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Turning Olympia into an asset class for investors

A city of renters

This is not a story about the broad swath of Olympia residents who spend half their income to pay for a place to live. It’s not about how “market rate” rents and housing prices have increased to a point where employers complain that they can’t get workers to locate here. It’s not about the extraordinary public expenditures on the homelessness generated by all of the above.

It’s about reshaping the City of Olympia for investors

In 1970 about 30% of the households in Thurston County lived in rentals. In the last decade, for the first time ever, construction of new multifamily dwellings has outpaced single family homes. A great deal of that growth in renting is in Olympia, 52% renter–occupied housing—and increasing. According to information provided recently to Olympia Planning Commissioners, the development pipeline is full of multifamily units: Downtown—441 units, Eastside—505 units, Westside—678 units.

A city of renters—the policy of Olympia’s planners, politicians and private developers

In 2020, the City amended its municipal code to add multifamily structures—duplexes, triplexes and fourplexes—to existing residential zones. These are expected to be rentals, not for sale to people looking to own a home. These same amendments removed a requirement that the owner of a residential lot with an Accessory Dwelling Unit occupy the premises. This makes it possible for an investor to offer two rentals where previously, one was required to be owner–occupied.

Other changes to the municipal code also favor investors. The city’s rules for “short–term rentals” invite investors to own up to two dwellings and rent them out by the night. That there can be a higher return on investment from these rentals is an incentive for buying up units (houses, condos) otherwise available for homes. There is no need for the investor to live on the property—or in Thurston County. Or even in the US.

Olympia Planning Staff recently initiated two more projects that promise to expand investment opportunities in the housing sector. The Olympia Comprehensive Plan calls for “neighborhood centers” that offer access to day–to–day needs within walking distance for nearby residents. Based on outreach so far, the staff model for such centers is an extensive commercial area supporting new apartment buildings—rentals—up to four stories.

Another project is the “Capital Mall Triangle Subarea Plan,” which is projected to transform the big West Olympia mall area, adding housing organized around a denser grid of connected streets. Included as a likely option is converting office or retail to multifamily housing. When Planning Staff presented its work program for the Subarea recently, Councilmembers emphasized the need “to connect with investors and developers when the Plan was complete.”

How investors see this new asset class

Small landlords may complain about limits to their ability to make money, buying and renting housing is seen as a solid investment with great returns overall. Two big benefits come from government subsidies and appreciation. The tax code allows investors to deduct expenses, interest and “depreciation.” It is possible to show an accounting loss even when you’re making money. Certain landlords can write off losses. In Washington, landlords can receive funds from a “Landlord Mitigation Program.” Olympia (like other jurisdictions) gives developers a tax exemption for building housing in specified areas.

As for appreciation, when rents cover mortgage and related costs, the investor ends up with a tax–free asset to sell at a price far above the amount invested.

Another sign of the zeal for this asset class comes from Amazon’s new “Arrived Homes.” Amazon will acquire single–family homes to use as rental properties, then sell shares to investors through its online platform. The demand in these shares is reported to be growing “exponentially.”

What this means to private developers and investors

As long as Olympia officials choose to depend on developers and investors as the source of the community’s housing stock, those interests will be in a position to compel policies.

For example, Olympia’s Housing Action Plan discusses adding an “affordability requirement” in exchange for public subsidies to developers. They rejected the idea, worried that if such requirement were “not sufficiently offset, developers may opt not to build any residential housing…”

In Olympia, several downtown developers enjoy an 8–year exemption from property taxes they would otherwise owe. The express goal of the exemption is to raise the return on investment by as much as an additional 5%. Successive waves of elected Council Members have waved through the subsidies, never asking for anything in return. They are now considering extending the area for tax exemptions into other parts of Olympia. [See WIP, December 2020 “When a 13% return is not enough.]

What this means to people in Olympia who rent

They are also are building wealth for the investor. Homeownership is still the number one way for families and individuals in the US to build wealth. Olympia’s planners and politicians attribute historical inequities in access to homeownership to the evils of single–family zoning. But instead of making homeownership affordable and available to groups previously excluded, their policies guarantee that no one other than the wealthy will have access to ownership.

Even in this overheated market, buying the house you live in means part of your monthly ‘note’ builds equity for you. If you’re a renter, your payment builds equity for the investor. And in the case of Thurston County, where over 30% of renter households pay more than 30% of their income for housing given wages at the low end, that leaves them with no savings and little to cover day–to–day expenses.

Your ability to pay expenses actually diminishes over time. Median rents in Olympia increased by 9.9% since 2019, according to a recent presentation by Planner Amy Buckler. When the Land Use and Environment Committee addressed the status of renters, however, their prescription was nowhere as generous and understanding as the City’s approach to developers.

They forwarded an amendment to the Municipal Code requiring landlords to give more notice when raising rents: an increase of 5% or more will require 120 days’ notice and 10% or more will require 180 days’ notice. The reasons given for this change was “to give people time to prepare for a rent increase that could put you out …”

There was no discussion of limiting rent increases; nor of the fact that if rents are unaffordable to working people at today’s wages what would longer notice mean?

Thurston Regional Planning calculates 2020 annual gross wages for people working in the food and accommodations sector at $22,677/year. For those in the retail sector, it’s slightly better at $36,733.

Add to this the fact that employers offer “flexible” jobs at the low end of the wage scale meaning that pay can vary from month to month.

For a one–bedroom apartment with monthly rent (probably understated) of $1076, a 5% increase would add $50 per month and a 10% increase would be $107/month. Finding out months in advance that your unaffordable rent is going up $50 or $100 a month won’t help you find a way to pay it.

What this means to Olympia as a community

In short, less stability, less social cohesion, less civic engagement. More polarization. Endemic homelessness and need for the “supportive housing” that claims millions of Olympia and surrounding community budgets.

The Federal Reserve reports that the average homeowner had a household wealth of $231,000 vs. the average renter’s household wealth of $5,200. The median length of residence for homeowners in their current home is 11 years. For tenants it’s fewer than 3 years.

Olympia has apparently recently created an Office of Community Vitality. If the title means anything other than promoting downtown, then that Office has its work cut out for it.

Mary Jo Dolis is the penname of an interested observer of the local scene and a sometime contributor to Works in Progress.

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