For Candidates: What’s Wrong With Seattle’s Mandatory Housing Affordability Program?

We’ve been working on a concise, one page description for candidates about why the City’s headlong rush into the disastrous policy of Mandatory Inclusionary Zoning (MIZ) is, well, disastrous. I still hear candidates calling the Grand Bargain, “HALA” and talking bout upzones associated with MIZ as “HALA” or “I support HALA,” or “I oppose HALA” etc. And on the Dori Monson show the other day I had to call out Councilmember Sawant who was suggesting that the upzones being passed should come with fees for developers. Ummm, well, they do. That’s what you voted for. Ignorance is a dangerous thing. Here’s yet another attempt to put it together. 

Background: The Mandatory Housing Affordability (MHA) program is a form of Mandatory Inclusionary Zoning (MIZ), a change to the land use code that requires all new development to include rent restricted housing or pay a fee in lieu of that inclusion along with small increases in height. Seattle’s program was created as part of negotiations between a few larger market rate developers, non-profit developers (who get the fees), and representatives of the City of Seattle.

We weren’t invited: Representatives of the wider development community were left out of the process of negotiating the specifics of the MHA program. The builders of the vast majority of Seattle’s housing were not consulted on how the program would affect their projects.

Infeasible: The problem with MHA is that it adds cost to the building of new housing either through the loss of rent revenue from inclusion or from having to pay the fee. Also, building higher costs more, and those costs along with fees and inclusion are usually not offset by the additional floor area, making the project infeasible for financing.

Inflationary: When a project does work under MHA, it will be because the price of the product, housing, has to go up to compensate for the extra costs. This means higher rents or sales price to cover the costs of inclusion or paying the fee and the extra construction costs from building more floor area. Across the housing market, this means higher prices for people looking for housing.

Illegal: Analysis by the Pacific Legal Foundation indicates that MHA is essentially a forced auction of higher density zoning, and the requirement to buy something that adds unwanted costs is a violation of the Constitution and State law (RCW 82.02.020) that prohibits the taxation of development either directly or through mandates.

Case study: We looked at a typical 4 townhouse project, and when fees are imposed, the additional costs mean a higher loan to value ratio (LTV). The LTV is an index for lenders; when it gets above 80 percent, a project can’t get financing. In this example, the only way to lower the LTV was to raise the price of the houses from $599,000 to $650,000, an almost 10 percent increase in price. Apartment rents would go up in the same way.

What MIZ/MHA Does to LTV

Correcting MIZ/MHA Impact on LTV With A Higher Price

 

 

Lindsay and Nelson to Visit Seattle Builder Breakfast

It’s election season and there a lot of candidates running for office in Seattle. One key office, City Attorney, is up for election. This key office is often not talked about by people concerned with housing and development, but it matters. Incumbent Pete Holmes’ office argued somewhat famously now that, “laws can be bad, but still be legal,” when it defended the illegal abutting lot ordinance pushed by Councilmember Mike O’Brien. That ordinance would have required one project to go through full design review because, when combined with units being built in an abutting lot, put both projects over the threshold for design review. Holme’s office defended this by arguing that like adult entertainment, liquor stores, and pot shops, that housing is something that should be dispersed and not built densely.

Holmes has a challenger, Scott Lindsay, who worked for the Mayor. According to the Seattle Times

Before joining Murray’s office, Lindsay served as senior counsel in Washington, D.C., to Rep. Elijah Cummings, a Maryland Democrat, and to the House Oversight Committee. He also practiced law in Seattle and D.C. with K & L Gates. The 39-year-old Seattle native is the husband of Port of Seattle Commissioner Courtney Gregoire and the son-in-law of former Gov. Chris Gregoire.

Lindsay will be at our breakfast this week, Thursday, June 1st at the Blue Star Cafe in Wallingford.

Also joining us will be Sara Nelson who was a legislative aide for former Seattle City Councilman Richard Conlin. Nelson has long been active on issues related to housing and land use both on Council staff and as an activist. She’s also a small business founder and owner, starting Fremont Brewing with her husband. Business is booming and Nelson has a strong knowledge of what it takes to start and operate a growing business in Seattle. She’s running for the open seat created by the retirement of City Councilmember Tim Burgess.

This is an opportunity to get these candidates on the record on a variety of relevant issues like public safety, Mandatory Inclusionary Zoning (MIZ), rent control, and their opinion on regulations that impact the production of housing. If you’re not on our regular mailing list and want to attend, please drop me an e-mail at roger@smartgrowthseattle.org to RSVP.

Renters Care About More Than Just How Much Rent They Pay

One of the frustrating aspects of talking about housing and trying to do something about it, is the lack of good self reported data about how renters feel about their life as renters. Too often the data pours out about how how much people who rent spend per month as a percentage of gross income. I’ve long said this is terrible way to measure affordability. First, it assumes that the housing “crisis” would be over if everyone sorted perfectly into units priced at exactly 30 percent of their gross monthly income. Second, it assumes that someone paying more than 30 percent has a problem and therefore is part of the “crisis.” Everyone, practically, knows that markets don’t work that way. People pay more when they want something enough and think it’s worth it. A recent survey by Freddie Mac sheds some light on this.

The Federal Home Loan Mortgage Corporation (FHLMC) is commonly known as Freddie Mac is a government backed corporation that deals in repackaged home loans, called the secondary market. Loans originate between a lender and a buyer, and later the lender can sell that loan on the secondary market. I won’t go into all that here, but to read more you can check out this brief history of Freddie Mac. Freddie Mac is all about housing and housing data, and they pay attention to trends in the market including from the customer perspective. Every quarter they conduct a renter survey based on what renters actually say rather than what other say about data about renters.

One impressive thing is the fact that renters like living in the city and will trade space for location.

This is what has been well documented and reported by many including locally by Mike Scott: unit sizes are falling. Apartments are getting smaller.

And along with getting more comfortable with idea of renting rather than owning, renters are also not necessarily going anywhere if rents go up.

We don’t want rents to go up. That would be bad. But when renters speak for themselves, they say that rent going up doesn’t mean they are going to be “displaced” and move away. Instead, they’ll make different choices. The survey found that renters will prioritize their spending differently, spending less on “non-essentials.” And here’s what the survey found about income to housing cost ratio.

What matters here is the age of the renter. Younger people pay a bigger percentage because, generally, they earn less. This is just common sense. A recent graduate from college might not be so worried about paying a larger portion of her wages on rent because she has few other expenses. This matters, and simply taking household data and pointing to the ratio of income to rent doesn’t tell the whole story.

The long and short of it is that we need to produce more housing to keep rents from climbing so fast that renters do suffer. A non-essential item shouldn’t be health and dental care. Renters shouldn’t have to sacrifice other important things like setting aside money for the future or education to pay rent. The best way to avoid that is to build lots of housing of all types everywhere so renters have options. The good and bad news is that renters are persistent; they want to live in the city even if it means paying more and living in smaller spaces. That’s good news because it means people aren’t “fleeing the city” because of prices. It’s bad news because it is showing the tolerance for higher prices among renters. That means the demand for housing will keep climbing even in the face of unhelpful schemes like Mandatory Inclusionary Zoning (MIZ).

South Lake Union: If You Want Good Design, Just Add People

Sometimes I feel like I’ve been writing the same blog post over and over again for the last 10 years, and you probably feel like you’ve been reading the same post for a decade too. What’s confounding about my work and writing over the years is the degree to which very little has changed except resistance to change. The other day I had dinner at Ba Bar, a Vietnamese restaurant in South Lake Union not far from my office. As I looked out the window, I remembered that I had written about this exact spot, the block of Terry Avenue between Republican and Harrison, almost exactly 6 years ago, in the spring of 2011. I talked about the long history of South Lake Union and how a “thereness” had yet to emerge. Well, the thereness of the neighborhood is now there. All that was needed was more people.

Here’s the windswept plaza I wrote about that is about halfway down the block on the east side of Terry.

And below, here is a mix of pictures of the area now, taken around the same time of the day, lunchtime.

Back then I said,

What I like about what’s going on in South Lake Union is an emerging “thereness” missing before. While construction was underway on many of the new buildings it was hard to find a sense of place. Now it feels a lot more like that oft touted miracle of redevelopment, the Pearl District in Portland. But there is something emerging that isn’t so great. Have you ever been to Microsoft Headquarters in Redmond?

I also commented on Seattle’s Napoleon complex; everything is about building height rather than what’s going on at street level. In another post I wrote way back when, I talked about the idea that planning is less important that people. I highlighted a hub of thriving human activity on the block of Summit on Capitol Hill where the original Top Pot can still be found today.

I wrote this back then about Summit:

Maybe it’s a pointless chicken and egg question, which came first, place or planning? But maybe place is not “build it and they will come,” but rather “let the people come, and they will make a place.” Why does it matter? We spend a lot of time in our land use code trying to out smart ourselves. What if we just opened the door and let the people in? Are we getting in the way with too many rules? Is lots of people in ugly buildings better than less people in highly designed buildings? Is population density enough, on it’s own to create a sense of place?

I still think most of the buildings in South Lake Union are pretty awful looking, mostly glass boxes. Who cares? After 6 years and lots of jobs we have lots of people. The area is more alive now than ever. And another interesting point is that there’s more saris than suits; the ethnic diversity of people walking around at lunch time is notable. It’s hardly a sea of awkward white brogrammers harassing women. On the contrary, the blocks in SLU have a international feel. The people are young, but they aren’t mostly bands of roving white men.

What I said then has been proven true; just add people and the rest will take care of itself. Place is not about “the place” it’s about the people in the place. Seattle’s demise will be counterproductive, self defeating policies like Mandatory Inclusionary Zoning (MIZ), but it will also happen because we’re fussbudgets, fretting and tweaking and sweating over height, bulk, scale, zones, and typology in stead of getting out of the way of what people want. Sometimes its important to look back, even just six years, to find out that what we’ve been saying over and over again is true: density is people.

Councilmember Johnson’s ‘Mission Accomplished’ Moment

You might remember George Bush’s big moment Mission Accomplished moment when, in 2003, he landed on the deck of an aircraft carrier and declared that, “Major combat operations in Iraq have ended. In the battle of Iraq, the United States and our allies have prevailed,” in front of a huge banner reading, “Mission Accomplished.” Of course we now know the fighting went on and on for many years. In a story headlined, Are the Upzones Working? Rob Johnson Claims Early Victory, Councilmember Rob Johnson had his Mission Accomplished moment, saying that Mandatory Inclusionary Zoning (MIZ) “represents our future vision for this city—an affordable, green and vibrant future for Seattle and all its current and future residents.”  Johnson is smart enough to do the math on MIZ and that will add costs to new housing development. Far from making his case for MIZ, his argument that some developers are opting into the scheme makes our point: sure, MIZ works when it actually pencils so why not make it a voluntary program?

As we’ve said again and again, MIZ is a terrible idea. Adding costs to something doesn’t make it cheaper. And this is aggrevated by the fact that the money that is wrung out of the production of market rate housing will be poured into a grossly inefficient system of funding housing. The $25 million that Johnson crows about in the Seattle Weekly story will produce somewhere between 50 and 71 units, maybe, someday off in the future, with long waiting lists. When the per unit costs of housing produced by the non-profit housing industrial complex range from $350,000 to $500,000 all that money won’t produce all that much housing. But it will likely increase the cost of the housing that is being produced today. Almost certainly the additional costs of the projects Johnson touts will be sucked up by renters that move into those projects in the next two years.

But I’ve already been saying that for years. Here’s what Sightline’s guy Dan Bertolet says about MIZ in the same article:

The problem is it’s much easier to point to a project that’s moving forward than to one that never got past the idea stage because it was deemed infeasible from the start. And every time one project doesn’t move forward it’s maybe a hundred more low-income families pushed out of the city, the very same vulnerable people that MHA is intended to protect

If MIZ is such a great idea, then take away the mandate and see how many developers joint the few that Johnson is touting. If it works, then we will get more density and some extra funding. If it doesn’t, then there is no harm done, including to projects that would have otherwise been feasible without the mandate. And with a voluntary program in the city at large, the data on who participates and why can help create a true incentive program based on demand for housing rather than arbitrary requirements that won’t adjust over time.

And the truth is the neighborhoods, like the rogue elements of the Iraqi army cut lose in 2003, will continue to harass and harry Johnson’s efforts to impose MIZ. Additionally, pressure will continue to increase fees and inclusion, making the program even worse that it is today. As the many bumper stickers that proliferated after the Bush gaffe said, nothing has been accomplished yet, unless raising housing prices counts as something. And raising prices on the production of housing will never help affordability, period. Some people have to learn things the hard way.