A better way to pay for lower-priced housing for the poor?

Author’s note: I’ve been struggling about where to put this post. I think it is too speculative to put on the Smart Growth Seattle website, but I do think it’s time to start thinking through how Seattle shares the financial costs and risks of addressing housing for people who are poor. Generally speaking we should tax what we don’t want more of or inefficiencies; single-family neighborhoods are a less efficient use of land than dense multifamily neighborhoods. In my view we should allow more density in single-family neighborhoods, but undivided single-family lots should bear most of the tax burden to fund the housing levy. In the meantime, I am floating this idea. It’s long and wonky but I’m interested in anyone who has some thoughts about what I am looking at here. Housing and Taxes

The question about whether Seattle has a workforce housing crisis has been answered. All available data indicates no scarcity of housing for people who earn 60 to 80 percent of Area Median Income (AMI). The data also indicate that the bigger need is at lower levels of income, below 60 percent AMI and the need is particularly acute for families.

And the so called incentive zoning program in Seattle isn’t really an incentive it is a fee, adding additional risk and cost to new development proposals making additional housing supply more challenging to achieve. Here’s what we know now:

  • We shouldn’t be subsidizing people who earn 60 to 80 percent of AMI because the market is producing a surplus at these price points;
  • The biggest ongoing need for housing subsidies are the hardest to finance projects which house people who earn less than 60 percent of AMI;
  • The most acute need for help is for poorer families who need larger units in the city; and
  • Incentive zoning just makes things worse by adding cost to housing production which lowers supply and makes all housing more scarce, especially for poor people.

So what’s the answer? What do we do? The answer may lie with Washington’s unique way of collecting property taxes and using Seattle’s housing levy to support financing of housing for our cities poorest families. How could we use our housing levy, a property tax that generates funds to help pay for housing with lower rents, to address the needs of poorer people without driving up the price of all housing in the city?

How are property taxes assessed and collected?

I studied our arcane tax system pretty extensively when writing about Tax Increment Financing (TIF). Our Constitutional requirement for “uniform” taxation makes TIF difficult to do. Washington State’s Constitution, Article VII, Section 1 states that,

All taxes shall be uniform upon the same class of property within the territorial limits of the authority levying the tax and shall be levied and collected for public purposes only. The word “property” as used herein shall mean and include everything, whether tangible or intangible, subject to ownership. All real estate shall constitute one class

To quote from my old article on TIF and the Constitution, that means that

The taxes that the city collects on . . . properties are NOT based on their assessed value. Those properties are taxed based on a rate set by the value of new construction throughout the city, the previous year’s city budget, and up to an additional [statutory] one percent of the previous year’s city budget. That rate is applied, equally per $1000 of value, to ALL properties across the city.

That makes Washington a budget based property tax state; that means that we don’t tax properties individually. A taxing district takes its last budget and levies property taxes on the total aggregate assessed value of the entire taxing district.

Here’s a super simple example. Let’s say you have a taxing district with $100,000,000 of assessed value and a budget for the district, let’s say it’s a town, of $10,000,000 that pays for police, fire and basic services. To keep it really simple, let’s say that there are only two property owners and one owner has an assessed value of $70,000,000.

Total Assessed Value

100,000,000

Total District Budget

10,000,000

Rate per $100K of Value

10%

Property A  $ 70,000,000.00
Total Tax Bill  $   7,000,000.00

In Washington, the rate is usually expressed as a whole dollar amount per $100,000 of value. People are used to hearing, “the levy will cost you about $10 per hundred thousand dollars of the assessed value of your home.” That allows tax payers to do the math. If my house has an assessed value of $250,000, I know my tax bill will be $25 a year.

This is different from an ad valorem property tax system which would tax individual properties at a set percentage of value. That kind of system would mean your total tax would be a percentage of its value rather than a share of the total assessed value of the whole district. It would also mean that your tax bill would always be calculated by simply multiplying the rate by the total value. Your taxes would always remain the same percentage of your properties value as it changed over time and would always go up as your property value increased.

Unusual effects of the budget based system

But in Washington our system allows for individual property tax bills to go down when overall assessed value of the district goes up,  even when the total tax being levied goes up. Here’s how it would work in our simple example.

Total Assesed Value 110,000,000
Total District Budget 10,100,000
Rate per $100K of Value 9%
Property A  $70,000,000.00
Total Tax Bill  $6,427,272.73

You can see that the assessed property value of all the property in the district went up by 10 percent, however Property A showed no increase in assessed value and it’s tax bill went down. The taxing district, our hypothetical city, increased it’s budget by the statutory allowable 1 percent, a limit set by the legislature (it’s notable that prolific initiative writer Tim Eyman’s limit 747 passed with voter approval setting this limit, but was thrown out by the State Supreme Court. A Democratic controlled legislature and Governor restored this limit).

How is it possible for the assessed value of all the property in the town to go up, for the town to ask for more money from tax payers, but for the owner of Property A to see his tax bill go down? Where does the extra money come from?

His neighbor.

Because the owner of Property B increased the value of his property by building apartments on it, for example, he boosted its value which increased the value of the whole district. But our owner of Property A left his property as a single-family home and its value didn’t go up.

Total Assesed Value

$110,000,000

Total District Budget

$10,100,000

Rate per $100K of Value

9%

Property B  $ 40,000,000.00
Total Tax Bill  $   3,672,727.27

You can see that the assessed value of Property B went up by $10,0000 and so did the assessed value of the whole taxing district, the town. Because of the improvements on Property B, the new apartments, the tax bill for Property B also increased by $672,727.27. Remember, the owner’s bill before would have been $3 million before the improvements and increase in the levy by the town.

New dense development and existing single-family neighborhoods can fund lower priced housing

If we increased total housing levy to subsidize housing for poorer people, new development could add more to the city’s assessed value generating more housing levy revenue. This would happen anyway since new projects add value to existing undeveloped property. Just like in our simple little example, properties that are improved with dense multifamily housing and commercial space would pay more in taxes while existing, undeveloped properties would pay less, the same, or only slightly more.

If we used the Housing Levy in Seattle this way we’d accomplish some important things that would enable us to

  • Help finance housing for the poor,
  • Support more housing supply and density,
  • Tax inefficient use of land; and
  • Preserve some single-family neighborhoods.

Instead of hitting developers with a tax (incentive zoning) that adds costs and risks to subsidize people who don’t need as much help—people earning above 60 percent of AMI—we could actually capture the value of the improvements developers are making, increase housing supply, generate revenue to subsidize lower priced housing, and promote development in areas that are primed for absorbing growth.

All this benefit would come from increases to the housing levy paid by new development and single-family home owners. The new contributions to lower priced housing would be paid by all property owners in the city, not just fees on additional square footage or FAR. At first that sounds politically crazy. Who’d campaign on raising taxes on Seattle’s single-family neighborhoods?

Well at first it sounds that way, but when you consider how we do property taxes, single-family home owners would see their taxes stay pretty much the same while development increased in other parts of the city. Additionally, many of Seattle’s progressives could point to the new funds being generated for lower priced housing from an increased levy.

We would also be doing the right thing: taxing people with equity in single-family homes to help offset the real challenges faced by poor people struggling to pay rent and find adequate housing options. Developers would pay more because of improvements and single-family homeowners would share some of the cost too because they’d benefit from having density go somewhere else. Using our state’s peculiar way of collecting property taxes could be a fair, efficient, and progressive way of addressing the needs of the poor while promoting growth, jobs, and more housing choices.

Important caveats and provisos

Make no mistake, we still need more infill development in single-family neighborhoods; we need all kinds of options including for people who want to have the choice to live in small-lot housing, cottages, and accessory dwelling units.

This would require the City Council to rapidly and completely deregulate the housing market in Seattle. It means we’d have have something very close to Zero Based Zoning, which would allow building up to whatever the limits of financing, not height, bulk, scale or aesthetics.

The housing levy would rise significantly and people and businesses could feel a pinch. The new tax would be more fair and would likely be paid largely by single-family tax payers since most land in Seattle is single-family. The City would have to be careful not to set the levy too high since it could increase risk on improvements to property that could act as a disincentive on new construction.

More taxation to help financing housing for poorer people adds risks and costs, but if we do it right that risk is shared between new growth (multifamily and commercial development) and old growth (single-family homeowners).

As a matter of principle, taxes should be on things we don’t want not things we want more of. This entire scheme might be politically expedient, but it does increase taxes on what we want more of which is improvement of land. We should actually be doing the opposite, taxing underdeveloped property to fund lower priced housing not new development. However, that idea, taxing the inefficient use of land by parking big houses on big lots is probably truly politically impossible today.

We must find the smarts and political will to amend Washington’s Constitution to allow Tax Increment Financing which would allow true value capture to create new money to pay for infrastructure and, possibly, subsidize the construction of lower priced housing.

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Jonah Swallows the Whale: The Housing Supply and Demand Debate Continues

Supply and Demand or Miracles: Which side are you on? Clarence Darrow and William Jennings Bryan

Supply and Demand or Miracles: Which side are you on?
Clarence Darrow and William Jennings Bryan at the Scopes Trial, 1925. Wikipedia Commons

Darrow: But do you believe He made them–that He made such a fish and that it was big enough to swallow Jonah?

Bryan: Yes, sir. Let me add: One miracle is just as easy to believe as another.

Darrow: Just as hard?

Bryan: It is hard to believe for you, but easy for me. A miracle is a thing performed beyond what man can perform. When you get within the realm of miracles; and it is just as easy to believe the miracle of Jonah as any other miracle in the Bible.

Darrow: Perfectly easy to believe that Jonah swallowed the whale?

–From Clarence Darrow’s cross examination of William Jennings Bryan at the Scopes “Monkey” Trial, 1925

The debate about “affordable housing” often ends up sounding like the debate over evolution between Clarence Darrow and William Jennings Bryan who argued at the1925 Scopes Trial; a battle between fact and fiction, miracles and science. Those of us who look at the science about how housing lenders and investors spend their money find that what guides those decisions is supply and demand. Real people make real decisions about building housing using real money based on whether they think housing supply is increasing or falling.

Others, however, insist that supply and demand doesn’t apply to housing in Seattle. Somehow housing is different.

Here’s a commenter from a recent Seattle Times story on rising rents in Seattle, Rent increases here lead the nation, study finds.

The old tired song of “supply and demand” needs to be retired. This is artificially created supply and demand. A handful of developers are profiting and building apartments thereby raising the overall baseline of rental rates [that] other homeowners greedily follow under the guise of “market value.”

Sure, the argument goes, if we let builders make more housing, increasing overall supply and choice in the market, they’ll just make even more money because they just jack up the prices “artificially.” Then they’ll laugh all the way to the bank while the rest of us suffer.

But we know that this idea—that the supply of housing has nothing to do with price—is truly an example of magical thinking.

The Seattle Times story explains where rental prices come from.

The vacancy rate in King County last spring was 3.32 percent, the lowest since 1998, according to apartment-research firm Dupre + Scott.

Current demand for apartments in the Seattle area is “stunning,” Willett said.

There you have it. When the supply of vacant units is low and demand is high, prices go up.

Do prices ever go down?

Rents are very sensitive to economic booms — and busts. After the tech bubble burst, Seattle area rents fell as much as 5.7 percent. After the housing bubble burst, rents plunged as much as 10.1 percent during the Great Recession, MPF data show.

When the economy slows, people have less money to spend and stay in place. Demand falls, the supply of vacant units increases, and prices fall. Landlords have to compete for tenants rather than tenants competing with each other for scarce vacancies. The best and only tool for a landlord to compete in a market with lots of vacancies is to lower rents.

The other way prices fall is when the market heats up. That’s a time when builders want to capture the profits from higher rents. They build more apartments to meet the demand. Then…

The pace of [rent] increases should slow down as developers open more apartments, Willett said.

Now either all these forecasting firms are engaged in a wide-ranging conspiracy to fool us or they know what they are talking about. Certainly, builders of all kinds—for profit and non-profit—listen to what forecasters say when deciding what to build and what to charge for rents. Banks and investors use the same information to decide where and how to invest in housing.

Predicting what prices will do in the future is hard to do; it’s risky. And when people take risks and they end up being right, usually, they make a profit. If they guess wrong they lose. That’s how the market place works.

It’s hard enough to believe that a big fish could swallow Jonah, but to believe that Jonah could swallow the big fish? Now that would be a miracle; kind of like rents going up even when we increase housing supply to outpace demand.

Instead of spending out time arguing over something that is pretty much established fact, shouldn’t we turn our attention to how we reduce barriers to increasing the supply of housing for people who want to live in our city so they have more choices? That, I guess, might take a miracle too.

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Latest Micro Housing Debate: How Many Sinks Are Enough?

Seattle Valley PTAIf you went into the Fellowship Hall of the First Baptist Church last night seeking fellowship or edification there was little to be had. Instead it was the scene of the latest set-piece battle in the wider war between NIMBY forces and supporters of growth; this particular skirmish was between supporters and opponents of micro-housing formerly known as aPodments.

What was different about this meeting was that the crowd was more evenly balanced between the two sides. It was also an effort to give equal time to developers. What emerged, though, wasn’t much new information but the overreach of opponents of small, affordable apartments.

The complaints from neighbors were the same. Noise, criminal behavior, construction, and the size of the buildings were all trotted out as reasons why this type of housing was disastrous for neighborhoods. What continues is the strain of argument that people already living here in Seattle ought to determine the way new people moving into the city should live. This housing form is bad for families because it promotes a single lifestyle. How can families move in if this is all we build, they asked? And families is what we need here!

But the NIMBY presentation lead brilliantly by Dennis Saxman went further than that, drilling down to the individual unit. The panel showed detailed drawings of a small housing unit, pointing out that it had only one sink.

“Now when a person comes out of the bathroom and tries to wash their hands in their one sink, what happens if there is a head of lettuce in there?”

Hmmm? What happens? C’mon developers, what does that person do? They have to choose between eating at home and washing their hands. Obviously, the presenter went on, these people (living like rats as one NIMBY characterized it) don’t cook at home anyway. They couldn’t possibly. And we all know that people who don’t cook at home aren’t healthy and die sooner than everyone else.

The brilliance of Saxman and his colleagues was to take the twenty minutes handed to them by the City Council for no other reason than they are breathing opponents of this type of housing and making themselves look somewhat credible. “What’s this?” a person in the crowd might ask, “they have facts and diagrams!” They’re not just irrational opponents of change fearful of the future and of new people.

But do we want Dennis Saxman and his colleagues programing our homes? Does Mr. Saxman get to decide how many sinks I should have in my house and where they are? Why? If I am new to the city does Mr. Saxman and his friends have approve my quarters? When did we turn planning and land use over to the Harper Valley PTA?

What is disturbing about the debate so far is not just the fact that Council is considering doing something to fix something that is already working—small units are meeting an obvious demand for housing—but that opponents of change want to get into the bathroom and kitchen of new residents of Seattle. They know how you should live and where you should live and what you should pay.

These local NIMBY warlords haven’t won yet, but how much longer will Council allow this debate to continue. What’s needed is an economical way to integrate this innovative housing form into the code in a way that doesn’t increase their price. Letting NIMBYs decide where new residents of our city wash their hands isn’t welcoming to new people and it isn’t necessary. It’s also just bad policy. It’s time to shut off the NIMBY’s microphone and come up with useful ways to welcome new people into our neighborhoods.

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Urbanism Without Effort? Let It Be!

minneapolisAnyone who knows Chuck Wolfe, author of Urbanism Without Effort, knows he has an agile mind an encyclopedic knowledge of local land use law and lore. But you’ll also know that he is not one who seeks attention by taking the extreme view or throwing bombs. There are others in this town that do that.

But in his new e-book, Wolfe in his own subtle way and at his own pace, unfurls a view of planning, land use, and the future of what has been called “urbanism,” that might be radical. And by radical I don’t mean revolutionary, a departure from current practice to something entirely new, speculative, or made up. Instead, I mean radical as in to the root of the matter.

Wolfe’s book is short and full of pictures, a practice of illustrating ideas and examples he took from his late father Meyer “Mike” Wolfe, a pioneer in urban planning at the University of Washington. Wolfe argues, as his father did, that such illustration is essential to explaining what works in creating good cities but also required to make those solutions work.

But what is Urbanism Without Effort? Wolfe describes it as

What happens naturally when people congregate in cities—based on the innate interactions of urban dwellers that occur with one other and the surrounding urban and physical environment.

Wolfe makes the point throughout the book that planners spend too much time trying to impose urban planning structures on cities with the intention of making them places people want to be instead of looking first at the places people already want to be. Those places are instructive when asking, “What do we do?” It might be better to ask, “What do we not do?”

At it’s roots, urban planning is what happens after planners experience time in cities learning what supports and facilitates great places, filled with people interacting happily, and even making a profit and creating art and music. What planning becomes is an abstraction of forms and policies extracted from principles and then imposed on an urban environment.

Perhaps the best local example of this is Seattle’s waterfront. I can’t think of another place where everything is so totally backasswards when it comes to an urban process. The premise of what Seattle is trying on the waterfront has to do with “weaving the city back into the water” or some variant of this kind of Plannerese. The fact is, last time I checked (yesterday) the waterfront is a vibrant and bustling place full of people.

There is a bizarre, self-conscious and sentimental effort to “restore” something that never was simply because the viaduct is going away. The viaduct never did cut people off from the waterfront; they simply walked under it. Graduates of the University of Washington’s planning school sketched out an absurd vision of the waterfront complete with people lowering their canoes into the water at the end of Madison and children chasing beach balls.

Now, millions are being spent to turn areas opened up by the deep bore tunnel to create a waterfront park. Hello Seattle! We already have at least three waterfront parks at Alki, Myrtle Edwards, and Golden Gardens. Each of these places allows one to take off one’s shoes and “connect with the water.”

The waterfront effort, well intentioned for sure, ignores that the waterfront works fine. What’s needed is a plan to support the development of real estate previously consumed by the viaduct for more housing, which means more people, which creates the opportunity for spontaneity, a term that I am sure Wolfe had no intention of connecting with Hayek’s “spontaneous order.” But it’s an association I will make. Yes, people will make oodles of money developing the waterfront for housing. So what! Good for them. It gives us the base ingredient for what every great city needs: more people.

Instead we have an out of control academic exercise trying to reinvent the waterfront using principles being applied without any reference to the success that is already there. What will result is likely to be wind swept plazas with a scattering of food vendors. “Such places,” Wolfe points out, “end up as little more than a hollow reminder of their authentic inspiration.”

Wolfe joins the chorus of those of us who say regulation is our friend outside the city walls, but within, we need to simply “let it be.”

The copyright cops got to the Youtube version of the Beattles roof top concert that I think is so emblematic of what Wolfe is talking about when he writes about Urbanism Without Effort. You’ll have to click on this link below since Word Press won’t allow an embed of video unless it’s from Youtube. And you may have to watch a 60 second birth control advert on Daily Motion first. So much for spontaneity.

http://www.dailymotion.com/video/xtrooe_the-beatles-rooftop-concert-london-original-version_music#.UYaScuD0jkZ

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Land Use and Dance: Make Me Feel Weird

CollisionTwo things happened yesterday that point where we can go as a city when it comes to growth. The first, in the middle of the day, was a public scourging of a housing type, small, affordable apartments. Erica Barnett wrote the defining post about the mob facilitated by the Seattle City Council’s Tom Rasmussen, who played the role of the Red Queen

One woman testified that aPodments would quickly be overrun by mold, “meth addicts,” “wild parties,” people with “mental illness,” and men who will terrorize “our daughters.” (Then, in a classic case of concern trolling, she worried that microhousing residents wouldn’t be able to cook decent food, because they’d have filthy shared kitchens and in-unit microwaves that wouldn’t “even be big enough for a Hungry Man dinner.”)

This orgy of fear and hate toward a type of housing was, of course, about our city’s fear of new people, fear of intimacy, and, in the, end our resistance to love our neighbor as ourselves, no matter what kind of house or apartment they live in.

Later that evening something else happened; a performance of Collision Theory: The Finale, created by local genius KT Niehoff. To call what Niehoff creates dance may be limiting, but it is dance at it’s core. I had the opportunity to work with Niehoff several years ago when my King County program sponsored Inhabit, an earlier innovation by Niehoff.

If the angry mob assembled at City Hall is where our city might go when it comes to growth, Niehoff points us in another direction; intimacy, acceptance, and transgression of boundaries.

True to the spirit of Inhabit, the dancers in Collision Theory move about the audience, interact with them, talking and touching them, and even handing them things. There is narrative, but it pairs so beautifully with the space and the movement that it is almost liturgical in form. It’s like Eucharist, except that I was eating the bodies of the dancers with my eyes.

And the dancers dance but they also tell stories. Molly Sides moves and tells a story about a teenage experience with a pink back pack full of Bud Light. Meanwhile, dancers occupy creaky table like stages that make you sweat, worried someone might fall. I saw one woman reach out as if to stabilize one of the dancers hanging, dangerously, off the edge. Sides piece in particular made me think, “if this could be squished into a pill the size of an ibuprofen, I’d swallow ten.” It’s that good.

The intimacy achieved by Niehoff’s work is a powerful expression of hope in human beings, in their ability to learn and love one another by connecting physically and sharing stories. It is, simply put, the antithesis of where our public process around land use is going, down a path of tapping in to the worst aspects of human experience, fear and loathing of other people.

Our city and our City Council ought to be embarrassed at what transpired at their gathering yesterday. And they ought to get on the phone and call KT Niehoff (I understand she’s closing her company) and ask her to take over all the public process for land use in our city going forward. It would be weird, but we might learn to fall in love with each other and and all those new people coming to Seattle who will need a place to live in the years ahead.

Performances of Collision Theory: The Finale continue at On The Boards through the 21st. Go. 

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Supply Isn’t A Four Letter Word Anymore

Citytank SupplySomething amazing is happening in the discussion about housing and affordability in Seattle: people are starting to talk about how building more housing can lower housing prices. Supply, a word seemingly reserved only for the Master Builders Association, is beginning to be used in polite Seattle company–well, at least on popular blogs and on Facebook. I started embracing supply at least as far back as 2011 when I wrote this:

When it comes to housing my question goes something like this, “if Seattle has a housing affordability problem shouldn’t we increase supply? See, since this economics thing says that when supply goes up, it will eventually exceed demand, and when it does, BOOM, price comes down, right?”

Comments like these were usually greeted with derision. I didn’t understand, people would say, that housing is different. Housing price isn’t affected by housing supply, the way, say, hot dogs might be. I was called a libertarian, lost in a Hayekian reverie. One snarky guy on Facebook invited me to join him in his graduate level economics class so I could learn that I was wrong, supply doesn’t positively affect housing price. But I stuck to my guns.

Now, over at Citytank, David Moser wrote these words that sound, to me, like poetry.

The only way to slow [poor people leaving the city] is to build enough housing to meet the demand, preferably near transit. Incumbent property owners who seek to limit development and additional housing in their neighborhoods are therefore also supporting the de-facto eviction of the poor from the city.  They are the “haves” excluding the “have-nots” once again.  Though their intentions are not evil, the consequences of their actions are. And opportunistic politicians who position themselves as populist defenders of “neighborhood character” must be defeated. We must intensify our efforts to build this city. It is a just cause.

All stuff I’ve said before with much criticism from people with planning degrees and with a progressive bent. Today, we’re seeing a shift toward supply talk. Not only that, but Moser is tying this to politics, suggesting we replace politicians who don’t get that we need to build more housing and reduce the costs of production by having fewer rules.

We tried the political accountability route back in 2010 with an effort called the Party of the Future. The Party of the Future efforts fizzled because nobody really wanted to challenge Councilmembers politically and publicly, even though, in private, they were livid about Council decisions on land use and density.

I am not claiming credit for anything, especially credit for being the first to argue that increased supply will lower price. I’m sure it’s been argued and suggested before in Seattle, but I don’t think it had much effect. I believe that’s changing.

Here’s a revised version a comment I left on Citytank in response to Moser.

Thank you for this, especially your point about supply.

There almost isn’t a day that goes by when I am not talking about housing supply. I just finished a rant about it a little while ago.

We live in a city that is full of progressives who desperately want to help poor people by making housing more “affordable” by lowering housing price.

Price and affordability are not the same thing; affordability is a relationship to price. If we want housing prices to go down or stabilize we must increase supply.

However, ideology –the myth of the “greedy” developer– tends to trump common sense.

We’re making progress. Gradually I am beginning to hear closet doors creak open and I am hearing the sweet sound of “supply! supply! supply!”

That’s how we fix price. Living outside the city will likely always be “cheaper” than living in it, especially since the costs of living elsewhere are largely externalized.

Part of the solution to this last problem is redefining “affordability” into something that is more comprehensive and reflects all the costs and benefits of living in the city.

Today we talk about “affordability” and mean something, usually, more than simply housing price. Once we bust the iron grip of liberal progressive ideological language and bigotry against private profit, we can start to take our foot off supply by lowering regulatory barriers and, also, incentivizing development rather than taxing it and penalizing the private sector while subsidizing more expensive “affordable” housing.

These things together, increasing supply and developing a broader concept of affordable city living, can lead us to an outcome we want: more people living more sustainably in the city.

And, yes, we still need subsidies for housing, especially for populations who can’t pay enough rent to cover the debt and operating costs of new housing. But that’s another post. For now, let’s keep using that word, supply, as much as possible when the topic of affordable housing is brought up.

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Is There an Apodment Moratorium in the Works?

ApodThe rumors are flying: The Seattle City Council is preparing to consider legislation that would shut down, or at least hinder, more development of apodments,* the small affordable apartment dwellings that have been popping up in town. The arguments against apodments are weak and it is one area where Seattle is actually ahead of the game when it comes to innovative housing solutions.

And the Council has just finished it’s latest agonizing over “affordability” in discussions about zoning in the South Lake Union neighborhood. The market is producing apodments—people want them so developers are building them. Shutting these down now would be entirely inconsistent with what the Council says it wants and what its trying to tax development to do in South Lake Union. Apodments are affordable!

The first argument I’ve heard is that somehow developers are exploiting a “loophole in the code” to build apodments. That’s just nonsense. Developers are building these entirely within the existing code, a code that, in fact, has been around for a long time. Furthermore, neighbors that are griping about apodments generally speaking live in neighborhoods already zoned for low-rise multifamily housing. The truth is that places where apodments can be built would already allow regular apartment buildings. So what’s the big problem?

Opponents say that the apodments are too small. What doesn’t make any sense about that criticism is that the people making the fuss aren’t even going to live in the apodments. I’ve been in the apodments several times and even talked with people who live in apodments. They seem lucid and sane to me, not drugged or somehow coerced into living in the buildings. The truth is that the apodments pretty much have a zero vacancy rate; when one becomes vacant it gets rented out right away. People love being able to have the choice to live in an apodment.

Someone worried about apodment development on Capitol Hill said she was worried about her neighborhood changing; that’s an honest concern. She described how she knows all her neighbors and how they look out for each other, even checking in when someone’s lights haven’t been on a few days, or someone has been sick. But she worried that the apodments would be like a dorm, full of loud young people and a transient population.

I think this last worry, that apodments will change a delicate neighborhood ecosystem by introducing new, different people into it, is truly the biggest issue for apodment opponents. Change isn’t easy, especially when things are already pretty good. But the fact is that apodments are a great part of a housing continuum in Seattle. Being worried about more people isn’t unusual, but if we’re going to grow as a community we’ve got to get over it.

Finally, and most importantly, apodments are affordable. It’s baffling to me that the City Council could one day worry about taxing new development to create subsidized affordable housing—a paradoxical and self defeating move—but the next day consider putting a stop to housing that is produced for profit, with no subsidy and really is affordable.

In fact, apodments are addressing what some on the Council say they are most worried about: workforce housing. The normative standard for housing—how much we should pay for housing—affordability is 30 percent of monthly income. There isn’t a pod I’ve seen that rents for much more than $1000 per month, which is just about what a person making a little over 60 percent of Area Median Income makes.

The apodment concept uses the code wisely, using the smarts and innovation of developers to create housing that is less costly to build. The subsidy for apodments is created by innovation. The value created gets passed on in lower prices for rent and the public benefits by getting affordable density.

The City Council should resist any changes to what’s happening, but instead pass a resolution declaring May 2013 Micro Housing Month. There should be tours of apodments, a big fair highlighting other micro housing ideas, small-lot development, pre fabricated back yard cottages, anything that produces an innovative housing solution. Let the Council know, “we’re winning with apodments. Don’t go back now!”

* The term “apodments” is a brand name of one particular housing product. I’m using the term here broadly for all small apartments being built in the city.

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Seattle’s Silent Epidemic: The Ferris Firefighter Fantasy

06_1224_ferrisHal Ferris, a local developer, has achieved some notoriety of late with his report on incentive zoning, completed at the behest of Mayoral candidate and current City Councilmember Tim Burgess. But maybe Ferris should be known as the inventor of the now famous firefighter fantasy, concocted six years ago the first time incentive and inclusionary zoning was seriously brought before the Seattle City Council.

Here is Ferris on so called work force housing back in 2007 in an article in the Daily Journal of Commerce:

Imagine you are a schoolteacher, firefighter, police officer, health-care worker, retail clerk or any other median-income worker whose job is essential to the economic vitality of our cities. If you work in Seattle, chances are you don’t live there. And in cities across our state, this is becoming an all-too-common scenario, one with major environmental and social impacts, including lengthy and pollution-inducing commutes, sprawl development and the disenfranchisement of people from the communities in which they work.

Imagine walking around Seattle with your axe over your shoulder and your helmet under your arm desperately looking for that apartment unit in Seattle that’s affordably priced. No wonder there are so many firefighter calendars — you just don’t make enough money to live in the city that you risk your life every day to protect. Now you have no choice but to move to Bellevue, where housing is cheaper, and you’ll end up contributing to global warming.

It’s a great story, great visual, and politically expedient, but it’s simply not true. Even a cursory scan of data available on the internet should extinguish the sad firefighter story. While there are certainly firefighters and other workers in Seattle who can’t find housing here in Seattle, for firefighters it isn’t because of low wages.

The [2012] starting salary for a Fire Recruit is $64,884 per year with scheduled pay increases per union contract. Specialty and administrative premium pay can add an additional 5-20% depending on the specialty.

The Real Area Median Income (RAMI) in Seattle in 2011 was $64,085, slightly less than what a firefighter in Seattle would make as a recruit. The typical normative standard for affordable housing –what you should be paying for housing– is 30 percent of monthly income. That means a beginning firefighter could afford about $1,621 for housing per month. How does that compare to average rents in Seattle versus a place like Bellevue. The Seattle Times reported that in 2012

The average third-quarter rent in downtown Seattle, Belltown and South Lake Union in August was $1,628, Apartment Insights said, second only to downtown Bellevue’s $1,756.

So our firefighter could settle down in an affordable apartment in Belltown and still be paying an affordable 30 percent of her monthly income. Why move to Bellevue and pay more when she could walk to her firetruck in Belltown?

Still, the narrative of the firefighter, teacher, or healthcare worker earning $51,268 (80 percent of RAMI and thousands less than what the City says an actual firefighter earns) a year but unable to find a place to live in Seattle is influencing public policy.

City Councilmember Tim Burgess has decided that the public would benefit by taking Ferris’ advice, charging developers who are building new housing in Seattle’s South Lake Union neighborhood a tax to fund the development of more housing, and then making them put that housing priced the way he wants it in their buildings. Burgess is pursuing this policy even when market studies say that without more housing supply, price will go up.

The Dupre + Scott study quoted in the Seattle Times found last year that

73 percent of landlords responding to that company’s survey said they plan to increase rents over the next six months.

The average projected bump: nearly 4 percent.

Renters pay more and must look harder for vacant apartments in close-in Seattle neighborhoods, according to both research firms.

The vacancy rate is just 2 percent on First Hill, 2.2 percent in the University District and 2.3 percent on Capitol Hill

If we’re worried about affecting housing price the obvious solution is to increase the supply of housing. More housing means more competition between landlords and developers and lower prices for firefighters and everyone else. However, the paradoxical view that we should tax new housing (a tax that will add to the cost of housing and increase its price) in order to achieve fairness, equity, and affordability persists.

In his 2007 article Ferris said that the “shortage of workforce housing is a silent epidemic.” The real epidemic is an intellectual one; the stubborn insistence in the face of basic economics that the way to lower perceived high housing prices is to increase costs and limit supply. Let’s hope we find a cure for this epidemic in the deliberations about zoning in South Lake Union before it spreads elsewhere.

firefighter burgess

Fear of high prices: Councilmember Burgess as firefighter

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Bismarck to Burgess: Do Affordable Units Mean Fairness, Equity, and Public Benefit?

Bismark To Burgess

The basis of social policy is to ensure the welfare and health of a population, specifically the population of a political unit like a country, state, or city. Housing and shelter are commonly accepted as important elements of basic welfare and health, but the issue of how to ensure that everyone is at least sheltered, if not housed, has been a source of controversy.

In Seattle, well intentioned efforts to address housing issues have lead to a strange, self-defeating spiral in which elected officials and others are arguing for policies like inclusionary zoning that actually make housing prices higher by adding costs to new housing. Policy makers need to better define what problem they are trying to solve when they impose schemes like inclusionary zoning. If the problem is housing price, the obvious solution is to increase housing supply.

If the problem is defeating developer “greed,” redistributing wealth, or increasing wages, perhaps policy makers should widen their scope. The problem with Seattle’s approach to housing affordability is that it is attempting to address a scattering of social issues with a very blunt tool: price controls on monthly rents in new buildings.

Social welfare efforts have many origins, but almost every survey begins with the social reforms instituted by Prussian leader Otto Von Bismarck in the late 19th century. At that time, the conservative government of Prussia wanted to positively affect wages to offset pressures to immigrate to the United States—it was also a political move to staunch growing social unrest. The Prussian programs also included comprehensive health insurance. In the United Kingdom in the early part of the last century, the government passed a similar set of programs to ensure social welfare.

In the 1930s, the United States followed, passing lots of similar programs like Social Security Insurance. Eventually, when it came to housing, the normative standard of affordability was pegged at one week of wages or 25 percent of a workers monthly income. Later, in 1981, that figure was adjusted up to 30 percent of monthly income. Additional adjustments were made to discount the Housing Cost Income Ratio (HCIR) for a percentage of Area Median Income (AMI). So today you’ll hear policy makers and housing advocates talk about 30, 40, 50, or 60 percent of AMI since that’s the basis of subsidies for non-profit housing developers.

What has emerged in the United States is a measure of affordability that does not correspond to the hopes of advocates. A measure of income relative to monthly cost of housing is a pretty weak basis upon which to correct social inequity. Equity and fairness, the latest buzzwords associated with the efforts to impose inclusionary housing schemes, are not likely to be achieved by adjusting people’s rents in new developments or taxing developers for the subsidies necessary for the adjustments.

Everyone has a different sense of what “affordability” means or should mean. One Seattle City Councilmember, Tim Burgess, has a view about what dealing with monthly price of housing is all about:

“We are not currently balancing public and private benefits,” said Burgess, who prodded the council to hire experts to review the mayor’s proposal to allow taller building heights in South Lake Union, with some as high as 400 feet. “We must craft a better deal for the people of Seattle.”

Burgess in a recent story in the Seattle Times also described currently policies requiring some developers to contribute cash to subsidy programs for housing priced at a certain level an “escape hatch.” Why is it an escape hatch if it actually creates subsidized housing? Where is the case that including subsidized units in market rate buildings solve the public benefit problem if there even is one?

Burgess’ latest foray into the housing affordability discussion is only the latest of many efforts to affect social policy—to achieve equity or fairness—by bargaining for lower monthly prices for rental units in new developments. How lowering the rent of a few hundred one-bedroom apartments in South Lake Union from $1150 a month to $900 a month is going to achieve social equity is beyond my comprehension. And does it solve the perceived problem of not taking enough public benefits at the expense of private businesses? How?

Additionally, if the problem is developer greed, then why not shut down all new development everywhere? Would that be “a better deal” for the people of Seattle? Or perhaps we should simply try imposing rent control (deemed unconstitutional up to this point) on all new housing, allowing the City Council to determine what prices can be charged for monthly rents in the City. Would that be a better deal? Ask people who live in cities with rent control.

Perhaps Councilmembers and all people discussing the issue of “affordable housing” should get together and decide what their point really is: affecting the price of a few hundred units of apartment housing or something greater.

Then they should consider the words of Otto Von Bismarck who endeavored to use social welfare programs to squash political dissent, but ended up building a system that, arguably, lead to many of the good ideas we have to day about broad social justice and equity.

The real grievance of the worker is the insecurity of his existence; he is not sure that he will always have work, he is not sure that he will always be healthy, and he foresees that he will one day be old and unfit to work. If he falls into poverty, even if only through a prolonged illness, he is then completely helpless, left to his own devices, and society does not currently recognize any real obligation towards him beyond the usual help for the poor, even if he has been working all the time ever so faithfully and diligently. The usual help for the poor, however, leaves a lot to be desired, especially in large cities, where it is very much worse than in the country.

The “usual help,” taxing developers to build a few hundred apartment units priced at 30 percent of the pre-tax income of a worker who earns 60 percent of Area Median Income, isn’t likely to lead to fairness, equity, or increasing benefit to the public. On the contrary, by penalizing the development of more housing supply by making it more expensive, policy makers would be having a deleterious affect on the very thing they seek to fix: housing price.

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‘Tis All in Pieces: The Confusing Cost-Price-Ideology Housing Debate

Save Old Buildings

‘Tis all in pieces, all coherence gone,
All just supply, and all relation;
Prince, subject, father, son, are things forgot,
For every man alone thinks he hath got
To be a phoenix, and that then can be
None of that kind, of which he is, but he.

From An Anatomy of the World by John Donne

Recently someone sent me a link to University of Washington Professor Theo Eicher’s 2008 study on how land use and other regulation affects housing price. Eicher’s thesis is that cities, and Seattle in particular, are overregulated, with rules that add measurable costs to housing construction that in turn result in higher prices. The study was seen, at the time, as salvo against Washington’s Growth Management Act, and proponents of the GMA rallied against Eicher’s study and the Seattle Times article about the study. It’s worth taking a quick look back at the discussion then about affordability and where it is now.

Eicher’s study concluded that, “statewide regulations and growth management are associated with increases in housing prices.” He went on further, adding

When statewide regulations negate sprawl or limit building heights, they exacerbate agglomeration pressures at the city centers. Ultimately these dynamics are reflected in the increase in housing prices

Supporters of the GMA pounced. My former colleague Eric de Place at Sightline wrote a three part series blasting the Seattle Times article on the study, and one on the study itself heavily based on a paper refuting Eicher written by the Washington Chapter of the American Planners Association.

De Place’s work flattening the Seattle Times piece demonstrated the folly of the idea that growth management in general and the GMA in particular are the cause of all sorts of bad things, including high housing prices and even, in a bizarre twist of data and credulity, sprawl itself.

There are plenty of good financial reasons single-family housing developers who are building outside the Urban Growth Area have to blast the GMA, and forces aligned against more growth in cities like Seattle, would rather see growth go somewhere else, something limited by the GMA. But their attacks on growth management are usually blunted by credible arguments on the other side.

So in 2008, right before the collapse of the housing market and the economy with it, that’s where the discussion stood. On the one side progressive, liberal supporters of the GMA and, on the other, developer advocates who opposing the limits imposed by the GMA. Increased costs associated with regulation were downplayed by greens and builders argued that if you were mad about housing price, you had regulation to blame.

But even back then de Place was wise to point out the distinction between the GMA and other regulations limiting the use of land in our cities in the region.

It’s too easy to conflate “regulation” with “the growth management act.” In fact, that sort of conflation happened in the press coverage, and it’s been happening since in political circles.

This conflation is important, because it is the source of a major hang up in the discussion of land use regulation and affordability.

The truth is that the Growth Management Act is a way of pushing future growth into cities like Seattle. But what happens when the growth gets here? Too often it runs into opposition from people who are already here. And oddly, it’s becoming affordability advocates who are now criticizing the Growth Management Act. Here’s Kate de la Garza (a non-profit housing developer and all around smart person) writing in the comments section of a post I wrote for Publicola on prices and the Growth Management Act:

I think when you really look at it, what density has done has pushed rental housing affordability further and further out of Seattle, making Seattle urban villages almost exclusively enclaves for the rich and well off. (So on a macro-level, I may agree with your argument, if you concede that said affordability is located in Renton or Tukwila.) I am working on a study of this, by looking at historical date related to cost of rental housing in urban villages. My aim is to demonstrate with hard data that the average cost of rental housing has steadily risen within urban villages since the GMA was enacted.

Post housing boom it’s now the social justice set that is seeing the GMA as a problem when it comes to housing price.

And, in something of a reversal, Sightline’s Alan Durning is now pushing for less regulation, acknowledging that too many rules push up housing costs. Here’s Durning on occupancy limits in a long series on housing rules and regulations that he thinks should be abolished:

These two stories hint at what turns out to be a giant opportunity hiding in plain sight. Across the Pacific Northwest, occupancy limits constrain access to the cheapest, most profitable, most abundant, and most sustainable housing option currently available: bedrooms in existing buildings. They criminalize the simplest and perhaps the oldest solution to housing affordability: roommates.

Allowing Durning’s wealthy friends to have lots of roomers isn’t going to put a dent in housing supply, but his point is pretty clear: fewer rules could help reduce housing price by allowing more options for people looking for housing.

What’s going on here? Progressive Urbanists like Dan Bertolet have landed on the supply side shores in Seattle, finally realizing that making more rules about housing—even well intentioned rules like incentive zoning—actually make housing more scarce by making it harder to build. That reduced supply means higher prices. Thoughtful environmentalists like Durning are pushing for fewer rules and more flexibility. But social justice advocates and NIMBYs are banding together to add more rules in the name of affordability or just simply slowing growth.

I think what’s happening is an ideological realignment on growth that is painfully pulling apart an old coalition of urban planners, environmentalists, and progressives who, generally, have been in alignment on social and political issues. But if we want to tackle sustainability and reduce the effects of climate change we have to build more housing in a smaller footprint: it’s called density. The harder we make it to do that by imposing taxes, fees, and fines on people creating housing the more expensive we make it.

Regardless of ideology the facts are pretty simple. When government limits housing inventory with zoning and adds cost with regulation prices for housing goes up. While these facts might create ideological whiplash for liberal Seattle, we need to get over that quick and make it easier to create more housing.

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