University of Washington’s Washington Center for Real Estate Research Director James Young explains the effects of a “missing middle” in a housing market as the keynote speaker of a Legislative Review Luncheon at Warehouse ‘23 June 18.
When looking at a healthy housing market there needs to be a continuum of options from rentals to higher-end single family units, but locally there’s a “missing middle” that has effects on homelessness, according to a University of Washington economist.
James Young, director of the Washington Center for Real Estate Research at the University of Washington, spoke as part of a Legislative Review Luncheon hosted at Warehouse ‘23 June 18. Among state legislators who gave recaps of the past session’s work, Young was the keynote speaker who touched on the housing market, specifically its effects on first-time homebuyers and those further down on “the ladder” of housing types.
Young defined first-time buyers as ideally purchasing a home at 70% of the median house price with a 5% down payment on a 30-year fixed-rate mortgage. Clark County was not in the top-10 of Washington counties for least-affordable homes for first-time buyers, which Young explained was due to the relatively high median incomes and low home prices compared to counties across the Columbia.
Though the evidence might be interpreted as meaning Clark County didn’t have an affordable housing program, Young said the county did.
“While you have not really an affordability problem in the traditional sense … the problem is the movement, the scale of movement and how fast it’s happening,” Young said. He explained it was important for housing supply to cover the gamut of options, from rental properties to condominiums to houses for experienced buyers.
That wasn’t the case locally, Young said. For the Portland Metropolitan Statistical Area there was a peak of multifamily housing in 2017 with it making up 61% of new developments, down to about 55% in 2018, but of that development, none of it was in condominiums which would be affordable for a first-time homebuyer.
“We have this whole missing middle,” Young remarked. “The idea that you have this missing rung in the ladder means that people can’t move from rental tenure to owning a house.”
Young said that housing problems from the Puget Sound area have become a “contagious disease” spreading to areas like Southwest Washington. Imbalance in that area’s market has led to a scenario where aging homeowners in the Sound would sell their million-dollar property, move to an area like Spokane or Vancouver, pay cash for a new property and a rental one.
“Now you’re getting price movements throughout the state that have more to do with Puget Sound movement, demographic movements, than necessarily employment and job growth in individual markets,” Young said. “That’s pretty scary stuff.”
“The problem is if you’re a first-time buyer you’re getting outgunned by all these people with cash equity out of their homes,” Young said. “The only place for them to go is the rental market.”
Missing that middle-market exacerbated problems such as homelessness. Those stuck in rental properties with nowhere to move into homeownership inflated rents, which Young said in some instances meant landlords would redevelop lower-income tenants out of their homes.
Young brought up the adage that “water doesn’t flow uphill,” which meant that while the high-end market might not be affected by a missing middle, the lower market was hit.
Young said that a secondary phase of the Puget Sound “contagion” related to residents’ expectations on housing. He explained that for people in educated, professional careers there was a desire to move out of the rental market into homeownership which leads to those individuals moving elsewhere.
“Then you’re going to get a labor market turnover. Then you’re going to get a brain drain,” Young said. “You’re going to get people who spend the first part of their careers here and make the money (while) they’re renting, and then they’re going to move back out the first chance they get.”
