After years of apartment project construction and dwindling new condominium deliveries, Seattle Times proclaims that “Seattle’s housing builders are starting to party like it’s 2005” saying “that’s right, condos are back.” This news comes after a half-decade-long apartment boom and is a particularly welcoming bit of information for millennials and first-time buyers that are ready to jump into homeownership, in addition to empty-nesters that are looking to downsize.
According to the article, “in Seattle and Bellevue, only about 2,000 condos have opened so far this decade. But about 6,000 are in the pipeline for completion in the next few years.” This represents 5,000 units in the city of Seattle alone, with some projects categorized under brand new proposals and others as pivots, in which “builders have switched plans to turn what they thought would be apartments into condos.”
In late 2017, the shortage of condominiums available for sale in King County became so extreme that there were just 350 active listings on the market, a stark contrast from the long-term average of 2,000, which contributed to a sharp increase in condo prices, even faster than single-family home price growth in some areas.
As the Times outlines, there are two large factors contributing to the shortage:
1. The Washington State Condominium Act places stringent restrictions on builders, making it much riskier to build condominiums for sale than it is to take on apartments for rent. Despite calls for legislative changes to the well-intentioned act, it remains unchanged.
2. The second factor, on the other hand, has shifted dramatically. In recent history, building apartments was not only a safer call for developers in terms of less restrictions, it was also a monetarily smarter move “because the rental market was on fire.” So, the question was easy: “why bother with the risk of condos when rental apartments were easy money?”
But now that the rental market has slowed and the appreciation of single-family homes is hovering at around 3-percent on a month-over-month basis, condominiums are one of the few viable options left. And consider this: Seattle’s condo shortage is also low when compared to inventory levels in other cities around the nation. Below is a list of the percentage of homes currently for sale that are condos, in some of the priciest markets in the U.S.:
· Seattle / 19 percent
· New York / 52 percent
· Chicago // 48 percent
· Washington, D.C. // 41 percent
· San Francisco // 37 percent
· San Diego // 33 percent
· Denver // 23 percent
· Los Angeles // 22 percent
· San Jose // 20 percent
Marc Coluccio, chief operating officer of SolTerra tells the Times that “because of land costs, labor shortages, tariffs imposed on construction materials and — most of all — the high standards required for building condos, it is very difficult to build a new condo that sells for less than $1,000 per square foot. In other words, a new 600-square-foot, one-bedroom unit would start around $600,000.”
Things don’t get much better when looking at the resale market, as condo prices in King County have grown an eye-popping 137 percent since the market hit its lowest levels in 2012. Despite this growth, however, condos are generally a more affordable option than single-family counterparts, due to size. As the article outlines, “across King County, the median condo costs $415,000 compared to $669,000 for a house. In just the city of Seattle, condos are $505,000 and houses cost $760,000.”
So, what does the future hold for condos in Seattle and the Eastside? Market experts anticipate that condominium inventory (which still remains at about half the long-term average) will continue to rise, but may be stifled if it contributes to falling sales and potential price drops as buyers are given more choices when they decide to purchase.