Rental Market Semi-Scaremongering

Yesterday’s P-I had a big front-page story from Aubrey Cohen that seems to be at least partly designed to frighten renters and encourage landlords: Rent at an all-time high — if you can find a place

“There are a lot of apartments available, but the desirable ones seem to rent very quickly,” said Kilbourne, a University of Washington student who must move out of his dormitory by mid-June and is about to start graduate school.

“Seems like you have to find a place within the first day of it becoming available, or it’s gone.”

A new report affirms that apartments are about as hard to find now as they have been any time in the past three decades and rents are on the rise.

“Even though rents have increased significantly over the past couple of years, there is still room for more increases because rents have not kept pace with consumer incomes,” Dupre + Scott wrote. “Rents today are still 10 percent to 15 percent below what renters can afford to pay.”

My main problem with these studies released by Dupre+Scott is that they only look at rental properties with 20 or more units. This totally overlooks the market that consists of individual homes and condos being rented out by individuals (as opposed to businesses or institutions). Also worth noting is that as with most real estate articles in the P-I, the graphs and most of the numbers in the article focus on Seattle proper, where rents are naturally higher and vacancy rates lower.

Aubrey does spend some time talking about what the report doesn’t tell us, and exploring why things aren’t shaping up as badly for renters as some were predicting a year ago. I definitely give him credit for not making the piece as one-sided as the headline writer made it out to be.

“Vacancies weren’t lower very often in the past 27 years,” says the report, by Dupre + Scott Apartment Advisors, a Seattle company that tracks the rental market. “Even so, we expected vacancies would be lower by now.”

In March, 4.1 percent of King County apartments and 3.1 percent of those in Seattle were vacant, according to Dupre + Scott.

That’s much tighter than the rates of a few years ago, but up from March 2007, when vacancies were at 3.9 percent in the county and 2.8 percent in Seattle.

One big reason vacancies have started increasing is that the housing slump has all but ended conversion of apartments into condominiums.

Inventory also has grown as homeowners rent out homes they have been unable to sell, said Dean Foggitt, a broker at Brink Property Management, a Bellevue company that manages about 600 rentals in and around King County. He said his portfolio of rental houses is up 15 percent to 20 percent from a year ago.

“As far as tenant demand, we haven’t seen that huge increase that we thought we would have, given the slowdown in the sales market,” he said. “What we’ve seen more is people staying put, less tenants giving notice.”

So, as the housing market stalls, rental inventory is actually increasing, which is preventing rents from rising as quickly as expected. That sounds 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 their homes, it would seem that individual units are likely to come onto the rental market in greater numbers.

King County vacancy rates are at 4.1% (according to the report), which isn’t a super-tight market, but does favor landlords slightly (5% is considered a “balanced” rental market). What I think is also interesting is that vacancy rates have been slowly increasing since late last year. In October the county-wide vacancy was at 3.8%. Even Dupre + Scott is predicting that the vacancy rate will continue rising, up to over 5% by 2010.

Unfortunately, I don’t have enough money burning a hole in my pocket that I’m willing to spend the $130 for a Dupre + Scott subscription, so I don’t have access to the full historical data on local apartment vacancies. However, I was able to find this pdf from the Seattle Times, which shows the vacancy rates for King, Snohomish, Pierce, and Kitsap back through 1997. Here’s a reproduction of the vacancy rate graph (with 2008 data added for King and Snohomish):

Apartment Vacancy Rates: 1997-2008

As you can see, King County has had lower vacancy rates in six of the last twelve years. Only from 2002 to 2005 were vacancy rates significantly higher than they are now. I’d hardly describe the current rental market as a panic frenzy to find a place that you can barely afford, which is what the P-I headline makes it out to be.

I’d also like to point out Aubrey’s response to some criticism he received for the article over on his blog:

I knew it would happen. I arrived at work this morning to an e-mail from a reader angry about my story on rising apartment rents.

“Gee thanks! I wonder how much more money I will be paying for rent this year because of this article,” he wrote. “I’m sure you’ve made many landlords very happy today.”

I’ve gotten similar responses to previous stories about rising rents in the Seattle area. Some renters have told me landlords included copies of my stories with notices of rent increases.

I know that many real estate professionals blame the media for much of the current sideline sitting among potential buyers.

I hope that stories do have some sort of impact. After all, what’s the point of journalism otherwise, right?

That said, I’m not after any particular outcome. I try to put the best information out there and let readers decide what to do with it.

He has some additional thoughts on the subject, and is soliciting feedback from his readers, so head over there and leave a comment if you’ve got strong feelings on that particular subject.

(Aubrey Cohen, Seattle P-I, 04.21.2008)

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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.

84 comments:

  1. 1
    newbie says:

    “Rents today are still 10 percent to 15 percent below what renters can afford to pay”

    What do they mean by “afford to pay”? does that mean they could pay 10 to 15% more and be forced to move? I wonder if they factor in things like retirement when they came up with their 10 to 15!

    I am renting a 1bed room apartment for 695 a month which is how much i paid for a 4 bedroom house in college. I know 695 is pretty damn low for seattle but i still think it is more than it is worth.

  2. 2
    Buceri says:

    Hey; I was paying $610 for a one bedroom in “Kirkland Place” (now condo’s) until April 1998 when I bought my first place.

  3. 3
    patient says:

    ““Even though rents have increased significantly over the past couple of years, there is still room for more increases because rents have not kept pace with consumer incomes,” Dupre + Scott wrote. “Rents today are still 10 percent to 15 percent below what renters can afford to pay.””

    Well, what matters is not salary increases but increase in disposable income after paying for neccessities. I don’t think salaries has kept up with the inflation of food, gas and heating costs so the argument is terribly flawed. It’s more likely that a rental decrease is required to keep occupancy.

  4. 4
    Steve Tytler says:

    The rental market is returning to a “good” market for landlords for the first time in several years.

    I own a couple rentals and as you can see from the chart, the rental market was weak during the housing boom becasue so many people were buying homes rather than renting apartments, condos and single family homes.

    For example, I had to cut my rent back in 2003 to fill one of my vacancies in a Kirkland condo.

    Now, landlords have been raisingn rents to make up for lost ground.

    So we are just moving from a “Renter’s Market” where landlords had to keep rents low to fill vacancies to a “Landlord’s Market” where rents are increasing because of increased demand for rental housing.

    It’s just part of the normal real estate cycle … nothing unusual.

  5. 5
    Sniglet says:

    income levels have little or nothing to do with rental rates. It’s all about supply and demand. If supply outstrips demand, then prices will remain weak EVEN if consumers can afford to pay more.

  6. 6
    Chuck Ponzi says:

    Steve,

    The danger in assuming “it’s just part of the normal real estate cycle” is that there is nothing requires there be a real estate cycle. Especially on the back end of not only the largest global property bubble in history, but in dollar terms, the largest financial bubble in global recorded history.

    The logical fallacy arises that there are “normal” cycles because people “learn” based on proximate history. While it’s possible, history (even recent history) is replete with examples of regional housing markets that crashed and never recovered, in rents or purchase prices. The reality is that you don’t know for sure if there will be a recovery unless the fundamentals support it; ie population, disposable income growth, and ceteris paribus with substitutes. Indeed, “cycles” seem to come and go throughout history (only within the last 30 years have the “cycles” been close and consistent in timing (not shape or size), so with 3 cycles in that timeframe, it’s impossibly to draw a corrolary and assume that rents will continue their upward tragectory. Keep in mind that 30 years ago, Seattle was a sleepy logging outpost with nary a high-tech company in sight. Perhaps Seattle has just run its course with respect to growth and is destined to trail off into obscurity from whence it came. Noone knows, and I wouldn’t be betting my life’s income on it.

    Wait until the dust settles before making rash judgments about the future. We’ll know in 18 months how things will settle out and the recession will be nearing an end (hopefully)

    Chuck Ponzi

  7. 7
    Mikal says:

    Yes, but this area is going to continue growing and capacity will only grow so much. In the city itself, rents will continue up for a year or two and drop at best to the levels you are seeing now. I am aware that there are some houses and condos that will hit the rental market when they are unable to sell. Increased population will take care of much of that. There are some houses and condos that are were done too well to hit the rental market. You don’t let a renter take care of a premium finished house or condo if you have any brains.

  8. 8
    singliac says:

    My 2BR apartment just went up from $1170/mo to $1305/mo in Renton. I still think I’m better off renting than buying for the time being, but ouch!

    BTW, could Sniglet be a long lost cousin of mine? That was my nickname for quite a while.

  9. 9
    Alan says:

    If your rent is increasing then spend some time seeing if you can find a cheaper place that you like. $135/month increases is equivalent to $1620/year after taxes. How long does it take you to earn that money? Spend at least that much time looking for a new place. Factor in your expense/time costs to move and find your Best Alternative to Negotiation. Counter-offer that price to your landlord. If he refuses then move.

    I found my current rental on craigslist after two months of daily monitoring.
    http://seattle.craigslist.org/est/apa/

  10. 10
    Plissken says:

    Loved the vacancy rate graph. When I moved to the area 10 years ago it was definitely a bit hard to find a place to live and I remember how most places had brochures or price sheets that were out of date (“No sir, the rent on this unit isn’t $675 anymore, it’s $749 now”). And rents kept rising. If your lease was about to expire you knew the rent was going up. Then the dot com crash happened and all of the sudden it was “first month free” and all sort of promotional schemes to get people in. There wasn’t an apartment complex that didn’t have one of those huge banners. You can see the corresponding jump in the vacancy rate in KC from 4% to 8% between ’01 and ’02. During that time lots of start-ups folded and people left town. It’s probably still too early to tell what’s in store this time around. That’s the nice thing about ownership. Provided you went with a fixed rate you really don’t have to worry about increases (save for the taxes).

  11. 11
    b says:

    Rental rates won’t be increasing for much longer. The boom times had a severe lack of rental property creation which has caused rents to rise over the last few years. Now that the housing market has turned around, rental property creation will be on the increase. If the market here continues a steep decline through the summer then expect to be flooded with rentals come October. No more condo conversions, no more landlords flipping their old rental properties, way too many investment condos being built or not being sold, etc. Right now is a great time to rent and should be for a long time.

  12. 12
    b says:

    Mikal –

    Seattle’s growth rate last year was 1.3%, (or around 6k people) and that was one of the highest years on record. That is hardly such extreme amount of growth as to outpace the creation of rental and regular housing.

    Note the graph in that article. Seattle propers population is only about 50k more people than it was in 1968! I am pretty sure we have added more than enough housing since those days to cover the gap.

  13. 13
    explorer says:

    Overall, I see that article as giving landlords the green light to raise rents beyond what the median individual income can support. The distinction between rental houses, condos, and apartments was obscured. When you lump them all together, of course the median rent is going to climb. I don’t recall seeing the statement that this was based upon 20+ apartments being clear in the article. D & S have way too much influence in this market, out of proportiion to what their survey’s actually cover, IMO.

    Actually, the “making up for lost ground” on the rents already happened, begginng in 2006. The people who continue to be squeezed out of town are those who got converted out of reasonable rent apartments– I was converted out of an $800/month one last year in Greenwood. I found a reasonable place in a Ballard triplex , and now that building is likely to be sold for an amount that will raise my rent 30-40 percent just to pencil out the mortage they are taking on. I won’t be paying for their mistake, and would be surprised if anyone else would. Then again, there have been a lot of people who are not thinking clearly in the bubble.

    Rent contol is overdue. Changing the state statues to allow was and is far more important than an extra 30 days and extra money to move out of a impending conversion.The new apartments being built will likely not be enough to equal the condos and I doubt they will come online in time to fully replace all the apartments lost.

    Renters are people too, not serfs.

  14. 14
    EconE says:

    Pretty funny comment section over there.

    Anybody read “Finance’s” comments?

    I guess he only plays on the PI blog as he can pretend to be a big shot over there.

  15. 15
    FreedomLover says:

    explorer:

    Rent control has failed miserably wherever it’s been tried. I can’t believe you are advocating uber socialist policies.

  16. 16
    patient says:

    It will be interresting to see if the state and city officials that are crying rivers over the lack of affordable housing will step in if the only truly affordable housing ( rentals ) are inflated. I guess not since it doesn’t impact tax income or their own home values.

  17. 17
    explorer says:

    I won’t get into an ideological argument over rent control FreedomLover. If you want to talk about actual “success” or “failure,” you need to state more than ideology. It has failed in some areas, but it was pretty successful in others. The reasons for success or failure are NOT ideological.

    It can be done fairly for both sides. Everyone should have a reasonable expectation to profit, but no one has a right to be greedy.

  18. 18
    Mikal says:

    If you can’t afford it you will have to move. Socialism does not work. Why should anyone be told what they may charge for? Rent control is fo far left pansies. The market will dictate housing.

  19. 19
    Alan says:

    Rent control raises the rents of non-controlled rentals. It leads to weird blackmarket operations like “key money.” It reduces supply when people who would normally give up a rental when they want something larger hold onto the controlled rental because they don’t want to lose the opportunity to lose it. It removes incentive for landlords to maintain properties. I believe that rent control is one of the causes of the real estate high prices in SF and NYC.

    We might as well hold a lottery and let anyone who rents have a chance of having part of their rent paid by the city.

  20. 20
    explorer says:

    Rent contol WORKED in LA in the Early 80’s. It was not done in the same way as in SF and NYC, which everyone loves to point to, to the exclusion of the other areas where it did work.

    In LA, it was sabotaged by greedy landlords who paid off the city council. The “incentive” for landlords to maintain properties is the health and safety codes, NOT profit. The incentive to “improve” properties is profit AND making it more desirable for prospective tenants to pay the rents.

  21. 21
    Alan says:

    All I know is that if King County adopts a widespread rent control program then I am going to invest in non rent controlled real estate even at today’s inflated prices.

  22. 22
    JayB says:

    Seems like it would be worth introducing the notion of “effective demand” into this conversation. There may be more demand for rental housing if fewer people are moving out of apartments and into homes, but this doesn’t necessarily translate into an effective demand sufficient to sustain rental increases on its own. Factor in stagnant real incomes, higher real prices for everything from gas to grain, a flat stock market, relatively low yields on most debt securities – and it’s not clear that enough people will be able to afford higher rents to drive them higher in response to a tighter supply.

  23. 23
    benedicl says:

    Does anyone know the auction results of the condos at The 400, Bremerton held last Sun, Apr 20th?

  24. 24
    hzg says:

    Case-Shiller will be out in a couple day. Seattle number (Feb 08) will be 179.03 (prediction)

  25. 25
    The Tim says:

    Actually the Case-Shiller data is released on the last Tuesday of the month, so we’ve got another week to wait for the February numbers.

  26. 26
    Ray Pepper says:

    Between myself and close friends we have nearly 70 rentals. We have initiated rate increases on over 1/2 of the homes Jan- April of 10-14%. Everytime we place rentals on the mkt they are gone in less then 14 days and this is just using Craigs List. Our rentals are in: Renton, Federal Way, Tacoma, Port Orchard, Olympia, Albany(Or), Turner, Fallon Nv, and Dayton Nv.

    All the tenants were month to month and letters were sent out 60 days ahead of time to give notice of the increase. Only one is moving and its not because of the rental increase.

    The rental mkt is RED HOT in all the areas I have vested interests in.

    Ray Pepper
    http://www.500Realty.net

  27. 27
    EconE says:

    @Benedici

    There was some news coverage of the 400 auction on television in the last couple of nights. The final outcome was vague so I can’t say for sure. I do know that the neighboring new complex (Harborside) had it’s units DOM shown on Redfin at over 1000 days at one point (2005-2008). Within the last couple of months they were all re-listed at substantially higher prices. I don’t see any listed as sold in the past year per Redfin. Maybe they’ll have an auction there too?

  28. 28
    The Tim says:

    Kitsap Sun: Business Spotlight: Condos Are Sold, Sold, Sold

    All 28 of the remaining luxury condos at The 400 waterfront development sold at an auction Sunday, with none reaching the original asking price and most for not much more than the minimum bid.

    The public auction was held at the Kitsap Conference Center in downtown Bremerton on Sunday.

    And at least one buyer said his winning bid for a one-bedroom with a view of Manette didn’t meet the minimum amount the seller would accept, or the “reserve.” Although Matt Weber of Bremerton bid the highest in the call-and-response, pledging $225,000 for a unit that originally went for $337,000, it’s not certain he will actually get to buy the condo. Bidding on Weber’s unit started at $159,000.

    “There’s a lot of people walking around saying they didn’t meet the reserve,” he said. “We’ll see what happens.”

    Found via a Google News search for: 400 auction Bremerton

  29. 29
    vboring says:

    with the recently announced changes in condo loan standards, it seems inevitable that a number of the condo projects in town will turn into apartment projects before they are completed.

    increasing supply with static demand should ensure that low rents will continue for the foreseeable future

  30. 30
    Sniglet says:

    Everytime we place rentals on the mkt they are gone in less then 14 days and this is just using Craigs List.

    Well, I can attest that at least some rentals in the area of the main Microsoft Redmond campus aren’t moving quickly at all. Several SFH rentals within several blocks of me have sat on the market for up to a year before finding tenants. There was one 1970s 3 bed 2 bath home, asking $1800, just 1 mile from Microsoft that sat empty with a for rent sign for over a year (until very recently). I don’t know what they eventually rented it for.

    Maybe these landlords just don’t know how to price their places properly…

  31. 31
    jg says:

    Ray-
    This is OT but did I just see an ad for your company on CNBS?

  32. 32
    finance says:

    EconE – You are right, people here are actually smart and understand basic economics (except the people for rent control, Alan you do get it!). Over on the PI, there are so many angry people that dont understand that if you vote for property tax increases your landlord generally raises prices to cover that cost…

    Havent been here in awhile, too busy with grad school and being worked to death at my company (pays well though so cant complain, doh).

  33. 33
    jon says:

    Although Seattles population is only slightly above 1970, the number of people in each household is much smaller. In addition to raw population growth, you have to factor in the ever smaller number of people in each house or apartment.

    The houses for sale in Seattle proper are still at a non-unheard of level of 6 months supply, and that is based on a very low sales number. Once the perception of falling prices in Seattle has passed, people will come out of rentals to buy, and that will drive the MOS number down fast. So there is little motivation for sellers to rent out their place. It is in the farther out areas of King county that MOS is higher, but those suburban locations don’t serve the rental lifestyle as well, so rents can be lower there and yet well still have some people calling for the government to tell private citizens what they are allowed to rent their property for.

  34. 34
    laxtosnoco says:

    “Rent control has failed miserably wherever it’s been tried. I can’t believe you are advocating uber socialist policies.”

    You know, I understand the theory behind why people don’t like rent control (DW loss, shadow pricing, etc.), but I’ve never seen any overwhelming evidence that’s the way it has played out in practice. Any of you anti-rent control folks got any evidence showing that rents increased after the ’79 rent control in Los Angeles, or anywhere else? LA is the perfect study case since RC only applied within city limits and you had a perfect control group nearby.

  35. 35
    goldeneye977 says:

    Take a look at
    http://www.usatoday.com/money/economy/housing/2008-04-21-rent-rising-eviction_N.htm.

    This gives some explanations about the rental rise. Has to do with the slumping housing.

  36. 36
    Buceri says:

    Home prices are still inflated in King County. And with new condos that won’t sell coming to the market, the rental supply will increase. Throw in there apartment reversals, fire sales, and investors that thought $300K was a great deal for 900sq.ft., and supply has nowhere to go but up.

    Investors in particular, are having a tough time accepting that they won’t be able to rent for enough $$ to cover mortgage. That will change soon too.

  37. 37
    matthew says:

    Jon,

    Do you have an data to back up anything in your post? Because according to this post:

    https://seattlebubble.com/blog/2006/10/25/big-picture-supply-vs-demand/

    The occupancy percentage in 2005 indicates that building has more than kept up with demand (since the boom post 2000), and that there are not a glut of people waiting on the sidelines to sweep up all the unsold inventory.

    If you have some data that shows otherwise I would be very interested.

  38. 38
    NotaBull says:

    “Overall, I see that article as giving landlords the green light to raise rents beyond what the median individual income can support.”

    Impossible. If landlords raise rent beyond what people are willing to pay from their income, then the place won’t rent and they’ll lower the price to what the market will handle. If the renter truly can’t handle the rent payment, they’ll eventually get evicted. This rarely happens in my experience.

    If there is a lot of supply and not much demand, the higher priced properties won’t rent and they’ll either sit there or the rent will go down.

    “Renters are people too, not serfs.”

    You have a lease. It’s a contract and it’s two-sided. If the landlord breaks the contract or the law, enforce it. If you move in with a one year lease, that lease applies for a year. You’ll *likely* get to renew it beyond that, but that’s not guaranteed, and neither is the price you’ll get it for in the next lease. If you don’t like the place, you can move very easily. If the landlord doesn’t like you, they get to kick you out.

    “Rent contol is overdue.”

    Rent control is terrible. It limits the supply of places, so you end up with a situation where new arrivals are punished for being new, and people that have been there for a longer time can’t afford to move anywhere else because the rent price of a new place is so much higher.

    If you want a long term payment for a place that doesn’t change (much), buy it with a 30 year fixed mortgage. Obviously, buying at the top isn’t a good idea, but the conventional wisdom is still correct in conventional times.

    If you want the flexibility to move more easily, not have to take care of maintenance, but deal with the issues of rent increases, decreases, and stagnation, then rent a place.

    You can’t have it all…

  39. 39
    jon says:

    matthew, i am distinguishing between Seattle and the rest of King County. The post you referred to talks about the county as a whole. There is plenty of construction outside the city, but not as much inside the city. I was responding to the idea that some people want to take the extreme measure of government restricting prices in the Seattle rental market, even though that eliminates the incentive for developers to produce more close-in housing, while there is plenty of housing elsewhere in the county, as you say.

    As for LA, I haven’t looked at the numbers, but I read the news. Rent control eliminates the incentive for owners to improve properties. As they decay, the properties eventually become attractive only to people who think of indoor plumbing as a luxury. Once a neighborhood transitions over to that demographic, it would take decades before the worn out junk to get torn down and replaced with up to date construction. So yeah, I’m not suprised that rents don’t go up always when rent control is lifted.

  40. 40
    explorer says:

    Notabull: Whenever some says something like that is “impossible,” regarding rent control, I that does not come from knowing all the facts. Stating the obvious, and what I already took into account, still does not make it “impossible.’ I would consider it “impossible” for home sellers right now to get 20 percent + over what they paid within the last 3 years, yet some are likely to hold out for a long time until they have permanent dents in their heads from striking the wall.

    Sure, it’s also the case that “efffective demand” comes into play, eventually. As with overpriced houses, overpriced rentals (repartmented condos especially), will take some time to work itself through the noggins of the stubborn. From where I sit in the thick of things, It is not an abstraction, and ideology, or an academic excercise.

    I lived and rented in LA from 1979-1990. My experience is anecdotal, but I’m pretty confident if someone did the research, it would back up the anecdotes. Rents did go up beyond the CPI levels set after rent contol was recinded, and then went down with the local RE market crash and recession in 1990.

    Here is how it worked in LA:
    Rent increases were limited to the CPI for the city in the previous year. If it was zero or negative, rents would not change. When someone moved out, the rents could be raised to the current market rate for the next tenant. The next year, that new tenant would not see an increase for more than the CPI for the previous year, and so on.

    Here is how it was subverted:
    The city council came under repeated attack from the property owner’s Associations. The could not get them voted them out, because the citizens overwhelmingly supported the ordinance. Eventually, they bribed enough city council members who were overseeing building, health, and safety codes to not enforce them for their members. The staffing and budget of city building code enforcement inspectors was drastically cut. So, the buildings fell into disrepair, and the property owner associations realized their self-fulfilling prophesy and greed. Landlords also were illegally harrassing tenants and pulling ruses to get them to move. When tenants complained or protested to the city, they were mostly ignored in all but the most serious situations. At best, the landlords got a paltry fine, and repair orders were not enforced. I was subjected to the “I want my relative to live here,” ruse. I sued, and won. However, most people were not in my position. That threat did not deter the property owners one bit, since they had the city government in their pockets.

    Unfortunately several people died as a result of non-compliant buildings and neglect, where the codes were no longer enforced. That was one of the public reasons for recinding the rent control ordinance. It was not the main reason. I have heard the rent contol in Philadelphia was removed in a similar fashon.

    I think the real point of contention for renters is: You want to raise rents, fine. Give the renters something for it in return. Outragous increases for less value or even the same, is neither fair, nor justified. There is no law the mandates you must make a profit, or how much, in any business venture. The reality, is that many rental property owners must relearn the lesson of effective demand over and over.

  41. 41
    Alan says:

    That doesn’t sound like a success story to me. Why are you surprised about political maneuvering when previous politial action created strong economic incentives to engage in political maneuvering?

  42. 42
    explorer says:

    It was not a continuing success, because of the political maneuvering that subverted it, not because of any negative impact rent contol had upon property owners or rents.
    Greed won again.

  43. 43
    Mikal says:

    Notabull, things do change in value. Food has gone up almost 10 percent in the last two years. Everything is connected. If you don’t like what they charge for your apartment you should move.

  44. 44
    b says:

    jon –

    Not much construction inside the city? Have you actually been to the city in the last 3 years?

  45. 45
    NotaBull says:

    “I think the real point of contention for renters is: You want to raise rents, fine. Give the renters something for it in return. Outragous increases for less value or even the same, is neither fair, nor justified..”

    I agree. I suppose the question is regarding what is “outrageous”? In my mind, allowing the market to dictate rents is entirely reasonable.

    “Notabull: Whenever some says something like that is “impossible,” regarding rent control, I that does not come from knowing all the facts. Stating the obvious, and what I already took into account, still does not make it “impossible.’ I would consider it “impossible” for home sellers right now to get 20 percent + over what they paid within the last 3 years, yet some are likely to hold out for a long time until they have permanent dents in their heads from striking the wall.”

    You said, “Overall, I see that article as giving landlords the green light to raise rents beyond what the median individual income can support.” I was not referring to rent control, just that your statement was not correct on the context of supply and demand for rentals. If rents are going up, and people are still paying them and not getting evicted (as is the case today) then the individual income of those renters *can* support those increases. The article is just telling landlords that others in the market are successfully raising rents (because the market *will* bear it). The green light they are getting is telling them to raise rents and that this is *within* the limits that income can support. This is counter to your statement.

    Also, your example of how rent control worked (or didn’t!) in LA is a perfect example of how rent control does not work! It puts too much power in the hands of the renter and tips the scales too far in that direction. You get more power over the landlord in terms of your ability to stay as long as you want, and then leave when *you* want. And you get a better deal on rent, as the CPI is lower than wage inflation (historically, at least), due to productivity increases in the economy. So every year you get a better deal, slightly, until you eventually can’t “afford” to move because all the other places out there are so much more expensive because they’re up at market rates which are more linked to wages, supply and demand.

    There’s a reason that almost all economists think that rent control is a terrible idea. It’s great for those that get in early but for everyone else it sucks. The only people that like rent control are the minority that currently or previously benefited from it.

  46. 46
    Ray Pepper says:

    yes, JG. We initiated ads on CNBC. They have been running for 5 months in Pierce County. We just started the commercials in Seattle, Kent, Renton, and Gig Harbor. They run heavily around Jim Kramer (Mad Money). Usually you will see them 12 noon-4pm.

    Once you see them you will NEVER forget them.

    Ray Pepper
    http://www.500Realty.net

  47. 47
    NotaBull says:

    Rent control:

    http://www.city-data.com/forum/los-angeles/35104-rent-control-city-l.html

    “My rent is going up in February, and again in February next year (the rent can’t be raised more than once a year). I’ll be paying more than $1,000 a month for my little two-bedroom apartment in an area where comparable apartments go for $1,350 and up. Is it any wonder I can’t wait to get out of L.A.?”

    The individual is complaining about two future increases in rent that will take them to $1000 a month, which is still less than the *current* market rate of $1350.

    The building this person is in seems to be an example of why rent control doesn’t work. It’s in disrepair, because the owner can’t do any significant renovation and has no incentive to keep good tenants. Landlords are motivated to lower the quality of rent controlled apartments over time to get people to leave. I suppose as long as it’s “safe” there’s no need to make it nice, legally speaking.

    Rent control in action… Lowering standards and restricting mobility.

  48. 48
    NotaBull says:

    “Notabull, things do change in value. Food has gone up almost 10 percent in the last two years. Everything is connected. If you don’t like what they charge for your apartment you should move.”

    Mikail, I agree. I left a rented house because they raised the rent too much.

  49. 49
    Alan says:

    Explorer, How do you propose changing LA’s method of rent control to prevent greed from winning if it is implemented here?

  50. 50
    explorer says:

    I just looked up the current ordinance. I was unaware it was reinstated since I moved. It does allow for a 10 percent increase for capital improvements. That is pretty generous. That the case you quoted is more of an example of the property owner more concerned with getting tenant chrun, than capital improvments. It sounds more like that person is actually complaining about paying more for something that is deteriorating. I would agree that at long as all codes are objectively complied with, that he is getting what he was intended to get under the ordinance. What that poster does not mention, is how much the OTHER tenants are paying. Remember, the rents can be raised to whatever the market is when a tenant does move out. Focusing on those who stay longer is not sufficent proof without accounting for those who don’t.

    Granted, there is an incentive to stay longer under rent control. There is no legal “expiration date” on any tenancy anywhere. However, as the poster indicated, it does not put much of a damper on the market for rental properties from an owner’s standpoint. With the capital improvement allowance, it is not a disencentive to improve the properties, but a choice by the property owner.

    LA is a very transient city, and the number of people who move around, in and out of town, is far higher, even now, than you think. No one’s “mobility” is restricted, but they still have a choice.

    Besides, if the owner is so unhappy with the rental income they recieve, they can always sell the building. Double digit profits in a short time may be the continued fantasy, but that is not the reality. The fact is, that there is still money to be made under the existing ordinance, not to mention the tremendous leverage and equity building, or no one would bother with owning rental property as an investment. It is not ALL about cash flow.

    I like this part of the ordinance below. That should go double in Seattle:

    “Anti-Speculation Provision. If the only justification offered for the requested rent increase on the landlord’s application is an assertion that the maximum rents or maximum adjusted rents permitted pursuant to this chapter do not allow the landlord a return sufficient to pay both the operating expenses and debt service on the rental unit or units or on the housing complex containing the rental unit or units, a rent adjustment will not be permitted pursuant to this subsection to a landlord who acquired an interest in the rental unit or units after October 1, 1978.”

    This one below is good too. And people whine about paying $500-1500 here for condo conversions!

    If the termination of tenancy is based on the grounds set forth in Subdivisions 8., 10., 11., or 12. of Subsection A. of this section, then the landlord shall pay a relocation fee of: $14,850 to qualified tenants and a $6,810 fee to all other tenants who have lived in their rental unit for fewer than three years, or $17,080 to qualified tenants and a $9,040 fee to all other tenants who have lived in their rental unit for three years or longer, or $17,080 to qualified tenants and $9,040 to all other tenants whose household income is 80 percent or below Area Median Income (AMI), as adjusted for household size…

  51. 51
    uptown says:

    “Seems like you have to find a place within the first day of it becoming available, or it’s gone.”

    I found my place in 2003, and the landlord had plenty (20% vacant), but they cut the rents and the units went fast. My unit wasn’t even advertised. I was the first to see it… and I took it.

    There are plenty of new apartment units going up around me – QA, Uptown, SLU; but they are going to be more expensive and lack the character of my place. I know the landlord is asking more for units as they turnover, but they are also spending more fixing up each unit before they rent them again (mine needs some TLC).

  52. 52
    Mikal says:

    That is pathetic. If you can’t afford a place you will have to move. If the new rent is too much then it will never get a tenant and the landlord will drop the rent. You guys are all so gleeful that housing costs are going down. Now you want your cost of living fixed. Well tough s***. I wish gas wasn’t going up. We better do gas price control. Food is going up in cost as well. We better have food price control. Where will it end? Socialism does not work.

  53. 53
    explorer says:

    The other unknown is to what extent a lease requirment can be used replace the occupants, without due cause, in order to churn tenants, to deliberately avoid the rent control ordinance altogether. In the refernenced situation, it was a month-to-month.

    That is one thing that should be addressed in Seattle.

  54. 54
    explorer says:

    Mikal — Conversely, if you really can’t afford to KEEP the place, then you should sell. Why should the market be allowed to be manipulated in the property owners favor, and welfare be given to them alone?

    Why should the current tenant always be forced to move because of a greedy mistake, because the landlord had to learn their lession by being unable to rent at the inflated rate, thereby reducing it to a point that the previous tenant would have accepted it?

    There is a difference between socialism and feudalism.

  55. 55
    Mikal says:

    It is. Check the laws. Either you or a family member have to move in to the unit for a minimum of 60 days if you give notice to a tenant to move out.

  56. 56
    Mikal says:

    Who said anything about affording the place? That isn’t the point. I never said there should be any help to the owner. Huh? So far there isn’t any help to property owners nor should there be . Also, conversely, for the rental unit.

  57. 57
    Alan says:

    Why should the current tenant always be forced to move because of a greedy mistake, because the landlord had to learn their lession by being unable to rent at the inflated rate, thereby reducing it to a point that the previous tenant would have accepted it?

    I might be in favor of some sort of protection for renters of a property that is being foreclosed on. The main reason banks don’t allow it is that they are not in the property management / rental business. I think a business with the right argument to the banks could make a killing in this area.

  58. 58
    Matthew says:

    Jon,

    They aren’t building in the city??? I can see 10+ cranes from my deck in Belltown. This city is not very dense, perhaps you should do a search for Tim’s density post comparing Seattle to most other metro areas. This city still has plenty of room to build.

  59. 59

    “There is a difference between socialism and feudalism.”

    Serfs up, dude.

  60. 60
    whats my name says:

    I think explorer has some great ideas, but why stop with housing providers?

    Explorer provides a service to his employer. Why not set up similar protections for his consumers?

    The law should provide that explorer cannot charge them more than 3% over last year. The employment consumer should be free to terminate the relationship on 30 days notice, but explorer must be able to justify his desire to terminate against legally pre-defined conditions. And if he can’t make it on his pay, well, that’s no excuse. Success is not guaranteed in the employment world. If explorer is leaving them to greedily or speculatively make more money, it seems only right he should provide relocation, er, I mean rehiring assistance to his consumer. From his posts, it looks like 6 to 12 months of salary should be about right.

    Sauce for the goose.

  61. 61
    george says:

    That article will help evil landlords raise rents, but it looks pretty accurate to me so I wouldn’t call it scare-mongering.

    The big bias is not asking landlords, why not sell? Are they crazy? Smart landlords are putting their rental properties on the market. Yesterday.

    Rents are still at a pathetic excuse of a number compared to the price they’d get by selling, and with the rental market slowing they won’t get away with raising them much more. So it’s lose, lose for landlords from here forward.

  62. 62

    Rent control may not work, or “rent stabilization” as it’s supporters like to refer to it, but to simply dismiss it as socialism kind of begs the question: why did these places come up with rent control in the first place?
    And to suggest that the free market will take care of it suggests that maybe we shouldn’t have any environmental regulations because that’s imposing restrictions on the free market, and so are child labor laws.
    Maybe that’ll help us compete with China and India.

  63. 63
    explorer says:

    WMN — Very cheeky. Reduction ad absurdum , But not apples to apples my friend. Consumers, in the broad sense, use their discretionary spending as their guide. Housing is a necessity. Food is a necessity, and historically civil unrest or price controls have been used when they get too far out of whack. Nixon used them BTW on gas. Go ahead, call him a socialist.

    This blog has pointed out before how the median income is even more closely tied to rental rates than SFH prices, and the other cost increases for necessities add to the effective demand. As was mentioned, property owners are not seeing the effective demand, just some articles and anecdotal back patting that tells them “you can do it!” like some motivational speaker. I don’t believe they just woke up out of some kind of stupor, and said “I could have had a financial V8!”

    What happens when everyone colludes to raise the rents rapidly and dramatically (like the price SFH/condos), and you have no place cheaper to move? Serfs can only get pushed around so far before they storm the castle with pitchforks and torches.

  64. 64
    Alan says:

    What happens when everyone colludes to raise the rents rapidly and dramatically

    There is too much incentive for landlords to defect from the cartel for that to happen.

    Now, if demand truely is outstripping supply then prices will go up. That is a simple effect of supply and demand. But when rents go up it encourages people to invest in rentals. That means supply goes up to bring prices back down.

  65. 65
    explorer says:

    Good point, Ira. Should we all see how fast we can race to the bottom? Just Maybe, rent stabilization was implemented to address that.

    Sometimes government must save us from ourselves. The “free market” will eventually will eat itself and posion the well for all without sensible controls. Just look what happened to the manipulated market here and in the rest of the country. From the raters to the appraisers to the title insurance companies to the mortgage CDO’s, it adds up. So now the renters pay, but maybe not in the long run.

  66. 66
    explorer says:

    Alan, normally I would agree, but it is already happening. It’s starting to look like the tragedy of the commons to a degree.

    Supply and demand is too simplistic to completely explain it this time. I would hope that in time the effective demand will have more of an impact than supply and demand. I do hope you are right, and the reversion to the mean will happen with rents too. Until then, renters have every right to resent it.

  67. 67
    Alan says:

    Until then, renters have every right to resent it.

    Sure. It’s a free country. They would be better off finding a cheaper place to live. I got a new rental last summer from craigslist. I still monitor the search I did. Rents are cheaper this summer than they were last year.

  68. 68
    Moe Ronn - Realitor® says:

    “And to suggest that the free market will take care of it suggests that maybe we shouldn’t have any environmental regulations because that’s imposing restrictions on the free market, and so are child labor laws.
    Maybe that’ll help us compete with China and India”

    Right on, Ira! And, how ’bout that free market regarding the Bear Sterns bailout with our tax payer dollars. I have seen many examples in life of how we socialize loss to protect private profit.

  69. 69
    MacAttack says:

    They’re trying to play this game in Portland too -however, I drive by the apartments and see the “MOVE-IN SPECIALS” signs, which the NAR is powerless to keep from being put up.

    By the way, in Sacramento, rental prices are FALLING in sync with house prices.

  70. 70
    Bitterrenter says:

    As Mac said, they’re doing the same scare-mongering here in Portland too. Breathy, panting articles in the Business Journal and Willamette Week on the scarcity of rentals and the quickly rising rents. I’ve even argued with landlord types and others online who predict Portland rental rates will match San Francisco within 5 years and all us renters better get out there and buy a house to lock in some semblance of affordability. Meanwhile, I’ve been in Portland for 8 years and my rent has risen $10 a month so far. Yes, you read that right, $10 a month. Total. In 8 years.

    I believe it’s an effort to get renters to buy to help prop up the dying real estate market. I also think that the loan-owners relish the idea of quick rental increases for two reasons: it will validate their decision to buy into this insane bubble and bring the cost of renting closer to that of buying so their home values won’t crash as hard. Neither terribly altruistic. And they call us bubblesitters bitter.

  71. 71
    Alan says:

    If there really is a shortage of rentals then prices will go up. If you add rent control, the places that are not under rent control will go up even more. If there is not a shortage, then the landlords who raise their rent will find themselves with vacancies and will lose much more than the small amount they raised the rent by.

    We predicted that as the bubble starts to burst rents will go up. As houses are put on the market they are emptied. Empty houses that are unavailable for immediate tenancy reduce supply. Reduced supply increases prices.

    After some time, loss aversion will lead some sellers to take their homes off the market and rent them out (especially when encouraged by rising rents). This will increase supply and make prices fall again.

    This article (https://seattlebubble.com/blog/2006/10/25/big-picture-supply-vs-demand/) shows there is more housing per person today than there was in 2000.

  72. 72
    explorer says:

    per Alan: “After some time, loss aversion will lead some sellers to take their homes off the market and rent them out (especially when encouraged by rising rents). This will increase supply and make prices fall again.”

    Unless the asking rents approach the mortgage payment, almost always the case to start. For SFH’s as well as condos. So, you end up with an oversupply over overpriced rentals. Then what? Maybe that is why many are walking away, instead of lowering the price on a depreciating asset, and suffering negative cash flow. I still don’t see traditional supply and demand adequately addressing an untraditional and unprecidented credit bubble. So, then we get the pick of forclosures? Not so fast. There are already mega-corps setup to gobble them up, and sell them at only slightly lower than the original price. It could happen. Renters still bear the brunt. The game is rigged. So, waiting it out may not save you much when the rents in fact do not come down. Unless you get lucky.

    I certainly hope it does not play out that way. It is just one alternate universe against another when you have an environment that cannot be dealt with, with more of the same.

    If there is indeed more housing per person than in 2000, then why are not the prices lower right now?

    I think bitterrenter is on to something. How cynical the cycle is. At least according to rentometer, the median rent for a 1 BD in my neighboorhood is $125 higher, and $225 higher for a 2BD, than last summer. The ads on Craigslist seem to support that too.

  73. 73
    Mikal says:

    Good.

  74. 74
    Mikal says:

    Good.

  75. 75
    what goes up comes down says:

    hey Mikal, me thinks you be taking it in the shorts with prices dropping because you seem to have a real bad attitude, too bad so sad

  76. 76
    Mikal says:

    I bought 10 years ago. The two duplexes pay for themselves and my personal mortgage. I have no plans to sell. I think there are too many whiners here and the negativity makes me laugh.

  77. 77
    Skeptic says:

    Yeah, what’s up with the PI’s headline writer, anyway?

    It doesn’t seem to matter what Cohen puts in an ariticle, some editor slaps on a simplistic headline, or often a misleading one pointing to the pink pony strenghts of the Seattle Real Estate market.

  78. 78
    NotaBull says:

    “I bought 10 years ago. The two duplexes pay for themselves and my personal mortgage. I have no plans to sell. I think there are too many whiners here and the negativity makes me laugh.”

    It must be nice to have been born ten years prior to other people that can’t do the same things as you did, now, at the same age you did them at.

    Those stupid younger people!

  79. 79
    Alan says:

    Mikal, what is your rate of return? Based on what you could sell the duplexes today and what you earn on them after expenses, what percent are you earning on your capital?

  80. 80
    Mikal says:

    I fixed up two old houses. I had a stretch where I slept in my kitchen on a mattress for 3 months while finishing the living area. I put work into it. If I had to start now I would wait for the bottom (we’re not there yet). I looked into selling one of them several months ago and I make more owning them than I would selling one and paying off everything else. I have looked at the rate of return on the capital and I’m happy where it is at. The right offs help. I didn’t spend much to begin with. When I bought the first in the Central District you could still hear gunshots once a week. $97,000 for 2000 square feet. It needed some work.

  81. 81
    george says:

    Alan:

    Q) What do you call a landlord who can do basic math in this real estate market?
    A) Ex-landlord.

    That’s one reason why the market is flooded with new listings. Is the value of a stock dividend based on what you paid for a stock in 1995? Or what it’s worth to you today?

  82. 82
    Mikal says:

    I wonder what the stock was worth in 2001?

  83. 83
    Alan says:

    During the .com boom, I bought a non-technology stock that was paying 12% in dividends. After the .com crash, the price of the stock rose until it was only paying 5% on the same dividend. I realized that I could probably do better than that so I sold it (making a very nice return on the price alone). Then it was discovered the company was cooking the books and it the price and the dividend dropped way below whereI originally purchased it. The assets of the company were then purchased by a competitor. I held the stock for about seven years total.

  84. 84
    whats my name says:

    “WMN — Very cheeky. Reduction ad absurdum , But not apples to apples….”

    Wrong. I merely restated your general arguments with differring particulars. It is precisely apples to apples. It is just a matter of whose ox is getting gored.

    Employees are as much necessity for some employers as housing is for you. Arguably more so, as you could live in your car and no one else would really be impacted. Nixon’s actions or what we might want to call him are totally beside the point. As for rising up pitchfork and torch in hand…..well, that’s why God invented the 50 caliber.

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