Seattle’s rental crisis cannot be solved with rental caps.

Acting as such will only make the situation worse.

Real estate is a living market.

Simply demanding that it meet demand is not sufficient.

Instituting Rent Control and calling it a day will not solve Seattle’s rental crisis.

Only when zoning laws, availability, and smart rental regulations work in tandem can Seattle’s rental crisis be dealt with.

Fix restrictive zoning

Seattle “simplified” zoning laws in 2015. Multi-Family zoning now falls into one three categories. LR 1, 2, and 3 respectively. The main difference with regards to the rental crisis is the restrictions on the number of units by overall building square footage.

At best, new construction is only allowed at a single unit per 800 sq ft. With others having a limit of one unit per 1,200 sq ft.!

Unfortunately, this creates an awkward scenario where lack of supply increases demand but developers cannot build to meet all the demand even if it would make financial sense.

Simply put, Seattle must allow for increased density in construction to supply the studio and one-bedroom apartments required to solve the crisis.

The case for Rent Stabilization

If you recall from our first piece, Rent Stabilization is different from Rent Control as it doesn’t set the maximum price units can rent for rather, a maximum rate for yearly rent increases.

This rate is determined by inflation, local residential real estate market, and other economic factors.

In particular, Rent Stabilization has the massive benefit of reducing the financial risk for developers when it comes to building. Property Management companies can buy units doing their profit analysis on the value the units are worth on the open market.

This means the developer does not have to worry about Rent Control making certain building types unattractive for sale post-construction.

Developers can focus on creating supply to meet the demand of would-be renters instead of worrying about if those projects will be able to turn a profit based on Rent Control regulation.

Regulations must be enforced

Solving Seattle’s rental crisis requires smart decision making and a well-constructed plan.

Additionally, regulations must be well thought out, written to have maximum impact, and pragmatic in their wording and execution.

Poorly planned or toothless regulation will be like pouring gasoline on a raging fire.

The last thing Seattle needs is a situation like London or New York are currently in.

Reports of family members pretending a parent is alive when they actually passed away years ago are not uncommon. Hard to blame them when the rent on their parents place was $270 when the market value is over $2,000!

Now what?

The only way to get this crisis solved is to find solutions that make it profitable for developers and landlords to participate.

As well as, ensuring Seattle residents have safe and affordable rentals to call home.

Solving Seattle’s current rental crisis has no single solution.

Specifically, easing zoning laws, implementing stabilization systems, and smart laws that take the human element and market into account will allow natural change to begin loosening the rental market.

Harmony between supply and demand will help every business in Seattle. When people have more money left in their pockets, businesses have more money in their tills.

Seattle is in a Rental Crisis

To sum up the Seattle rental market:

It is not pretty.

With rising rents in the Seattle area, finding a one bedroom apartment now requires a take-home income in excess of $60,000.

Rapidly increasing rents, explosion of short-term rentals and developer discouraging building regulations are fueling a shortage of rentals that worsens each month.

Seattle City Council members have requested the 1980’s ban on Rent Control to be overturned in a letter written to Olympia.

While intended to solve a crisis, rent control by itself will not resolve the issue.

Rent Control. What is it?

Money The concept of “Rent Control” relates to a system of laws that aim to keep housing affordable to keep the bargaining power between property owners and renters balanced.

Rent Control’s intended outcome is more to prevent rental rate gouging due to a competitive market.

In the most basic form, Rent Control laws will cap how much a landlord can increase the rent each year. This percentage is usually sourced from inflation rates. (“Rent Stabilization” is the technical term for this. For simplicity we throw it under the same umbrella.)

The other tool of Rent Control is simply capping the amount that a landlord can charge for rent.

The Best Intentions. The Worst Outcomes.

Rent Control legislation forcing units to rent below market value often leads to backlash from landlords and developers.

The incentive for landlords to invest in their existing units is severely diminished since their return on investment is no longer based on the market, it becomes tied to a fixed rate.

Developers are better served building single family homes and condominiums that can sell for the price set by the market rather than what Rent Control law says.

Additionally, Rent Control often forces developers to set aside a portion of the space in any proposed multi-family housing.

What About “Inclusionary Zoning or Social Housing?”

Apartments Depending on who you ask, this is the London or New York solution.

The idea is that for a developer to get their building project approved they agree that a portion of the units go to specific tenant types or rent below the market rate.

The rent for a London flat is $2,486/mo. Central London is well over $3,000/mo.

Landlords in New York often choose Rent Control unit tenants in comically corrupt ways. They are often rented to those with personal or business ties to landlords. Often, the tenants are far above any income maximums

What sounds like a perfect solution, has turned out to be better in theory.

Effect on Small Business & Possible Solutions

Empty Wallet A general economic principal states that a fiscally responsible person or household should spend no more than 30% of their income on their rent or mortgage.

With this theory in mind, it is no wonder Seattle is supporting this principle. Yet, as seen in other cities the cost of living and citizens disposable income can fluctuate.

When push comes to shove, people are going to pay their rent before they go out to have a drink at the local bar.

Seattle’s rental crisis has no easy solution. However, we can say with certainty that Rent Control on its own will not be a silver bullet. Multiple factors play into the exponential cost of living increase in Seattle. The solution must also be a multi front approach. These solutions deserve thorough analysis and will have their own article.

3 Simple Ways to Solve Seattle’s Rental Crisis