Housing’s tale of two cities: Seattle builds, S.F. lags
Seattle and San Francisco have a lot in common, from tech-dominated economies to highly educated populations to left-of-center politics. But they couldn’t be more different in one key aspect: housing production.
In recent years, both cities have added thousands of new jobs, turning up the volume on housing demand. The difference has been that in Seattle, planning for new housing has combined with availability of sites for development to fuel a robust housing boom. Developers have also stepped up housing production in San Francisco, but the number of new homes pales in comparison.
From 2010 to 2016, the City by the Bay added a paltry 15,730 units. Its northern neighbor added 32,000. Since 2000, Seattle has seen 70,000 new homes completed while San Francisco saw just over 38,000.
Seattle has 200,000 fewer people, with a population of almost 700,000 vs. San Francisco’s nearly 900,000.
So how can smaller Seattle make so much more housing happen than San Francisco? Developers active in both cities and officials who have worked in both point to structural differences that outweigh the demographic similarities.
Streamlined up north
In San Francisco, development issues are routinely subject to consideration by neighborhood bodies, approval by the city planning commission and often ratification by its board of supervisors, with opportunities for decisions to be appealed.
Seattle’s approval process is much more streamlined, said John Rahaim, San Francisco’s director of planning, who previously worked in the same capacity in Seattle. Projects go through a design review process overseen by neighborhood boards. Once those boards approve a project, it is free to apply for building permits. The city’s planning commission is strictly a policy entity. It does not approve or reject projects. The city council weighs in on projects only in rare cases.
For Paul Menzies, CEO of Walnut Creek-based Laconia Developments, the difference is dramatic. Laconia plans to start construction later this year on its second Seattle highrise, a 370-unit, 42-story tower. It got its entitlements in eight months.
“Seattle is quite phenomenal,” Menzies said. “It’s one of the most exciting markets in the country.”
It’s one that remains considerably more affordable than San Francisco as well. In Seattle, the median price of a home is about $620,000 and the median rent is $2,400, according to Zillow, a Seattle-based real estate information company. San Francisco’s medians: $1.198 million for a home and $4,350 for a rental. San Francisco residents spend about 54 percent of their income for the median mortgage payment and 56 percent for the median rental payment, according to Zillow. In Seattle, the comparable numbers are 28 and 33 percent respectively.
“For someone moving from San Francisco to Seattle, Seattle looks so much more affordable,” said Svenja Gudell, Zillow’s chief economist.
To be sure, the grass doesn’t always seem greener up north. Despite Seattle’s impressive growth, the city is wrestling with its own housing issues. As here, residents are increasingly being priced out of formerly affordable neighborhoods, traffic and congestion are much worse than years past, while concerns about too much density and loss of neighborhood “character” have reached a boiling point.
Seattle’s housing values shot up by 11 percent during the past year while San Francisco’s stayed flat.
“In Seattle, we have quite a bit of runway for prices to go up,” Gudell said. “Demand is strong enough for prices to keep going up.”
Seattle, however, remains a top destination for people looking to escape the Bay Area’s high housing costs because even as Seattle prices have soared, they are still, on average, about half of San Francisco’s.
Developers play in both cities
Several developers are active in both markets. Major apartment developers such as AvalonBay, Essex Property Trust and Equity Residential own and operate thousands of units in both markets.
Trumark Urban, which has built seven condo projects in the last five years in San Francisco, is now scouting sites in Seattle. The firm is not seeing as much opportunity in San Francisco as in the past, said Arden Hearing, head of Trumark Urban. In San Francisco, construction costs, land prices and development fees have jumped in recent years.
“We love strong markets with imbalances of supply and demand,” Hearing said.
Menzies said Laconia has built several East Bay apartment projects, but it balked at developing projects in San Francisco — too much bureaucracy and competition.
The firm completed its first Seattle development in 2015. Cielo, a 31-story tower with 335 apartments, has “done very, very well,” Menzies said. The building offers studios, one- and two-bedroom units with rents starting around $1,600. Two-bedroom units with the most space and best views run up to $4,500 — roughly the starting cost of a one-bedroom in a newly built San Francisco apartment complex.
Menzies said the eight months it took to entitle its second Seattle project, at 600 Wall St., would be impossible in San Francisco.
Like many developers, he thinks that the California Environmental Quality Act, known as CEQA, makes it too easy for residents to sue projects, effectively holding them up for years or blocking them.
“There is just more of an understanding in Seattle that we have to accommodate growth,” Menzies said. “They understand that just because we don’t build it doesn’t mean they won’t come.”
Robust job growth and soaring populations are fueling demand for development in both cities. The stark difference is that while job growth outpaces housing production in both cities, Seattle has done a better job balancing the two.
San Francisco has seen roughly 125,000 new jobs since 2010, according to the UCLA Anderson School of Business, meaning that for every 12 jobs added in the city, only one new unit of housing was built. Meanwhile, Seattle added about 89,000 jobs from 2010 to 2015, according to the Puget Sound Regional Council, which works out to about one new housing unit for every three new jobs.
Seattle anticipates adding 70,000 new housing units and 115,000 jobs from 2015 to 2035. This year alone, the city expects to add 8,681 market-rate apartments and another 10,000 in 2018 and 11,500 in 2019, according to Seattle-based Dupre + Scott Apartment Advisors.
Missing middle confounds
Both cities fear they are losing middle-income residents.
“Seattle used to be a relatively affordable place to live and is becoming an expensive market,” Gudell, the Zillow economist said. “There is a lot of demand for housing from tech workers, but you still have a lot of normal folks working here making $50,000 and $60,000 per year.”
In San Francisco, during the past 20 years, the city’s share of middle-income people dropped from 49 percent to 38 percent, said Todd David, executive director of the San Francisco Housing Action Coalition.
The decline in middle-income people was completely replaced by an increase in upper-income people, David said.
When most cities add housing, the newest units are typically the most expensive and then go down in price as newer homes are built. That doesn’t happen in San Francisco, David said, because there is so much demand that even older units are pricey. San Francisco would have to add about 5,000 units per year for about 20 years to catch up with demand — an unprecedented level of growth.
“We are not building enough housing to accommodate for population growth,” David said. “There are multiple people competing for the existing housing inventory.”
Most of the new housing in both San Francisco and Seattle targets the high end. Scarcity of sites in both cities leads to high land prices in addition to other development costs, said Morgan Shook, a Seattle-based economist with ECONorthwest who specializes in land use and real estate policy.
“It’s not that you can’t build for middle income, but you have so much demand at the top of the market that you would be crazy not to build for that market,” he said.
But, in Seattle, the influx of high-end housing takes some pressure off the low-end.
“People say, ‘my rent went up 5 percent, that’s a lot,’” Shook said. “If we didn’t build all that housing, maybe that rent would have gone up 10 percent.”
Seattle’s secret sauce
Housing production has been strong in Seattle because of the trifecta of available sites for development, upzoning that encourages more density and robust job-fueled demand.
Areas north of downtown, including Denny Triangle and South Lake Union, where Amazon has built or leased multiple office buildings, and former low-rise neighborhoods like Ballard and West Seattle had lots of parking lots that are now high-rises, Shook said.
Developers could choose from “low-hanging fruit” for development sites, he said, but now most has been eaten.
“How well will Seattle be able to replicate (housing production) for the future?” Shook asked. “The big question going forward: Can you still find the old parking lot and old building that you can recapitalize into something more dense?”
Developers in San Francisco have similar questions.
Just building more units won’t solve San Francisco’s housing crisis on its own, Rahaim of the planning department said. The city needs to tackle issues such as workforce housing for middle-income earners, and long-term planning.
San Francisco is “building more housing now than we have in decades,” he said. “I’m really concerned about what’s happening on the regional level. San Francisco has ramped up production while surrounding counties have declined.”