Friday, February 20, 2015
More or Fewer Seattle Rentals?
My crystal ball forecast:
Expect to see rental prices increase dramatically and inventory of affordable rental units in Seattle decrease significantly in coming years.
Much of the new rental inventory coming online in Seattle is new construction. New construction is very expensive, and with construction costs rising up to 30% in just the last year alone, expect those costs to continue going up. For developers building apartments or rental housing, the rents will have to be significantly higher to cover their costs. For newcomers employed in the tech industry, this will not be a problem.
For the rest of Seattle, it will be.
For those who cannot afford to pay the high rents of new construction (over $3/sf in many of the most desirable neighborhoods in Seattle), they will be looking to rent older apartment units or houses. Many of these will be located in less desirable neighborhoods, and may have some functional obsolescence in their design features. Much of Seattle contains older housing stock in long-established neighborhoods outside of downtown. These units tend to have less insulation in walls, attics, basements, and windows. They have older appliances and are less energy-efficient. They require longer commutes to work. They may have obsolete floor plans with large living rooms and small bedrooms with tiny closets. They may have older plumbing, electrical wiring, and fixtures. They may not have enough outlets for today's heavy use of computers and electronics. This does not mean they are unsafe, but an inspection program would certainly find many issues that need upgrades, or compliance with today's codes.
The inspection itself costs a minimum of $175, and any repairs that an inspection might require will increase the costs to a property owner. This property owner will pass all costs along to the tenants. Or they will decide to get out of the rental business, and either remove their property from the inventory or decide to sell.
A new owner will spend the money to make the upgrades, and then, guess what? Pass the costs on to the new tenants.
So expect the price of rents to continue to rise in Seattle, not only for new construction, but for older units as well. Expect more older inventory to come on the market for sale, and expect to see tenants moving outside the City of Seattle in search of more affordable rents.
This may be a good opportunity for the professional investors and landlords remaining, as prices surge upward, forcing up both property values and rents.
What do you think? Me, I'm in for the long haul, as I expect my profits to go up!