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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