Last Thursday one of my heros, Sonja Trauss, was in town because I invited her to speak at the Seattle Builders Council dinner. We all had a good time. And Trauss did not disappoint with her presentation, challenging the audience to talk differently about housing, and profit, and how we need more housing to solve our housing price problems. Trauss and I always compare notes. Probably absent from anyone’s coverage will be what she said about Mandatory Inclusionary Zoning: it won’t work. Or at least it won’t help solve the problem the Mayor and his friends and his staff are insisting they want to solve, high housing prices. The Mayor wants a good political solution. Bingo! You got it! We punish developers, build some affordable units, and call it a compromise. Good work! But what happens to housing prices and housing scarcity. Those problems get worse. Trauss summed it up perfectly with one slide.
What are the actual numbers, not just the concept of 25% of 100 units = 25 units and 50% of 50 units = 25 units? We don’t know because the City has not shared any numbers with us. None. And they have not been forthcoming with their methodology. But the concept, the principle in basic math, that increasing the percentage of something while the number goes down is basic to the reason why MIZ won’t make overall housing prices go down; in fact it’ll make the problem worse.
Trauss included these arrows on her first slide that demonstrate a simple truth that hasn’t penetrated the skulls of anyone downtown: when you demand more inclusion, then you get fewer projects, and that means less housing, market rate and affordable over all. We’ve been around and around this concept with the Multifamily Tax Exemption; when you increase the costs to participate in the program by increasing the level of subsidy required (this happens when Council keeps lowering the threshold of Area Median Income) you don’t get more deeply affordable units, say at 40 percent of Area Median Income (AMI), you get fewer units of 60 percent AMI priced units.
This happens because projects simply won’t work when the costs of the inclusion exceed the additional height or floor area ratio (FAR) being added. Trauss’ point is that when we obsess about the percentage of inclusion, we forget the fact that when that drifts too high, we get no projects at all, fewer units, scarcity, and higher prices. There it is in simple pictures. Maybe this will help get the idea across: we need more housing, not political gimmicks.
The term “urbanist” and “urbanism” have been weighed down with more significance than they deserve, then trivialized and emptied of meaning by overuse. I think “urbanist” is one who talks about cities, and buildings, and policies, and articles, and statistics. But living in a city is how we can experience and know why they work and why they are better. This story is all about quarters.
My day usually starts with a visit to the coffee shop, Joe Bar, to start the caffeinating process. But today I needed to do some basic laundry, which is no small thing in my building. It means walking down numerous flights of stairs, exiting one gate, opening another, and then keying into another door to get to the washing machines. It’s a hassle. One never knows whether two washing machines are busy or not. It’s a risk. But I did it anyway. Today I was lucky and I found an open machine, and now I was caffeinating, washing, and walking all at once.
I needed to stop at the bank. Two banks, actually. My transactions were not high finance but more of a chore, so after getting coffee I stopped at the first bank on Broadway and walked to the next bank about four blocks away. Bank number two was as obtuse as Bernie Sanders would have you believe all banks are; it took far too long to complete my transaction, but I got it done.
“Now can I buy some quarters?” I asked.
“I can’t sell you quarters because you don’t have an account here,” the teller said.
I set about to lecture the teller and his manager who was standing behind him. Customer feedback it’s called.
I heard a voice behind me.
It was the voice of one of my favorite neighborhood activists, as nettlesome and annoying as I am—but for the other side. I was glad to see him. I often find myself more compatible and trusting of my enemies than my “friends,” a feature, perhaps, of living in a city filled with “nice people.” He took my spot at the window and similarly hassled the teller. We joked about the bank and the teller and ourselves hassling the teller.
“I should get paid to train you tellers,” he said. “I’ve had an account here longer than you’ve been alive,” he said.
We both laughed. The teller looked pale.
“You’re a customer,” I said. “Maybe you can get me some quarters.”
Sure enough they offered, I gave him a twenty, he pushed it through the window and I bought $20 in quarters. I took one roll and handed the other roll to my favorite activist.
“That’s your fee,” I said.
We strolled down the block and spent the time vigorously agreeing on many different things about how poorly City staff respond to requests for information, the zombie like nature of what used to be called “DPD,” the corruption of the way affordable housing is funded, and the Kennedy assassination (the one in Dallas). We also talked about Seattle’s Cry Baby Caucus, people in the city who’s fragile egos can’t handle rigorous debate or criticism.
“You can’t light a match without burning a bridge in this town,” he said.
As we talked, I noticed one of my fellow residents going in and out of the gate and the door where the washing machines are. My stuff was still in the washer. I was over time. What would he do? I felt bad. I hate it when people leave laundry in the washer. Do you move it to the dryer? Do you wait? It’s annoying. I was that guy.
I asked my activist friend to wait a minute so I could move my stuff to the dryer. We were talking about the Grand Bargain and how it was a confusing mess. But I couldn’t stand the idea of my wet laundry holding somebody up (remember all the stairs, the gate, the door, the keys).
So I went back into the gate. I had quarters after all. There was a woman from my side of the building obviously on her way to the same machines. I opened the gate and door for her. She introduced herself. She was the resident manager. We chatted for a minute.
I noticed that my stuff was in the dryer.
“Weird,” I said. “My stuff is in the dryer.”
We talked about it for a minute. The guy must have paid to dry my stuff. But where’s my detergent, I wondered. It had been stolen before. We searched around. Could the guy have paid for my drying but stolen my detergent? No. There it was, underneath the sink.
So I took $2 worth of quarters and stacked them there so the guy could pay for his drying. I’m guessing it worked. I went and got my second Americano. I got back, grabbed my dry laundry, went upstairs and moved on with the rest of my day.
What’s the lesson of this boring story? We can do this. We can live together and take of each other and learn from each other and be friends. Yes, we can. Yes, we’re going to argue. Yes, we’re going to let each other down. Yes, we’re going to make mistakes. But there is something that happens with people when they get to know each other. And there is something that happens when people can be anonymous and know each other. It’s called spontaneity, and it isn’t something that can be enforced or willed into existence. It can’t be mandated by policies and legislation. And it’s as hard to measure as lightening. Talking about it doesn’t make it happen. And it happens in cities every day.
These are the small, random incidents that renew my confidence in what we’re trying to do with Smart Growth Seattle. It reminds me that in spite of the fragility of the Seattle ego, the shallowness of our policy making process, the paucity of principled consideration of our future, and our ability to talk ourselves into believing that we’re doing something, that our effort is worth the hassle.
While the Mayor was able to hold a press conference to announce his Mandatory Inclusionary Zoning (MIZ) scheme yesterday, he and his staff still haven’t produced the math to show whether or how it would work. Here’s what I said on KIRO TV’s report on the Mayor’s announcement:
“Building more is not free,” he said. “In order to build that extra height, that’s additional cost, and then you lose money from the rents you have to lower.”
It’s pretty simple; rents either go up on all housing to subsidize units, or units don’t get built. Either way, MIZ makes the affordability problem worse not better. We’re still waiting to see the City’s assumptions and their math. So far we’ve seen the program renamed, the goal of inclusionary units lowered from 6000 to just 1500, and lots of posturing. But no numbers.
On the eve of Mayor Murray’s big press conference (today at Beacon Hill’s light rail station at 11AM) on his Mandatory Inclusionary Zoning (MIZ) scheme, Daniel Beekman at the Seattle Times has finally written a story blowing the lid off the confusing and somewhat sorted reality of the much touted and hailed Grand Bargain. It’s a great piece of reporting, and it validates a lot of what I’ve been saying for months. I’ve also been attacked pretty viciously for my criticism. Beekman’s story finally points out what I’ve been saying, the Grand Bargain isn’t much of a bargain and it really won’t create a lot of housing.
But I would have written it differently, of course. That’s not a criticism of the work, just that I have my own take on the story. So I am going to post the story (mostly) with my commentary. Bottom line: Beekman nails it with this one sentence about the scheme:
But Murray was overstating the strategy, and repeating the promise didn’t make it true.
Also the story seems to imply that we need more inclusionary units as part of the mandate. I don’t think we need MIZ at all. We have programs like the Multifamily Tax Exemption (MFTE) Program that are already doing what the Mayor wants to do without driving up all housing prices and risking a law suit.
He’s right; MIZ is a promise that doesn’t deliver. But let’s dig in.
When Mayor Ed Murray unveiled a sweeping plan to make Seattle more affordable, he said a new strategy called inclusionary housing would combat “economic apartheid” by growing mixed-income neighborhoods across the city:
“For the first time, through mandatory inclusionary housing, we will require market-rate developers to build a minimum number of affordable units in any new construction,” Murray said in a speech last summer.
For emphasis, the mayor repeated himself.
“I’m going to say that one more time,” he said, before doing just that.
But Murray was overstating the strategy, and repeating the promise didn’t make it true.
A really nice bit of writing; The Mayor has been all over town and so have his intermediaries dramatically calling the MIZ scheme, a mandate to build rent restricted housing in every new development, a major accomplishment. His staff, I think are finding it unworkable which is why the story exposes some major stepping back even while the Mayor keeps talking.
Under the plan the mayor intends to send to the City Council on Wednesday, Murray officials anticipate that 3,700 affordable units would be created through inclusionary housing.
But they expect that fewer than half of those units — only 1,500 — would be constructed as part of market-rate buildings.
We have been hearing over and over how the program would produce 6000 rent restricted units of housing by mandate over 10 years. It turns out the City is backing off this number. Late last year I asked where that number came from. Leslie Price on the Mayor’s staff made it clear my letter would never receive and answer. Now we know why: that number was never going to be used anyway. The real number was a paltry 150 per year, 75 units less than what the Multifamily Tax Exemption (MFTE) Program produced in 2014.
And zero or close to zero would be constructed as part of market-rate buildings in South Lake Union and downtown, neighborhoods undergoing a high-rise construction boom.
That’s because Murray’s plan would give developers the option of paying a fee in lieu of including affordable units in their buildings and because developers in South Lake Union and downtown would play by different rules than other developers.
Thank you Mr. Beekman. You just validated what I’ve been saying with little effect for months; downtown and South Lake Union developers are playing by a totally different set of rules, and while their surrogates cheerlead HALA recommendations, they are really cheerleading this unfair policy.
The in-lieu fees would be used to help nonprofit developers construct buildings for low-income households on other sites.
And of course the other winners in the Bargain are big non-profit developers who build very expensive subsidized housing. And of course, after processing by the City bureaucracy, only some fraction of the fees will wind up in actual housing.
Maybe that’s why Murray officials late last year rebranded the strategy “mandatory housing affordability — residential,” removing the word “inclusionary.”
Yes. Maybe. You can call MIZ whatever you want, but it just won’t work. Changing the name is, well, putting lipstick on a pig.
Experts say there are some advantages to collecting fees rather than mandating the construction of affordable units.
The advantages accrue mainly to the non-profits and their consultants who will get the money to build housing. But because of the costs associated with their model, the units that finally do get built will be far more expensive to and, therefore, there will be fewer of them. Who loses? Clearly the consumer loses. It’s the family that needs help finding a place to live that will have fewer choices.
But they also say Seattle residents should know what they’re getting with the mayor’s plan.
That’s all we’ve ever said, “Let’s talk about how this will work or not work.” But our questions go unanswered and the Mayor grinds ahead.
Inclusionary housing was among 65 strategies recommended last year by the mayor’s Housing Affordability and Livability Advisory (HALA) Committee and then adopted by the mayor himself.
The strategy was part of something Murray called the “grand bargain,” a last-minute compromise that made it possible for the 28-member panel to achieve consensus.
The HALA Committee had spent months wrangling over what developers would do to help the city create low-income housing.
Hanging over the group’s work was the threat of developers suing the city over an alternative, more-aggressive plan proposed by the City Council and widespread anxiety about working people being priced out of Seattle due to average rents climbing above $1,500 in many neighborhoods. The members missed their deadline twice.
I’ve told several reporters that this take simply isn’t true. What was hanging over us was the threat of the imposition of a linkage tax a threat the Mayor renewed just the other day. The linkage tax is a per square foot charge on all new building that would go on forever. It is a disastrous policy and that was the real threat, not the lawsuit we would have pursued to protect against its imposition. Legal experts agreed that a linkage tax wouldn’t survive a challenge, not to mention the fact it would only increase the price of housing by adding costs to development.
Then six of the panel’s most influential members, including three nonprofit developers, huddled with a lobbyist and a lawyer representing downtown developers to negotiate the bargain.
Yes. The Bargain was really about 6 people representing a segment of the community, excluding a great many stakeholders and experts who know how to finance and build housing.
They agreed the city would rezone neighborhoods across Seattle to allow larger, taller buildings. In return, commercial developers would pay fees on office and retail buildings to help the city create affordable units, while residential developers would be subject to mandatory inclusionary housing.
Exactly. The 6 people agreed on the imposition of a mandate on hundreds of other people and companies without really processing how that would play out.
The in-lieu fees for residential developers were part of the plan from the start, if developers wanted to pay 10 percent more than the cost of including affordable units in their buildings.
But the fees weren’t what Murray and other proponents of the recommendations touted as they laid out the grand bargain. The mayor made no mention of the in-lieu option during his summer speech, instead emphasizing the concept of inclusion.
Low-income people are more likely to climb into the middle class when they live in mixed-income neighborhoods, he reasoned.
Under Murray’s plan, the affordable units included in market-rate buildings would be reserved for households making no more than 60 percent of the area median income. Rent would be about $950 per month for a one-bedroom apartment, for example.
“That’s at the heart of what we’re trying to do … to ensure that every neighborhood in Seattle is a neighborhood of opportunity,” Murray said, adding, “Seattle is stronger when neighborhoods … when people of all backgrounds live together.”
The Mayor’s rhetoric and speaking points always emphasized 6000 units created as part of market rate development, something we have been skeptical of all along. It looks like the City is too.
In-lieu fees key part of proposal
This entire section of Beekman’s story just speaks for itself. It sings really.
For months, officials called the strategy mandatory inclusionary housing. More recent documents are scrubbed of the word “inclusionary” and use the name “mandatory housing affordability — residential.” They identify in-lieu fees as an important part of the strategy.
The fees would help nonprofit developers construct 2,200 units, while developers would construct 1,500 units as part of market-rate buildings.
Only 300 of the units constructed with the in-lieu fees would be in South Lake Union and downtown, a chart from Murray’s office shows.
That’s only 150 units per year! Drive up housing prices, get sued, rewrite the entire code for 150 units per year? It’s not worth it. The MFTE program produces more affordability.
None or close to none of the units constructed as part of market-rate buildings would be in those booming neighborhoods, and developers in those areas would be required to pay lower rates.
Murray officials say they expect scant inclusion in South Lake Union and downtown because constructing affordable units in those neighborhoods is particularly expensive, due to property costs and how high-rises are built, with steel and concrete.
They say the lower in-lieu rates in South Lake Union and downtown make sense because the high-rise developers there wouldn’t benefit from the rezones as much as developers elsewhere in the city.
Here’s one think I will agree with Rick Jacobus, the Music Man of housing taxes: there are just as many arguments that poorer people could benefit from staying together as being mixed in with people who have more money. I’m not going to debate that here, but the basis of the policy now being backed away from is at least unproven if not just plain wrong. And we’ve pointed out that we already have a good mix all across the city of subsidized and market rate housing.
Though many of the hundreds of U.S. cities with inclusionary housing offer developers an in-lieu option, the trend is in the opposite direction, says Robert Hickey, a national affordable-housing consultant.
Buildings using developer fees are often sited in low-income areas, where land is less expensive and where neighborhood opposition can be less intense, Hickey said.
That perpetuates economic segregation and is why Washington, D.C., which began mandating inclusionary housing in 2008, doesn’t offer an in-lieu option.
“We’ve seen a lot of new research over the last year about why doing affordable housing in mixed-income neighborhoods is better,” Hickey said.
Liz Etta, executive director of the Tenants Union of Washington State, said Seattle officials need to make sure the strategy doesn’t backfire.
“If too many developers choose the fee option, we would simply incentivize the continuance of the concentrated and disparate levels of poverty already existing in neighborhoods,” Etta said.]
Lance Matteson, executive director of South East Effective Development, supports the HALA committee’s recommendations but views the in-lieu option as less than ideal.
“The policy of inclusion should be real,” he said. “If I could write it from scratch, I would put affordable units in every building, period.”
New York City Mayor Bill de Blasio’s similar plan, approved last month by the New York City Council, offers an in-lieu option only to buildings with 25 or fewer units.
De Blasio’s plan also requires more affordable units in market-rate buildings than Murray’s plan: 10 to 30 percent, as opposed to 2 to 7 percent, Hickey noted.
Kirkland and Redmond each require 10 percent of units in new buildings to be set aside as affordable.
Beekman doesn’t explain that the levels of income are set very high, at about 80 to 100 percent.
Using fees for leverage
Here’s where the story starts to implicate the wrong outcome: we don’t need more inclusion; we need a better strategy to begin with. Shaking down builders for fees or squeezing units into their projects will just raise housing prices for everyone to create a few expensive and scarce subsidized units. The MFTE program is already doing what the Mayor wants to do, and much more effectively.
Murray officials say the in-lieu option provides crucial benefits and contend a mix between payment and inclusion makes sense.
The city will use the fees in combination with money from other sources to help nonprofit developers complete projects, said Viet Shelton, a spokesman for the mayor.
“The city can leverage every one dollar invested with three dollars of other government subsidies,” he said.
Ubax Gardheere, a HALA committee member and program director at Puget Sound SAGE, a nonprofit advocacy organization, says that while economic integration is positive, a striving immigrant family might prefer to live in an low-income building near people with the same background rather than a market-rate building in a wealthy neighborhood.
“People should have a choice,” she said. “Sometimes when you gain access to opportunities you lose social cohesion and culture and your support system.”
Rick Jacobus — like Hickey, an affordable-housing consultant — says Seattle has a better track record than other cities of siting low-income buildings in a range of neighborhoods.
Jacobus studied Seattle’s existing incentive-zoning strategy, a voluntary setup that gives developers in certain dense neighborhoods more room to build in return for fees.
Incentive zoning has helped nonprofit developers construct more than 30 buildings, including two in Ballard, two on Capitol Hill and one near Green Lake.
“Seattle has been able to produce dramatically more housing with fees than they would have with units on-site and their map looks really good,” Jacobus said.
Jacobus thinks the benefits of including affordable units in market-rate buildings have been overblown.
“The research hasn’t supported that conclusion,” he said. “People don’t really interact much with their immediate neighbor, anyway. If everyone is closing the door and watching TV, what really matters is whether you can access jobs, quality schools and services. That’s really different from one part of town to another but not that different block to block.”
But a sociology Ph.D. candidate at the University of Washington offers a different view. Tim Thomas, who published a working paper with colleague Ryan Gabriel this month on racial segregation within Seattle neighborhoods, found blocks with more black residents to have fewer amenities than nearby blocks with mostly white residents.
Greenwood includes dozen of blocks, but 50 percent of the neighborhood’s black residents live on just two of them, Thomas and Gabriel found. “Segregation exists down to the block level,” Thomas said.
Strategy linked to rezones
I guess I almost get the last word: it won’t work. The MIZ scheme will just raise the cost of all other housing. And yes, it would likely end up being challenged successfully in court as a taking.
The inclusionary-housing strategy wouldn’t take effect unless the council also greenlights Murray’s rezones. That process should prove more contentious and will take at least a year.
Roger Valdez, a lobbyist for a group of neighborhood developers, is skeptical the rezones will pass. Regardless, he argues, the strategy won’t work. Neighborhood developers would react by hiking the rents for the market-rate units in their buildings or by suing the city.
Murray’s plan is a work in progress, said Jason Kelly, a spokesman for the mayor.
“We always knew that as we moved … to the specifics of the legislation, there would be considerable discussion and some adjustments in the details,” Kelly said.
He added, “The mayor’s goal is an agreement that is fair and balanced.”
But Jacobus, despite seeing the in-lieu option as a reasonable part of Murray’s strategy, sounded a warning note.
“Fees aren’t what people picture when they hear about inclusionary housing,” he said. “They picture on-site units, which have symbolic value. You get the sense that people are sharing the costs and benefits of growth in Seattle. That’s true for off-site units, too, but you don’t feel it in the same way. That can erode voter support.”
The whole Grand Bargain is about symbolism and solving political problems, not housing problems. We still have time to stop and start over with interventions that would work.
The Reno News posted an article and video in January that explains why housing prices are high in the Reno-Sparks market. The video explains in less than two minutes the problem: not enough housing is available and wages aren’t keeping up with costs of living. We’ve said this before, pointing out the idea of a guaranteed income for housing, something like a negative income tax, as a way of getting more money in poor people’s pockets. The problem with most policy makers is that they want to control prices with mandates, tax a good thing (more housing), and build very expensive subsidized units. The truth is that we need to cut lose the regulatory chains that hamper production, pass a big housing levy not just to build units but to efficiently distribute cash for living expenses directly to people who need it the most.
The easy way out, price controls on rent and wages probably, wouldn’t help.
The current state of increasing housing prices has economists worried about a stalling national economy. Proposals to raise the minimum wage would help, Eisenberg said, but it’s “a blunt instrument.” For him, raising wages would put money in people’s pockets but it wouldn’t solve the lack of supply or the high housing prices and likely would not help people buy increasingly expensive homes.
Remember, wages are a price for hourly labor. And while wages haven’t kept up with the cost of living in this country, the price of labor goes up when labor is scarce; that means more jobs than people to work in them. And trying to lock down prices will only throw gasoline on the inflationary fire created by the lack of housing.
So the answer is a campaign to make more housing, get more cash subsidies to poorer people and families, and create as many jobs as possible. Those are the answers. Not a simple set of changes to make, but we’d be better off working on these things than on interventions like rent control and Mandatory Inclusionary Zoning that are just as difficult but certain to make things worse.