Seattle’s “Condo Conundrum”
Seattle has the most construction cranes than any other U.S. city and 2/3 of the cranes are for apartment buildings. Approximately 27,000 multi-family units will be delivered in the current decade (by the end of 2019) and 94% of those will be apartment rentals. The construction of apartment buildings is in response to an unusual condo law in Washington State (Chapter 64.34 RCW CONDOMINIUM ACT) that makes it easier for condo homeowners to sue developers for construction defects. In response, it's less risky for developers to build apartments. Changing this law could increase the supply of condos and, in effect, provide more affordable housing for ownership.
A recent feature on King 5 News declares that Seattle is officially in a “condo conundrum” as the city continues to face historically low inventory amidst ever-increasing demand due to Seattle’s strong economy and job growth. Despite the fact that the city is incubating many would-be buyers within rental units, developers are overwhelmingly choosing to supply apartments for rent, in large part due to Washington state’s stringent condo policy.
Some insight may be found in a Sightline Institute report published over the summer, which explored new development trends in Seattle. As the article outlines, in Seattle, “apartment buildings are much more financially attractive, while condos come with bigger risks, and, typically, lower returns. Compounding this profit difference is the fact that Seattle condominiums have to comply with quality assurance standards that are more demanding than those for any other type of home I Washington,” which adds undesirable additional expenses that deter many developers.
As Dean Jones, President & CEO of Realogics Sotheby’s International Realty tells King 5, one potential solution to the supply imbalance would be to clarify the condo law. The affordability crisis on market-rate housing will be reduced “if the headwinds that developers face in getting permitted projects” are reduced, Jones added.
Though there are just four tower developments currently under construction in the downtown core that will be offered for sale, King 5 highlighted one developer that is “building against the odds.” Da-Li Development will soon bring the KODA Condominium project to life, a proposed tower at 5th Avenue and Main Street in the International District. The project is “slated to have 17 floors and 202 units, and will soon hit the market with condos between 400-1,124 square feet for up to $1 million.”
“A lot of developers are looking to diversify their portfolio, and Seattle is the place to be,” Kevin Hsieh of Da-Li Development tells King 5. “Amazon is huge in Asia right now, so it’s become the most attractive place on the West Coast when it comes to growth and potential, Seattle is the city of the future right now.”
Seattle (Northgate), WA close to new Northgate Light Rail Station
1BD/1BA, 744 sqft, 1 parking uncovered
Sales Price: $226,850
Gross Income: $24,000
Estimated Expenses: $5,813
Net Operating Income: $18,187
Cap Rate: 8.01%