I’m going to vote “Yes” on Initiative 732, a proposal to impose a tax on carbon emissions, sale or use of certain fossil fuels, and fossil-fuel-generated electricity. I’ve written and said before that taxation serves three ends, raising revenue for public benefits, encouraging behavior that is beneficial and discouraging behaviors that are detrimental, and redistributing money (call it the Valdez Doctrine). Taxes and debt when used skillfully can steer the economy, shortening downturns and making the good economic times last. I think Initiative 732 is a tax program that does all three of these things well. But this post isn’t about Initiative 732, it’s about why Initiative 732 has split the left in Washington state and what that split tells us about housing policy in Seattle.
Initiative 732 has been plagued with controversy from its inception. If you support more housing supply as the solution to housing price issues in Seattle, there are two important articles about Initiative 732 that you simply must read. The first, in Vox, “The Left Vs. a Carbon Tax,” traces the wending path of division within the progressive left over Initiative 732. The second, “Weighing the Critiques of Carbon WA’s Initiative 732,” by the Sightline Institute follows that path but judiciously tracks the policy underneath the politics. That analysis concludes, correctly, that the division over Initiative 732 has three components:
- Cap or tax? Should we use a cap or a tax to make polluters pay for each ton of pollution?
- Who should have power in the process? Should communities of color and low-income communities have seats at the table when a policy is being formulated and when it is being implemented?
- What to do with the revenue? Should we invest polluters-pay revenue in clean energy, disadvantaged and frontline communities, and worker transition? Or should the proceeds flow back to people and businesses as cash?
Roughly speaking, these same three fissures are the same ones creating a maddening divide among a broadly left tilting group of people who talk about housing in Seattle. Here’s how they translate in the housing discussion:
- More supply or more subsidies? Should we be charging for-profit producers of housing to generate subsidies for non-profit producers?
- Who has the power in the process, the people who actually take financial risks to produce housing, or people that live in it?
- Who gets the money? Should organizations that claim to represent people of color, unions, and other social justice groups be able to collect funding to fuel the operations of their organizations and deliver subsidies or money to their members?
What’s the problem with the housing discussion in Seattle? We know that housing is built, mostly, by for profit builders and paid for, mostly, by people with cash or credit. This is the housing market in Seattle, and since price is an indicator of how the supply of housing is meeting the growing demand, we also know that as prices go up, the increase is an indicator that we don’t have enough supply. Our problem is housing scarcity. So far so good, right?
The logical and economically appropriate thing for everyone in Seattle to rally around would be a comprehensive approach to housing that would
- Tax consumption of land for housing, so if you eat lots of land (single-family), you pay more, eat less (multifamily), you pay less;
- Take any revenues generated by the taxation of land use would be used to offset the costs of living for people who earn very little and struggle to make ends meet in our community; and
- Remove barriers to entering the market for housing producers, reduce costs of production, and eliminate the thicket of rules, regulations, and red herring design review and parking requirements that slow and raise the costs of housing production and enhance and defend single-family home values.
Instead, what most of those people working on the housing policy discussion are supporting is Mandatory Inclusionary Zoning (MIZ) which ignores price as a measure of supply and demand, and settles instead for a modest boost in production of inclusionary subsidized housing and fees for non-profit housing producers.
That takes us back to the three fissures. For some reason, there is a stubborn resistance to following the logical path because “politics.” What are the politics? The non-profit housing producers combined with various organizations claiming social justice status and representation of people of color want more money; more money for operations of their organizations and more money for programs that address the narrow needs of their constituencies.
Playing off the conventional view that developers make a lot of profits from the development and construction of housing, these groups have pushed for a tax on the production of housing, a tax that would do the opposite of what is needed to affect prices of housing in Seattle by adding costs and slowing production. And these groups have adopted a bizarre but self-serving economic theory that holds that building more housing makes it more expensive because the new units created luxury units that destroy existing affordable housing and displace poor people. This view has been debunked again, and again by data, economics, and math.
And as if it wasn’t enough to simply wring cash out of the market and raise prices, the progressive left is also putting up barriers and limits to investment in communities that need it the most, those with people with lower incomes, lots of new immigrants, and old energy efficient housing. Councilmember Herbold and O’Brien have succeeded in essentially red lining huge swaths of Seattle by adding costs and fees to those areas in the name of protecting people from displacement, something they have no adequate measure for.
The vast majority of Seattle residents unfortunately, share this view of housing economics: Poor people and people of color are being hurt and displaced as developers race to create housing to boost their profits. Playing off this view, the non-profits have demanded that any housing solution “empower” poor people and people of color. How do they propose to do that? Tax, fee, and regulate the production of market rate housing, and give those fees to the non-profits and social justice groups. It’s notable that they haven’t been loudly in favor of redistributive ideas like guaranteed basic income.
Like Initiative 732, many on the left simply can’t follow the math when groups are leveraging the deeply held progressive value of inclusion and, frankly, the guilt many of them have over past sins committed by the dominant white culture. So instead of moving forward with measures that we know will have a positive impact on prices and on climate, the left starts to argue with itself. How do we both do what data indicate while also meeting the deeply held view that some groups deserve something, dollars, from the solution?
So what should be an enthusiastic embrace of a data driven proposal to reduce climate change ends up in a fight about who was at the table, and what is an obvious solution to rising housing prices, build more housing, ends up as an extortionary policy that will actually increase housing prices for everyone.
Unfortunately, I don’t see this problem going away anytime soon. If anything, it’s getting worse. The drift in national and local politics is markedly Jeffersonian-Jacksonian, vilifying business, corporations, anyone who is an expert, and at the same time confusing efforts by some organizations wanting more for themselves with real inclusion and outreach to underrepresented and disproportionately poor communities.
And many, many locals in Seattle have been padding their own political and financial nests, trying to be as “inclusive” as possible and embracing economic ideas that are antithetical to our long-term best interests. The financial benefits of paying off the opposition and the political largess of being willing to “bring everyone together” are simply irresistible to large developers and wannabe elected officials.
The hang-ups with Initiative 732 and our effort to create an economically and environmentally sustainable housing solution are self-imposed. It doesn’t need to be this way. What’s the solution? I’ll offer one in the next post.
I wasn’t there, but Josh Feit at Publicola has a good run down of Mayor Ed Murray’s kickoff party for his reelection effort in 2017. Yes, it’s true, we have another election coming up. I have to take a minute to point out how this Mayor operates and why he needs to make serious changes to his perspective. Murray puts people in a room, pressures them to compromise, and when some kind of “deal” emerges he takes credit for solving the problem that the people in the room were supposed to solve. The truth is that this approach doesn’t result in a deal in which everyone is part, nor is it a solution to the problem. If being a great Mayor means putting people in rooms, pressuring them, then declaring victory, I suppose Murray is on his way to greatness. The truth is that his Grand Bargain wasn’t grand and it wasn’t a bargain for the vast majority of people building housing in the city.
Here’s what the Mayor said about himself and what he’d done to solve the city’s housing “crisis;” his approach had resulted in the
Ending a 20-year battle between developers and housing advocates [to] build a workable affording housing policy
Um, no it didn’t. What you did is put a non-profit developer (Paul Lambrose of Plymouth Housing Group), their trade group representative (Marty Kooistra of the Housing Development Consortium), one of the non-profit housing industry’s lawyers (Faith Petits of Pacifica Law), together with a lobbyist representative of Vulcan (Ryan Bayne), and their lawyer (Jack McCullough).
Sorry Mr. Mayor but that does not a Grand Bargain make. No representatives of any other developers and builders who create most of the housing in Seattle from single-family housing and townhomes, to microhousing, to mid and high rise housing everywhere outside downtown and South Lake Union were at the table in that room. It’s hard for me to understand how anyone could not bust out laughing at what the Mayor said except that I suppose most people think housing is built by huge corporations and that somehow, McCullough was speaking for them. But housing is built and operated in Seattle, at least for now, by small and medium sized businesses, not by Vulcan or large developers that were in Murray’s locked room.
The Mayor has a stubborn streak. So do I. And I can’t abide it when politicians get up and claim they’ve solved a problem when they’ve done no such thing. Nor can I abide it when the solution is achieved by defining out the vast majority of stakeholders that would have raised concerns and even opposed the proposal. What Murray does isn’t solve problems by brokering agreements, but the equivalent of looking for people that will agree with him, then declaring those people representative of the constituencies who are debating or fighting over an issues, then saying he has “a bargain.” It’s not just bad politics and diplomacy it doesn’t solve the problem, and in this case the problem is not enough housing.
If the Mayor wants to solve the housing shortage in Seattle that is leading to higher prices he simply must:
- Look at market based data on inventory and vacancies;
- Listen to the people who build all types of housing in Seattle and help them build more;
- Find ways to bring non-profit developers and for-profit developers together to reduce costs of production of housing; and
- End mandated inclusion and fees and look for a real incentive for public and private entities to build more housing, and keep vacancy rates higher.
The best measure of a solution to housing prices is lower prices, not a document and proposal signed by a few people in a room. And this arrangement is especially not a solution when the proposal is largely infeasible, inflationary when it does work, and is probably illegal. I can assure you, this Mayor will not be remembered years from now as the Mayor that “solved the housing crisis” unless he gets more inclusive and looks at the right measures of success, lower housing prices by creating more housing supply and opportunity.
In an recent article, RCLCO (formerly Robert Charles Lesser & Co.), presented an interesting visualization of microhousing in the United States, “Is Smaller Getting Bigger? Visualizing Micro Units Across the United States.” While it is interesting to put our own microhousing question in national perspective there a couple of really important notes before going all in on this analysis. First, this visualization is based purely unit size, here the definition is 350 square feet, much bigger than what we would consider microhousing in Seattle. From the article:
Although the real estate industry has recently focused on the perceived shift toward these small micro units, the majority of micro units renting today were built over several decades and are simply small units in conventional apartment buildings.
I would suggest that when we think of microhousing in Seattle, we’re talking about more than simply the size of the units. We’re also talking about shared use kitchens and common spaces. Furthermore, our microhousing developed out of an institutional framework of supportive housing used mostly by non-profits. Recovery, transitional, or half-way houses often use multiple rooms with shared bathrooms, kitchens, and common spaces. What our local builders figured out was a way to bring that model to the market. It wasn’t simply smaller units.
Second, you’ll notice that many of the areas on the map are college towns.
The metro areas with the highest percentage of micro units are small markets with universities that support institutional rental apartments primarily through students who are willing to live in very small units.
Again, not exactly what we talk about when we talk about micros in Seattle. It is true, and I’d be willing to bet, that the vast majority of tenants of congregate microhousing are between the ages of 18 and 30 and are either in school, have lived in a dorm, or have lived or considered living in a shared housing situation. I was sort of surprised to see the Twin Cities with so many because in my own visit there locals said size limits of 400 square feet made the kind of microhousing impossible. The little bubble next to the Twin Cities, St. Cloud, Minnesota, had a bunch too. No surprise since St. Cloud is a university town, with over 16,000 students attending just Saint Cloud State University.
Third, this analysis is by real estate people for real estate people. Some of the language, to a lay person, will sound cynical. It’s not. But let me cite the paragraph I’m thinking of:
The steep premiums in these markets indicate that developers may be able to drive up per-square-foot rents by delivering more and smaller studios in conventional apartment communities across the nation. This is consistent with research recently published in an RCLCO Advisory, which found that the average size of a new apartment built since 2010 is 70 square feet smaller than the average size for units built from 2000 to 2009.
I hate that phrase “developers may be able to drive up per-square-foot rents.” I really, really hate it. Developers don’t “drive up rents,” market dynamics set rents. Always. But what the paragraph is getting at is that from an investor perspective microhousing can be a good vehicle for creating returns. Keep in mind that real estate investors tend to measure things on a per-square-foot basis. That’s how they think and that’s how they look at investments. Their point is that if you’re looking for a good investment in hot markets, smaller units create better returns per-square-foot. That makes perfect sense since the rents in hot markets are going to be higher than other places, and a smaller unit will be competitive on a per-square-foot basis with a larger product.
From the renter perspective, I’ve dealt with this per-square-foot issue before. I’ve been hassled that I pay too much per-square-foot for my micro unit. The response is obvious: math and utility. Sure, I pay twice as much for my 200 plus square foot unit as I would for a three times as much apartment in West Seattle or Kent; but I don’t want to live in West Seattle or Kent in a 600 square foot apartment. The per-square-foot criticism is like criticizing me because I pay too much for Diet Coke because I pay more per ounce when I buy it by the can than if I bought a case at Costco. It’s true, but I don’t want a case of Diet Coke and I don’t want to store it. I choose to live in a smaller space closer to the things I want to be closer to an pay less over all than I would in a larger apartment in the same place.
Lastly, I guess because today we’re battling for inches in feet in the small apartment options we do have left, the article isn’t about what David Neiman has pointed out in Seattle: there’s a regulatory effort to push up the size of smaller apartments in Seattle so that they are no longer small apartments but just plain old studios. I would have changed the headline, since what RLCO means by “bigger” is a play on words to talk about the popularity of micros rather than their relative per-unit size. Just a minor editorial note, but I kept expecting to see an exposition of how the size of smaller units was creeping upward. No, the point was that they are becoming more popular. All in all, a great set of visuals worth checking out.
Apartment guru Mike Scott of Dupree + Scott has just released their latest Apartment Advisor newsletter and it is packed with lots of great data. I won’t go through his clarion explanation of supply and demand and vacancy rates (Surprise! Lower vacancy rates mean higher rents), or his discussion of the fact that rent increases aren’t keeping up with inflation since we’ve talked about these again, and again. But I want to walk through a key point about Scott’s professional view about prices and how they relate to affordability and microhousing. Scott says,
20 percent of the units in the region rent for $1,000 or less. That makes all of those units affordable to households earning at least $3,000 a month. That’s if affordability should be calculated based incomes being three times the rent.
We’re just using that amount as an example. But not everyone pays one-third of their income on rent. Some pay more. Some pay less. That means that although some households can afford to spend more than $1,000 a month, they choose to be frugal and rent an apartment for less than that.
Here Scott is starting at the same point of departure as the City when it looks at the housing issue purely as a question of how many households are paying exactly 30 percent of their income on housing; based on the way the City views the “problem,” if your household pays more, you’re cost burdened, and less, you’re camped out in an apartment that should go to someone with less income, something called “downrenting.” How many households are “cost burdened” or “downrenting?”
Greg Willett, the Chief Economist at RealPage, also spoke at WMFHA’s Washington Apartment Outlook and commented that his company did an extensive nationwide analysis of leases and found that the typical renter household spent 23% of income on rent.
We decided to do a small survey locally to see if things are different here. It was a very quick and small survey, but we found the median rent payment was 24% of income at the time of the initial lease. Only one-third of the households spent more than 30%.
We caution that this was a small survey. A more comprehensive survey will likely change the numbers. However, it still will show that a significant number of households spend less than 30% of their income on rent. That’s commendable and it should not be discouraged (emphasis is mine).
I’ve asked, mostly in a snarky way because I know they won’t answer, whether the City’s view is that if everyone paid exactly 30 percent of their monthly income on housing, would we still have a housing crisis? Of course, the answer is, “Yes,” since the only measure of the “crisis” the City bureaucrats use is exactly that, the deeply flawed Housing Cost Income Ratio model that has been with us for years and needs to be examined and changed.
We’ve pointed out before, that problems with paying rent aren’t necessarily a function of “skyrocketing rents,” but of people not having enough income to cover the costs of housing — or much of anything else. In other words, pointing out that poor people pay more of their income for housing is obvious, but blames the realities of the housing market only without looking at the broader issues of income and rising expenses for other important things.
So what are the implications of this data?
First, those households spending less than 30% of their income on rent are consuming housing that would be barely affordable for other renters. That means that however you measure the number of units that are affordable at any particular income level, some of them are occupied by households making more than that. So, you’d think that whatever developers can do to add lower cost units would be encouraged . . .
Scott goes on and points out, that
Second, it means that some renters, if not quite a few, can afford to pay more rent than they are paying now. Of course that’s just based on our simple one-third of income formula. Maybe they have the same problem U2 pointed out on their Joshua Tree album, singing, “I still haven’t found what I’m looking for.” That suggests there is room for them to move up into more expensive housing, if developers create the right kind of product and amenities in the right locations. Given how quickly new construction has been leasing up, and the high occupancy rate in these units, that may be happening now.
Again, the obvious thing to do would be to build more housing. Scott talks about the kind of housing that should be encouraged, and it’s no surprise that what would help prices would be more market rate housing that allows those people paying less but that can and might want to pay more, move to newer, more expensive units thus freeing up their unit for someone with less money.
We’re guessing that if you own a property with those lower cost, more affordable rents, you’re wondering about now why we would encourage more construction in your rent range to compete with you. Well, the simple answer is, you can handle it. Look at the Vacancy & rent range: Stabilized units chart on page 7. That’s the middle one. It shows that units renting for $1,200 a month or less don’t have a lot of vacancies.
So taken together, building new, more expensive apartment units would create a “moving on up” opportunity for some who are “down renting” and building more microhousing and Small Efficiency Dwelling Units (SEDUs) would also meet the need for the really hard to find apartments at $1200 or less. But, Scott points out,
The problem is how can developers deliver new units in that price range?
Actually, they have been doing just that with congregate housing and were ready to do more of it until Seattle balked. Ironically, as Seattle backed away from this simple affordable housing option, other cities like Tacoma, Redmond, Kirkland, and likely more to come are stepping in and embracing the concept of smaller living spaces. Their solutions are less dramatic than what Seattle developers were doing, but their problems are less dramatic as well. The point is they are jumping in while Seattle backs out.
The City is doing exactly the opposite of what Scott sees when he looks at the same data and the same measures the City uses: they are adding rules, regulations, and costs through Mandatory Inclusionary Zoning (MIZ) to new construction and eliminating the one option that would add more supply at lower price levels, microhousing. I haven’t seen a more clear example of the complete disconnect City planners and politicians have with reality and real time price and supply data. It’s all right there: build more housing of all kinds everywhere and the demand will sustain it. Instead, we’re slowing supply of regular market rate apartment units and killing off smaller, less expensive units.
Good work. Maybe the City planners should go into the weather forecasting business.
Seattle is in the grip of a panic over homeless encampments. Who’s panicking? The same people that have panicked over small-lot housing in single-family zones, that panicked over microhousing, and that panicked over buildings in the low-rise zone blocking precious light and air. These are also the people who Councilmember Mike O’Brien has been listening to since he arrived at the City Council in 2010. His first capitulation to the NIMBY mob was a long time ago, in 2010, when he opposed a well-studied suggestion to allow small retail in the low-rise zone. Now O’Brien is asking these same people who he agreed shouldn’t have small houses on small lots next door, or microhousing next door, or tall buildings next door in the low-rise zones to accept homeless encampments next door. What’s going on?
Here’s what former City Council Candidate Michael Maddux wrote about the angry mob assembled last Friday against a more permissive approach to tent encampments.
Listening to public testimony before City Council right now. Substitute “the homeless” for “Muslims,” and basically all of these purported “progressive” Seattleites would be parroting Donald Trump. This is what happens when misinformation is spread through the media, and when people decide that their taxes and parks are more important than permanent shelter – and interim shelter – for those experiencing extreme poverty. That there are folks coming up and saying that people don’t have a right to safe shelter is disgusting.
Ummm. Yes. I’d agree. But where was everyone’s outrage when the same mob more or less assembled with the same arguments against other kinds of housing. I have to admit that I am stunned at people’s short memories and the ease with which they’ll credulously support inconsistent policy from Councilmembers. These things are all related and what is consistent from both O’Brien and encampment opponent Councilmember Tim Burgess is a disdain for people who make their living from providing housing. But whether a person is building townhomes or organizing an encampment, the net benefit is more housing where there isn’t any.
O’Brien is now breathlessly defending people who are living in tents. I agree with his sentiment. I’ve said, more than once, that the City and the community ought to be working with people who have found solutions to their housing challenges. Do I want our parks taken over by tent camps? Of course not. But I think that sweeps simply set these people back, people who have been innovative and smart enough and driven enough to get themselves a tent and collaborate with others to create a safe, dry place to sleep. It makes no sense.
My point here is that if find everyone’s behavior on this and their comments on this issue completely unmoored and without any principle. I’ve listened for years (remember that time that a young pregnant woman was called names and booed in Roosevelt? Were you even there? Do you care?) to this same kind of vitriolic, hateful, and frankly off-base and crazy talk from neighbors for years. It’s been turned against everything from specific project proposals to entire zones in the city. Housing is housing, whether it is an apartment, single-family home, a car, or a tent. It works for someone and meets their needs.
It’s time to hold everyone in the mob accountable. More importantly, while I happen to agree, mostly, with Councilmember O’Brien that our approach to encampments needs to change, he also needs to understand that his and Maddox’s distress at the behavior of the neighbors ought not to be reserved just for their opposition to THIS housing solution. The same reasons he and all of us should support small-lot infill, cottages, microhousing, and more housing of all kinds everywhere are the same reasons we should support the people living in those tents. And the same outrage we feel for the NIMBYs trying to sweep the tents, is the same outrage we ought to have for them when they fight projects, new housing types, and expansion of capacity in single and multifamily zones.
When people, whether they be homeless or if they are builders, come up with solutions to a housing problem we ought to encourage them. Enough red herrings. And let’s turn off the mic on the angry and emotional neighbors (they fear row houses, you know) who are railing against housing solutions. The Council needs to stop listening to them. And if O’Brien is that outraged, he needs to go back and undo the damage he and his colleagues have done to housing in general while he’s pushing for a humane solution to the encampment problem.