As new residential development around Ballard and the rest of the Puget Sound region is completed, rents will likely start to level out by 2010, according to Mike Scott of Dupre and Scott Apartment Advisors.

But it's not all good news for Seattle's rental market.

Vacancy rates in the north end and downtown are about 2.75 percent, down a full percentage point from last year. Scott expects it will continue to decline to around 2.5 to 2.25 percent.

Seattle's vacancy rate and rental behavior is similar to that in the late 1990s when the economy was strong. Scott predicted that rental rates begin to moderate in a five year cycle after an economic boom.

He said rents should continue to climb by about 7 percent for the next two years and then level off to around a 4 percent increase in 2010 as new development comes online. The city's Office of Housing, however, has predicted a 14 percent increase in rents in the next few years.

Scott was invited to last week's Seattle City Council housing committee meeting. His company has been collecting data on the region's apartment housing market since 1979.

Primary factors for the vacancy rate decline are a strong economy and an increasing amount of apartment-to-condominium conversions throughout the city, said Scott.

From 1996 to 2004 there were fewer than 300 condo conversions per year. In 2005, that number jumped to 1,400; 2,200 the next year and about 1,200 so far this year, said Scott.

But the rental availability should improve over the next few years, he said.

New apartment development in Seattle peaked in 2001 with about 1,800 new units and fell after 2004, with just 500 new units constructed. It grew again in 2006 with 850 new units and is steadily climbing. This year, 900 units are expected, 1,200 in 2008 and a record 5,600 new apartment units in 2009.

Most of the new developments are studios and will rent at market rate. Developers are following demographic analysis' that show younger people are moving into the city and are willing to pay more for smaller spaces in order to live an urban area.

But new construction is not developing equitably around the city, said Scott. In the next two years, about 570 new market rate units will be constructed in the south end, while 2,900 are slated for north Seattle and 2,200 in the city center.

It's also still cheaper to rent in the south end, where there is not a lot of new production, said Scott. For example, just 200 new apartment units have been built in West Seattle during the last 10 years.

However, more rental units won't necessarily help the housing crisis for moderate to low-income workers, according to the Seattle Displacement Coalition, a housing advocacy non-profit.

Moderate rentals and low-income housing are still primarily made of existing stock, and the city is experiencing an "unprecedented" loss of those units due to conversion, said John Fox, director of the displacement coalition.

Some developers and realtors say conversions have peaked and will level out in the next year. Based on his own research, Fox disagrees.

"While the number of newly built market rate rentals will surely rise, we are not likely to see demand fall for our stock of remaining rentals," he said. "That demand will continue to rise in greater proportion than the number of newly built rentals."

The coalition wants the city council to kill the mayor's plan to expand an existing multi-family tax exemption program that targets those making about 80 percent of median income. It would provide a 12-year tax exemption for developers on the residential portion of any new apartment building in which 20-25 percent of the units are set aside for people making between $49,000 and $63,300 a year.

Fox said it just "awards developers who build high-end housing."

Scott called the mayor's proposal a "shallow subsidy" that would probably only help rents by about 10 percent, but not permanently.

He doesn't think it would stimulate much development, but said it could "sweeten the pot enough" to make some developments happen.

"It does, at the very least, lock in a level of rent affordability," but it's only temporary, Scott said.

Rebekah Schilperoort may be reached at 783.1244 or rebekahs@robinsonnews.com