Luxury apartments: Who’s buying King County?

Nearly 3,300 luxury apartment units are either built or in the pipeline in Seattle, but a new study argues that many of these are vacant and damaging the surrounding communities.

The study examines a trend seen in other U.S. and international coastal cities, where wealthy investors buy into luxury apartments and leave them vacant while the areas surrounding them struggle with skyrocketing housing prices. It was authored by the Institute for Policy Studies and focused on eight luxury apartment buildings in Seattle, but it’s likely the same effects could be happening in other areas experiencing a housing boom.

“It’s in their interests to act as well,” said Chuck Collins, who authored the report. “In fact, it’s better if several King County communities all move together to understand the ownership of who is buying King County.”

In Seattle, the report examined eight fully sold luxury buildings totaling 1,635 residential units with an average taxable property value of $2 million. Five new luxury building projects with a total of 1,664 units are also scheduled to open soon. The problem: there’s no data on how many of these units are legitimate homes, and how many of them are cash sinks for wealthy real estate speculators.

Some 12% of the units in the current eight buildings are owned by LLCs, which obscures who the real owners are. These shell companies and trusts are businesses that serve no purpose other than to make investments for their clients, providing no services or products for regular people. The more expensive the unit, the more likely it is to be owned by a trust, LLC or corporation, the study found.

Further, since actual occupancy isn’t tracked, it’s not known how many of these sit vacant and serve as a parking spot for global capital. But the study did look at registered voters’ addresses. In the eight buildings, only 39% of residential units had the same person registered to vote as the person on the deed. Some 30% had no registered voters at all. The most extreme example was the 99 Union, which had 81% of units where no one was registered to vote.

Collins said for the wealthy, getting a library card requires more verification than buying luxury apartments.

“When you go in and want to get a library card you have to say who you are, you have to prove who you are,” he said. “You can’t just be a shell.”

A recent study from the International Monetary Fund estimated that globally 40% of foreign direct investment — around $15 billion — passed through empty corporate shell companies that provided no services or products. The U.S. is now the world’s second largest tax haven, after Switzerland, accounting for 22% of offshore global services. And this wealth is looking for places to invest. On the West Coast, this can manifest in vacant apartments and hollowed out city centers.

Vancouver, B.C., has been struggling with this for years as real estate prices have exploded. San Francisco and New York have similarly fallen under the gaze of big real estate speculation.

Locally, the effects can be felt as luxury apartments move in, raise property values and force affluent but not extremely wealthy families into the suburbs and outer rings of cities. This places them in competition with low-income communities for affordable housing. This is felt especially in communities of color, as white households have a median income of more than $53,000 higher than black households, the study said.

“More housing, built exclusively for people in the richest 1% of income and wealth holders, has accelerated, not reversed the city’s unaffordability problem and persistent racial wealth divide,” the report said.

Black family home ownership has decreased 21% since 1970, making King county the fifth-lowest area for black home ownership in the country.

Luxury apartments can exacerbate these trends, Collins said, because investors purchase luxury apartments and leave them vacant while still paying property taxes. These often function as self-contained neighborhoods. They generally start lobbying for lower taxes because they don’t use public services such as schools and buses, for example.

“The city sets itself up by bringing in all these wealthy, they’re not even residents, but they’re wealthy stakeholders,” Collins said. “That’s not the road you want to go down. That’s where inequality matters.”

The report also said luxury apartments can function as vertical gated communities, keeping people contained and separated from the broader neighborhood. Katie Wilson, general secretary for the Transit Riders Union, said this could have a negative impact on quality of life both for people living in them as well as the surrounding neighborhoods.

“I think that communities where people want to live are ones that are kind of open, people mix, people of all different backgrounds can encounter each other and talk,” Wilson said.

The Transit Riders Union is interested in the report because luxury housing can affect property values. Many of its members are low income and are affected by high housing costs and rent. Those that don’t have their own vehicles and are pushed away from city centers often have to rely on lower quality transit, especially to reach their jobs.

“We’re very concerned with issues of affordable housing,” Wilson said.

The report urged Seattle to monitor luxury housing activities, including existing units and those coming to fruition to analyze ownership patters. It should also require the buyers to disclose who is actually purchasing units in the deeds. It could also leverage the state’s real estate excise tax (or REET) to tax sales.

“Taxing luxury real estate because this is global wealth that’s touching down in your community, tax it and direct it toward the solutions, the things that are going to fix it,” Collins said.

Statewide, Washington’s REET beginning in 2020 will tax the first $500,000 of a property sale at 1.1%, which scales up to 3% for a sale of more than $3 million. It’s expected to bring in $243.5 million over the next two years, money which could be directed toward affordable housing.

Municipalities could also levy a transfer tax on absentee buyers when they’re purchasing properties as investments or second homes. Vacant property taxes could also be applied to properties that sit unoccupied more than six months during a year.