High Demand for Housing as High-Tech Companies Lead Economic Growth in the Seattle Area
HUD’s Comprehensive Housing Market Analyses provide information on changes in local economies, housing markets, and populations and provide 3-year forecasts for demand in the area. This article is part of a series that sheds light on the content of these analyses.
The Seattle-Bellevue-Everett housing market area (Seattle HMA) has been experiencing strong economic growth over the past few years, which has led to tight housing markets and an increase in multifamily building construction. Emblematic of the economic growth in the HMA is the rapid nationwide expansion of one of the area’s largest employers, Amazon.com, Inc., which is headquartered in the Seattle HMA. The Seattle Times reports that Amazon.com occupies 19 percent of the city’s office space — more than any other employer in a major U.S. city — and is expected to continue growing in the HMA despite its plans to build a second headquarters elsewhere in the United States.
The growth of Amazon.com and other related companies has attracted more people to the area, which in turn has increased the demand for housing. However, the hard geographical boundaries of Puget Sound and Lake Washington limit the amount of developable land in the area and, by extension, the number of available single-family construction permits; as a result, housing development in the HMA has focused on multifamily construction. In fact, Seattle leads the United States in recently constructed apartment units in its housing stock.
The increase in population and limited number of housing permits have caused housing prices in Seattle to increase at a higher rate than anywhere else in the United States. High home prices in the HMA have helped drive the demand for multifamily unit construction and rental units.
Employment in the HMA should continue to grow over the next 3 years as the area’s high-tech industry expands. Many companies and people from the San Francisco Bay Area are moving to the Seattle HMA because of its relatively lower housing costs and cost of living. Likewise, demand for housing in the area should continue to be very strong to accommodate this increase in population.
High-Tech Industry Continues to Grow
Amazon.com is one of the largest employers in the area, along with the Boeing Company, Microsoft Corporation, and the University of Washington. The HMA is headquarters to many high-tech, manufacturing, and telecommunications companies, and the area continues to attract more high-tech companies. Facebook, for example, is moving its engineering office to new space in the HMA in 2018, which will expand the office’s workforce from 1,000 to 4,000 employees.
From 2012 to 2016, area payrolls increased at a higher rate than the national average. With the exception of manufacturing, all employment sectors have experienced growth over the past 12 months, and the information and wholesale and retail trade sectors have grown the fastest. Wholesale and retail trade has been the second-fastest-growing sector since the economic recovery began, adding an average of 7,500 jobs, or 3.4 percent, each year from 2011 to 2016. From April 2016 to April 2017, wholesale and retail trade was the fastest-growing sector, adding 10,100 jobs annually. Much of the sector’s growth can be attributed to the rapid expansion of Amazon.com, which employs 341,000 people globally and is planning to add 100,000 more workers over the next 18 months. The unemployment rate averaged 3.7 percent from April 2016 to April 2017, down from 4.4 percent the previous year.
Many sectors benefit from the area’s growing high-tech industry, especially the information sector, which grew by 6,800 jobs, or 7.0 percent, during the 12 months ending April 2017. This growth made the information sector the fastest-growing sector in percentage terms in the past 12 months and the second-fastest-growing sector since 2000 (behind the education and health services sector). Job growth in the information sector has been strong since 2013 and is expected to accelerate over the next 3 years.
The manufacturing sector was the only sector with job losses over the past year, mostly because of layoffs at Boeing. During the period, Boeing reduced its statewide workforce by 8,400 jobs, and many of these jobs were in the Seattle HMA. Employment in manufacturing is expected to continue to decline or remain steady at best over the next 3 years.
Continued Economic Growth
Overall, employment is projected to grow 2.2 percent each year for the next 3 years, or by 36,600 jobs annually. Job growth will be concentrated in high-tech industries, with other jobs added in the professional and business services, wholesale and retail trade, information, education and health services, and government sectors.
The HMA’s strong economy and population growth have led to tight housing markets with quickly rising home prices and rents. With the area’s geography constraining the amount of developable land, housing markets are likely to remain tight, putting further upward pressure on prices. As in many other major U.S. housing markets, the Seattle HMA is experiencing a trend away from homeownership and toward renting. Many factors are involved in the slowdown of homeownership and increase in renting, including the recession as well as changing demographic preferences, with young people choosing to delay homeownership and the lifestyle associated with it (marriage and starting a family).
The home sales market has been tight, with a vacancy rate of 1.2 percent, down from 2.6 percent in April 2010. The tight market reflects an increased demand and a limited supply of for-sale housing. Home sales prices increased at a rate of 7 percent annually from 2012 to 2016 and by 11 percent since 2016. New home construction has remained relatively flat, averaging 6,275 homes a year from 2012 to 2016. Because most of the city is already built out, developers are constructing multifamily projects to build upward, causing a tight market for condominiums and record levels of apartment construction.
The rental market has also been tight with a vacancy rate of 4 percent. Strong net in-migration and a low inventory of reasonably priced for-sale housing, along with demographic changes as households postpone homeownership, have contributed to rising rental demand. Over the past year, approximately 15,650 multifamily units were permitted, an increase of 26 percent from the previous year. By comparison, an average of 6,925 multifamily units were permitted annually from 2000 to 2005.
Demand for Housing
During the forecast period, demand is estimated for 33,500 new homes. The 3,250 homes currently under construction and a portion of the estimated 28,000 other vacant units will help satisfy demand. Demand for rental units is estimated for 32,750 new, market-rate units during the forecast period. For more detailed information on the Seattle HMA, please see the recent Comprehensive Housing Market Analysis on the area.