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Friday, February 17, 2006

San Francisco A Warning To Seattle

Here's a good one to chew on. Is Seattle's housing market poised to become as ridiculous and unlivable as San Francisco? Could be...

The ripples of San Francisco's housing crisis don't stop at the city limits. When the working poor — receptionists, day care providers, retail salespeople and housekeepers, for example — flee the city, pressure increases on them and their employers. Commutes extend time away from both the job and home. Cities lose middle- and lower-wage earners, decreasing not just economic diversity but sometimes racial diversity as well, census figures show.

In San Francisco's case, those effects extend more than 800 miles north to Seattle, where city officials use San Francisco's housing data as both a grim forecast and scared-straight therapy session.

"We all know we don't want to have a housing unaffordability situation as San Francisco does," said Adrienne Quinn, director of the city of Seattle's Office of Housing. "We don't want to become that."

But it is the direction Seattle is headed. Rents in the eastern Puget Sound region have risen 35 percent over the past 10 years, according to the U.S. Department of Labor. In Seattle alone the jump is closer to 40 percent — compared with 50 percent over the same period in San Francisco.
Well we can't have it both ways, people. Housing prices shooting up and up can't be both good and bad at the same time. Either it's good because all you homeowners out there are essentially making money from nothing, or it's bad because fewer and fewer people can afford to live. Whoever wrote this article though definitely seems to believe the latter. Here's a grim prediction:
"The housing situation here in San Francisco is this: If you are making less than $100,000, housing is not affordable. It's in crisis. It's not available for working class, lower class. The number of evictions is skyrocketing. ...

"It's almost as if two parallel cities are happening. The very poor (and) the very rich. What you see in (San Francisco) you will see in Seattle. It's clashing social strata."
I would like to know why people that are that hard off don't do whatever they can to move to a cheaper place. If the city I lived in became completely unaffordable to me, I would use any means necessary to move to a place I could afford. Anyway, also worth mentioning is Stefan Sharkansky's take on this article over at Sound Politics:
Oddly, the article does not contain the two most important words for understanding San Francisco's unusually high housing prices: RENT CONTROL. ... Both forms of rent control offer perverse incentives for a dweller to remain in their current home longer they would otherwise. Thus the supply of available housing is artificially suppressed, thereby raising prices for anybody who is seeking housing. Seattle would do well to learn from this experience and in general to think about the consequences of obstructing a free market in its quest to make housing more affordable (to some).
So what do you think? Is Seattle heading toward the unpleasant situation found in San Francisco? How does rent control factor into the situation? Will San Francisco and Seattle's housing markets ever pop? Will I ever stop asking stupid questions and just go to bed?

Well I know the answer to at least one of those questions—the last one—and the answer is yes.

(Mike Lewis, Seattle P-I, 02.16.2006)


buy_lo said...

check out this survey:

by_palladium said...

Don't worry about it. The rents down here in SF and suburbs are not substancially higher than comparable rents in Puget sound once wages are factored in.

A typical 3/1 house in the best suburbs (close in to city with excellent schools) rent for only slightly more than $2000. Yes that is a lot. Is that substancially more than in the seattle area? No. The same house in a decent area would cost at least $1500 in seattle, and unbelievably, more than $1200 in spokane.

In either case, wages in SF more than make up for the difference.

That same rental unit that rents for $2000 per month cost $950,000 to buy. So what? Just rent. Let the housing bubble expand - it doesn't affect the rental market in these strange times.

Does this impact the structure and social fabric of san francisco city proper?

Lets face it, SF has much bigger problems than this. The city is dominantly overseas chinese (50%+). There is rent control and significant publinc housing. The schools are terrible.

Does it matter that there is no "affordable housing"?

Ian said...

The affordability in San Francisco simply meant that people commuted further into the city. We have friends down there who commute from Folsom.

In Seattle most people still manage to be within 35-40 minutes of downtown in affordable housing. However the pressure is definitely on as home prices around Tacoma and Pierce County show the highest appreciation 20%+ during the past year. As the affordability ripple spreads ever outwards we should get to the SF level of traffic problems and long commutes within the next 10 years.

I see Seattle on the same experience curve and unless something is done to protect and supply affordable housing close to the city then Seattle will fall into the trap of many of the world's popular cities.

Chip Gibbons said...

Being from San Francisco, I can tell you first hand that rent control keeps a lot of housing locked up at far-below market values. That means housing which is not controlled becomes artificially inflated.

Another factor to consider, however, is that the Seattle area is cheap compared to some markets like the red-hot SF Bay Area. People can sell in the Bay Area and buy much more here for less. That leaves them with money in the bank which is spent on other things, further supporting the economy in their new location.

Anonymous said...

Yeah, but if they were REALLY smart they'd wait a bit and research the market in the new area before they rush to buy.

I can tell you that many home sellers in seattle are pricing their home high, intentionally waiting to snag the out of area ignoramous who will plunk down the money just because it looks cheap to them.

I know this because I did it myself. Am I proud of that? No. But it worked. And I made a LOT more money than I would have if they had just taken the time to do a little research.

If those folks had paid attention, they'd be adding a LOT more $ to the local economy, instead of to my pocket.

Anonymous said...

I sold my home for $375,000 in September 2005, at the peak of the market. I only paid $130,000 in 1997.I lost my job in 2000 working in the .com field and have not worked since. I lived off my home equity and credit cards. After selling, I paid everything off and I can still live for a few more years without working. I bought A condo for $90,000 right before losing my job. It is now worth $160,000. I have been traveling the world and camping living on $30,000 a year.

Anonymous said...

Before leaving on my trip to Asia in Sept of 2002, I got a home equity loan against my house to finance my trip. With the extra money, I bought 1000 shares of google stock at $102 a share. In the summer of 2005, as I had just mentioned I sold my house for $375,000 net after transaction cost in September of 2005. I then sold my GOogle stock in January of 2006 for $431, netting me $330,000 profit at a tax rate of only 15% and a tax free gain on my house of $245,000, which is just under the allowable $250,000 tax free exemption.

SO it works out that losing my job and leaving the country and not worrying about life paid off. And since I didn't live in the USA I didn't spend much money. It amazes me how one of your blogs complained about the foreigners buying up the real estate market. That is just plain "loser talk". Instead of complaining about the situation, take advantage of all the opportunities that life has to offer.