A tight inventory of homes continues to drive up prices in King and Pierce counties.
But that’s only one of the direct factors affecting affordability.
Land regulations, development costs, job growth and labor shortages also are raising prices. And builders are turning toward higher-end projects where those costs can be more easily worked in. The result is less affordable and entry-level housing.
That’s the conclusion of Robert Dietz, a national economist for the National Association of Home Builders, and Aaron Terrazas, a senior economist for housing data company Zillow.
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The pair spoke early Wednesday at the annual Master Builder’s Association housing forum in Puyallup.
“It all adds up: land use, (labor) rules,” Dietz said. “And some of the same advocates who are in favor of those (regulations) complain about housing affordability.”
Housing prices are 8 percent above their pre-recession peak in King, but still 9 percent below in Pierce, said Terrazas.
“There is a small gap in incomes between Pierce and King County, but the gap is nowhere near as large as the gap in prices,” Terrazas said.
While inventory is down 65 percent from 2010 in Pierce County, inventory is up in parts of Seattle.
That can be attributed to the construction of condos and other multi-family housing, Terrazas said.
“Multifamily construction is taking off in the region,” Terrazas said. But financing is getting tougher for new multi-family projects, Dietz said.
King County is considered to have much higher land-use restrictions compared with Pierce, Terrazas said.
“Home values rise faster in counties with more restrictive land use,” he said.
Zoning restrictions and tighter environmental regulations add to housing costs, Dietz said. The National Association of Home Builders estimates that 25 percent of the final cost of a home are due to direct and indirect regulations costs.
With slowing immigration rates and a low unemployment rate, labor shortages in the construction industry are rising, Dietz said.
The housing crisis and effects from the resulting foreclosures are still being felt. South Tacoma continues to see some of the region’s highest foreclosure resales.
Negative equity — when a home is “under water” — in Pierce County is slightly below the national average of 13.1 percent. It continues to decline.
Terrazas expects area real estate appreciation to slow to 2.7 percent.
“It’s nothing to get worried about,” he said. It reflects a return to a more normal rate, he said. However, if inventory should decline, prices could rise faster.
Mortgage rates should stay below 5 percent in 2017, Dietz said
People just entering the housing market are increasingly turning to their families for help with a down payment.
“What we jokingly call the bank of mom and dad,” Terrazas said.
Renting is an increasingly more important part of the housing market, both men said.
During the recession, renters accounted for about a half million of new U.S. households. That number now stands at about 1 million, Dietz said.
Regulations are affecting rentals as well, Terrazas said.
“A lot of regulation is whether neighbors can vote on whether a multifamily building goes up next door,” Terrazas said.
Some government regulations require developers who build rent-controlled projects to construct them in wealthier neighborhoods, Dietz said.
“Then NIMBYism kicks in from the private side,” Dietz said.
“But you’ve got a homeowner who bought their house 30 years ago when the neighborhood was all single-family houses saying, ‘Why should it be changing?’ Which is a legitimate concern,” Terrazas said.