Prices of Bellevue homes are being inflated by dark money, causing an affordability problem

Most people living here in the Puget Sound region will likely agree the prices of homes in Bellevue have skyrocketed to where they are no longer affordable by many of the people who live here.  The following article supports this sentiment:

Study: Bellevue, Seattle make list of cities where ‘you’re broke earning $100K’
By: KIRO 7 News Staff, Updated: Oct 14, 2019 – 9:57 AM
“…As for Bellevue, the study’s data shows you would be nearly $41,000 short on a $100,000 salary.
Average monthly rent: $2,421
Overall annual expenditures: $140,908.36
Amount left over from $100,000: -$40,908.36”

Grab a cup of coffee and dig in, there’s a lot to unpack here…

Housing prices are generally reflective of the supply/demand ratio.  We know many people are moving here for tech jobs at Facebook, Amazon, Google, Microsoft, etc.  But, the constant supply of cranes would suggest that the building boom should meet that demand.  Could something else be shrinking the supply of available homes? 

As noted in a recent KUOW podcast (link below), speculators and dark money investors park their money in “wealth storage units” here in our relatively stable housing market, because it is a good way to protect their cash against loss due to inflation, while also offering a potential high return.  But some non-resident real estate investors do not bother with renters, especially if they are using “dark money”, because they don’t want the extra government attention that rent income can attract.  So houses sit empty, effectively removing them from the available supply, which naturally drives up the price of all remaining houses (and rental units, too).

Skeptical? Here are some links to supporting articles, with some salient snippets from each one:

1: Seattle Times, Oct. 15, 2019: Report spotlights how some owners of high-end Seattle condos conceal their identities
“…But a new report argues it’s unclear how many owners of condominiums there have ever lived in the luxe environs they’ve paid up to $11 million to own, because the identities of nearly half the owners are hidden behind trusts and limited liability companies (LLCs).  Effectively, they’re secret.”

“…In New York, a new law took effect last month making the name of every property owner in the state public information. And in British Columbia, lawmakers introduced a bill to create a government registry of beneficial property owners — the people ultimately behind the trusts and LLCs — which if implemented, would go online next year. The goal of such efforts, advocates say, is to ensure that it’s easier to resolve property disputes, track property ownership patterns and find homes sitting empty while their owners live elsewhere, which can drive up the cost of property in cities already strapped for space.”

2: Seattle Times, November 20, 2018: King County’s secret all-cash homebuyers must reveal true identity to law enforcement
“…The Treasury Department’s financial crimes unit has announced a new rule requiring all-cash buyers of homes in King County and a few other pricey markets to reveal their true identities to law enforcement when the house costs at least $300,000. Still, the public likely will be in the dark in many cases. In cities where the rule has already been in place, homebuyer identities were made available only to federal law enforcement, and the government has stymied attempts by journalists to gain access to the data through public disclosure requests. The number of home purchases affected could be large: About 1 in 10 homes bought in King County is purchased through a shell company, known as an LLC, according to Redfin (although not all of those LLCs necessarily hide the identity of the buyer). The rates are generally higher among luxury homes, and on the Eastside.”

2a: FINCEN, November 15, 2018: Geographic Targeting Order Covering TITLE INSURANCE COMPANY (PDF report)
(Section II, A, 2, ii, 7) “…The Washington County of King;“

3: Seattle Times, October 18, 2018: Queen Anne group again challenges Seattle plan to ease restrictions on backyard cottages
“…Released this month, the review said easing regulations on backyard cottages and mother-in-law apartments would make Seattle more affordable and reduce teardowns of older houses, particularly if the city also tightened restrictions on the size of new houses.”

3a: Seattle Times, October 4, 2018: New review could pave way for more backyard cottages in Seattle while restricting ‘McMansions’
“…Easing regulations on backyard cottages and mother-in-law apartments would make Seattle more affordable and reduce teardowns of older houses, particularly if the city also tightened restrictions on the size of new houses, says a new review that could lead to action by the City Council. Due out Thursday, the review by the city says allowing more and larger accessory-dwelling units would help Seattle become denser without any major impacts to parking, traffic, utilities and neighborhood aesthetics.”

3b: Seattle City Council, October 4, 2018: Accessory Dwelling Units EIS (Environmental Impact Statement)
“…Published on October 4, 2018, our Final EIS includes a Preferred Alternative for Land Use Code changes to remove barriers to the creation of ADUs. The Preferred Alternative resembles legislation that the City Council will review and consider for adoption. Its key features include:
    Allowing two ADUs on one lot
    Removing the off-street parking requirement
    Removing the owner-occupancy requirement and requiring one year of ownership when creating a second ADU
    Modifying development standards that regulate the size, height, and location of DADUs
    Increasing the household size limit for a lot with two ADUs
    Establishing a new limit on the maximum size of single-family dwellings”

4: KUOW podcast, by Bill Radke, October 16, 2019: Where’s my self-driving car?
Click this link and then scroll down to the “Murky luxury condo ownership” subtopic to listen.
“…Who lives in those shiny new luxury condos on the waterfront? Hard to tell, says a new report. Its lead author is Chuck Collins, director of the Program on Inequality and the Common Good at the Institute for Policy Studies.“

Other cities are addressing this as follows:

5. September 27, 2018 (Canada): B.C. launches new money laundering review in real estate sector
“…The new review will focus on sectors of the economy where criminals could use funds to purchase luxury items, like homes and high-end automobiles. In particular, Attorney General David Eby flagged the use of trust accounts by lawyers to mask the source of money used in real-estate transactions and the misuse of builders’ liens in the construction sector.”

5a. June 28, 2018 (Canada): ‘They turned a blind eye to it,’ says Eby on release of damning German report into money laundering at B.C. casinos
“…For many years, certain Lower Mainland casinos unwittingly served as “laundromats” for the proceeds of organized crime, German’s 247-page report found. German concluded that money laundered through casinos was linked, at least in some cases, to domestic and international organized crime organizations involved in illicit drug and precursor chemical purchases, drug importing, distribution and trafficking. German also found that some of those that arranged money laundering were buying real estate and advising others how to conduct real estate transactions.”

6. October 16, 2019: Who is buying Seattle? The perils of the luxury real estate boom, Chuck Collins, Institute for Policy Studies
“…Recommendations:
We urge the City of Seattle to monitor luxury housing activities. This report provides a window into several existing buildings.
But the city should monitor the thousands of new units coming on the market and analyze their ownership patterns.

• Require Municipal Disclosure of Beneficial Ownership in Real Estate
• Leverage Washington’s Real Estate Excise Tax to capture more value
• Institute a Vacancy Tax and Ordinance
• Require New Buildings to be Carbon Emissions Neutral
• Support State and National Transparency Policies”

The above recommendations for Seattle (from #6) can and should be implemented in Bellevue.

Thank you for reading this far!