And although it'll no doubt hurt a lot of people, particularly those new home purchasers who have been instigating bidding wars on new development springing up around town like so many mushrooms in a rain forest, at least it'll get them out from under onerous mortgages on over-valued properties that, by all accounts are going to start decomposing into so much pulpy, fibrous mush in about 5 or 6 years anyway, given the shoddy construction standards I see around me.

charles, if your theory were true [that finance causes rising housing costs rather than housing scarcity], why is there ANY difference between housing prices in american cities? further, why is there a clear correlation between Seattle, which is building a moderate amount of housing, and SF, which is building practically no housing, and Houston, which is building tons of housing? The prices and the amount of building matches up almost perfectly. Why is that the case?

Why are there shark fins sticking out of the ground around that sign?

Charles, in your comparisons to 2008 are you arguing that we are already back in an environment where bad mortgage loans and fraudulent credit ratings are creating another bubble? And what is this historical relationship between the 2008 crash and the current rental market in Seattle? Are you arguing that the owners of the rental properties can’t afford them or that renters will walk away from the agreements? Obviously the housing market is complex and there is some financial speculation but supply and demand explains 90% of it so calling that a myth is disingenuous.

And saying the 2008 crash was not predicable by mathematical models is an absurd statement. Everybody was either clueless or complicit in that bubble and the crash was the expected mathematical result when the fraud was finally exposed.

Another fact free Stranger article. Great speculation(!), but where's the evidence? I guess in Charles' world view the fact that Seattle is one of the fastest growing large cities in the country has nothing to do with the higher rents.

@2 is absolutely right. Demand is higher right now in Seattle, and apartments are fully rented, so rent is increasing rapidly. It would be increasing even more rapidly if we were building new units at a slower rate. It's true that major housing construction projects in Seattle are funded by multinational corporations with shareholders that have no idea they're investing in homes on *that block* in *our city* (this is new...even a decade or two ago our construction was funded by local investors). That's a problem because it leads the corporations to only care about profit, happily at the expense of building quality, neighborhood livability, existing tenants or anything else...which is why regulations (more regulations!) are SO important today. It is also true that home and property purchase costs (not to be conflated with rental costs, as this article seems to do) in places like Vancouver, Canada are artificially high because foreign investors simply want a tool for storing millions of dollars in a currency other than their own. But in Seattle we aren't seeing blocks of empty homes like you see in Vancouver, which is what would indicate that a stashing of foreign capitol is what is driving our single family and condo home values up. We're not seeing that. But this article claims to be about rising rents, not the cost of property, and these are two very different things. The apartment buildings that financial markets are investing in don't set the rental prices -- if they weren't full then rents would stall or decrease -- and the "black swan" occurrence in this particular case would be caused by supply going up and/or demand going down for housing, prices following, and then the over-leveraged multinational corporations lose their stock value in a dramatic crash. That's honestly not a terrible outcome for the renters of Seattle, who will then have more housing stock overall and cheaper rents.

Zach I @2, Get out of here with your pesky facts!

Markets are not always perfectly efficient, but this article offers no support for its rejection of the concept of supply and demand as applied to house prices, let alone rentals, where speculation isn't really a factor.

@5, sorry: I forgot to link Lisa Herbold's post "Wall Street’s impact on Seattle’s housin…."

This just in: Mudede looks to Seattle Times and Lisa Herbold for facts. Facts like: "These cash-buyers are typically large investors who often don’t live in Seattle or have the same kind of stake in our city. "

Oh wait, that's not a fact. It's speculation.

@3, for effect.

The thing I like most about this post is that Charles first tells us that the theory of market pricing, driven by supply and demand, is rubbish-- and then turns right around and uses that very theory to explain the rise of local housing prices (rising because "finance" is creating more demand for real estate).

What is this "finance," though? Is it an autonomous sentient being, roaming the land without any connection to the distribution of resources in society, arbitrarily meting out reward and punishment? Is it, in short, a living god? An ineffible force feared by bumpkins and other rural-minded people who choose to believe in it?

Or is it something a lot more ordinary than that?

@12 is correct
EOF

Charles, I think you must be careful to distinguish between the for-sale housing market and the for-rent housing market. Yes, they have some obvious links, but they also operate on/in different economic realms.

I have no doubt the Seattle for-sale market is being ravaged by tidal waves of money as a result of the global glut of wealth, and that for-sale pricing is completely divorced from economic fundamentals, like we see in many global cities. I strongly believe the solution for this is a progressively tiered pied-a-terre (non-primary residence) tax to discourage outside wealth from pouring in.

But I also have no doubt that the Seattle for-rent market is still driven by economic fundamentals, namely real income growth and real job growth. Amazon building out a corporate headquarters that will accommodate 50,000 high value workers can explain a lot of that. I strongly believe the solution for this is an unabated increasing of the rental housing supply, strong transit investment (so that there is more housing within reach of these jobs), and a massive public investment in the creation of new workforce housing (to complement private investment in new "luxury" housing).

p.s. I'm curious too what you make of this: The guy who transcribed 30 years of for rent ads and determined it all boiled down to the number of jobs, total income, and number of housing units: https://medium.com/@andersem/a-guy-just-…

@14 That was interesting, thanks.

Excessive government regulation can also cause an increase in rental prices. And, in addition to, public service employee unions, contribute to the cost of inflation and effect the CPI. Particularly, the collective bargaining agreement in effect between the City of Seattle and the Seattle Police Officer's Guild.

This collective bargaining agreement stipulates that Seattle police officers obtain a pay raise that is substantially above the CPI and is compounded to increase the cost of living in Seattle at a rate that is greater than the rate of inflation.

Disappointing article.
I was hoping for meaty insights but got a bland jargon salad.

#3, apparently certain aspects of the spirit can be caught on film.

Any attempt to interpret speed and domination of an algorithm fueled financial system using century old definitions reveals continued success in neutralizing any alternative reversal not excluding a mosquito bite. Neither have linguistic servitude.

@20

In other words: recreational marijuana is now legal in Washington State.

What a junk piece. What's missing is the link between 2008 and regulation. Or rather the lack thereof. Today the signs of speculation are much less apparent than they were in 2008. Seattle home prices are being driven by an influx of highly paid workers. Of course its only fair that developers try and squeeze as much of that sweet six figure income as possible.

Paying 37 percent tax on a legal plant byproduct and or a court imposed fine ranging from $250-$10,000 on an illegal plant is calibrated into the pay for play pay for bike lanes schema while high frequency trading manipulates at times a devastating degree of social control without a tax burden.

@#20 and #23: Mr Mudede could profit by learning to compose his prose in your clear, lucid and cogent manner.

I rarely agree with Mudede, but I think he's on to something. Maybe the early stages of the current development boom really were in response to exponentially rising demand. But I suspect as the boom (now starting to look like a bubble) is maturing there is a much larger speculative component to it. As that speculative component continues growing we inexorably move toward a crash.

I also find myself agreeing that real estate long ago lost its value as a "use commodity" and instead became an "investment commondity", that is a financial instrument. People for the most part no longer buy or build strictly for use, they do it hoping to turn a quick financial profit from doing so (flipping both commercial and residential real estate is a relatively new phenomenon).

Keep your eyes fixed on local multi-family vacancy rates (the key indicator) and ignore all the the rest of local booster, over the top everyone-wants-to live-in-Seattle hyperbole. If vacancy rates start rising a crash in rental and condo property is coming as sure as night follows day. The fallout from that will impact the local single-family market as well.

Chinese speculative investment is behind much of the problem. Next week Vancouver is imposing an additional 15% property transfer tax on foreign home buyers to curtail some of this strain. I expect Seattle to wise up in about 10 years.

This article, to borrow a phrase, is both "empty and contentless" and does more to reveal the authors sophomoric understanding of economics and causation than anything else.