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Between 2010 and 2020, Seattle was the fastest-growing large city in the U.S. and more than 27,000 multi-family housing units were built within walking distance of each other throughout the urban core. Approximately 93% of this supply was apartments, which is a large reason why today, the region has more young residents leasing than owning. According to census data, in 1960 nearly half,48%, of King County residents under 35 years old owned their home. Today, homeownership by those under 35 is cut in half with only 24% of this cohort owning.
The Downtown Seattle Association reports there are more than 100,000 residents living in the region’s most densely populated metropolis, a 67% increase since 2010. However, 81% of this population currently rents.
One reason more condominiums haven’t been built is due to the Washington State Condominium Act. This consumer protection law works well for buyers, but it works against developers. The risk profile is just too great when presale buyers may have their exposure limited to just a 5% earnest money deposit (held in escrow). Historically, the developer had to invest 100% of the capital stack to build the product in hopes that the buyer eventually closes; the WA Condo Act permits buyers to walk away and only forfeit their earnest money.
In 2020, developers are now able to borrow against the held earnest money deposits, but that requires a surety bond and is still legally limited to just 5%. Add to that the four-year warranty provision and the ongoing threat of construction defect liability, and the statistics point to why most developers build to lease.
Proposed legislation in 2023 would further change the Condominium Act requiring the Homeowners Association to approach the developer first to remedy issues, rather than immediately reverting to a lawsuit, which is expensive and can complicate the mortgage lending process, marketability, and values for the project.
It takes a lot of energy to influence policymakers. Sightline Institute is growing a coalition called “Homes4WA” aimed at housing stability with an abundance of choices for all consumers while reining in rents and home prices, and reversing residential segregation, urban sprawl, and climate change trends.
Washington REALTORS® are also sponsoring the “Welcome Home” initiative in a comprehensive plan with legislative proposals to deliver more multi-family housing formats in local neighborhoods such as duplexes, triplexes, and ADUs and DADUs. Their research confirms that limited housing production is causing a lack of affordability and leading to more homelessness and communal living situations.
Washington now has the lowest number of housing units per household of any state in the nation, and the state homeownership rate is ranked 43rd in the nation.
To pool resources and build more affordable housing, the City of Seattle levied the Mandatory Housing Affordability (MHA) program, requiring all developers to pay a contribution in exchange for bonus developable area. Since its inception, this program has generated approximately $200 million in working capital to fund nonprofit developers to build rent-restricted housing. For perspective, this is about the cost of a single high-rise tower.