Seattle area’s economic boom splashes over the Cascades, bringing work and worries

For Subsplash, a small Seattle-based maker of social apps for churches, the decision to open a second campus in Wenatchee this fall was easy. The Central Washington town has better weather than Seattle. It boasts fast internet, lower labor costs and business-friendly government: Subsplash’s new offices are in a city-sponsored business “incubator” in the popular Pybus Public Market overlooking the Columbia River. And, of course, Wenatchee has much cheaper housing. The median price for a home is $325,000, or less than half of that in Seattle.

As Phil Goodman, head of human resources at Subsplash, put it recently, “Wenatchee is kind of our HQ2.”

But not everyone in Wenatchee is so excited to see the newcomers. At a local hiring fair this spring, as Goodman was telling locals how glad he was to see businesses “coming over [from Seattle] to Wenatchee and providing jobs,” he got some good-natured pushback.

“There were a few people who were like, ‘Well, hold on, don’t tell too many people. We don’t want too many companies over here,’ ” he recalled.

It’s a common refrain across much of Central Washington these days. As eager as towns like Wenatchee, Chelan and Cle Elum are for new industry and high-wage jobs, many residents also wonder what these urban “refugees” will mean for communities that are often already struggling with big-city growing pains.

Wenatchee, a city of barely 35,000 people, now has a rush hour. Its housing market is startlingly Seattle-like in its velocity: That “low” median home price is actually 13 percent higher than a year ago, and already out of reach for many in a town with a median household income below $49,000. Rents have risen even faster: the average two-bedroom apartment goes for $1,534, up 23 percent from a year ago, according to Rent Jungle.

“I’ve never seen a bump like this one, and I’ve been in business since ’85,” says Steve Bishop, a longtime Wenatchee real estate broker. A recent CoreLogic report found that Wenatchee is the one market in Washington where home prices grew more quickly over the past 12 months than a year earlier.

That “bump” is hardly all Seattle’s fault. The Wenatchee Valley, with its pleasing climate, abundant recreational opportunities and ultra-cheap power, has been officially discovered by the outside world as the go-to place for everything from wine tourism and real estate speculation to cannabis farming and bitcoin mining. (It’s telling that Pangborn Memorial Airport in nearby Douglas County may soon offer daily air service to the San Francisco Bay Area.) And, critically, Wenatchee’s housing sector, still recovering from the recession, has fallen behind in adding new supply.

Still, Wenatchee realtors say a growing share of their clients are now Westsiders, who often have a significant economic advantage over locals. When they sell a Seattle-area home, they can “come over here and pay cash and still have a chunk of change left in the bank,” says Bishop.

Wenatchee isn’t the only place in North Central Washington attracting more Westside attention these days. To the south in fast-growing Kittitas County, buyers from west of the mountains have helped boost Cle Elum’s median home price by 9.9 percent over last year, to $317,600, according to Zillow.

In the resort community of Chelan, meanwhile, housing is so unaffordable that nearly 800 of the town’s workers now commute between 25 and 50 miles, according to a recent survey, and local schools have seen an exodus of families unable to make ends meet.

“Our town is getting hollowed out at the core,” worries Chelan Mayor Mike Cooney, who likens the dynamic to the gentrification and displacement underway in some Puget Sound communities. “It’s like Hilltop in Tacoma,” he says.

To some degree, this is simply a new chapter in a long-running story. For decades, North Central Washington – Chelan, Douglas, Grant and Kittitas counties – has enjoyed important links to the Westside economy, thanks to tourism and trade. But in recent years, those connections have intensified. Tourism is booming. Resort towns like Leavenworth, Roslyn and Chelan have seen record growth in visitors and revenues, most of it from the Westside. In Kittitas County, an expanding accommodation and food service sector now accounts for nearly one in every five jobs.

But the boom with the biggest consequences has been in real estate. In resort communities, realtors say that up to 90 percent of their clients are now Westsiders eager for a piece of Eastern Washington paradise. In Chelan County alone, Westsiders own residential property worth around $2 billion, or roughly a fifth of the county’s total assessed value, according to data from the county assessor.

And these buyers aren’t just looking for weekend getaways anymore. Across the region, many Westsiders are converting their vacation homes into year-round residences and moving in. In the Snoqualmie Pass community of Hyak, a growing number of the 156 cabins and vacation homes are now full-time residences, says Kittitas County Commissioner Laura Osiadacz. Even in non-resort towns such as Wenatchee and Ellensburg, realtors say many of the over-the-mountain sales they make are to Westsiders who plan to become Eastsiders.

Many of these eastbound migrants are retirees, but an increasing fraction are working-age people who see North Central Washington as a haven from the Westside’s congestion, density and expense.

Some make the long east-west commute to Westside jobs. The 80-minute drive from Roslyn to Seattle “just isn’t that far when it takes 90 minutes to get from Tacoma to Seattle,” notes Peter Orser, chair of the Advisory Board for the Runstad Department of Real Estate Studies at the University of Washington.

Others are telecommuting. “They want to know about internet service – it’s the first thing they ask, because they want to know if they can work remotely,” says Julie Virden, a broker at Windermere in Ellensburg.

Even Wenatchee, three hours from Seattle, is emerging as a kind of virtual bedroom community for the Puget Sound region. Steve King, director of the city’s economic development office, is only half joking when he says Wenatchee is becoming “part of the Seattle metro area.”

This eastward exodus is still in its opening stages. U.S. Census data shows that net migration from Snohomish, King and Pierce counties to Chelan, Douglas and Kittitas counties was around 160 people per year during the most recent survey period, 2011-2015. But that’s a marked change from five years earlier, when net migration between the regions ran the other way by some 44 people a year.

This urban-to-rural pattern echoes a national trend. America’s most urbanized and expensive counties are seeing small but significant decreases in domestic immigration. King County, for example, continues to attract more people than it loses each year – but the net margin has narrowed recently. Between 2016 and 2017, according to census data, King County’s year-over-year net domestic migration fell from 8,500 to 2,802. By contrast, rural counties that border these hyper-urbanized counties are often seeing significant gains.

Kittitas County was America’s 10th-fastest growing county in 2016, according to the census bureau. The following year, Kittitas County posted net domestic migration of 1,046 – remarkable for a rural county with a total population of just 46,205, or barely 2 percent of King County’s. In fact, on a percentage basis, Kittitas County’s rate of domestic migration is nearly 18 times larger than King County’s.

Observers on both sides of the Cascades expect these trends to continue as rising costs and demographic changes in the Puget Sound region push people and companies to look east.

Today’s Westside migrants are just “the bow wave,” says Rory Turner, a Wenatchee developer and former Westsider who specializes in downtown revitalization projects across North Central Washington. Managing this emerging economic reality will be one of the region’s top issues, he adds. “You can’t just open the door and say ‘come on in.’ ”

But that management is proving challenging – not least because local governments are working against powerful economic forces.

Take the affordability issue. While it’s true that the “206 economy” is generating lots of new jobs in North Central Washington, many are low-wage. In Kittitas County, the “accommodation and food services” sector accounts for nearly 18 percent of county employment, but just 8.8 percent of total wages, according to State Employment Security Department economist Donald Meseck.

Worse, even as these low wages make it hard for many North Central Washington residents to pay rent and mortgages, the supply of locally affordable housing is dwindling under pressure from wealthy Westsiders and other outsiders. Outside demand for higher-end residences has become so steady that local contractors have “a disincentive to build houses at the lower end,” says Tim Hollingsworth, a Chelan city councilmember who is active in affordable housing efforts.

“Why would you go around and build little 1,200-square-foot houses for ‘normal’ people when you could build a luxury house for way higher margins and make more money?” he adds.

The 206 economy is also cutting into the supply of rental units. Aided by Airbnb and other online booking platforms, thousands of homes in North Central Washington have been converted into vacation rentals.

In Chelan County, officials estimate that the number of vacation rentals has grown over the last 15 years from a few hundred to at least 2,400, most of them in tourist areas. In a county with barely 36,000 total residential units, according to the most recent survey in 2015, and less than 9,300 full-time rentals, the sharp increase in vacation rentals represents a significant loss of permanent housing. Meanwhile the number of full-time rentals in Chelan County fell 8 percent between 2010 and 2015, according to county records.

That’s a problem for workers, but also for employers trying to recruit, says Doug England, a Chelan County commissioner. When employers go scouting to find rentals for prospective hires, England says, “repeatedly they are told ‘no, that’s been converted to a vacation rental’ or ‘yeah, they can stay there until the first of June but then can’t get back in until the first of October’ ” when the tourism season ends.

Governments are pushing back, if modestly. Both Chelan and Roslyn have recently put limits on new vacation rentals. But most observers expect conversions to continue elsewhere, given how lucrative the overnight rental market is for locals and Westsiders alike. In fact, some North Central Washington realtors explicitly pitch the vacation-rental concept to Westside buyers as a way to talk them into a bigger second home: a buyer with a $400,000 budget for a vacation home can afford to upgrade to a $500,000-plus home if he or she is willing to “Airbnb it,” realtors say.

Predictably, the erosion of affordable housing supply under the stream of Westside money is fueling some hard feelings among locals. In Kittitas County, many long-time residents are feeling “a loss of ownership in their community,” says Osiadacz, the county commissioner.

That sense of loss seems especially sharp in tourist areas. In Chelan, residents have watched unhappily as their once-middle-class resort community has grown steadily more upscale as Seattle’s own fortunes have risen. Many of the new homes around the lake are much larger and more luxurious than in past years, and at least a dozen Westside families now “commute” to the lake via aircraft.

“Imagine you work hard every single day, 40 hours a week, and your whole life, you know you’ll never be able to afford a home in your own town,” says Rachael Goldie, an affordable housing advocate in Chelan. “Now imagine having that mindset, and then serving people who have an extreme amount of wealth and have a second or even a third home here. How can there not be tension in that?”

Not surprisingly, these tensions are becoming political. Affordability was the top issue in several local elections.

And yet that political tension is spurring action in North Central Washington as affected communities are forced to rethink how to manage their new popularity. In both Kittitas and Chelan counties, collaborative efforts by government officials, developers, realtors, affordability advocates, and others have focused on ways to boost housing construction. Many of the ideas, such as streamlining the permitting process and promoting multifamily housing in communities accustomed to single-family homes, echo efforts west of the mountains.

Whether they are any more effective remains to be seen. But some of the early indications have been positive. Wenatchee has recently seen a boom in apartment construction. New housing developments are going in, including a 192-home project called Maryhill Estates, in neighboring East Wenatchee. The community has even had some success developing low-income housing. In July, Catholic Charities Housing Services finalized funding for a 67-unit, $15.45 million housing project that will break ground in the city’s south end in November.

Some of the newcomers themselves are looking for ways to reduce their impacts on local communities. In Wenatchee, Subsplash has worked to minimize its impact on the community by hiring locally as often as it can rather than by simply bringing in Seattle employees.

In Chelan, many Westsider property owners are contributing time and money to local efforts to build affordable housing, most recently via Chelan’s Affordable Housing Initiative.

Local housing advocates also are working with Seattle-area lenders to create affordable housing at a large lakeview subdivision that was begun by a Westside developer but went bankrupt after the financial crisis.

If successful, says Mayor Cooney, the project could bring nearly 70 units of affordable housing to a location that otherwise would have gone to wealthy Westsiders.

“As a local, that makes my heart so happy to know that the views of the lake and lakefront property and those things are not just for outsiders,” says Goldie, the housing advocate. “It’s for people who live here all the time.”