Housing at Risk (longer, unpublished version)

The Puget Sound Regional Council projects nearly half a million new residents in the coming decade. Where will they live? Seattle’s housing supply is at new risk from the combination of population growth, a slowing economy and a growing array of rapidly changing bureaucratic processes that increase building costs. When housing is in short supply, why are we making it more complex and expensive to build?

For over a decade, Seattle has experienced an unprecedented building boom during which prices were always up, money was cheap, and wealth was inflated by rapid appreciation. The boom followed the anti-tax, anti-immigrant movements that slashed government revenue and led to policies requiring new developments to pay for every imaginable impact. Planning and building departments were ordered to cover their costs through fees, creating many new hurdles and passing the costs on to developers. Fees, professional services and interest now add thousands of dollars to the cost of every new home, apartment or condominium.

Cities once understood that development generates community wealth through sales and property taxes, construction wages and new economic activity. Permit fees were low, impact fees unknown and cities funded their planning and building departments from general revenues. Municipalities considered streets, sidewalks, utilities and public services as investments that would generate community wealth over time.

In contrast, Seattle now wants a cut up front, before anyone makes a dime. The city penalizes new development rather than waiting patiently for taxes that flow in their wake. There are problems with the pay-to-play approach. First, additional fees and processes increase the initial project risk and costs. These costs are marked up and passed on to the buyer or renter. Second, the higher risk and costs inhibit development and reduce market supply, further increasing prices. Third, the city’s enthusiasm to off-load costs to the private sector results in policy gimmicks, such as Incentive Zoning.

If enacted, Incentive Zoning will trade increased zoning height for the increased development of workforce housing. The goal is great, but Incentive Zoning is just one example among many flawed gimmicks fostered by the pay-to-play policy approach. Incentive Zoning creates new bureaucracy, is boom-dependent, and hinders housing development by increasing costs. Worse, complex zoning gimmicks invite mischief by inserting city hall directly into the marketplace. A too-relevant example: for years Seattle doled out increased height for downtown office buildings in return for ‘public space’ that mostly resulted in private profit.

The elephant in the room is the private sector provision of affordable older housing. New homes are not the most economical path to increased workforce housing. Almost all workforce housing has been and will be provided by older homes and apartments in the private sector. The only way to create older homes is to build new ones. We need to remove barriers to housing development and build the large numbers of new housing units required to moderate rents and housing prices. The housing sector is the one place where trickle-down economics work.

Public and philanthropic investment should focus on providing permanent affordable housing that maximizes the return on our investment, such as land trusts and mission-driven, nonprofit-owned housing. Only permanent affordable housing justifies public investment at the local level. Funding for permanent affordable housing should be simple, reliable and transparent. Housing levies, the primary traditional mechanism for local funding of affordable housing, are a good example. Seattle residents have overwhelmingly supported housing levies, leaving no justification for an end-run around voters in expanding public support for affordable housing to workforce housing.

During an economic downturn, pay-to-play barriers cobbled together during the boom will reduce our housing supply and rapidly inflate prices. With political will, Seattle can dramatically increase the supply of housing through policy changes. Significant increases in zoning capacity, new clarity and stability in codes, and a return to funding infrastructure through broad-based taxes are all measures that will increase housing supply and moderate prices. Lowering the risk and cost of developing housing lowers the cost of building mission-driven affordable housing too.

There is no reasonable expectation that the Incentive Zoning benefits will outweigh easily foreseen negatives. Even the studies cited by Seattle City Council* finds that Incentive Zoning increased overall housing costs in one of two cities studied. Rent control comes to mind when thinking about potential unintended consequences from Incentive Zoning. Another idea rooted in good intensions, rent control wasn’t expected to lead to widespread slum development and private enrichment Despite wide understanding of its dysfunctional nature, rent control is virtually impossible to eliminate once implemented due to the powerful vested interests it creates. The comparable thicket of potential unintended consequences from Incentive Zoning is unexplored. What if Incentive Zoning creates many affordable housing units but makes housing overall much more expensive? Will Incentive Zoning improve the overall housing situation for poor and middle income households? Will the public be lulled into believing that housing levies are no longer required to support affordable housing?

We don’t need indirect solutions supported by more complexity in our bureaucracies, we need a direct strategy to create and maintain broadly affordable housing. Our primary strategy for affordable housing must be to build as much quality housing as possible to increase supply. Our secondary strategy should be to directly fund as much affordable housing as possible, all in permanent ownership by public and not-for-profit housing agencies. Public policy that increases the cost of developing dense, green, quality housing equals more expensive housing overall and less affordable housing. There are times for cities to be pro-development. When the world, country, state and city are in recession, or worse, and housing is in short supply, that time is now.

*The Effects of Inclusionary Zoning on Local Housing Markets: Lessons from the San Francisco, Washington DC and Suburban Boston Areas, Center for Public Housing, March 2008


One response to “Housing at Risk (longer, unpublished version)

  1. Isn’t it important to remember that one important function of government is to keep anything from changing much. Regardless of how much “change” is needed or promised, this is the opposing force to the centrifical energy that a half-million (plus) residents apply. If left to our own devices, we’d just turn garages, basements, attics into livable spaces, and the problem would be solved, yes? My mom and dad were living in a “bathroom down the hall” style rooming house in lower queen anne when I was conceived in 1949. How much of that type of housing is being built these days?
    This is an interesting conversation you are suggesting. More people in the city need to be engaged in it.

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