By Jack Stubbs
Over the last several years, microhousing has become an increasingly appealing product type within Seattle’s multifamily sector, which, much like the commercial and industrial markets, continues to recover following the still-ongoing coronavirus pandemic. While demand for some building types lagged in 2021, last year also demonstrated the resiliency of microhousing in particular.
Simon | Anderson Team, a branch of Kidder Mathews’ multifamily division, recently released its “2021 Micro Report”, which detailed what 2021 brought for microhousing in Seattle’s multifamily market, including investor interest, large-scale transactions that occurred, and how rental and occupancy rates reflected a positive year for microhousing in the Emerald City.
Jerrid Anderson, Executive VP at Kidder Mathews, and Dylan Simon, Executive VP at Kidder Mathews, did not respond to emailed requests for comment about the report in time for the publication of this story.
Market fundamentals demonstrate a bright future ahead for microhousing, in spite of the challenges caused by the pandemic and in spite of the still-growing multifamily product type.
“While only a handful of investors currently develop, own and operate microhousing in the Puget Sound, thousands have watched the microhousing boom with equal parts intrigue and skepticism,” the report states. Urban located apartments were impacted much more severely than suburban ones during and after the pandemic, the report notes, and within the urban core, properties that were heavily dependent on students and service level workers were impacted greatest – a need which microhousing meets.
“Micros” in Seattle had an average rent of $1,026 (6.1 percent increase), while the average rent for SEDUs (small efficiency dwelling units) was $1,267 (nearly an 8 percent increase). Conversely, the average rental rate for market-rate studios in Seattle was $1,544 (a 1 percent decrease). The average occupancy rates for micros, SEDUs and market-rate studious were 94 percent, 93 percent and 95 percent, respectively.
When comparing the desirability of microhousing relative to SEDUs, the report reflects mixed results. “True Micros have proven to be more volatile than both SEDUs and studios when comparing rent and vacancy; however, as of November 2021 they have a higher occupancy rate than SEDUs and have outpaced market-rate apartments in rent growth by a wide margin,” it states.
Neighborhood-by-neighborhood in Seattle, micros posted occupancy rates of between 91 percent and 99 percent in Green Lake, Fremont, Wallingford, North Seattle, Ballard, Belltown, Lower Queen Anne, Eastlake, Roosevelt, Sandpoint and the University District.
There were several economic and legislative events that occurred last year, which may yet have an impact on the microhousing market in Seattle moving forward. The 2021 Mayoral election brought Bruce Harrell and Sara Nelson into office, which might, over time, lead to Seattle becoming a more building-friendly environment. In 2014, the city council passed legislation that prevented the development of pod micro-housing due to complications with land-use codes. However, there are now several pod micro-housing projects in-progress throughout Seattle, and the pod model can be used in most urban villages where multifamily development is permitted. And finally, the new 2018 Energy Code officially went into effect in March 2021, which has led to more expensive project costs, particularly for the implementation of HVAC and hot water. Developments with smaller units – foremost among them “micros” – are those most negatively affected by this code change, since many of these additional costs are accrued on a price-per-unit rather than a price-per-square-foot basis, the report states.
The development pipeline – and forecasted figures therein – represents an uncertain future for the microhousing product type in Seattle. There are currently just over 8,200 existing microhousing units in Seattle, with roughly 1,400 under construction and around 4,800 in review. According to the report, 2021 marks the first year of a decline in permits for microhousing. And while an eight percent increase in pipeline development might seem normal, the number of permit-approved projects grew to 41 percent in 2021. Looking ahead – to 2022 and beyond – factors like COVID, development costs, and political initiatives will continue to play a role.