2023 RENTAL MARKET RECAP - Single-Family Housing in the Greater Seattle Area
Another year gone by, another look at the data, and lots to digest and discuss. Some of the main themes throughout 2023 were the rental market’s reaction to the home sales market, legal changes, and laying groundwork for the future.
While the availability and pricing of rental homes around the region both ticked slightly upward, the speed of the market slowed significantly.
2023 marked the expiration of the last lingering COVID-19 specific local rental regulations, however, the federal CARES ACT requirement for 30-day notices remains. In the meantime, however, new (and more permanent) policies have arrived.
In a historic election, two-thirds of the Seattle City Council turned over and it certainly appears that this governing body’s approach to rental housing issues will shift significantly.
Starting off with statistics, all of which are gathered from the Northwest Multiple Listing Service (NWMLS) and represent leasing activity throughout King, Pierce, and Snohomish Counties and include primarily houses and condos (not apartments), let’s look at the relationship between the sales market and the rental market. Since the spring of 2022, when mortgage interest rates started climbing, we have seen a spillover effect contributing to more rental home inventory. The number of homes leased in 2023 was 5.83% higher than in the previous year. More pronounced, however, was the slowdown in market time, otherwise known as “DOM” (Days On Market, an indicator of demand). Year-over-year the leasing market slowed down by 33.73%. Homes are still being leased, and prices are even up by 1.06%, but prospective renters are not feeling pressured to make quick decisions. Rather they are, for the most part, taking time to consider options and negotiating lease terms.
So how can this be? How can there be more homes available, sitting on the market longer, yet pricing still increases? The answer lies in the types of homes that are hitting the market, and it illustrates the rise of the “accidental landlord” into the rental marketplace. A higher number of would-be sellers have chosen to put their homes into the rental pool for – in this author’s opinion – one of two primary reasons. They either cannot get as much for their home as they would like to, still clinging to pre-April 2022 pricing in their neighborhood, and/or they want to hang on to their current interest rate which may be below 3%. As interest rates have risen, buying power has decreased, and home values softened year-over-year (the city of Bellevue down 5.3% for example). Looking at the mix of homes that rented throughout 2023, the average “new to the rental market” home was bigger and more expensive, as well. From 2020 through 2022, condo units represented 34.07% of the homes leased on the NWMLS per year on average. That rate dropped to 28.33% in 2023, bringing overall prices up, due in part to the mix of property types shading away from condominium units and toward single-family houses.
Shifting gears to legal changes that took place in 2023, the final COVID-era temporary measure expired when the city of Seattle lifted its ban on late fees in November. However, earlier in the year the city passed a new ordinance capping late fees at $10/month. Throughout the year, several cities around the region passed their own ordinances primarily covering the “big three” topics which are:
1 more advance notice of rent increase
2 caps on security deposits and move in fees
3 caps on late fees
While these policies made their way around the region from one city to the next, interestingly the terms were not identical. For example, the city of Shoreline created a sliding scale with multiple checkpoints ranging from 3% to 10% on rent increases and 120-day notice to 180-day notice. Around the same time, the city of Tacoma introduced a two-stage rent increase notice requirement (first at 180-day and again at 90-day) regardless of the amount. Tacoma, by the way, introduced a number of other new rules in addition to the “big three” including seasonal eviction bans and relocation assistance payments (similar to policies already in place in Seattle). All this is to say, keeping track of all the various rules is incredibly challenging.
To this point, the reader might perceive that it’s all doom and gloom at this point … however, this is NOT the case! We also have some very encouraging recent developments that give reason for much optimism going forward. We know that the Seattle area continues to be an absolute magnet for people around the world who are seeking great jobs and natural beauty. There will always be challenges, but the long-term value of real estate investment here, and the demand for housing, is hard to argue against.
The City of Seattle conducted an audit of its Rental Registration & Inspection Ordinance (RRIO) program and published the results on December 21, 2023. The over-arching theme of the audit was to dig into the trends that were occurring with properties registered (or not registered) in the RRIO program. Specifically, why did registration of single-family rental homes drop so much between 2016 and 2022? What happened to all these homes? Did they sell? Are they sitting vacant? Did the owners simply choose not to renew their registration? For years, mom & pop landlords (small housing providers) have been pleading their case that rental housing policy meant to “protect tenants” will result in the loss of small provider housing inventory, leaving tenants with fewer (and more expensive) housing choices. Such policies present too much risk to the housing provider, and one bad situation with a tenant can have a significant impact. The audit itself spans 81 pages, and in conclusion makes nine recommendations to the City Council. The first of these nine recommendations reads as follows: “If the City of Seattle wants to preserve single-family and small multi-family property rental housing, it should consider enacting policies that support the continued presence of this type of property in Seattle’s rental market. When considering such policies, the City should involve stakeholders most impacted by rental housing policies.”
Sticking with recent events in Seattle, the newly appointed City Council President, Sara Nelson, wrote the following in her introduction to the public via the Seattle Times: “…the past few years have seen a sharp uptick in policy-setting council initiatives, many of which passed through committee review quickly with scant public input and came to a vote with minimal debate. This legislation diverted time and resources away from addressing our greatest challenges and was frequently ideologically driven. And we’ve seen the results … small housing providers pulling their below-market-rate rentals off the market …”
Might the tides be turning? Might our perspectives as small housing providers be recognized and validated? At the press deadline for this article, the 2024 state legislative session in Olympia will just be kicking off. The aforementioned “big three” issues, along with rent control, will be heavily debated. I cannot believe I’m about to say this, but here’s hoping that our friends in Olympia are ready to take a page from our friends in (gasp!) … Seattle.
Cory Brewer is the General Manager at Windermere Property Management / Lori Gill & Associates. His firm oversees management of approximately 1,500 residential rental homes throughout the Greater Seattle Area, as well as commercial & multi-family properties. He may be contacted via wpme@windermere.com. Visit their website wpmnorthwest.com.