^{Wealth & Poverty Review} Seattle Overregulation is Driving Out Affordable Rentals

The number of registered rental properties in Seattle has declined consistently since 2019.  This according to a December 2023 audit by the Seattle City Auditor titled Understanding Seattle’s Housing Market Shift from Small to Large Rental Properties. The audit was performed at the request of several councilmembers in hopes of explaining a decrease in rental properties registered with the city.

The audit relied on data derived from the Rental Registration and Inspection Ordinance (RRIO) passed in 2012, which requires all rental properties to register with the city and undergo regular inspections to “ensure basic safety maintenance requirements are met.” Although the inspection goal evidently isn’t being met, RRIO provides useful data on rental market trends in Seattle. [1]

Ironically, the decline in rental properties has occurred even while the total number of units reached a high in 2022. The reason for this is that a mere 6% of rental properties contribute to a 66% majority of rental units because they are large, multifamily properties with more than 20 units each. The other 94% of rental properties are single-family and small multifamily properties, owned by “mom and pop” landlords.

According to the audit, at least 6,859 properties were sold between 2016 and 2022, which is a significant loss considering that by the end of 2022, 26,519 properties were registered in total. The highest percentage of rental properties sold in Seattle were single-family homes, with 4,721 sold and sales increasing every year until 2021.

The audit also reveals an increase in rental properties with registrations expired, lapsed, or withdrawn. Single unit properties are the greatest contributor to inactive rentals, with over 14,000 becoming inactive between 2014 and 2022.

The data paints a grim, but crystal clear, picture of the state of small, single family rental homes in Seattle. “Mom and pop” owners of small rental properties are taking the most affordable rental homes off the market. The audit confirms this, citing a separate analysis which concludes “there has been a decline in the number of smaller rental properties in Seattle which…tend to be older, and are generally more affordable, while there has been an increase in larger properties, commanding significantly higher rents.”

No one denies that Seattle urgently needs more housing. But some may argue that the sale of rental homes still contributes to the housing supply. So why worry? The answer is that the sale of single-family rental homes decreases the supply of affordable housing and pushes renters out of the market.

Consider an example of a property in the Greenwood neighborhood, where inactive rental registrations are the highest. Zillow is currently listing a 1,600 square foot, three-bedroom home for rent in Greenwood for $3,900 a month. Given that the median income is $113,400 in the 98103 zip code, the cost of rent is high, but reflective of the area. The home, last sold in 2007, could very well be the only rental property managed by its owners — the exact kind of property being sold out of the rental market.

A similar house on the same street with the same square footage and beds, which also rented for  $3,900 per month last year, is currently for sale for $850,000. Based on Zillow’s home mortgage calculator, assuming a 14.4% down payment — the national average — and a 30-year fixed 7.489% interest rate, the buying family would have to pay a mortgage of $5,736 per month. That payment is no longer affordable for families at the median income, let alone for families below the median income level.

The small, single family rental market is a vital contributor to affordable housing in Seattle. With an increasing need for affordable housing, the city cannot afford to continue losing small rental homes.

The city’s audit provides clear answers to the cause of this loss. A survey of property owners who took property off the rental market between 2016 and 2022 reveals that the majority, 67%, did so because “it was difficult to comply with the City of Seattle’s rental rules and regulations.” When asked what they did after taking their property off the rental market, the most reported response, 41%, was that they “purchased another rental property outside Seattle.” 74% of respondents when asked about Seattle’s rental regulations, reported that “the rules are too burdensome to follow or too difficult to implement.”

The Seattle Department of Construction and Inspections (SCDI) manages complaints about housing conditions and landlord-tenant issues related to eviction notices and financial disputes. In 2016, the office received 544 housing complaints and 23 landlord-tenant complaints. In 2022, the office received 1,195 housing complaints and 2,859 landlord-tenant complaints. That’s a 12,330% increase in landlord-tenant complaints since 2016.

Clearly, the environment Seattle has created for small rental property owners is working to shrink the affordable rental market and drive families out of single-family homes as a result. The data backs the primary recommendation provided in the audit: 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.

But instead of recommending that obstacles to single-family rental be removed, the authors suggest more resources to help small landlords navigate the burdensome regulations. Seattle’s “mom and pop” landlords, the backbone of the city’s single-family affordable housing, don’t need more infographics. They need more freedom to manage their homes. Until city leaders recognize that and reverse course, we will continue to wave goodbye to this valuable part of the rental market.

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[1] Only 7.3% of registered properties were inspected in 2022.