Will apartment supply overtake demand in Snohomish County?

More than 2,000 apartments are being built across Snohomish County — with more on the way.

That leads to the question: How many are too many?

“It depends on who you’re rooting for — whether you’re rooting for the owners, the developers and the office managers or the tenants,” said Tom Cain of Apartment Insights Washington, a Seattle real estate market research firm.

His firm does a quarterly analysis of the apartment market. His December report found that 2,078 apartment units were under construction in the county. The firm keeps track of apartment buildings with 50 or more units.

With so many apartments being built, that could push down rents, increase the vacancy rate and force apartment owners to offer more incentives for renters to move in, Cain said.

The county has a relatively healthy vacancy rate of 4.4 percent. The apartment market is considered in equilibrium with a 5 percent vacancy rate, or about one out of every 20 units are empty, Cain said.

The average rental rates for Snohomish County went up in the last quarter of 2016 compared with the year before, said Cain, whose firm does a survey in the middle of each quarter.

The average rental price was $1,366 for all apartments from studios to three-bedroom apartments.

That was $1,272 for the last quarter in 2015. That’s a 7 percent year-over-year increase.

One of the big players right now is Bellevue’s Heartland Construction, an affiliate of DevCo, which is building 453 apartments between two projects in Snohomish County.

“It’s largely because that’s where the land is available,” said Jack Hunden, president of DevCo. “We have projects in King County as well, but there’s more land of the scale we’re interested in in Snohomish County than King County.”

His company is building the Gateway Apartments with 177 units at 13105 21st Drive SE between Everett and Mill Creek. DevCo’s also building the 276-unit Scriber Creek apartments at 20917 44th Ave. W near Lynnwood.

Both are “affordable” projects, which means that DevCo can only rent the apartments to people who earn no more than 60 percent of the median income in the county and must keep the rents lowered.

In return, the builder receives tax credits, which pay for a quarter of the project.

That’s key for the Snohomish County projects, because it offers some cushion if there’s a downturn in the economy.

“I wouldn’t build a market-rate property in Snohomish County ourselves,” said Hunden, who said that his company does about 80 percent affordable projects and 20 percent market rate. “The affordable opportunity is maybe less a chance of a home run but there’s more stability.”

Another way to look at the number of apartments under construction is to compare it to the number of existing units.

The U.S. Census Bureau keeps track of multi-family units countywide, although the agency combines apartments and condominiums.

The county had 12,636 units of both types in buildings with 50 or more units in 2015, according to the Census.

So 2,078 units on the way in the county is a big number.

The Census shows that the county had 10,260 units for larger complexes in 2010 and 10,252 in 2000.

(The information gathered is from individual respondents that are asked how many total housing units there are within the structure in which they live — so it is ‘self-reported’ information, said Stephen Toy, the county demographer, in an email.)

One of the larger apartment projects under construction — The Reserve in Lynnwood, a 296-unit building at Scriber Lake Road and 198th Street SW — burned down in Jan. 25.

City officials say they expect the developer to rebuild.

A wave of new apartments can only be a good thing, said Mike Pattison, government affairs manager at the Master Builders of King and Snohomish Counties.

“We’re experiencing a housing shortage of crisis portions,” Pattison said. “It’s hard to imagine any new housing units coming on the market — even if they’re apartments — to be a bad thing.”

Snohomish County has less than a one-month supply of housing in the real estate market.

The supply of homes is measured by the time it would take for the current inventory of homes to be sold if no new homes were listed.

He said a one-month supply of housing is unheard of in the real estate market.

“There are families who prefer to rent, and, because of our affordability crisis, there are those who are forced to rent,” Pattison said. “The rental market is important to keeping the housing market balanced. It can alleviate the buyer-side pressure. As long as we’re getting people into housing, that’s what’s important.”

If more apartments come online and force down rents, so much the better, Pattison said.

Snohomish County is seeing a small fraction of the overall development activity in the Puget Sound region, said Tom Hoban, CEO of the Coast Group in Everett.

His company owns three apartment buildings in the county with nearly 500 units and also manages dozens of other apartments for other owners.

Most of the development occurring in the county is happening near the Snohomish-King county line, Hoban said.

“All of it leased up quickly, as we might expect,” said Hoban, who writes a column on real estate for The Herald Business Journal. “We could see a minor oversupply in the short term, causing vacancy rates to tick up to 6 percent, but long-term fundamentals are strong.”

He’s watching what happens with Boeing, the commute times for new projects and how Snohomish County rents compare with King County rents.

Apartment owners should keep an eye on the interest rate for mortgages and how that could affect home ownership rates, he said.

And he also points to a social question: When millennials marry and have children, will they stay in the urban core of Seattle or move to the suburbs in Snohomish County?

“I think there are opportunities for both market-rate and affordable projects in Snohomish County,” Hoban said. “Developers just have to be mindful of the sub-market in which they choose to build.”