"Orthodox economics also lacks the explanatory power to elucidate the current state of Seattle's rental market. Nothing in its books or models can predict the situation we are now in: The prices for luxury apartments falling because of glut that will only grow because more luxury apartments are still under construction; while the cost of affordable apartments remains high or rising because of demand."

The simplest explanation, of course, is that developers eager to get in on the action miscalculated, and overbuilt luxury units.

Of course, that explanation doesn't allow for a lengthy screed on alternative economic theories, so perhaps it might be less attractive to some.

I'm pretty sure the laws of supply and demand operated in perfect accordance with orthodox doctrine. Charles has just mistaken what was demanded and what was supplied.

It wasn't ever a demand for luxury living spaces that drove the construction, but a searing demand for places to invest (and/or launder) money. Preferably in cash. This demand has been and continues to be met with more construction. International capital swirls the globe seeking a haven, and find it in the mostly corrupt and politically influential hands of massive real estate development schemes. Moneys and favors are traded, red-tape is negotiated, absurdly priced assets are flipped for a healthy profit, and in the global economic casino, where ROI is just another line item that can be fudged, almost everyone powerful wins.

It's never about building places for people to live.

The only part I don't quite understand is why these units are on the rental market at all. Are lenders still so tight-fisted 10 years after the crash? Or have the current owners just been convinced they can make more on the rental market for the time being? You know the current owners are just the dupes left holding the bag after the primary owners scampered off to Taiwan for more double-or-nothing odds, right?

“... the huge demand for affordable apartments.”

Charles has misplaced the economic meaning of the word, “demand,” which is why he wrongly believes economic theory has failed.

Are there plenty of people in Seattle who want to pay $500/mo. for a one-bedroom apartment in the Pike-Pine corridor? Yes. Just as there are plenty of people who would like to pay one thousand dollars for a new Porsche. This does not mean there is a market “demand” for either.

That pic is taken from Insignia, a condominium, not an apartment.

One gets the sense that Charles got a gentleman's C in economics, sometimes. I enjoyed his recent treatise on the labor theory of value, but he really can't understand the market drivers for housing in a boomtown like Seattle? Really?

Charles,
You don't lack understanding of basic economics, just that of scale:

As long as demand for high-end apartments outpaces our ability to construct them, then you'd never expect to see mid-level demand addressed by development, only through filtering.

As long as rents are going up, unmet demand exists. Now that rents are starting to recede, it's possible we'll see action at the middle of the market.

Once again, seven dead white philosophers are dragged out to buttress what amounts to mysticism. None of this is necessary. None of it is helpful.

All you need to understand about new construction of multi-unit housing today is this: it is all the same. The only thing distinguishing a new luxury apartment tower from a new affordable housing tower is the price charged to the buyer or renter.

The building codes are all the same, the materials are the same, the floorplans are the same, the labor time and craftsmanship are the same.

The only difference is the price.

If the newly constructed housing is regarded as a private commodity then all of it will be sold for as much as the buyers will pay for it. If there are a lot of wealthy buyers, it will all be luxury housing. If there are few buyers with less to spend, then the new housing will be sub-luxury housing.

There is only one way around this: to treat the new housing as a public resource, not a private commodity. The only way around this is public housing.

Charles didn’t define “affordable,” but he implies it’s below market rate. By definition, the market won’t provide anything below market rate — even if, @6, there is a glut of apartments, the market rate will simply fall (and thus take Charles’ definition of “affordable” down to a lower rental rate, too). Hence @10 is correct, which is why Seattle’s voters passed an affordable housing levy in 2016.

None of this matters, of course. Charles writes to complain about the system which provides him with a high quality of life and a good job — but which, by continuing to provide him with his good life, refuses to flatter his beliefs. He won’t forgive that slight.

This is a brilliant f'n essay, Charles, that helped me clarify some nagging quandaries into a sensible perspective. Thanks, as usual.

Charles, an expensive RV is a cheap home.

@2- lower property taxes wlll not lower rents. Rents are set by demand and competition for units. There may be some landlords who would raise rents less if taxes don't go up, but in general rents are determined by demand.

As for the thesis of this article, a lot of name-dropping and Marxist theorizing seems to be obscuring what is really going on. Seattle has become a desirable place to live and at the same time a lot of the new arrivals are young single people with pretty good incomes. Developers noticed this, and built what they could most profitably rent to that population. The new tech crowd is not all that interested in three-bedroom apartments or places a long way from work, so building is concentrating on putting up one-bedrooms at the higher end of the market.

The reason that cheaper housing is not being built is that developers make less money by building lower-income housing. It is a classic economically rational decision and one that is completely predictable given the demographic changes in the city.

@13

Completely rational for individuals, yes, and yet irrational for the city as a whole, as all of the lower-paid people who are needed to provide all of the amenities and basic functions in a modern developed city are forced to move further and further away from it, thus clogging the roads and rails and creating large and unnecessary economic inefficiencies.

This gross economic inefficiency can be fixed, but only if we begin to regard housing at least partially as a resource that needs to be allocated to best support the economy as a whole, and stop thinking of it solely as a private commodity to be allocated via the open market.

@10: “The building codes are all the same, the materials are the same, the floorplans are the same, the labor time and craftsmanship are the same.”

There’s one thing that’s different:

“...move further and further away from it,”

Location, location, location.

There are two ways to address this. You hinted at one: building a better transportation network. You mentioned the other, some form of public housing. Both are under construction right now, but I doubt adequate amounts of either will be built anytime soon.

@15

You're right, putting the vast majority of new construction in a single central location can also be detrimental to economic efficiency; after a certain point the city's infrastructure in a small area simply can't handle the influx, and it needs to be directed elsewhere.

We didn't see it coming, because the city's previous corporate giants expanded into industrial areas or the suburbs, and to this day it's still possible for their service and support workers to find housing closer to work and at lower cost than their counterparts at the ever-inflating behemoth now ensconced in our city center.

Public transit is a fine thing, but when it reaches its design capacity it's very hard to expand, and it's still economically wasteful if workers have to spend hours of their day on it.

If we want to improve the city's economic performance, we will need to regard a significant fraction of the housing in the urban core (and anywhere else where business thrives) as a public resource to be managed for the benefit of the whole city, not as a private commodity.

"We didn't see it coming, because the city's previous corporate giants expanded into industrial areas or the suburbs,"

Yes, that was true of Boeing, Microsoft, Paccar, et. al., but we could have seen this coming had we wanted to do so. Paul Allen began developing land in South Lake Union decades ago, in anticipation of the Seattle Commons (another foolishly blown opportunity!), and the city has long had a policy of making denser the neighborhoods closest to downtown. We have been doing the right things, but we needed to do them faster. It's just that not even Amazon believed Amazon would grow at this rate.

There's plenty of room for expansion in Belltown and South Lake Union, all within short blocks of Amazon's burgeoning HQ1. With sufficient imagination, we could make housing at mixed-levels of income work in Belltown. But between local politicians getting their hate on Amazon for the unforgivable crime of providing oodles of high-paying jobs, then trying to save themselves via the Showbox, we simply don't have the leadership to convert on this great opportunity. Enjoy your long, overcrowded train ride!

@14- You are correct that if we want cheap housing, we probably need to build some publicly subsidized housing. Unless you are talking about taking away private property, though, i don't see how you get housing removed from the market. Also, we are now seing that more supply in part of the market is making prices respond in the way that we would expect (more supply of high-end apartments = lower rents).

As to the issue of clogging roads because people can't live close to their jobs, the clear answer is building more housing, not just forcing what is already there to be cheaper. Without an absolute increase in the number of housing units in the city, all you would be doing is reshuffling who does and does not get to live near their job. You might feel that the decision was being made in a "fairer" way than just looking at who can afford the higher rent, but forcing rich people instead of poor people to commute won't solve anything

The only way out of this is more places for people to live. The NIMBY-ism in Seattle created this problem and it is continuing to be an issue. Get overly restrictive zoning out of the way and things will improve. Also, the public housing i mentioned above is made much harder to do and much more expensive by the same restrictive zoning.

@16- How would "managing a significant portion of the housing a a public resource" help the situation? There would still be a limited supply of housing and too many people who want it. You might create DIFFERENT winners and losers, but would not address the real problem.

@18, @19

Zoning doesn't just apply to residential property. We can also rezone commercial property to multiple cores, it doesn't all have to be packed into a single downtown lump. We forgot how to do this in the decades of suburban flight-- because the large companies fled to the suburbs, too, removing the problem for a while.

Older cities still have neighborhood names reflecting multiple business cores for multiple sectors. The division doesn't have to be by trade, but multiple business districts made sense when most people commuted by foot, and they make sense when you want more people to commute by foot today.

As to acquiring the land for public housing (or "local worker housing," if you're into a bit of rebranding and rethinking) it seems to me that the simplest way for a City to "take away" private property is the same way developers, investors, and speculators take away private property: by purchasing it. Expensive up front, sure, but cheaper for the City's residents than the alternative of permanent economic inefficiency.

At present, more people commute out of the city into the suburbs than the other way around. This has been true for decades, and it's increasingly true as younger affluent people prefer living in the city center, even when their jobs are out in the burbs at Microsoft or T-Mobile or what have you.

And right now, they're crowding out Downtown's service&support labor force. We can do better than this, we can have greater economic efficiency. But we can't do it if we consider only individual interests, and refuse to think about the city's economy as a whole.

@20- I think we agree. If we want really cheap housing (OK, "local worker housing"), we need to buy the land and build it. And adding housing in more parts of town makes all the sense in the world. As for the people commuting to the 'burbs, I think we are likely stuck with that until Redmond or Bellevue somehow become more attractive to young affluent people (or really, to young people, affluent or otherwise, who are concerned about something besides raising kids & pretty lawns) - in other words, when Hell freezes over.

It's going to keep impacting the city and is one more reason we need to increase density here. I don't know how you keep them from "crowding out" the service/support labor without building a lot more housing in the city. And more high-end apartments will ultimately result in more vacancies for everyone. As a landlord, I can tell you that there are fewer people clamoring for apartments a notch below the fancy SLU places than there were a couple of years ago. I think this is likely because there are now enough new high-end places to fill that part of the demand, which decreases pressure on the cheaper stuff for everyone else.

It may also be helpful when discussing this to get beyond the Downton / SLU / Capitol Hill myopia of The Stranger and look at what is happening in the rest of the city. Over the last decade there has been a great deal of new residential construction that is mid-market and not at all directed at the luxury market. Maybe venture out to Ballard, Fremont, Greenwood, Ranier Valley, West Seattle, Beacon Hill and other places unknown to the hipster crowd. It is still expensive by recent historical standards, but that could probably be explained by supply and demand, no?

4, Please don't trifle with "facts". They are so boring and last century.

@9 of you think modern construction looks all the same, check out what they built in 19th century Europe

Brilliant essay, Charles.