Density Push to Challenge Real Estate Professionals
In response to the housing shortage, many states and regions are considering and passing new legislation to increase housing density. This spells opportunity for real estate agents willing to learn and enter this evolving market segment.
Most real estate professionals understand the inventory shortages we are facing now are a result of more than a decade of underbuilding. Strong demand, fueled by population growth, coupled with the ongoing issue of an inadequate number homes for sale or rent are causing housing prices to skyrocket. As was evidenced this last year, even doubling of interest rates was not enough to change the course of the real estate market.
In Washington State, the legislature tackled this problem head-on in this first legislative session this year. According to the News Tribune, over 50 bills regarding housing were introduced in the legislature this year, many of them targeting strategies to build the over 1 million homes Washington State will need in the next 20 years. Here is a quick summary of the two bills that have the biggest implications for real estate agents that were signed by Governor Inslee on Monday, May 8th. Non-Washington State agents, this article still applies to you, but you can skip to the next section if you like.
This bill was designed to allow townhomes, duplexes, and multi-family up to six-plexes to be built in certain single-family home-zoned areas. The details cover what can be built and where, depending on local populations and transit. This bill requires cities and counties that meet the requirements to adjust their codes under the Growth Management Act (GMA). This will take effect up to six months past their next GMA update. Different counties have different deadlines for the GMA updates.
Find your county's update date here
Read the entire bill contents here
Under this bill, cities and counties planning under the GMA will now be required to allow accessory dwelling units (for long-term rentals) as a method of promoting density. An owner-occupancy requirement will not be allowed and parking requirements are relaxed with proximity to transit. This bill requires cities that meet the requirements to adjust their codes under the Growth Management Act and will need to take effect six months past their next GMA update.
Read the entire bill contents here
Many areas already allow for more-flexible housing options when it comes to building. For example, last August, Spokane instituted more-flexible regulations on single family lots. The results? According to KREM, there are already nearly 300 new units in pre-development. Other states and cities (including Seattle, Kirkland, Tacoma, Burien, Kenmore, and others) have already adopted density-aggressive bills in the last few years and California recently overhauled its ADU rules to promote density. In fact, California even has an ADU grant program that provided up to $40K to homeowners who wanted to build an ADU on their property. The program has since maxed out, but keep your eyes open for additional opportunities that you can share with your clients.
More density can offer for more-efficient usage of infrastructure such as sidewalks, bike routes, and parks. It can also offer increased demand for smaller neighborhood businesses. There are concerns, however, as parking becomes more-challenging, especially due to the relaxed on-site parking regulations in the new bills.
As real estate agents, you may think that the only way this is going to affect you is that it is going to bring in more density and therefore more homes to sell. However, get ready.
Real estate agents: The coming years are going to be a whirlwind of education and activity. And we are just getting started.
As we see laws changing, we also have an upcoming generation of homebuyers who doesn't necessarily want what we as a country have been building for the last 100 years. They want simpler, less to maintain, and they don't necessarily want 5000 square feet of lawn. I think we are going to start seeing a lot more buyers wanting to know about potential for change and less about the existing single-family home you are showing them. When you combine this generational attitude with the loosenomg of building laws, we have conditions for a perfect storm for change. This may push you out of your comfort zone as you ride the wave of these changes!
"Highest and Best Use"
Let's say you recently sold the Smiths a single-family home built in 1950 with deferred maintenance on a 5000 square foot lot in a neighborhood in the middle of town. At the sale, the highest and best use of that property then was a single-family residence. As the details around the new laws get worked out, let's say that lot can now support up to a four-plex. In 2026, the Smiths are ready to move and call you to list. How are you going to market that property now?
Adaptability for Improvements
In the previous example, the Smiths' house was a 1950s home that had deferred maintenance, so it may indeed be better-suited for demolition, but what if a property has a newer home built in the last 10-20 years? If your buyers want to add an income-producing element to the property via an additional structure such as a DADU (detached accessory dwelling unit), how the current home is situated on the lot may become very important to evaluate. For example, if the home is in the dead center of the lot with not much wiggle room in the back or front due to setbacks or regulations, then an attached ADU may be the only option. Also worth considering during the buying process is how the utilities traverse the property. Let's say the only good spot to build on a lot is in the back left of the property but that is where all the utilities enter the property. That can be more-expensive to build. You may have never had to deal with these considerations before.
Also consider that in the marketing of a property now, you may need to appeal to a variety of buying targets. Are you marketing this as a single-family home? A single-family home with ADU/DADU potential? What supplementary documents are you going to include in the listing to make it easy for multiple types of buyers to evaluate?
Homes that are Functionally-Obsolete or have Deferred Maintenance
If a home has outlived its useful life, we currently try to remodel or fix in order to bring it back up to usefulness. Will that happen in the future or will we see a lot more homes being torn down and replaced with multiple units? For example, that home that the Smiths own - the 1950s home with deferred maintenance - it might make more sense to replace that with a functional new home that also includes an attached accessory dwelling unit and a detached accessory dwelling unit on the property. Or, what if that home is located to adjacent properties in similar shape and it make sense for a developer to take down the homes and put in a row of townhomes? Again, there may be multiple potential buying targets that you will need to keep in mind.
Homes that Currently Have ADUs
Areas that currently allow ADUs for long-term rentals in specific areas with an owner-occupancy requirement will find themselves in an odd no-mans-land for the next few years. In many cities, under the current law, the property owner needs to live at the property in order to rent it out. If a homeowner wants to sell under the current law, there is a barrier to buying since not all homeowners want to be landlords and some buyers may see an ADU as an awkward space. However, that could be an attractive type of property for an investor - when the laws around owner-occupancy change. The laws could change next week or they might need to wait 2-3 years. This might be an interesting niche market to explore!
When the local regulations change, when ADUs are allowed and the owner-occupancy requirement is gone, how are you going to market that property to showcase the full income potential?
This year, a bill that allowed for lots to be split was also proposed in Washington State, but it did not pass out of the legislature. This would have allowed a single-family residential lot to be split and developed on its own and sold. With the current situation of allowing multi-family properties or ADUs on properties, that means a lot more rentals. Therefore, I am expecting property management demand to be on the rise and your clients may have questions about where to turn. Do you have an answer? Hint: If you have been thinking about adding a niche to your skillset, property management for small investors with ADUs or 1-4 unit multi-family could be the opportunity you have been looking for. It is not for the faint of heart, however, so tread lightly. Learn more here:
NAR: Property Management
NAR: Certified Property Manager (CPM)
Rise of Historical Districts
As density becomes the focus, some homeowners in older neighborhoods will seek to preserve the character of their neighborhood by starting the process of becoming a designated historic area. This will turn the focus from density to preservation. Since preservation is more-limiting in terms of what a homeowner can do with their property, this is very important for you to keep tabs on when you are representing buyers or sellers either looking to buy or sell in the area.
One situation that could keep the housing bottleneck in place is infrastructure, especially when it comes to water and sewer hookups. In the Washington State bills, there is some leeway built in for cities whose systems cannot handle the influx of units needed, a temporary delay that will allow the cities to plan. However, what if the cities cannot afford to upgrade the systems and pass all the costs to builders, developers, and landowners? Will the costs to build outweigh the rewards? It will be interesting to see how localities are solving this problem, so keep tabs on this.
Until people living in more-urban areas can reduce their reliance on their vehicles, relaxing parking requirements will increase the value of on-site parking and the value of a property.
The Bottom Line
The changes proposed may not happen overnight, but some cities may go ahead and preemptively make code adjustments sooner than their six-month post-GMA cutoff. Now is the time for you to start getting ready and educated. There are still going to be buyers who want a single-family residence who don't care about where the property sits on the lot. However, there are also going to be buyers who are interested in the additional income an ADU can bring and who want to build an ADU (or two) on the property. There may be homes that are functionally-obsolete with severe deferred-maintenance that may need to be repackaged when it is time to sell. There may even be entire blocks of neighbors who come together to sell their collective lots to a developer.
You, as a real estate professional, need to be prepared to handle all of these situations or have referral partners for the type of real estate you determine is out of your scope.
I know this article has raised more questions than proposed solutions, but that is the point! We don't have all the information yet, nor do we have a clear understanding of what impact these changes may have on the market when implemented. What is clear is that we are in a moment of change and real estate agents need to put themselves in a position of knowing of what is going on in order to explain the changing situation to clients. How will you stay informed?
- Subscribe to Your Local Paper In addition to supporting journalism, you can also stay on top of your local housing issue changes without going to dozens of meetings.
- Read Editorials and Comments I also recommend reading the editorials as well as following the publication's social media pages. Read the comments. This will allow you to get a feel for the overarching feelings involved on these topics as these are some hot-button issues.
- Attend City Council Meetings or Watch Recordings A lot can happen at City Council meetings! Attend or at least watch the replay if it is locally available. I also recommend downloading the agenda packet before the meeting as a lot of the details to the points summarized at the meetings can be found in the packet.
- Ditto for County Council Meetings
- Washington Agents Get involved in the Growth Management Act updates - Cities and counties are now making changes to or getting ready to make changes to their comprehensive plans under the GMA. This is a public process and you should easily be able to find out information on upcoming meetings or the current status of your area's updates by checking your city or county websites.
- Zoning Maps We are going to see changes to zoning maps. Be on the forefront of these changes and supply this information to your clients.
Agents, if you ever dreamed about buying Microsoft when it was newly-available on the stock market, if you ever thought about going back in time and buying that certain piece of real estate that you still have today, or if you have ever wished you could start a lead generation campaign that you are still running to this day which is paying huge dividends on your investment, please consider this your a-ha moment. This IS the edge you are looking for. By investing your time now, being on the forefront of these changes, and sharing this information with your clients and leads, you will be richly rewarded in the years to come.
By Denise Lones CSP, M.I.R.M., CDEI - The founding partner of The Lones Group, Denise Lones, brings nearly three decades of experience in the real estate industry. With agent/broker coaching, expertise in branding, lead generation, strategic marketing, business analysis, new home project planning, product development, Denise is nationally recognized as the source for all things real estate. With a passion for improvement, Denise has helped thousands of real estate agents, brokers, and managers build their business to unprecedented levels of success, while helping them maintain balance and quality of life.