Supply and demand: what about the demand side of affordable housing?

I’m on a roll with old movie and television references. I often feel like Columbo when it comes to discussions of topics like affordable housing in Seattle. See I don’t have any formal training in economics. I have a Masters Degree in Religious Studies. So all I can do is ask questions. 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?”

I do think that we talk about affordability in Seattle in the wrong way. My Columbo question about supply, demand, and price aside, what about demand? Can we do anything about that? There are a couple of really good discussions of demand in the Huffington Post of all places. The first article is by Robert Reich former Secretary of Labor on President Clinton. Reich argues, correctly I think, that part of Obama’s problem is that he is too focused on the supply side of the economy, which means lowering taxes and other costs for business. Why not focus on the demand side, creating more income for the consumer side of the equation.

How to get jobs back, then? By reigniting demand. Put more money in consumers’ pockets and help them renegotiate their mortgage loans.

For example: Enlarge the payroll tax break for workers — not just for employers. Exempt the first $20,000 of income from payroll taxes for a year. Create a WPA for the long-term unemployed. Allow distressed homeowners to declare bankruptcy on their primary residence, thereby giving them more clout with lenders to reorganize their mortgage loans. Lend federal money to (rather than bail out) states and cities that are now firing platoons of teachers, fire fighters, and other workers because state and local coffers are empty.

I’m not going to take each one of these ideas one by one. But generally speaking I support what Reich is talking about, especially when it comes to housing. As I have talked about before, we have a bizarre way of calculating what affordable means. Using 30 percent of monthly wages, then discounting that by some percentage of Area Median Income doesn’t seem to do the job. What about looking at wages? If a person makes more money wouldn’t they be able to better afford the cost of housing?

And that brings us to wages. Reuben Diaz Jr. who is a the Bronx Borough President wrote is article about the problem facing New York City’s poor. Diaz reaches the conclusion about New York that I wish some of Seattle’s City Councilmembers might reach about Seattle:

The cost of living in New York is high, resulting in a large number of “working poor.” For example, the cost of a monthly MetroCard is $104, or ten percent of the pretax monthly income of someone employed in a minimum wage job, assuming they are working at least 35 hours each week.

It is crystal clear that we have a real problem in this city. That is why the Fair Wages for New Yorkers Act is so important, not only as a matter of economic justice, but as sound fiscal policy as well.

I’d modify what I said earlier to say that I wish Councilmembers would at least entertain the idea that we might also have a demand problem; that is, maybe people aren’t making enough money in Seattle to pay for housing. That leads to different solutions than holding developers over a barrel to produce housing that isn’t particularly affordable or desirable through incentive zoning.

The solution to the “affordability problem” in Seattle is three fold. First, we have to figure out what the problem is and whether we actually have that problem or not. I am not convinced that housing is too pricey in Seattle for people that earn 80 percent of Area Median Income. I know that people that earn 60 percent or less definitely struggle, but they still live in Seattle because they have to or want to. Is the problem poorer people have paying for housing that housing is too expensive or that other things they need are too expensive? Maybe we have a child care affordability problem.

Second, once we’ve figured out the problem, if we have it, and how big it is, then we need to try to figure out how to address it sustainably. We should know by now that anything that increases the cost of producing new housing in time or money will reduce supply or at least keep it flat. If demand keeps increasing, that is a recipe for higher prices. Supporting the development of more housing can help reduce the price pressure by increasing supply. That also creates more density which in turn supports transit and, yes, more street food!

Third, we need to look at the demand side too. Seattle’s government has a lot of power to affect wages and even health care costs. Perhaps we need to look at increasing the minimum wage in Seattle and requiring paid medical leave for all workers, especially those in the hospitality industry. Putting more money in workers pockets and giving them job security could mean fewer problems paying for things like housing and more money to spend on local businesses which in turn will boost jobs, and economic development.

And just one more thing, all of this will require leadership. It won’t be easy to push up wages and require medical leave because of the additional costs. It also won’t be easy to deal with neighborhoods who resist density and more housing. Addressing both supply and demand is a tough balance to strike, because it’s likely to make a lot of people mad. But with leadership these things can be done, especially if the right questions get asked at the outset.

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4 Responses to Supply and demand: what about the demand side of affordable housing?

  1. Interesting concept. I take it more housing means cheaper housing. I’m guessing you mean rental housing for people who don’t want to, or can’t buy condo’s town-homes or stand alone housing because of incomes that are too low or credit that is too bad.
    At present, according to Northwest Multiple listings Association statistics there are 1719 vacant homes or condos on the market and for sale in the city of Seattle. I don’t know how many vacant apartments there are. Maybe not to many.
    I agree that the first $20K of income should be tax free, but how many small corporations have tax gimmicks that allow them to fall in that category?
    So like you say…just build more apartments so the rent is really cheap and then everyone can live here whether they have jobs or not. This will take some leadership. I wonder who is up to the task.

  2. Sotosoroto says:

    Increasing the minimum wage will certainly drive down the cost of housing, both as a percentage of income and also in real terms. The higher the minimum wage, the fewer low-wage employees businesses can hire. With fewer jobs in the state, the population will decline in relation to other states. Fewer people means lower demand for housing and thus lower housing costs! …If you’re one of the lucky ones with a job, that is.

  3. Matt the Engineer says:

    Increasing demand will just increase prices. The number of homes in Seattle won’t change, so there will still be the same number of people that can’t afford a home here.

    The only way to make homes in Seattle more affordable from the demand side is to decrease demand. There are dozens of ways to do this: Close down our schools, outlaw garbage collection, require all homes to be flourescent green… But these are all working in the wrong direction of what we really want.

    What we should really want is to maximize quality of life while minimizing the cost of living. The first factor necessarily leads to high demand, and the only way to satisfy the second factor is to increase the supply of housing.

  4. Pingback: Supply Isn’t A Four Letter Word Anymore | Seattle's Land Use Code

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