Why is housing so expensive in Bellingham?
There are three main reasons why housing has become less affordable in Bellingham compared to the past, and why prices here have risen even faster than some other places.
1. There was a lag between population growth and home construction.
Housing prices are driven by the regional as well as the local economy. Up and down the I-5 corridor, home values have increased as the region attracted high-paying jobs and subsequent population growth. Rents soon followed suit. Bellingham's growth has been no exception – nor is it unique. Since 2010 the state's population has risen by 12.2% and Bellingham's population has risen by 11.4%.
This population growth continued throughout the Great Recession – a period between 2007 and 2013 where the production of new housing slowed drastically. Housing construction fell behind population growth, further increasing demand and driving prices upward. At the same time the population grew by 11.4%, there was only an 9.7% increase in the number of housing units built.
2. There is a gap between average incomes and housing prices.
The inventory that is affordable to middle income households is shrinking. Demand is increasing, but wages have not kept pace with housing costs. From 2000 to 2017, the median household income in Bellingham increased by 15% while the median home value increased by 67% (adjusted for inflation). The homes that are being built on the private market continue to serve the needs of higher-income households, but as some buyers are willing to pay more, there are fewer and fewer units available within a price range that is affordable to a median-income family. Our zoning offers only limited areas where more affordable types of homeowner housing (duplexes, condos, and townhomes) are allowed to be built.
3. This is a nice place to live.
Bellingham residents are extremely positive about the quality of life in Bellingham. About 92% of respondents in the recent Bellingham Residential Survey rated our city's quality of life either excellent or good. Our high quality of life – including natural beauty, public services and amenities, and good schools – will keep home and land values high and continue to attract new residents. That is a success!
What would a healthy housing market look like?
There are several metrics for success, some of which could include:
- The number of units produced is keeping up with population growth, meaning there are more units on the market available for rent and for sale.
- A healthy residential vacancy rate would keep rents from rising too quickly. It is currently around 3% for rentals and around 1% for homeowners. A healthy vacancy rate is 5-7% for rentals and around 2% for homeowners.
- A balanced proportion of homes are affordable for homeowners earning the area's median family income. It is estimated that just 33% of the housing stock in Whatcom County is affordable to a household earning median income. A more balanced proportion is around 50%.
- 655 new, subsidized housing units are built to permanently house low-income residents and homeless families who are on waiting lists for housing. Funding to build these units was secured as part of the 2018 Home Fund levy.
How long will it take to get there?
On average, the city needs about 600 units per year to be built to keep up with expected population growth and stabilize our vacancy rates. A healthy vacancy rate can help to stabilize prices, but it will not lower housing costs. Strong demand will continue to mean that home values will appreciate, and low-income residents will require subsidized housing to continue to live in Bellingham.
Over the past 10 years Bellingham has issued building permits for 4,306 housing units (an average of 430 per year). About a third of these units were single-family homes and two-thirds were multi-family units, which matches the forecast in the previous and current Comprehensive Plan. In recent years the development of new units has steadily increased to its pre-Recession level, and supply is starting to catch up with demand.
There were 785 new units permitted last year, which will be built in the next 1-2 years. The majority of these new units (599) are rental apartments. We expect that once these units become available on the rental market our rental vacancy rate will most likely return to a healthy level, between 5-7%. The homeowner housing market has been slower to catch up. There are 186 single-family units in the pipeline that have been permitted and should be built in the next 1-2 years, but this will not be enough to bring the homeowner vacancy rate to a healthy level.
 Multi-family units are anything other than a single-family detached home. For example, this includes apartments, condos, townhomes, and duplexes.
What can a city do to address housing costs?
The cost of building a new unit is influenced by many factors. A local government does not have control over factors such as natural population increases, mortgage interest rates, regional economic growth, or the price of building materials, supplies, and labor. These comprise the majority of the costs associated with creating new housing.
The following are the tools that a city does have at its disposal, which can directly or indirectly affect the price of housing:
- Zoning (density) – adding more density increases land values, but can also reduce the cost of land per housing unit
- Taxes and fees – make up a percentage of the cost of new housing which are needed to fund services provided by the City
- Incentives – tax breaks or density bonuses, for example, can help spur the private market to build in desired areas
- Land supply (through annexations) – land is needed to build housing, but must be done in accordance with the Growth Management Act
- Permitting processes and timeline – time equals money, and faster processing of permits can help save money
- Housing levies – voter-approved taxes that support the construction of homes affordable for low-income and vulnerable populations
What can't a city do about it?
Federal and State law limits the options available to any city. Some of the strategies that are not within a municipality's legal options include:
- Enacting rent controls
- Limiting the number of people who choose to move to Bellingham
- Gifting of public land or credit to individuals or organizations that are not low-income
- Requiring private property owners to sell their land, or use it for a specific purpose (such as more housing)
Although not limited by law, some other commonly suggested strategies have significant shortfalls:
- Constantly expanding boundaries in search of cheap land is a false economy. The cost of providing services to new development at the outskirts of a city is 2.5 times more expensive than closer in. New residential development on the “fringe" is typically of a density that does not fully cover the cost of services. This cost deficit falls on existing residents and businesses.
- Reducing fees passes those costs on to existing residents and businesses and does not guarantee lower home prices.
What is the City's goal?
The City of Bellingham's goal is to include a full range of housing choices appropriate for all income levels. We need a supply of homes for the very low-income population, such as students, people with disabilities, and seniors on a fixed income, and for wage-earners at all levels. At the same time, we want to ensure that Bellingham remains a desirable place to live.
How do we provide more housing choices?
A unit built near pre-existing infrastructure is less expensive for everyone. The City has focused on policies that encourage new units to be built along transit corridors where there are already sidewalks, bus stops and bike lanes, and near schools, parks, and services.
Beyond that, specific strategies are needed for different income brackets:
- Lowest income: Those earning below 50% of the median income cannot afford housing in today's private housing market. Through the existing levy, over 600 units for low-income residents have already been built. The renewal of the levy in 2018 will mean that the city can help support the development of 655 more units over the next decade.
- Moderate and middle income: Many working families today do not have affordable options to enter the market and become homeowners. This is in part because the market offers mostly single-family homes – generally the most expensive housing type. In order to allow for more diverse housing types (like condos, townhomes, and duplexes) and the development of under-utilized lots within our urban areas, the City has advanced the Infill Toolkit, ADU ordinance, and various incentives for density within our urban villages.
- High income: With the median home value in Bellingham over $400,000, this income bracket is currently served by the market. The City supports a healthy mix of housing types in all urban villages, which includes higher-income housing options.
What is the City of Bellingham already doing?
- Adopted urban village plans along with development incentives to encourage dense, mixed-use development
- Deploys $5 million per year for affordable housing and services, with the support of a voter-approved levy (this will mean 3,000 households served, and another 655 units built over the next decade)
- Implemented the Lean process to expedite and improve several of its development review and permit processes
- Seeking opportunities to allow increased densities in multi-family zones along transit lines
- Annexed hundreds of acres of land since 2006, with additional annexations under review
Are we making progress?
There are six urban village areas within Bellingham. Both the 2006 and the 2016 Bellingham comprehensive plans allocated about a third of Bellingham's growth to urban villages. The goal of urban villages is to get the most value out of our existing land and infrastructure, to minimize trips, and to create diverse, resilient communities.
Since 2006 a total of 1,515 housing units have been built in Bellingham's urban villages, or about 38% of all housing growth in Bellingham during that time. These areas have also seen more than 450,000 square feet of new commercial space and 50,000 square feet of industrial development since 2006. See the Urban Village Status Report for more information.
Bellingham's Infill Toolkit is intended to encourage creative use of smaller vacant lots or underused land, to reduce sprawl, encourage sustainability, and provide a variety of smaller housing forms (townhomes, cottages, etc.). Since the adoption of the toolkit in 2009, more than 400 housing units have been completed or approved, and an additional 75 are currently in the application phase.