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The Good Bubble

2011 November 26
by dan bertolet

Note: This post originally appeared on Publicola as part of their Thanksgiving series.

< 19th and Madison in Seattle’s Capitol Hill neighborhood >

Ever since the crash of Dutch tulip mania in 1637 it has been widely recognized that economic bubbles tend to end badly. But over the past year in Seattle there’s been a bubble growing that I believe is a positive exception to that rule: the apartment boom. From the perspective of urban sustainability, that’s something to be thankful for.

New apartment projects have been sprouting so fast recently it’s hard to keep up. Nearly 7000 units are projected to come on line in 2013 in Seattle and Bellevue. In Seattle’s Capitol Hill neighborhood alone construction is well under way on four large mid-rise apartments that will provide close to 600 new units, and a dozen or more projects are in various stages of the pipeline.

Factors driving the apartment boom include the lull in construction caused by the real estate bust, a relatively strong local job market, and demand from Gen Y kids and others who can’t afford to buy in today’s economy. Multifamily housing is pretty much the only real estate development market that has a pulse currently, which has led to somewhat of a feeding frenzy.

Why shouldn’t we worry about this particular bubble?  True, an overproduction of apartments can be expected to dish out some economic pain to building owners, financiers, and developers who get the timing wrong.  But that won’t change the fact that we’ll end up with lots of new high-density urban housing that will be on the ground for decades. And that’s some powerful good mojo for a sustainable city and region.

Dense urban infill housing reduces development pressure on farms and forests, leverages existing infrastructure investments, spurs economic development, improves public health, reduces stormwater runoff pollution, energy use, and greenhouse gas emissions, and helps create the kind of livable, walkable communities that the market increasingly demands. Furthermore, any oversupply will put downward pressure on housing prices, helping to address affordability.

So no, I’m not wringing my hands over a potential apartment bubble. When I look up and see another construction crane on the skyline it gives me hope.

< Looking west from Seattle’s Capitol Hill neighborhood >



7 Responses leave one →
  1. November 27, 2011

    A bubble can be characterized as multiple things, part of which is oversupply due to bid-up demand. The in toto apartment market of the United States is, however, the obverse–lacking. (This is due to our heavy policy emphasis on single-family detached home-ownership.) Due to long-term lack of demand, supply likewise lacks. Apartment construction may well enter a bubble in the near future (if there’s one way markets act, it’s certainly not in rational self-interest), but it’s not happening now.

  2. ben leis permalink
    November 28, 2011

    If its a true bubble and the market collapses due to over supply it may not be better overall than if apartments were built in a steady but sustainable rate. That depends on how long apartments won’t get started post-crash. If a crash spooks investors/developers/banks for long periods of time a la the housing crash then we would be better off with less building now but over a longer time period. Generally a correctly functioning market works better than an overinflated one.


  3. Matt the Engineer permalink
    November 29, 2011

    It’s not a bubble. It’s just the one housing type that isn’t typically owned by the resident. People want to move to Seattle as much as ever (for evidence, see per sf housing prices in the city vs. out), but few homeowners are moving anywhere because it’s tough to sell their own homes (or they have an irrational fear of making their lost home value real by selling in this market). But renters are free to move around, just like they always have been.

    One more nice feature. There’s no real difference between apartments and condos except ownership (and often square footage and sometimes build quality, but those aren’t requirements). If in the future there’s a strong demand for ownership it shouldn’t be tough conversion.

  4. RossB permalink
    December 20, 2011

    I agree Matt. Although it is possible that it will become a bubble. Right now, things have swung towards apartment ownership, for the reasons you mentioned (people can’t sell their house) as well as other reasons (credit requirements have swung to the other extreme). As a result, there are people who would otherwise own a house (or condo) who simply rent (for now).

    One of the interesting things about a bubble is what it leaves behind. The railroad bubble left a big infrastructure system. The tech bubble of the 1990s left a lot of experienced software engineers and entrepreneurs. The housing bubble left us with a lot of housing. This would be good, but unfortunately, a lot of the housing was inappropriate. If we had built a lot of small houses on small lots, or a lot of simple condos, then everyone’s life would be better right now (times are tough, but housing would be cheap). Instead, we have relatively cheap housing in the suburbs that is way too big. It is as if we built a lot of big Cadillacs, now available for half price, but what people really want is just a nice little Honda.

    If there is an apartment bubble, it will be a good thing. It will mean lots of people will be able to afford to live in the city. Can’t have too much of that. Although an extreme bubble could mean that developers stop building, then we could start a nasty cycle all over again (sigh).

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