Condominiums could serve as the “missing middle housing” for the Seattle area — that is, housing that fulfills the needs of middle-income residents who are sick of renting but can’t afford an overpriced single-family home. However, only one condominium project, First Light, has broken ground in Seattle in the past few years.

Dean Jones, principal and CEO of Realogics Sotheby’s International Realty and founder of Realogics, Inc., considered this in his recent think piece, “Seattle’s Condominium Conundrum,” outlining Seattle’s lack of for-sale condominiums at an attainable price point. Jones also spoke on the issue with Seattle Agent.

“Even if the land was free, developers will still not go vertical given the cost of construction, the liabilities and the taxes associated with some of these municipal mandates like mandatory affordable housing,” Jones said. “It’s the right idea — but when it no longer pencils and you still have that same requirement of taxation, developers stop.”

And stop, they have: No one has broken ground on a Seattle condominium project since 2020.

Condominiums aside, Seattle has the lowest housing supply in the nation, and the inventory that does exist is priced out of reach for many residents; the majority of Seattleites are renters in 2024.

Meanwhile, recent statutes aimed at combating housing availability have had the opposite effect. The Washington State Condominium Act, the Growth Management Act and the Seattle Mandatory Housing Affordability Program, all meant to encourage urban growth and accommodate the city’s increasing population density, have unintentionally inflated home prices.

“Sometimes government intervention has a cause and effect that might be unintended or ironic,” said Jones, who has a 25-year background in development, specializing in market research, product design, marketing and sales. “How could growth management or affordable housing initiatives impede development by creating a lack of supply?”

The short answer: It adds cost to the developer.

“Housing is a for-profit business — unless developers are getting subsidies from some institution to build, they’re not going to,” Jones told Seattle Agent. “How can you deny that when 95% of the supply of multifamily housing in Seattle was purpose-built for rent and not for sale?”

It’s very difficult to acquire housing for ownership when starter condominiums are easily $400k or more. Resale condominiums do exist, but they’re not necessarily financially attainable either. And when you factor in additional monetary constraints like high mortgage rates, inflation, utilities and homeowners insurance, homeownership of any kind is barely attainable in Seattle.

“The water level rises above many people’s ability to breathe,” Jones said.

The condominium conundrum

Erik Mehr, founder of Erik Mehr & Associates Real Estate, has focused on new construction condominium sales for the past 22 years and says that while the so-called condominium conundrum is exacerbated in Seattle, it’s really just one facet of a national housing shortage.

“One of the issues for all housing is that construction costs are extremely high,” Mehr said, emphasizing that labor costs for new construction are higher than ever. “Do developers want to bring more supply on? Yes. But the cost to start, and what they’ll need to sell it for to make a profit, is very high. It’s part of why we don’t see a huge supply of new condominiums: People won’t be able to afford it.

“It’s a Rubik’s cube with no straight easy answer,” Mehr said.

Jones expects consumer demand to peak again around 2025 or 2026, when the “downtown renaissance” is presumbaly back in full swing. “Renters will want to become homeowners, interest rates will be lower, there will be job growth and a repopulation of office towers — post-pandemic, post-rate-hike, post-election,” he said.

However, Jones added that the demand will come at the very time there’s no supply.

“We’ve had one tower deliver every year for the past several years,” he said. “That means there will be nothing in 2025, 2026, 2027 — and that will continue until someone puts a shovel in the ground.”

Potential solutions

According to Jones, it could be many years until Seattle gets back into a cycle of condominium development, but that dearth of supply could be shortened greatly if the government provided incentives for developers to build affordable products.

For example, the city could acquiesce on title costs due to the Mandatory Housing Affordability (MHA) program, which would allow developers to go vertical more confidently by mitigating expenses. Jones pointed out that developers can put hundreds, if not thousands, of people in high-density developments that reach sky high, which, in turn makes units more affordable to the consumer.

Jones also posited that existing and pending legislation should be amended to take the burden of affordability away from developers, creating a fairer relationship between risk and reward. The Condominium Act, for example, currently stipulates that developers must generate all of the equity and construction debt to fund construction while buyers are limited to just 5% earnest money deposits.

“[It] should be more balanced between its consumer benefit and its development encouragement,” he said. “It works so well protecting consumers that it scares developers. It overcorrects for the consumer and diminishes developers’ ability and willingness to perform.

“Downtown has the zoning, the land — we just need the fertilizer,” Jones added. “And the city has a lot of control to sprinkle that fertilizer. We’re very potent to build, but we need that catalyst.”

Realtors and their clients are feeling the burden of this crisis as well. Sol Villareal, a broker with Windermere Real Estate, said that as rent prices continue to go up, people can’t just not afford to buy in Seattle — they can’t afford to live there, period.

“We haven’t really built new single-family houses that are affordable to a median income family since maybe 1970,” Villareal said. “Most new construction now is townhomes, which are great for folks who don’t have kids or don’t have a yard, but that’s a relatively narrow subset of the population. There’s a lack of market-rate houses that median income families can afford, and supply is staying the same or dropping.”

Villareal pointed out that while demand for condos is consistent, it’s gone down since 2018, while the demand for detached single-family housing continues to grow. However, the single-family homes that are being built cost between $2 to $3 million.

“The type of inventory we’re building is not consistent with the increase in demand for family-friendly housing,” he added.

Villareal said the best opportunity to amend Seattle’s housing crisis is the upcoming Comprehensive Plan update, which could allow the city to come up with modes of housing that better fit demand. And, like Jones, he said the key is incentivization.

“We have an opportunity to incentivize form factors that fill this critical gap for family-friendly single-family homes with a yard and a garage,” he said. “We need to build homes that will allow families to stay in Seattle long term.”

Villareal’s favorite solution, though, is a proposal called “lot splitting,” essentially cutting a single-family lot in half to create two parcels from one.

“That would work everywhere in the state and actually generate tons of new small houses,” he said. “The simplest situation would be lot splitting everywhere, and a lot of folks who have a giant yard they don’t really need could split their lot in two and sell to a developer so someone can buy it and then build a small house. That would be my dream.”

Another possible solution is the addition of accessory dwelling units (ADUs) on single-family lots. A recent Washington state house bill (HB 1110) stipulates that all municipalities must provide guidelines for ADUs and detached ADUs (DADUs) in backyards by July 1, 2025.

However, Mehr pointed out that ADUs and DADUs won’t be enough to move the inventory needle quickly — it will take time. Unfortunately, the city is in a time crunch: King County needs 17,000 housing units a year to meet guidelines for growth, and if those guidelines aren’t met, prices will continue to rise.

“Historically, affordability in the Seattle metro area keeps worsening,” Mehr said. “Prices are going up and up and up. I struggle thinking of ways to get things to be more affordable and I haven’t seen any solutions yet.”

If affordability does not improve, Jones said the next likely step is that people will simply begin to move out of King County. He’s involved in development for Ederra, a master-planned community in the upper Kittitas County suburb of Cle Elum, and said a majority of the interested buyers and current residents in the area are King County ex-pats.

“For people that do hybrid work weeks or work remotely, they can now afford to change where they live and work,” he said. “People are no longer beholden to living in the city of Seattle, and [Ederra] fills a missing middle product line.”

Furthermore, railway and freeway expansion, as well as local ferries, mean that Cle Elum residents can still commute into Seattle if needed.

“If you squish a balloon, the volume of air goes other places,” Jones said. “And new development costs the same to build in a great development as it does in a bad location. Drywall doesn’t care where it’s being drilled.”