This article first appeared in Realogics Sotheby’s International Realty’s 2023 Forecast Report. To get your digital or print copy of this comprehensive look at the Pacific Northwest’s ever-changing residential real estate landscape click here.
The vast majority of Americans view homeownership as living the American Dream. For most, however, realizing this goal faces persistent headwinds with diminishing affordability and a lack of new housing supply across the Puget Sound region. Municipalities, legislators, developers, consumers, and societal trends will have to align to build and support more housing of all kinds, to meet the demand of a population topping 5 million residents by 2050. An imbalance of supply stands against any real prospect of falling home prices, so consumers planning to make a move should focus on the trend lines rather than sensational headlines.
A Lack of Housing Creates Unaffordable Housing
The Mynd 2022 Consumer Insights Report confirmed 78% of people polled believe owning a home is a key life achievement and 65% credit home equity gains as a key factor for building intergenerational wealth. The freedom to choose where and how we live is also a core value of American life, but the options are finite, especially for those with low and moderate incomes. Residential real estate is already pricey in the Northwest, and notwithstanding a moderate price correction underway in 2023 (and a temporary buyer’s market in many areas), the market fundamentals are pointing to higher prices and fewer homes from which to choose before long.
According to The Puget Sound Regional Council (PSRC), the typical rent rate rose 60% and home values skyrocketed 135% in the broader region since stabilizing after the Great Recession (2007-2009). PSRC research shows metro area rents rose from $1,462 to $2,346 from July 2014 to July 2022 while home values more than doubled from $332,500 to $781,600. Some neighborhoods experienced 20% to 30% median price increases between 2021 and 2022 but have since regressed.
Such a rising cost of housing far exceeds the pace of income increases, which means that attaining homeownership is now further out of reach for many. Now with rising mortgage interest rates, a dearth of new for-sale housing, a global and national economic slowdown, high inflation, and the imbalance of supply and demand is working against the American Dream.
The answer is more housing of varied types in all communities, from existing neighborhoods to those on the drawing boards. The PSRC indicates that there is a backlog of approximately 50,000 units to address current housing gaps today. According to Washington Governor Jay Inslee’s budget, the state needs at least one million new homes by 2044—more than four times the units delivered between 2000 and 2015. This trend doesn’t favor home price affordability in the region.
The highest production format and most affordable solution is multi-family housing, whether they are condominiums for purchase, or apartments to rent. In lower-density areas townhomes are also effective in delivering quicker supply, but the median price points tend to be higher. For perspective, 63% of zoning in Seattle is single-family, and suffice it to say, NIMBY (“not in my backyard”) voters have been resistant to proposals for urban up-zoning in preference for the status quo and lower property taxes.
Read more | 2023 Forecast Report | Timing the Market →
More Housing, One Backyard at a Time
There are some encouraging housing solutions, however. Since 1994, the City of Seattle allows for Accessory Dwelling Units (ADUs) and Detached Accessory Dwelling Units (DADUs) to grant independent living within single-family homes or to be built in backyards. An estimate of more than 3,000 units was added to the supply, which contributes to attainable housing within existing residential neighborhoods.
This alternative housing stock also absorbed some of the demand that would otherwise be directed to the city center, where one-third of all Seattle apartments are located. In 2019, the City of Seattle greatly increased the ability to create ADUs and DADUs, by updating its land use code. The sale of these ADUs and DADUs has been available due to an existing condominium law. However, challenges with lending and potential liability exist, so converting this inventory to meet individual ownership goals has obstacles to overcome.
Read more | 2023 Forecast Report Digital Exclusive | Bridging the Supply and Demand Gap →
The In-City Urban Renaissance
Urbanism is a planning and development philosophy that’s spanned centuries with higher-density housing, walkability, access to shopping, residential services, and employment centers, as well as immediacy to public spaces and transportation hubs. In many ways, it’s the opposite of the urban sprawl trends that defined many U.S. cities for decades in a flight to the suburbs. This post-World War II building boom occurred when rising incomes converged with the mass production of automobiles, an expanded highway network, and cheap gas leading consumers to exurban rings updated inexpensive land and new, cookie-cutter single-family communities.
Fast-forward 50 years and most American cities were reborn offering a new “live-work-play” lifestyle advantage with either quick or virtually no commuting times, and a greater social experience with a lighter carbon footprint. Personal time and togetherness became more compelling for many as opposed to owning a picket fence in the suburbs and fighting hours of traffic.
Seattle exemplifies such an urban renaissance given that steep population growth had to funnel through and around hills and waterways exacerbating already challenging commuting times. Then, King County legislators adopted the Growth Management Act in 1990 that would combat further sprawl and focus growth to urban targets. This reduced the likelihood of driving further to meet housing affordability.
The City of Seattle approved the Center City Plan in 2006, which rezoned high-rise neighborhoods in downtown Seattle and allowed for taller, narrower buildings with tower spacing modeled after Vancouver, BC, activating many infill sites and creating a rush to the counter for building permits. Essentially, this up-zone was the fertilizer that developers needed to grow a bumper crop of vertical villages.
Add to this explosive growth of high-tech companies and other expanding industries in the city center, such as biotech, and tens of thousands of new jobs drew an unprecedented housing boom to downtown Seattle’s increasingly vibrant economic ecosystem.
Leading the Way | New Developments in the Seattle Metro
For its part, Realogics Sotheby’s International Realty (RSIR) is a proud leader in market research, product development, marketing, and sales for new multi-family homes as well as single-family communities across the Puget Sound region. Spawned from a development firm, T. Jones, Inc., the brokerage firm has maintained a front-row seat of development trends over the past 30 years.
The award-winning collective is credited as a catalyst in urban living as well as contributed to progressive projects that delivered many first-of-its-kind offerings to the market. Sometimes that takes the form of single-family homes in a short-platted legacy property, like The Bridges by Urban Development. Other times, it’s selected spot lots for both spec and custom homes throughout preferred Eastside neighborhoods like with JayMarc Homes. Recent success stories also include JADE Condominiums by Terrene Homes, selling out the 136-unit building in The Villages of Totem Lake masterplan in the City of Kirkland. This was the only large-scale, for-sale condominium community delivered north of SR-520 in more than a decade, and it’s a demonstration of re-urbanism, contributing to a reimagined “lifestyle center” of the former Totem Lake Mall.
RSIR has also been supporting U-LEX at Othello Station in South Seattle. This innovative affordable residential co-op building of 68 units aims to address the missing middle and workforce housing along the light rail transportation network, offering a limited equity opportunity vs. renting. To be eligible, purchasers must have a household income of 80% or less than the area median income by household size and be first-time homebuyers or not have owned a home in the last three years.
Other RSIR projects channel back to the future with new, high-rise condominiums being curated in Seattle’s original residential neighborhoods. This includes Graystone Condominiums on historic First Hill by Daniels Real Estate, a developer known for its restorative work now applying it to this historic community. Positioned as downtown Seattle’s “Upper Eastside” enclave, the condominium is intentionally not viewed as being a “city center,” but part of a quieter, more nostalgic version of cosmopolitan life.
Another emerging trend is for boutique, ultra-prime condominium estates in premium locales, such as the 37-unit Infinity Shore Club by Vibrant Cities on Alki Beach in West Seattle, or the 10-unit Eight One Hundred Condominiums in Old Bellevue. The latter was so exclusive (and inherently risky given the Washington Condominium Act) that the savvy team at Talon Private Capital created a partnership among the investor-owners who collaborated to receive units in a return on their investment rather than buying into a speculative development.
Also ahead for the Eastside, Innovation Realty Partners will envision the Sammamish Town Center in the City of Sammamish. The largest such “city in a city” in King County planning, the project will comprise more than 90 contiguous acres of redevelopment including local shopping, dining, and entertainment, along with housing for young adults, residents across the income spectrum, and senior citizens. In addition to providing hundreds of new housing options in varying product types and price points, the new lifestyle center will provide open spaces, a community center, and will resolve the “retail leak” of area residents having to commute off the plateau to obtain the products and services they require near their home.
For now, the prospects for future high-profile, for-sale developments in urban centers are few, which makes the existing supply inherently limited and ultimately, valuable. RSIR tracks the development cycles of new condominiums delivered, under construction, and planned in the city of Seattle. This included 12 new, for-sale projects comprising 1,520 units built for occupancy between 2018 and 2022. Of this inventory, 1,152 are sold, representing 76% absorption, with 368 available units remaining.
Read more | 2023 Forecast Report Digital Exclusive | 3 Building Trends From JayMarc Homes →
What Lies Ahead
Looking forward, there are only five new condominium projects planned in Seattle but just two are actually under construction as of January 2023. There were more projects in the pipeline but several converted to apartment uses, a few canceled outright, and others deferred groundbreaking until further notice. Only 729 units will be delivered in 2023 and 2024 combined, of which 399 units remain available for presale. No unit deliveries are slatted in 2025, and this dearth of new supply could extend further unless new projects commence soon—it can take two to three or more years to complete a tower.
Knowing demand can rise much quicker than supply, upward pressure on pricing will again rekindle and a new development cycle is born. Such a reboot is even more likely if mortgage interest rates reverse course as expected, and the market witnesses a migration from renting to buying.
Whatever the trends may be, wherever they may manifest, what’s evident is the Seattle metro area needs more attainable housing to be built. In many ways, the region still suffers from small-town infrastructure and policies that conflict with global city aspirations. There needs to be a paradigm shift in legislation, zoning, the entitlement process, and incentives and resources to pilot new innovations in housing throughout the Puget Sound region if we want the American Dream to be more than fantasy.