Seattle Is Not Being Changed by Amazon but by Financial Institutions

Comments

1
The biggest difference between the booms of the 90s and now, is that Microsoft expanded in the suburbs. And had the good citizens of Seattle voted for The Commons, all of South Lake Union would now be a huge park surrounded by luxury condos (but modest by today's standards) and not all these crazy skyscrapers.
2
So how to we counter this influx of parasitic liquidity? What strategies can we use to reduce Seattle's 'appeal' to rentier investment?
Analysis is one thing, a very useful thing indeed, but we also need practical solutions.
How can we thwart global capital from 'mining' our economy for profits like it has done to so many others'?
5
@2: if there was an answer, it would have been articulated already. there is no answer. tax stock transactions? kill all the lawyers? how the fuck do I know?

@3: then who creates the long-term trends? jesus? the demand for 8% return in a period of flat interest is driving real estate to hold renters by their ankles and shake every last bit of change out of their pockets.
6
I agree, Charles. People that describe rising housing prices as "simple supply and demand" perhaps haven't been in the market long enough to notice the hundreds of variables pushing the tide in and out—supply and demand is a part of it, but there's nothing "simple" about it.
7
Great article, Charles.

There should be law mandating physical presence for residential ownership, be it a condo or a home. If you're not going to support local culture or the local economy, get a nice hotel room.
9
@5 - Nailed it.

I wonder if there's precedent anywhere in the US that discourages or even prohibits absentee foreign ownership of residential property? Would such a regulation stand up to legal scrutiny?
10
I recently read that Seattle leads the country in terms of how quickly income inequality is growing. it'd be nice if the Stranger started writing more about how this is impacting life here. it's not simple; you left out the role of the fed keeping interest rates low, so investors look to stocks and real estate to park their $, and, messed-up as a lot of people think the US economy is, it's one of very few 'bright spots' in the world, economically speaking. the world has figured out what a good thing we have (had?) going here, so we'd better get a handle on it before it destroys our quality of life.
11
@5 Don't the majority of pensions exist due to unionized labor?
12
Mudede – Jesus, could you just once – ONCE – take an economics and applied finance course that's not 100-level.

The "problem" as you describe it, is that there is 'surplus' capital looking for a home, and that Seattle real estate has become an attractive proposition. What you seem to miss (entirely) is that each investment is a function of risk & reward, and that Seattle real estate is attractive RELATIVE to other investment opportunities. Instead of harshing on investors for doubling-down on real estate, why don't you ALSO look at why OTHER investments aren't as attractive?

Stock market – Increasingly volatile as valuations have been plumped by Quantitative Easing 1-27.

Capital infrastucture investments – Highest marginal business tax rates in the developed world. Why invest here if there isn't equivalent return.
Bond Market – See monetary and fiscal policies. Highly unstable political climate, with people like Hillary squawking about the evils of wealth. Meanwhile, global financial institutions are here largest (by far) campaign funders. With no clear signals, you get no clear investment.

Commodities – Lack of effective leadership and foreign policy coherence troubles global markets. Syria, Israel, Ukraine, Egypt, Mexico, China, Iraq, Saudis – Does this guy even know what diplomacy looks like?

The fact that companies sit on large piles of cash isn't evidence of greed. It's an expression of systemic distrust in weak leadership, inviting companies to gather the reserves to wait-out the likely consequence of such weakness.

In short, Mudede, it is the policies and loose practices of a wussified 'leader', bloating the stock market for union and gov't employee pension funds as much as big donors, that causes money to flow to relatively high returns. If you want investment to flow to something else, stop voting for people who are so massively incapable of nurturing an economy.
13
@11: probably?
14
@13 you could probably guess where i was going with this... But since the pension funds must increase at 8% in order to meet their obligations (according to Charles) it seems pretty clear to me that unions are partly responsible for Seattle's housing woes.

Very odd to see something like this in the stranger
15
Seattle is much like a rent controlled city.

You have Longtimers sitting on million dollar properties, enjoying backyards, and paying little or no taxes to support the city that made their home rich.

At the same time, you have tech workers, fighting in the free market, creating products, many of whom are paying $3000/mo rent or living on someone's couch.

By imposing property tax, you can drive out the Deadbeats and leave the productive people to enjoy the fruits of their labors.
16
@15 - People with legacy rent prices are being forced out of their apartment all the time, and (correct me if I'm wrong) homeowners have little protection against arbitrary property tax assessments by the County. What gives you the impression that Seattleittes aren't paying property taxes?
17
@12 because tulips.
18
Or, to put it a different way, basing the health of a nation on the irrational exuberance of investors is a guaranteed recipe for booms and busts. There's not much if a solution because this is an emergent property of capitalism.

Emergent meaning something that's not explicitly in the rules, but happens as an outcome of the rules.
19
The reason capital seeks to accumulate in property is because the land component of property is inelastic (price goes up, supply stays the same). And it's not just any land, it's urban land because that's where the demand driven by knowledge economy workers can support it.
20
Or, to put it yet another way @12, irrespective if leadership, (since once you get past the ad hominem, and lack of concision, you're basically blaming it on Obama) you're seeing this effect in many countries, not just our own. A big finance industry presence leads to empty investment properties.
21
@2

Broadly speaking, the way to do that is to make Seattle a nastier place to live, with fewer jobs that pay less.

There are any number of ways to work toward that goal; which ones you prefer will of course be a matter of personal taste.
22
@12: If more of that private capital had been taxed in the first place, then it would be public capital that could be invested in things that are necessary and important to a smooth running society, even if they don't have the highest short-term return. (Unlike the private investors you talk about, the government isn't looking for the highest ROI in pure money terms. Ideally, it's looking for the best long-term ROI in social terms.)

In the long run, imho, this sort of investment ends up creating more private capital too, while also improving the lives of many more people, because it socializes risk in ways that the private capital markets can't or won't.
23
Of course, by restricting supply the NIMBYs work to guarantee the demand/supply shortfall that leads to the kind of profit level this kind of investment capital seeks. They're a crucial part of this story. In locations where housing supply increases reliably with demand, the rate of profit won't be there.
24
@12 said:

"If you want investment to flow to something else, stop voting for people who are so massively incapable of nurturing an economy."

Best argument I've seen for voting Democrat in quite some time.
25
@24 Because Democrat-dominated cities have such a great track record of governance....

@22 That you still believe the fairy tale of government as an agent of good, investing smartly in our long term, is at once cute and appalling.
26
@16

If you’re talking about property-tax rates...Seattle had an effective rate of 94 cents for every 100 dollars of assessed value in 2013, ranking us only 38th out of 51.


http://www.seattletimes.com/seattle-news…

Seattlites by and large are cash poor and house rich.


Some Seattle homeowners are not even close to being well off. Of the city’s home-owning households, one in five has an annual income of less than $50,000, the census shows.

They’re house-rich, cash-poor — the same story I heard from readers. Many of them bought their homes years ago, in neighborhoods that were modest at the time, but have since become fashionable.


In other words, they are living a place way above their income level which is why the demagogues always want to tax the (income) of the "rich". In fact, it is the Seattlites themselves who want to live the high life of an expensive city, but get others to pay for their luxury.

You may ask, would I throw them out.

Yes. I would sent them to Yakima. Or Tukwila. Or Vancouver (WA).

By selling they could take a fortune out of the market, and live a comfortable life elsewhere, and yet free up needed space.

It's what Californians did back in the 1990s. (In fact, many parts of Cali are now costing way below what Seattle costs!)
27
If the thesis of this article is true, that money is moving into Seattle and buying up space without expectation of cash flow return on investment i.e. there are more people that live in Seattle than homes for them to live, there would be a large number of vacant investment properties.

How do we know that would be true? Because in London and New York City where this thesis holds water that's exactly what is happening. The lack of those vacant investment properties is effectively dis-positive of the thesis.

Money is flowing into Seattle because (number of people that wish to live in Seattle)>(number of available homes for purchase and rental units) allowing investors to select for the part of the income distribution equivalent to the ratio (housing available)/(people that want housing)
28
Look. This is our home whether we were born here or not. I moved here not in search of a job but just because I liked it and this is back in 1999. And most of all the shit I liked are now gone or about to go and now is ugly, unaffordable and stupid, destined to be trash with absolutely no historical significance.
29
Seattlite turned Londoner here.

Glad to see LDN referenced in the article, as the housing problems here are similar and driven in large part by foreign investment (1).

It's clearly time to think outside the box to solve this nascent, first-world humanitarian problem.(2)

(1) http://www.theguardian.com/society/2015/…
(2) http://www.bbc.co.uk/news/uk-england-lon…

30
@25:

How about because Democratic administrations in the White House have a proven track record of governing during periods greater economic growth over the past 70 years than their Republican counterparts.

That you still believe the fairy tale of corporatism as an agent of good, investing smartly in the long term health, prosperity and well-being of workers is appalling - but not unexpected.
31
@26:

The point being made in the part of the article you cite is that when these people bought into home ownership it WASN'T beyond their means, quite the opposite in fact. And now that many of them are probably either approaching the end of their mortgage terms or now own their homes outright, the point still stands. They live on modest incomes, while the value of their homes and property, and thus their taxation base, has been pushed upward at a much faster rate due to gentrification and an influx of big-moneyed investors driving up the values of the properties surrounding them. But that valuation doesn't really do them any appreciable good until they either decide or are forced to sell; thus, house-rich/cash-poor.
32
@14: everyone who has investments is trapped in this system, seeking out those gains whether they think they are sustainable or not.
33
@26 - First of, you do realize property taxes are assessed by the County and not the city of Seattle, right? Seattle may have some additional bonds tacked on, but nothing major. That is true almost everywhere.

What do you have to back up your generalization of cash-poor Seattle homeowners? Lending restrictions until just recently were the strictest they've been in 25 years due to the 2009 mortgage bust. I'm sure the landscape is still peppered with underwater mortgages, but even variable-rate ding-dongs have had the pressure eased by historically low interest rates (which tiles back into Charles’ point about big money and return on capital). [Comte explained another side of this above, if that's what you're talking about, please ignore this paragraph]

And finally, ignoring you used the word “Cali”, I think you’re talking about Prop 13. There’s nothing like that in Washington State—and you might not understand how it came about and why it remains important. In King County, while property tax rates remains lower than the national average, the County is still free to reassess your property at current market rate, which could potentially double your tax bill in the span of a year.
34
@me - No better way to make a point that starting off with a typo
35
So it seems to me that we need to start taxing the ever-living fuck out of properties that are unoccupied.

Also, we need to drive NIMBYs into the Puget Sound. They're the ones that prevent good transportation or dense construction from being developed "because it will ruin the ~*~ character ~*~ of the neighborhood". Blaming the political decisions made by people who have been living here for a while on those who are new to the area is bat shit crazy.

By the way, if you didn't hate NIMBYs before, you'll hate them more after reading this.

http://www.vox.com/2015/10/20/9570175/la…
36
All bubbles pop. And given what I've just read by all, this country better brace for a pop thats gonna make the 2008 housing crisis look like a pleasant tea party. Who will everyone blame than?
37
Global investment capital looks for cities that have good fundamentals--low income taxes, productive workers, clean air and water, etc. Check. and barriers or boundaries preventing geographical expansion. Check. We're bounded by water on two sides and distance/poor transportation north and south. Seattle works hard to block expansion southward with stadiums, port facilities, reduction in lanes on highway 99 (the tunnel). Moreover, all cities experience a natural gravitational force, compressing growth by sheer barriers of distance and congestion. You can see why they call economics "the Dismal Science"..
38
@30 Your belief that Democrat President = Prosperity and Republican President = Poverty is so inanely simplistic its beneath scrutiny. Never mind to the countervailing Republican legislatures who held those admins in check; or the Democrat presidents whose economies were spiced by war, both necessary (Roosevelt) and elective (Kennedy, Johnson in Vietnam).

Or the Democrats who couldn't keep their dick in their pants, or cigars out of the interns, so to be politically neutered and kicked down the halls of reason to adopt ostensibly republican plans like NAFTA and Welfare Reforms and balanced budget proposals -- that made the economy surge.
39
@38: It may seem simplistic, but that's the conclusion that the evidence supports. There's little to no effect from who controls Congress, but the rate of per capita GDP growth spikes under Democratic presidents: http://www.pbs.org/newshour/making-sense…
It sounds kinda goofy, I know, but the numbers back it up. Got any further arguments?