A December 2023 article published by Publicola co-founder Erica C. Barnett claims that the decline in single-family rental units in the Seattle housing market is not due to “renter protection” laws. This activist piece masquerading as “journalism” referenced a report by the Seattle City Auditor, also published in December 2023. Erica crowed that the Auditor’s report “validates” that small housing providers in Seattle aren’t selling more because of damaging new housing policies. Instead, she claims that the increased selling activity is happening because of some unspecified “national trends.”
To be clear, Erica does agree that Seattle is losing housing supply. She agrees that small housing providers are being weeded out of the market at record levels. But she takes the position that this trend is acceptable because it’s happening all over the country and not because of policies that are obviously and dramatically raising the cost of providing housing in Seattle. Page 6 of the Auditor’s report is unambiguous about the effect of new Seattle housing laws:
“Seattle’s rental housing landscape underwent significant changes between 2016 and 2022, reflecting broader national housing market trends shaped by the COVID-19 pandemic, economic housing factors such as high home prices, fluctuating rents, and low mortgage rates between 2020 and 2021, as well as evolving rental regulations and fair housing laws adopted by the City of Seattle.”
It appears that Erica is suffering from the Dunning-Kruger effect—she believes that her competence in housing policy is much higher than it actually is. The data from the Auditor’s report clearly shows huge jumps in sales of single-family and small multifamily (2-5 units) rental units during the years when increased “renter protections” were passed (2016 to 2017, 2019 to 2020, and 2020 to 2021). Damaging housing laws create ripple effects throughout the housing market, including higher rent prices and increased homelessness. New renter protection policies are raising costs to a level that many small housing providers are simply not able to stomach.
Erica also references a study by Crowder et al., expecting readers to believe that this shoddy piece of research somehow adds weight to her argument. This group of sociology professors measured the response to one piece of legislation—the First-in-Time (FIT) laws that were passed in Seattle in 2017. FIT laws require housing providers to rent to the first qualified rental applicant with an aim to prevent discrimination by income. These laws increase the chances that housing providers will rent to a resident who will eventually stop paying rent. However, residents who stopped paying rent were still subject to the same eviction laws, so costs didn’t actually rise significantly. Although housing provider costs did not increase significantly from the FIT law, the Auditor’s data shows that sales of single-family RRIO homes nearly doubled from 2016 to 2017 (259 in 2016 to 459 in 2017, up 77%). Was that in line with national trends, Erica?
Rents also rise as a result of higher regulatory costs. Crowder et al. explicitly state that “landlords pass the costs of regulatory compliance (real or perceived) onto tenants in the form of rent increases, reduced maintenance, or more exclusionary screening practices.” Said simply, if a housing provider needs to pay $30 for a rental license, they will charge $30 more in rent. Inflation also raises the cost of maintaining a rental unit every year because the prices of things like appliances and repairs go up. We talked about how rental operating costs change over time in a previous article.
However, housing laws passed after 2019 significantly increased the cost burden to provide housing in Seattle. Seattle passed a winter eviction ban in February 2020, enabling residents to stay in their housing units without paying rent for up to a full year, depending on when the unlawful detainer process started and the court schedule.
Based on unlawful detainer cases handled by LandlordSolutions, these policies have increased the time to complete an unlawful detainer from 3-5 months to about 5-9 months. Some unlawful detainer cases are taking up to 1 year to complete. These changes have dramatically increased costs for housing providers, doubling and sometimes even tripling the costs to subsidize tenants for a much longer period while continuing to pay mortgages, taxes, insurance, and other costs related to their rental property. These new costs are unbearable for the smallest housing providers. Many housing providers simply chose to withdraw their housing unit from the market rather than face the risk of bankruptcy.
According to data from the Auditor’s report, sales of single family homes exploded higher by another 65% year-over-year in 2020, when the winter eviction ban was passed. Combined with the pandemic-era eviction moratorium, sales of single-family RRIO homes skyrocketed once again in 2021 by 52% from the previous year. Over 500% more single-family homes were sold in 2021 compared to 2016! Is that really in line with “national trends?”
The eviction moratorium expired in 2021, which may be a factor behind the relative decline single-family rental home sales in 2022.
As of December 2022, Seattle had 17,647 single-family rental properties registered in the City’s rental program. Since 2016, 4,721 single-family RRIO properties have been sold, representing over 26% of the total! And many of these single-family homes were sold by a small housing provider who just didn’t have the budget or risk appetite to continue running their property as a rental any longer due to the increased costs. How can you gloat about this, Erica?
I’m sure Erica is thinking, “So what? These people just sold a house! They’re going to be fine! We need to help the tenants who are struggling to make ends meet.” While this may be true, this argument is missing the forest for the trees. Taking 26% of the single-family rental housing supply off the market creates ripple effects, especially in combination with the fact that many high-earning tech workers have migrated into Washington state during this same time period. Many of high-earning tech workers want to rent single-family homes! What do we expect will happen when more people and more money chase after a shrinking number of properties? That’s just simple supply and demand—prices will jump across every step of the housing supply ladder!
A report called Washington State’s Housing Affordability Crisis published by Washington State Lieutenant Governor Denny Heck’s office in 2021 describes the cascade of people being forced down the housing ladder as a result of being “priced out” by higher offers:
“As fewer Washingtonians can afford the high costs of shelter, people begin falling off the housing ladder statewide: those once able to buy pricier homes step down to housing meant for median-income families; households once living in median-income units drop to low income affordable housing or renting; those once renting or living in low-income affordable housing become homeless.”
Here’s a high-level breakdown of how these effects can ripple out in the rental housing market:
- High-earning tech workers who moved from outside Washington urgently need to find a place to live. High earners who want to rent will compete for expensive single-family homes and upper-end apartments.
- As the data shows, the supply of single-family rental homes has shrunk by 26%. More people and more money chases a smaller supply.
- High-earning renters will simply offer more in rent for the same property. Rent prices across all single-family rentals will rise.
- The lowest-earning people who previously could afford to rent a single-family home will be “priced out” — they won’t be able to afford renting a single-family home anymore and will have to find another place to live.
- These low earners are then pushed down into the market-rate apartment and affordable home sectors. They become the highest-earning people in these sectors.
- These people will again offer to pay higher rents than others in that sector can afford to pay, pushing up prices for the whole sector.
- When rents rise in the affordable housing sector, the most vulnerable people in that sector are pushed into Section 8 and low-income housing.
- Those pushed out of low-income rentals are kicked to the curb with no place to live. Literally no more housing units are available to these people, so they are forced into emergency housing, shelters, or living on the street.
- This leads to higher rents for everyone AND increased levels of homelessness! No one benefits except for the organizations who milk state budgets and the horde of lawyers who profit off of the new laws.
Washington State’s Department of Commerce recognizes that housing supply is the #1 factor behind rising homelessness. No matter how much we spend on homelessness, it continues to rise to record levels because of our housing supply shortage. We need policies that bring as much housing as possible onto the open market. We need to incentivize all housing providers to offer their housing as soon as possible, not to make it as difficult and as costly as possible. If more housing is put on the open market, rent prices will stabilize and potentially even decrease. More people will be able to find housing that they can afford at different rungs of the housing market ladder.
Top goals of new policies should include incentives to encourage people to add to the housing supply, including:
- Incentivizing developers to build, de-risking new developments
- Incentivizing banks to lend to developers and home owners
- Bringing back lower-quality housing units into the supply mix
- Incentivizing homeowners to rent vacant houses
- Incentivizing construction of additional dwelling units (ADUs)
These policies can contribute to bringing more housing units to the market:
- Expanding the Multifamily Tax Exemption Program
- Expanding Rental Assistance programs
- Expanding the Low Income Housing Tax Credit program
- Expanding incentives to convert commercial buildings to residential use
- Expanding incentives for homeowners to build accessory dwelling units
- Expanding reusable city-approved blueprints for quick approval
- Exploring state/county financing of low-cost micro housing like Boxabl
- Exploring incentives for homeowners to offer rooms in their property for rent
- Exploring tax incentives for banks lending to developers
- Easing restrictive zoning codes and lengthy permitting processes
- Reducing administrative and regulatory costs for developers
- Studying the potential of ultra-low cost housing units (under $500)
- Studying incentives for developers to finish building early