City Council Approves Rent Limits for Substandard Buildings, Promises More Renter Protections


The road to hell is paved with good intentions.

So I guess pushing for incentives to build more moderately priced housing options is just not something the council will even consider pushing for? Is the only solution to push a bunch of regulations that are going to end up in court being challenged for years?
Over 200 current, active building violations?? And he's still allowed to own the building? "Substandard"??? That's a fucking slum. At what point does your city enforce the laws against building violations?

Never mind capping rent INCREASES. That's barely even a half-measure. Maybe the Council should cap the number of building violations before the city condemns such a property and hands it over to an agency to run, or puts it up for sale to a nonprofit or developer who will fucking fix it already.

How would your suggestion be any less contentious? Why would developers not fight that just as vehemently? After all, they aren't in this to provide people with reasonably affordable housing, they're in it to maximize profit on their investment. If building more moderately priced housing could net them the no doubt ridiculously large returns they're currently getting by building high-end housing they probably would. So, what kind of incentives exactly, aside from something resembling huge kickbacks, could be offered?
@2 Ummm... I'm not sure I meant "developer." That usually involves nothing good for the tenants. I think I meant "a good landlord with a history of keeping his/her properties in good condition and being fair to tenants." Hopefully, such landlords exist.
@3 If developers were making "ridiculously large returns," then why wouldn't every investor just skip the stock market and bonds, for the higher returns (alleged) of real estate?

And yet they don't.

Well that's fucking weird, huh? All of that money sloshing around, with untold fortunes to be made from easy-pickings of the rental class? Why?

Basic economics will illustrate that rental property offers a volatile mix of risk & reward. And basic economics will show Seattle that this asinine scheme will

- Create barriers/costs to market entry, and so raise direct costs or reduce supply (and so raise rents), and;

- Lock lower-income tenants into increasingly poor, unmaintained apartments (whose rent won't increase, until they're booted out for redevelopment as high-rent units.)

While Seattle is playing politics, the world is ruled by basic fucking economics.

Um, maybe because a lot of people invested in the stock market through things like 401(k)'s or employee stock ownership programs (including upper management types who derive a large portion of their earnings through stock options) don't really have a choice in the matter? Seriously, if I COULD pull my 401(k) investment and redirect it to real estate I would have done it years ago, given that property almost NEVER devalues as stocks do constantly.

Isn't that what things like Credit Checks and Damage Deposits are intended to address?
@7 But what about the many fantastically wealthy --- on which Seattle bases its persecution complex? The people who aren't constrained to a 401k?

If real estate is high-yield, always-goes-up, guaranteed money, why would anyone put capital into a Subway franchise. That costs $600,000. Use half as a down-payment on a small commercial building or duplex! Why would anyone purchase long term T-bills for a return that doesn't pass inflation? Just buy some property. It's as liquid an asset if its such a great money-maker.

And if your 401k is in a fund managers account, are you all-in on a REIT? Like the Vanguard Index? (Guaranteed high-yields in real estate, right?) Have you borrowed from your 401k to fund your primary residence? You know you can, right? No penalty.

And yet they don't. And you don't. So in order for your theory to be right – the entire investment class of America has to be wrong, and you won't even take your own medicine.

Basic fucking economics.

That's exactly the point: the fantastically (or even moderately) wealthy actually prefer real-estate over other investments, including stocks, because the return is much higher, and accrues much more quickly. The only reason stocks continue to be popular as an investment is because, again, for many people it's the only real option given them, and because the federal government artificially bolsters the markets by keeping Capital Gains taxes so low; great for people who can use stocks as true "liquid assets", but disadvantageous to those of us with 401(K)'s who would take heavy hits if we attempt to convert stocks into liquid capital prematurely.

And the reason most people don't borrow against their 401(k) to purchase property is because the amount taken out has to be repaid back into the fund - in addition to paying closing costs, fees, mortgage, property taxes, etc., etc., which can often make the proposition more expensive than the person could afford anyway. Also, real estate is a fixed asset - there's a limited supply, only so much to go around, and it's not like more of it is being created - and frequently the buy-in, especially on the scale in which typically developers engage, is beyond the means of most people of even moderate means. This is precisely why our current real estate market has heated up to plasma-torch proportions: limited supply pitted against ever-escalating demand.

As for why people get into franchises instead of real-estate, again, it has a lot to do with the rather lower bar to entry: opening a Subway franchise for example can cost as little as $116K; compare that to the current home median price of $560,000 in this market, and it's pretty clear a franchise business is more within the means of many people who are locked out of real-estate investment. Plus, it generates revenue, so there's cash-flow, whereas real-estate, unless one has the considerable financial resources to engage in development or speculation, tends to accrue value passively over time. One could consider that an argument in your favor, but it simply points to the fact that many people looking for investment opportunities have to go with lower-cost, lower-risk, and lower-return options, even if they'd prefer something else, but just can't afford to get into that particular game.

Finally, recent surveys indicate more than 60% of Americans have less than $1,000 i…; one-fifth have no savings whatsoever. Simply put, the average person, given their dearth of liquid assets, doesn't have the ability to get into the real-estate game - or any investment game - in the first place. And even if they DO, banks would much prefer to loan out their capital to commercial and residential developers, where the likelihood of quick - and profitable - returns are much greater, and with far less risk to the lender. Sure, you can get a loan for a home purchase - IF you have a stable, high income, excellent credit rating, and enough cash upfront to minimize risk; something again, most Americans no longer have.
"given that property almost NEVER devalues"

Surest sign a bubble is in effect: folks in Internet comment sections saying "-asset- never goes down!"

(I know, you probably even were full-grown for the last real estate bubble, you're just getting your online overstatement on. But c'mon with this.)
Real estate investing always seemed more interesting than stocks and bonds. But, my god, the headache and heartache and bullshit just can't possibly be worth it. I'll settle for being patient and collecting 3% on a diversified portfolio that never calls me only to complain that there's "a problem."
@10 That you can't even track the essential tenet of "opportunity cost" makes any economic discussion nearly pointless.

- In fact 2/3rds of Americans own their own home. So, in fact "the average person" does manage.
- Real estate is a fixed asset, but its financial base unit (mortgage) is a dynamic, fungible asset.
- While land in the city is limited (and so under demand-side pressure) asset improvement (design, amenities, etc,) is nearly unlimited. Developer success isn't defined by land – its defined by the build. That is the risk for which the market pays a premium.
- Yes, many Americans have less than $1000 savings. Some are clearly in trouble through no lack of effort on their part. For them let's have compassion. And a good many others waste money, make crappy choices, choose not to work full time, aren't thrifty and expect others to provide. For them we have Charles Darwin.
"If developers were making "ridiculously large returns," then why wouldn't every investor just skip the stock market and bonds, for the higher returns (alleged) of real estate?"

Real estate is a totally separate class of assets than stocks or bonds. Because, you know, it's tangible. Even when the market swings the land is still there. So this is a very silly statement. Diversification is a thing, you know.

And indirectly many, many, stocks park cash in funds tied tangentially to Realestate. That's what the whole securitized mortgage crisis was about. So in a sense most investors do invest in real estate in one sense or another. And these bank stocks are back in a BIG way, BTW.

Though large developers over all are seeing record profits. That's just a fact. The record returns are not necessarily being seen by individual developers. But that's because of inflating land costs. Which is feedback loop.

Record profits ARE being seen by institutional investment banks behind many developments and behind the number of property management groups that help to feed rent inflation.

You don't have to go all the way to London or Panama City to see the dire negative effects all these investment banks and cash sinks and outright money laundering via real estate is having on communities. The fallout is happening right here, too.

Full disclosure: I am a property owner and I have seen "record profits."

In most cases the "devaluation" was caused by millions of subprime mortgages that suddenly escalated to the point home buyers could no longer afford to pay the exorbitant amounts of their ARM's once the new rates kicked in. and they went under water due to resulting the negative equity. In short: the bubble was created by banks artificially deflating the actual COST of a home by artificially keeping the interest rate on the mortgage at or near zero percent, selling it on that basis, then jacking UP the cost dramatically after this relatively brief term of low introductory-rate mortgages. By then, the buyers were stuck: the "value" of their homes didn't necessarily go down, but the amount they would have to pay FOR that valuation increased dramatically, to the point they couldn't even sell it at then-current market-rate and expect to get back enough to cover what they now owed based on the escalated interest debt. Unable to pay the increased costs, many went into foreclosure, the banks took over ownership, and then sat on them until market conditions stabilized and there were enough buyers able to pay the actual costs (which the banks were able to conveniently re-adjust once the previous ARM's had become toxic). From the banks perspective there was no real devaluation on the property at all: they generated some small interest income for a few years, got the house back in foreclosure, then held it until it was more profitable to resell.

Sure, a number of banks, some pretty big ones in fact, took huge losses, but it wasn't property de-valuation per se that did them in, rather it was the incredibly speculative Collateralized Debt Obligations (CBO's: the packaging, re-packaging, and re-re-packaging of the original sub-prime mortgages) that blew up in their faces when all the mortgage backed securities that acted as collateral for the literally countless number of lower-level tranches (most artificially overrated by their holders, who frequently had no idea themselves what they even contained) propping up the CDO's suddenly became worthless.

In short, the bankers got greedy and tried to rig the game to squeeze more profit out of an untenable market selling homes to people who really couldn't afford them, and who shouldn't have been allowed to purchase them in the first place, and they inevitably got burned in the process, along with millions of credulous home-buyers who were sold up the river on the notion they could get something for nothing - or almost nothing - but little of it had anything to do with the actual value of the homes themselves.

Not quite true. While 62% of Americans have purchased a home, only 26% actually OWN them outright; the rest are paying mortgages to a bank which owns the home until it's paid in-full. Miss a couple of payments and the bank can take the home away, leaving the purchaser out whatever they've sunk into it up to that point.

Stop when you're behind.

Yes, ARMS kicked-in and loans got expensive.

AND IN ADDITION: Run-up housing prices and loose money enticed (didn't demand or force, merely invited) home-buyers to increase their home size, and leverage their home equity for cars, toys and vacations.

The greed wasn't only the bankers. Consumers were a mixture of witheringly naive, toxically self-indulgent, and fantastically gullible. If a guy bought an oversized house, creamed some equity in a re-fi and bought a ski boat – do we care that the rates went up and he could afford neither? No. I don't. Because he effectively stole the value.

You only bleat about the innocents that got "hurt" by the banks, and how the property and stock market falling was bad. In fact, most people weren't that innocent. They got caught in their own choices.

And a stock and housing market crash are fine – if you're buying.

Stop pardoning the stupid for their self-inflicted wounds.

But, if the banks hadn't been predating on these "witheringly naive, toxically self-indulgent, and fantastically gullible" purchasers like lions on a herd of zebras, they wouldn't have been gulled into buying homes they couldn't afford, then been given re-finance loans or lines of credit or whatever that just pushed them even deeper into a financial hole.

Most people don't understand the intricacies of such a system; hell, even professional economists sometimes have difficulty articulating how such purposefully convoluted financing systems work, and, as we've now discovered, many of those creating, bundling, and trading CDO's like baseball cards at a swap meet didn't have a clue as to how they worked either. That again is part of the point: the financial institutions responsible intentionally make it incredibly difficult, if not downright impossible, for the system to be understood in simple layman's terms, then said, "don't worry, trust us, we have your best interests in-mind, cross-our-hearts-and-hope-to-die, just sign right here!" Any system that DEPENDS on that level of credulity is rotten at its core - no better than a con artist grifting an old lady out of her savings, IMO - and blaming the victims seems to me to simply be letting the perpetrators off the hook for the simple reason that they were able to get away with it in the first place.

"most people don't understand the intricacies of such a system"

Caveat Emptor!

Note, the phrase is in Latin, because its been around for that fucking long. What is old is new again. I'm not defending bankers, but I'm sure as hell not excusing people who followed like mindless lemmings.

@20 is right – because Economics > Politics.
Awright, We didnt really do anything, but we on the city council did good! So glad to be leaving this state for better horizons. After 20 years, I do not want to be anywhere near the West Coast when all this self indulgent ridiculousness implodes in on itself! Seattle can say good bye to another hard working tax payer of "the working class".