The Housing Bubble

A report from Bloomberg. “Seattle is known for its hip neighborhoods, soaring home prices, and being home to Amazon. So why is its rental housing market experiencing the most severe slowdown in the U.S.? It’s part of a national trend. Rents in Nashville and Portland, Oregon, have actually started falling. ‘This is something that we first started to see two years ago in New York and D.C.,’ said Aaron Terrazas, a senior economist at Zillow. ‘A year ago, it was San Francisco and most recently, Seattle and Portland. It’s spreading through what once were the fastest growing rental markets.’”

“Tenants are gaining the upper hand in urban centers across the U.S. as new amenity-rich apartment buildings, constructed in response to big rent gains in previous years, are forced to fight for customers. Rents are softening most on the high end and within city limits, Terrazas said.”

“Batik, a new 195-unit Seattle apartment building, has views of the downtown skyline and Mount Rainier, a giant rooftop deck with a garden where tenants can grow fruits and vegetables, a community barbecue and an off-leash pet area. New tenants can receive Visa gift cards worth as much as $6,000, with half paid at signing and the rest a month later.”

“‘There is tremendous competition for tenants,’ said Lori Mason Curran, spokeswoman for landlord Vulcan Real Estate, which launched Batik in March. ‘Over time, we think long-term demand is solid. But there is so much supply tamping down rent growth right now.’”

“In Seattle, another factor contributed to the glut of rentals. While the city is in the midst of a building boom — with more cranes dotting the skyline than any other in the U.S. — much of the residential multifamily construction has been apartments. Developers have shied away from condos because of state laws that allow buyers to more easily sue if there are defects in the construction.”

“U.S. multifamily apartment construction for the past few years have been at levels not seen since the 1980s and rapid rent gains have also encouraged owners of single-family homes and condos to fill them with tenants. Projects opening now were conceived by developers a few years ago when rent gains in the U.S. were peaking at an annual gain of 6.6 percent, according to Zillow data.”

The Sacramento Bee in California. “Local real estate watchers say a recent increase in new apartment construction appears to be moderating Sacramento’s rising rents, bringing them closer to normal range after several superheated years. ‘We’re definitely seeing an easing,’ said Bob Shanahan, a Sacramento-area rental market analyst for Colliers International. ‘It’s kind of a return to normal. The increases in 2016-2017 were unsustainable.’”

The Houston Chronicle. “Urban Oaks Builders, a multifamily construction company affiliated with the Houston real estate firm Hines, has filed for bankruptcy protection amid a lawsuit alleging that both companies failed to disclose construction defects to the buyer of a luxury apartment complex in Florida. Urban Oaks, which operates independently of Hines, said the voluntary Chapter 11 filing was precipitated by the lawsuit and exacerbated by a dispute with the builder’s insurance carriers over covering for the potential cost of the lawsuit’s claims.”

“The bankruptcy filing was made on Aug. 31 in U.S. Bankruptcy Court in Houston. Urban Oaks’ estimated its assets are valued at between $10 million and $50 million and its liabilities are between $50 million and $100 million. The disputes stem from a relatively new apartment complex developed by Hines and constructed by Urban Oaks in Celebration, an upscale master-planned community near Walt Disney World.”

“Hines sold the 306-unit property, then called Aviva at Celebration, to Southstar Capital Group of Palm Beach, Fla. in Sept. 2016. Southstar paid $67 million and renamed the complex Sola at Celebration.”

“Earlier this year, Southstar sued Hines, Urban Oaks and other affiliates, claiming they knowingly failed to disclose building defects when it sold the apartments. Southstar said the defects were not detectable during the inspection process and only became apparent in February 2017 when walls, breezeways, floors and balconies started showing cracks and other signs of damage.”

“On Aug. 14, 2017, the Osceola County Building Department issued notices of evacuation to all of the residents. ‘Hines knowingly sold us a property that was riddled with problems and structural issues that routine inspections could not detect,’ Gina Williams, president and chief financial officer of Southstar Capital Group, said in a recent statement. ‘Their deception and now lack of willingness to remedy these problems is wrong and must be resolved before the property falls further into disrepair. On behalf of our investors, the Town of Celebration and the uprooted residents forced to find a new place to live, we urge Hines to do the right thing.’”

From Sightline on Oregon. “As rents across the Northwest have soared over the last decade in buildings new and old, the answer to that simple, mysterious question—where exactly does rent money go?—may also be the way to start answering another question: What, if anything, could governments do to make those rent checks smaller?”

“I don’t mean the short-term price dip Portland’s higher-end renters are currently enjoying thanks to the city’s first apartment glut in twelve years. I was interested in what it’d take to get a permanent drop in the market price of newly built homes.”

“Cheaper materials and minimal common spaces: $52/month. Wood countertops. IKEA fridge. No lobby, let alone a gym or shared kitchen. It’s an obvious option. But even the most skinflint developer would struggle to shave more than 6 percent of hard construction costs—it comes to $52 a month from the final rent—by skipping every frill. That’s why so many new buildings go the other direction and splurge on small stuff: amenities that read as ‘luxury’ don’t actually cost much to add. ‘Lipstick is cheap,’ said Noel Johnson, a developer for Cairn Pacific.”