expect the 8-9% YOY increases to taper off to a more sustainable 3-5% by this time next year. As I’ve stated before, rent increases are necessarily tied to incomes (i.e. – you can’t use exotic financing to pay your rent), and therefore while they can certainly rise more slowly than incomes, they can’t rapidly rise out of control like home prices have.

It 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 house “investors” (or “owners” that must move) who are unable to sell in the down market, and instead resort to renting out their unit to cover at least part of the mortgage.

For the first time that I’m aware of in the local media, Mr. Cohen actually addresses this at the end of his article:

[Epic Asset Management VPO Bill] Austin speculated that problems in the mortgage market would force more people back into rentals in coming months, but said that could be balanced by condominiums coming back on the market as rentals, a slowdown in condo conversion and change of some planned new buildings from condos to apartments.

Speaking of condos converting to apartments, it looks like the “repartment” trend that’s sweeping the nation has finally come to the Seattle area:

A reader brought this to my attention. At first I was a little skeptical but have since confirmed that the Max Condo in Greenwood has pulled the plug and is reverting back to apartments.

It seems sales during the first three weeks did not meet expectations. Which is a bit surprising as Greenwood area condos sell very well.

Thanks to Lumpeninvestor for pointing that one out in the comments.

(Aubrey Cohen, Seattle P-I, 09.27.2007)
(Elizabeth Rhodes, Seattle Times, 09.29.2007)
(Ben_Kakimoto, Seattle Condos and Lofts, 10.01.2007)

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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
    declinest says:

    but seattle is special!

  2. 2
    B&W NIkes says:

    …therefore while they can certainly rise more slowly than incomes, they can’t rapidly rise out of control like home prices have.
    I don’t understand this. They have in the past here and elsewhere. Tenants just have to pay more per sq. foot and have less disposable income for their charming “urban lifestyles.” I recall 1997-2000 as a stupid but real time example.

  3. 3
    deejayoh says:

    Not the first. Check out “Aspira”, a 37-story condo that was planned for the Denny Triangle. Apparently “Aspira” means “to suck” in Spanish, because it has been renamed the “Terry Avenue Apartments”

  4. 4
    deejayoh says:

    Look, it’s a Condo!

    Nope, it’s an apartment building
    Urban Partners, in joint venture with Real Estate Capital Partners and O’Conner Capital Partners, acquired a prime high-rise residential development site in the Denny Triangle district of downtown Seattle.
    The program calls for an elegantly detailed, yet reasonably priced, rental apartment program, targeting prospective tenants who work in the financial district and fast-growing South Lake Union sections of Seattle.
    The building features a full amenity package and luxury apartment services in one of the strongest rental markets in the United States.
    The Keller CMS Seattle office has managed entitlements, and will continue to manage design and construction

  5. 5
    Garth says:

    Mayor Nickels just gave developers a 12 year tax free reason to build apartments


  6. 6
    george says:

    So why is neither Seattle paper pointing out that rental rates often go up when housing markets start to soften?

    At this rate when the market drops, the Seattle Times will have to start quoting Glengarry Glen Ross: ‘The leads are weak.’

  7. 7
    Alan says:

    Under the mayor’s plan, which he transmitted to City Council today, the program will provide a 12-year tax exemption on the residential portion of any new apartment building in which 20-25 percent of the units are set aside for individuals who earn up to $49,000 or families who earn up to $62,300.

    That is only creating housing for people who make less than the median. The effect will be to drive prices up for people above the median. If you are slightly above the median you get screwed. What it also does is create an incentive for people to work less.

  8. 8
    deejayoh says:

    Tim – close the italics on your post!

  9. 9
    christiangustafson says:

    Condos sell in Greenwood? It’s for-sale sign central on Greenwood north of 105th. On weekends you will even see sign-spinners up in this neighborhood. Some of them are even waterfront luxury condos on wonderful, elite Bitter Lake. I bet there are subprime time-bombs everywhere up here.

    Here is my current heroine, lovely Edith of Ballard!

    I only pray that Edith is not preyed on by a local Kelo vs City of New London abuse of eminent domain.

  10. 10
    rose-colored-coolaid says:

    Alan, I think it might actually lower rents. More than 20-25% of the population earns less than those numbers. An even higher percentage earn less than that if you only consider renters.

    So those lower income groups will do very well on this deal (though they will do poorly overall). It might create more total apartments, and 75% of those units will be earmarked for everyone.

    Of course, I haven’t looked into this at all, so let me know if I’m off the deep end.

  11. 11
    jon says:

    “Alan, I think it might actually lower rents”

    The tax subsidy will raise the property taxes on everyone else in order to reduce the rent for the 25% of those buildings. That extra cost will be passed on to all the other renters across the city, but it will be blamed on evil landlords.

    If the benefits were restricted to city employees I would be fine with it, since they have to be paid competitively somehow, but if they open it up to anyone who can claim a low income just long enough to qualify, then it’s just another tax scam.

  12. 12
    finance says:

    Jon – You are correct in your assessment that overall property tax rates would increase on the other 75% apt owners. Providing lower rent programs is good, but anyone thinking that it is free for society is wrong. It does cause property taxes to rise quicker for everyone else, which is then passed on to renters (in the long run).

    rose-colored-coolaid – You are right that more than 20-25% make less than the numbers, as they are the median or avg (which is higher than the median) salary. 50% make more than 49,000 or $62,300 and 50% less, doh!

    My guesstimate is that rents will continue to rise until there is a recession or the economy in this region significantly slows. Thus, my estimation is of approx 10% increase in rent for 2008 and 7.5% for 2009. The supply of new condos/apts will reduce the rate of increase, however there are still 60,000 people moving to the state annually…

  13. 13
    greenthum says:


    How many people are leaving the state annually?

  14. 14
    MisterBubble says:

    You are right that more than 20-25% make less than the numbers, as they are the median or avg (which is higher than the median) salary. 50% make more than 49,000 or $62,300 and 50% less, doh!

    Before you start flinging stones through the window of your fancy glass house, you should probably learn the definition of mean and median. It’s just a damn tragedy that someone in an MBA program (who claims himself a finance “guru”, no less) would define the mean as “higher than” the median.

    Oh…by the way? Those numbers aren’t the mean or the median household income — not according to the press release, anyway. They’re just the politically-expedient cutoff values for Captain Condo’s new “affordable” housing initiative.

  15. 15
    Buceri says:

    How unfortunate!! As deejayoh wrote, Aspira is “Sucks” in Spanish. I hope they don’t rename it “Colapso”.

  16. 16
    finance says:

    greenthum – Washington state is having a net increase of people moving to the state for quite a while now. Over the past several years there has been approx 50,000 net increase in population in the Seattle region each year. Not sure where you got from my post where people were leaving…

  17. 17
    Joel says:

    Not sure where you got from my post where people were leaving…

    Because your post never said net increase.

  18. 18
    Bob R says:

    Did you know it is now against the law if you are not a general contractor to sell or rent a property with in 12 months of doing any work. Effective July 22 2007 SHB 1843 turns property owners into criminals guilty of a gross misdemeanor. I went to a local real estate office which manages rental properties and asked what they and their clients have done in order to comply with SHB 1843. They just found out about the law last week from a city employee and are awaiting a response from legal council as how to proceed with business. Apparently the real estate community missed this one. I would think the Washington Association of Realtors would have fought tooth and nail against this law. In my opinion this has the potential to devalue property across the state all by it self with out any other market influence. HUD has a program for fixer property 203k which is now useless in this state unless the buyer is a general contractor and wants to live in the property. The law requires a license to contract out work. The renters will have less to chose from if I am thinking correctly because the white collar people do not want to be a general contractor to invest in property. The small time investor will not want to be a general contractor to buy and resell or rent that property the bank gets back at foreclosure.

  19. 19
    CCG says:

    “So why is neither Seattle paper pointing out that rental rates often go up when housing markets start to soften?”

    Because that would require them to use the words “housing markets” and “soften” in the same sentence. On the other hand they’ve predicted 27 of my last 2 rent increases so at least they’ve got that part covered.

  20. 20
    off topic says:

    so, “do-it-yourself flipping” and “sweat equity” work done for the sake of increasing the value of a property with the intent to sell is illegal.

    it’ll be easy to prove that work has been done poorly, by the homeowners, and without a certified contractor, but it is only an infraction if it is legally provable that the work was done with intent to sell.

    good luck with that.

  21. 21
  22. 22
    B&W NIkes says:

    On Sept. 18 at a Housing Our Future lecture at the Westin, Ron Terwilliger – a “recognized national expert in workforce housing” & CEO of Trammell Crow Residential pointed out that there is no current market incentive to build workforce housing in this city for those who make less than 150 percent of median income. How many days later did they get the incentive from the City to continue building luxury residences as long as they throw in a few dozen Workforce Housing priced residences? Workforce Housing – a new euphemism for something other than affordable housing.

  23. 23
    Bob R says:

    Sorry off topic. i was thinking your subject was how worthless real estate owner ship is.
    Here is link to law:


  24. 24
    uptown says:

    re: shb1843

    read the Exemption part –
    any person working on his or her own property, whether occupied by him or her or not, and any person working on his or her personal residence, whether owned by him or her or not, but not to a person otherwise covered by the Act who constructs an improvement on his or her own property with the intention and the purpose of selling the improved property;

    The purpose of the Bill is to regulate contractors, and this seems to make sure that contractors don’t have a loophole too avoid the regulations.

  25. 25
    uptown says:

    Hmmm, the underline worked in the preview but not in the actual comment.

    but not to a person otherwise covered by the Act
    should have been underlined by me.

  26. 26
    jon says:

    “Did you know it is now against the law if you are not a general contractor to sell or rent a property with in 12 months of doing any work.”

    They are just spelling out the rules for who has to register as a general contractor. They are saying that someone who is in the business of fixing up houses to sell them within a year is a contractor.

    Some sweat-equity people may not like that, but with the current inventory levels it doesn’t seem like it will have any affect on the market.

  27. 27


    God forbid they’re picked based on which church you belong to or who you voted for.

    Is it a random lottery to see who gets the Power Ball ticket?

    I imagine not. Its probably rigged politically.

    Its also all phony progressive smoke and mirrors to make it look like we’re doing something for the real Seattle Middle Class [average 1.2 worker incomes per household, about $45K/yr], when in reality the top 20% of household incomes [more like 2 incomes per household] in Seattle are basically the only ones that qualify to buy homes/condos in the Seattle area.

    Our local home buyers aren’t the Seattle Middle Class either, no, not at all.

  28. 28
    explorer says:

    Actually, this was announced/reported back in July:

    As a few of the Sound offs in response to that mentioned, read between the lines. Like many of Nickel and dimes’ proposals, this is really posturing. There seems little of real substance. Especially when you consider that the requirements are out of reach in proportion to the prices current and near future condo market. In fact it seems like an incentive to keep the prices from going BELOW a certain level.

    Pay attention to the man behind the curtain.

  29. 29
    K says:

    When I moved out here in 2002, nearly every rental place in the burbs was practically giving away two months of free kisses on your ass to move in. Now not so much. Though my rent only technically went up for the first time this year, concessions and services have been steadily dropping.

    Repartmenting will no doubt lead to some easing of this trend, no?

    While some people may be convinced to stay put, as housing costs and SOL rise beyond wage increases, and the housing bust elsewhere in the country begins to settle, people won’t be so determined to stay here, will they? Especially with sales tax rapidly approaching 10%.

    If you don’t have roots down, aren’t tied to a regional industry, have little else holding you here, and want a house, this is clearly not the place to do it.

    Sure, former homeowners might move into apartments — temporarily. But will they really want to stay near their former homes for long? Will they want to try this market again?

  30. 30
    watchingfromtokyo says:

    Can we have a Most Pretentious Condo Name contest? I nominate Hjarta (Fjarta?). Ooh, it’s like a cool Euro-celeb with a one-word name, like Bjork.

  31. 31
    on topic says:

    repartmented, or not. your choice:

    rent from the bank for ~$2500 ($360k asking + tax + HOA?) or from the landlord for $1800


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