New development not the cause of high housing prices.

The (interesting) comments on this post at Matt Yglesias were so all over the place, mixing up so many issues, that it's nice to see that someone thinks clearly and inteligently about the dynamics of urban housing and neighborhoods and Sprawl.

...it seems to me that some folks who are so critical of increasing density are confusing cause with effect. They see the cost of housing going up; they see new condos being built, and proposals to build even more; and they figure the new construction is causing the price increases. That's sort of silly, when you think about it: the pressure for high-rises, new apartments and condos, etc., is an effect of high housing prices, not their cause. In fact--and at the risk of anthropomorphising an abstraction--new condo construction may be an example of the market's invisible hand trying to bring housing supply into line with demand.

In terms of affordability, if there's one hidden danger with the new construction, it's this: if you build intersting neighborhoods with abundant housing, nice amenities and a good mixture of stores and services, you may also be creating the kinds of places where people really want to live. The sort of neighborhoods that people are willing to pay a premium to be a part of. So if you do too good a job of creating nice places to live throughout the city, then people will start migrating to Seattle for its high quality of life.

Which is, in many ways, a nice sort of problem for a city to have.

The only place I'd disagree is with the phrase "new condo construction may be an example of the market's invisible hand trying to bring housing supply into line with demand." I don't know what else it could be except for market forces; it is certainly not governmental policy which in Seattle by its endless bureaucratic process acts to discourage new construction.

Comments

[Matt Fox]

One problem with this sort of pure "supply-side" theory of affordable housing - in most cities, new housing can only be constructed if old housing is demolished. Take away all of the units that rent at the lower end of the spectrum to build newer more expensive units, and you do in fact increase - in the short and mid-term - the cost of housing.

This theory would work just fine if Seattle and other cities were undeveloped blank slates. They aren't.

[Michael Pereckas]

Most of the obvious new housing construction around Milwaukee's downtown is the conversion of old, abandoned warehouses; old, abandoned tanneries, old, abandoned breweries, and so on, into expensive condos. There may well also be some much less visible remodeling of cheap housing into fancy expensive housing (and a few new high-rises replacing smaller buildings that, with a lake view, couldn't have been all that cheap), but certainly rotting hulks are being turned into new housing. I don't know what's happening in Seattle, but I was under the impression that big abandoned buildings were found in many cities.

[Matt Fox]

Michael,

That may be the case in older rust-belt cities, but is less so on the West Coast. While the Pearl District in Portland was the result of the sort of development you discuss (ie - vacant old industrial property is redeveloped), in Seattle, the vast majority of new residential development occurs when older apartments are torn down.

One result has been a sizeable exodus of people of color (particularly African-Americans)after their neighborhoods in Central and South Seattle have been gentrified. Another has been that burgeoning hip neighborhoods such as Fremont and West Seattle are no longer affordable to many of the people who historically lived there - at in no small part because the existing affordable housing is being torn down to build new upscale apartments and condos.

[David Sucher]

Matt's correct. Seattle has virtually no "old, abandoned tanneries, old, abandoned breweries."
It's a young city and we simply don't have the miles and miles of old lofts that, say, Chicago has.
The city is being redeveloped at a very rapid pace and there is little vacant land - though a fair amount of under-developed land.

[David Sucher]

OK Matt,

Putting aside your questionable contention that "the vast majority of new residential development occurs when older apartments are torn down," let's just suppose that we prohibited all new residential construction except on vacant lots.

Let's even go farther and suppose that we instituted rent control and extremely strict housing maintenance requirements for rentals.

But we continue to allow people to move to Seattle and to start new businesses etc etc as part of our goals of full employment and individual liberty.

So under those assumptions what happens to prices for existing housing?

My logic suggests that -- as at least one element -- we would develop a "key money" market in which the richer people would bid up housing prices -- using "key money" as a way to circumvent rent control and the poorer people would be forced out...which is no different than what we have now. The free market will out.

Houses in Wallingford are not going up in value because of new construction in Belltown or even because of new construction in Wallingford.

Prices go up because we have more people chasing a fixed or just slightly-growing number of dwelling units.

The real irony is that the more we improve Seattle, the more desirable we make it and hence the more valuable. There is no escaping.

[Brian Miller]

Even though there might not be miles of abandoned factories, David, my (superficial) impression of Seattle is that outside a few neighborhoods, the City is very low density-with opportunities for redevelopment of, for example, old one storey strip malls.

Check out : www.panoramicinterests.com.

They've been doing just that, in high cost, high NIMBY Berkeley to boot.

[Matt Fox]

David,

Well, I can tell you what I wouldn't do - increase building heights to 700' downtown and encourage the construction of a whole bunch of new office buildings and add tens of thousands of new commuters to the central city (the idea that most of these new high-rises will contain residences is wishful thinking - the economics are such that they will largely be office space, as is the notion that more than a fraction of these new workers will live downtown) and blow up the human scale of our existing neighborhood commercial districts with Nickels' proposed upzones.

The big problem with City of Seattle growth planning, at least since the Complan was adopted in 1994, has been to try to force Seattle to absorb a greater share of the County's growth than demographers and realtors have indicated it is likely to receive. It wasn't enough to plan for (and fund the infrastructure for, which, except for new stadia, we largely haven't done) the 35,000 new households we were likely to receive, former Mayor Norm Rice insisted that we take 50-60,000 new households. When the City fell short of an unrealistic (and, as far as the City budget is concerned, unsustainable) growth goal, it became an excuse to gut our existing land use code and abrogate the promises made through the neighborhood planning process (fe - in the U-District, we discussed raising building heights above 65' and explicitly rejected it - after upzoning a good portion of the UD from 40 feet to 65 and allowing much bulkier structures).

Of course, the City has also essentially abandoned concurrency, particularly where our operating levels of service of our streets and boulevards are concerned. Try getting down NE 45th most of the day now, and tell me how you're going to get from the Monorail line (if it's ever built) to the Sound Transit stations (if it's ever built) after another 10 years of construction is permitted without any consideration of the traffic it will inevitably generate.

You're basically right in saying we're damned if we do and damned if we don't, but our current policies are going to damn a lot of us who can barely afford to stay in Seattle a lot quicker. You can't build a cheap home on expensive dirt, and when you tear down the places that poor and working class people live, work, and play, you can't subsidize your way out of that hole.

BTW - on my second post, I should have made the point that new buildings are usually constructed after old buildings (both residential and commercial) are torn down. Oddly enough, in West Seattle, the main exception to this sort of displacement has been because the few remaining greenbelts and natural areas there are being developed (with the encouragement of our "green" City Government). So much for quality of life.

BTW2 - I spent a few months in Berkeley working on a political campaign last year. I thought it was interesting that they have the same density vs. quality of life debates that we do - and that lots of very progressive people still think developers basically suck (the Stranger notwithstanding, and present company excepted!)

The other thing that struck me is that San Francisco, the "world-class" poster child for advocates of unfettered urban density (my father's birthplace and my grandma's home for her entire life) hasn't prevented an enormous amount of sprawl into the East Bay and other areas. Anyone who thinks bulking up all of the densities in the Seattle city limits will reduce sprawl ought to take a drive out to Kent, Auburn, or South Snohomish or North Pierce County and let me know how that is working out.

[Matt Fox]

By the way, how do I get one of those hypothetical rent controlled apartments (grin)?

[Matt Edens]

While I'm not familiar with Seattle's particular situation, it's worth noting the flip side of what, in many eastern and southeastern cities, keeps so much inner city housing affordable: deferred and or shoddy maintenance that will, given time, generate plenty of vacant lots for new construction (given the hard reality of purchase price + rehab cost vs appraised). And government policy certainly plays a role, particularly section 8 housing vouchers that allow landlords to lease otherwise undesirable units at what, for the neighborhood, are premium prices.

http://governing.com/archive/2002/may/housing.txt

[Michael Pereckas]

I have to wonder if housing cost increases are really a bigger issue than any one city can change. For whatever reasons, it seems that just about everywhere in the country that isn't a truly awful place to be stuck the resale prices of ordinary houses in ordinary locations continually rises faster than overall inflation (much, much faster in some places), even as the structures themselves gradually deteriorate with age (as nearly everything does). In such an environment, I don't know how much we can expect from any one city's policies.

[David Sucher]

I don't think housing cost increases are a negative political issue at all. The cold, hard reality is that the majority of people like the idea that their dwelling is going up in value.

[Michael Pereckas]

Right. The fact that evidently rapidly rising housing costs are regarded as a good thing does tend limit the ability of governments to do anything to control housing cost inflation.

Just read a newspaper. Page 1: Gasoline prices are up, and this is terible. Turn the page, and read about how wonderful it is that housing costs are shooting up. Well, it's not so wonderful if you are buying, but whatever.

[Jesse McCann]

Mr. Fox-

I don't think that the economics right now would favor construction of more office space downtown. On the contrary, inflated housing prices would encourage the construction of condominiums, like the new Whole Foods/Pan Pacific development going up on 9th and Denny.

Some neighborhoods are in desperate need of rezoning. Take a look at Broadway Ave in Capitol Hill compared to Madison Ave E, Pike, Pine, and Olive Way. Broadway is dying under 4-storey zoning (with 2 vacant supermarkets and countless vacant storefronts) while Madison, Pike, Pine and Olive are vibrant and safe with 6-storey zoning. It's not as if there are not already six-storey structures on B'way, it's just that no new ones can be built. The combination of stunted building heights and excessive parking requirements stifles development on this important street.

Seattle has a ton of empty space above retail... there's no reason that a supermarket or restaurant should be one storey, especially inside a city. It's a great place to put new housing.

If I was on the city council I'd require it!

PS: I'd argue that the congestion on NE 45th has more to do with its function as a freeway ramp than the six-storey construction around it.

[Matt Fox]

Jessie,

I beg to differ on your analysis of Broadway. I walked down Broadway a couple of days ago, and yes, there are two major vacancies at the north end because Safeway closed and QFC relocated to the Broadway Market. However, you can count the remaining vacancies on the whole street on one hand, and that is more a function of a down economy than it is of 4-story zoning. In fact, in the last few years, two major projects were built under the existing zoning, and the Broadway Market is undergoing a major renovation at the current height limit.

The whole Stranger mantra that 4-story buildings - or 6 stories in the U-District - are killing Broadway and the Ave flies in the face of decades of successful retail activity in the buildings that are now there. Public perceptions of crime and the lack of available parking are a lot worse for small businesses than existing zoning.

Frankly, the best thing that could happen to Broadway in the short term would be getting Fred Meyer to take over the QFC or Safeway property - which both have adequate parking for that sort of retail use and could probably be put back into service relatively inexpensively. In addition, losing Fred Meyer was a real blow to the ability of people on Capitol Hill and surrounding area to do basic shopping in their immediate neighborhood. I would also note that both properties cover a full half-block or more, and offer plenty of development potential under the current zoning.

Yes, the fact that 45th is the major thoroughfare to I-5 is a major traffic generator, but the level of congestion has gotten worse as the U-District has grown (in fact, DPD under Paul Schell was starting to make noises about limiting some projects because of the near-failing level of service for the left-turn light at 5th Ave NE and NE 45th - ie - because trying to get on southbound I-5 was consistently backing up through that intersection and would take several light cycles to get throuth. Unfortunately, as I alluded to above, Seattle has effectively abandoned transportation concurrency requirements in the push to approve any and all proposed projects).

Also, with regard to downtown, there is in fact a number of office buildings going up as we speak - including a new HQ for Washington Mutual. Whether there is sufficient demand to guarantee that speculative development pays for itself in the short to mid term is a different matter - and we could well see a return to the days in which more new high rises are built than there is demand for (and Belltown luxury high rises still have some of the highest residential vacancy rates in the entire region). In that situation, you don't want to be the developer - you want to be the guy who buys his half empty building at fire sale prices (many of our existing skyscrapers were money losers in the short term, and were sold to investors by the original developers)

BTW, while there is a lot of new construction around 23rd and Madison, I think most of the people around that area would beg to differ with your characterization of the neighborhood as safe (and I think many of the longtime former african-american residents who are being forced to move to Renton and points south by gentrification may also not be so pleased by what is going on there, as well).

Regards.

[Ontario Tenant Rights]

The situation doesn't seem much different in Canada.

Just have a look at the Ontario Tenants Rights site http://www.ontariotenants.ca