The Stockholm Effect: Free Housing is Expensive When There isn’t Enough

Before a share a stunning article about the housing situation in Stockholm I want to restate the point I made yesterday: Even if housing was free, an entitlement guaranteed to every person or family, if there isn’t enough, high prices will be replaced with rationing. In other words, what drives housing access issues isn’t greed or even necessarily population growth; when there are more people that want housing than there is housing available prices go up either in the form of money or being forced to wait until a unit becomes available. An article looking at the “insanely difficult to find housing in Stockholm” validates my point. First, remember, Stockholm has the very system of rent control and government mandates that some people in Seattle dream of having here.

Here are two, short paragraphs that should make anyone think twice or three times:

The average waiting time to be eligible for a rental apartment in Stockholm was nine years in 2016. The average waiting times are 14 and 16 years in attractive central neighborhoods like Kungsholmen and Södermalm, respectively.

It’s normal practice in Stockholm that parents register their newborns in the rental queue, so that they have a chance of their own flat once they graduate high school.

Not enough. How about some visuals.

Why is getting worse?

The waiting line for rental apartments (including student housing) grew with eight percent, or almost 40,000 people, during 2016. This stands in stark contrast to Stockholm Housing Agency’s ability to cater to this skyrocketing demand Last year, only some 12,000 people got their apartments through the agency, albeit a new record.

It’s a simple answer: production of new units is not keeping up with the demand. Again, price in money isn’t the issue, but the price of waiting is “skyrocketing.”

Here’s a graph showing average wait times:

The Organisation for Economic Co-operation and Development (OECD) recommends in it’s report that Stockholm, “ease rental regulations to incentivise housing supply, mobility and better utilisation of the housing stock, while maintaining tenant protection against abuse.”

Let me put part of  that recommendation in bold: Ease rental regulations to incentivise housing supply!

This is not the Rental Housing Association saying this, or builders or developers from somewhere around the corner. This is coming from Europe about what most people around here consider to be a socialist paradise. Well, it isn’t and slicing the pie thinner and thinner doesn’t work whether housing is run by the government or by a market economy. The message is the same, always: build more housing, of all kinds, in more places, for all levels of income.

One More Time: Even if Housing Was Free, We’d Still Need More

Once again The Stranger’s Charles Mudede is spinning a jargon rich but still fantastical tale to get to his point: decommodify housing. Or, in other words, make housing an entitlement. Or in one word, make housing free! Mudede’s opinion matters because, even though I totally disagree with him, he is one of the few people advancing an intellectual argument about housing. It’s a funhouse intellectual argument, but still, it has some principles underneath it. It also matters because Mayoral candidate Carey Moon apparently listens to Mudede. If she’s elected will Mudede’s socialist ideas end up informing policy? That’s concerning. Let’s take a look at the premise Mudede sets out, that the reasons for high prices are what he calls “speculation.”

Mudede’s tale is all about money having sex with money and making more money. Nobody makes money the “old fashioned way” as John Houseman used to say. I think, at it’s base, Mudede, like most people with socialist flavored beliefs, think that money is being made in real estate today without any work being done. That’s just not true.

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Talk to a builder who is building that project across the street. She found a parcel of land, hired an architect, went to a bank or other lender, shared a pro forma, and if she’s successful, she’ll get a loan or some sort of financing. Construction begins. Equipment is purchased. Jobs are created. Materials are purchased and delivered. Permitting gets going before that and then design review. Her ability to succeed (pay the bills, deliver the product to the market, and pay her self and have money for the next project) involves assumed risk quantified by the terms of the loan. And she has to meet the lenders time line and be sure that her product gets to market in time before prices change.

The sales price or rents she can charge is set by the market; what can people pay and what they are willing they pay. All of this takes 18 months or more. And it’s going on every day. It’s real construction, by real people, financed by other real people to sell housing to real people who need it. It’s hardly the “dark energy” of some galactic corporation using an algorithm to shift large sums of money around. It’s still the butcher, the baker, and the candlestick maker. It’s wholesale and retail. Mudede doesn’t like this because it also means price is old fashioned; it’s the quantitative indicator of supply and demand. That’s too “neo-classical” for Mudede, he needs something more avant-garde.

Even if we accepted the bogus premise that price is going up because of “speculation,” it just distracts from Mudede’s far more relevant and legitimate point that housing should be free, part of the public domain. Housing, he argues, out to be a right and a guarantee to all, passed down with no price at all.

This point doesn’t need some glitchstep view of economics. Just give everyone housing! However, we don’t do that with anything else. Our entitlement system in this country is anchored to work and taxes. We’ve never had something that we’re assured; one has to apply for social benefits. You may not like that, but it’s a huge cultural and political reality; we’ve never done it. And we can argue about whether we should or shouldn’t.

But here’s more reality. Even if housing was an entitlement from the government we’d still need more of it. While Mudede distracts with rhetorical fire dancers and tight rope walkers, that basic fact persists; if 1000 people want housing and you only have 100 units of housing you need more building.

Unless supply keeps up with demand, we’ll still have shortages and then the government will have to ration the housing. How would they decide who’s on a wait list? Who knows? I guess Cary Moon and Mudede and Sawant can dream up a system for making the wait list.

Or we can have the market do the rationing, creating higher prices and a financial incentive for private parties to meet demand with new and financed construction. It is unequal and sometimes unfair. But a system of rationing by criteria set up by central planners would be unfair too. But if our policy makers just took the brake off, we’d see prices respond and the wait list created by higher prices would dissipate. When we don’t make enough of something prices go up, a form of rationing by more impersonal forces. But these forces, as Milton Friedman are more rational and collaborative, and if we encourage them, produce better results.

This is the way it works. We either build more housing and lower prices, or we seize the housing market, make housing an entitlement. But even if we did, we’d still have to build more housing to end the wait list for the entitlement. I’m the first case, as Milton Friedman points out with his analogy of the pencil, thousands of people collaborating through self interest will solve the problem and distribute the product, housing. In the second case, Commissar Mudede and friends decide at the Bureau of Housing when you get your 500 square feet of housing and where.

Do we really need to waste time on this? Socialism always fails, because whether you’re living in North Korea or London, scarcity is scarcity; the solution to it is more. Mudede makes the election of Moon worrisome. This is a misdirection and a time waster. We know what to do: make more housing, of all kinds, in all parts of the city, for all levels of income. We can still have a side show and Mudede can run it and give away tickets for free. Let’s not play games with housing.

Parable of LimeBike: What if the City Council Treated Bike Share Like Housing?

The other day I was at a meeting in Fremont. When it was done, I decided I’d just walk back to my office in South Lake Union. It was a beautiful day, I could make calls and still send a couple e-mails on the way. I got a across the Fremont Bridge, and there, right on the other side, was a LimeBike. LimeBike is a bike share service that allows customers to download an application on a phone, use it to locate and then unlock a bike. The bikes are, increasingly, everywhere. So ubiquitous and easy to use that I stopped, looked at the bike, and thought, “Hmmm.” I took out my phone and pointed the camera feature to the code on the bike, and bam! it unlocked. In less than a minute I was riding down the bike path. How much did it cost? Nothing. Zero. It was free. More importantly, the trip saved me time. Eventually, the price will go up to — are you sitting down — $1 a ride. LimeBike along with at least two other such services are able to provide this service low cost because it’s been permitted, there is lots of competition, and there is lots of demand. It’s working!

As a story on CNN pointed out, Seattle has gone from a complete failure in bike sharing to a national leader in a matter of months. Market solutions work. Fast. Consider how the removal of price controls by Ludwig Erhard obliterated hyperinflation in Berlin after the Second World War. So like I did with my hot dog and corn dog examples, I wondered, what would happen if the City Council got a hold of the growing bike share market. Here’s what I think might happen.

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Seattle Times — Citing concerns about the rapid rise of local bike share companies, some of them from China, renting bikes for as little as a $1 a trip Councilmember Lisa Herbold is proposing legislation to impose stricter limits on the number and location of the bikes. Also supported by Councilmembers Mike O’Brienand Kshama Sawant , the legislation would limit the total number of bikes to 300 and increase that by 25 per year after Council approval. Companies could apply to add more bikes for a fee after an extensive design review process evaluating the look and feel of the bikes. People living close to where the bikes are placed would be empaneled for a 3 month review process.

“We’re worried these bikes aren’t accessible to all,” said O’Brien, “and many of them are downright ugly, ruining the character of the neighborhood.” The Council’s legislation will mandate equal distribution across census tracts. In areas of “low opportunity” adding bikes will come with a higher charge and more intensive review.

“For too long people in the poorest areas of the city have gone without bikes; if a company wants to add more in those areas, they’ll have to pay,” said Sawant. “These big corporations are making profit from selling basic necessities.”

To be sure that bikes are affordable a new fee will be assessed on each bike ranging from $1 to $25, with the highest charges being in Rainier Beach. Funds collected from the program will be granted out to non-profit bike share companies. An official from one of these companies Bikeplex said, “we just don’t have enough affordable bikes.” Bikeplex has 5 bikes that it rents for free but has had trouble producing more. “We have a lot more rules taking money from the City and that makes our costs much higher than the for profit guys.” The City couldn’t cite a figure for how many free bikes the program would produce. “We’re still figuring out the numbers,” said a planner.

“Once again the Council is trying to make something less expensive by increasing its price,” said bitter housing activist guy Roger Valdez. “Instead of increasing access to bikes as a great alternative to driving this will just raise prices and discourage people will less money to use them and they’ll drive instead.”

When asked for his reaction, Kevin Ridsdale, an occasional commenter on the City Builder Facebook said, “What?”

The Mandatory Access and Diversity Bike program, MAD Bike for short, will be debated but already has broad support on the Council and from the Mayor. Stopped on his way to a ceremony removing various statues around town the Mayor said, “the MAD program is our way of telling Donald Trump: ‘Your views aren’t welcome here!”

Dwell Development Introduces New High Performance Home

The following is a guest post from Dwell Development. Dwell has been a leader in creating great housing all over the city and especially in the Rainier Valley and Columbia City. We featured their work previously in a post about their passive house project.

Dwell Development, Seattle’s award-winning leader in sustainable home building, is excited to announce the completion of a new high performance home in Columbia City.

The 3,700 square-foot home, located across from Genesee Park near the shores of Lake Washington and a broad open meadow that stretches 5 blocks north to Stan Sayres Memorial Park on Lake Washington Boulevard, will achieve net zero energy and 5-Star Built Green certification.

The 4 bedroom, 4 bathroom home features a spacious, free-flowing floor plan filled with natural light, airy living spaces, flexible bonus rooms, and indoor/outdoor entertainment areas. In addition to proximity to a public park, the home sits on a large 8,000 square-foot lot, offering a generous outdoor entertaining spaces, native landscapes, and gardening opportunities.

The home’s unique architectural style is in striking contrast to the surrounding green landscape, while the responsibly harvested white oak siding creates a sense of belonging. The layering of materials such as concrete, oak, metal, and fiber cement also contribute to the dynamic modern exterior. Inside, the home features classic designer finishes and an array of reclaimed, local, and recycled materials for an eclectic modern aesthetic. The combination of natural materials and free-flowing spaces including a stairway that leads to a bonus room overlooking the living room and kitchen, creates a unique home fit for both a family and the design-conscious. The rooftop terrace is ideal for entertaining guests and taking in the expansive views of Lake Washington but what truly sets this home apart is the water and energy saving systems.

High Performance + Smart Design

Dwell Development’s net zero strategy requires a strategic approach to homebuilding. The Genesee Park home features an innovative combination of green building techniques and systems including a 9.0 kW rooftop solar array, airtight building envelope, high performance windows, 12-inch thick walls packed with insulation, high efficiency heating, and lastly, solar thermal technology for hot water, which is a first for Dwell Development. Since the company’s inception in 2006, Dwell Development has been dedicated to exclusively Built Green certified homes, which has helped them develop a signature approach to high performance home building powered by Passive House concepts. Their commitment to innovation has led to their latest venture into solar thermal technology; an uber energy efficient method for residential water heating. Utilizing solar technology and systems such a these helps Dwell Development’s homes reach net zero energy.

The ultimate goal is always net zero, meaning the home produces the same amount of energy as it consumes; ultimately helping to reduce carbon footprints and energy bills. This home will also achieve 5-Star Built Green certification, which is an environmentally-friendly, non-profit, residential building program from the Master Builders Association of King and Snohomish Counties. This certification ensures best practices in green development, verifies a home’s sustainability, and establishes a new home’s net zero status.

Solar Panels + Solar Thermal

The Genesee Park home’s 9.0 kW rooftop solar panel system serves as the primary energy source, which is the driving force behind net zero living. Solar panels also act as an additional income stream for residents, as the energy overage can be deposited back into the city grid for others to use, resulting in net gains on monthly energy bills for homeowners.

This home is different than any other home by Dwell Development because its uses solar thermal technology, another key component to reaching net zero. The technology is quickly gaining popularity in the green building industry, because it uses the sun’s energy, rather than fossil fuels, to generate low-cost, environmentally-friendly thermal energy. When combined, solar panels and solar thermal technology work together to create a holistic energy efficient system to power the home using the sun’s natural energy.

Green Landscape + Healthy Living

The home’s location near Columbia City, Lake Washington, shopping and retail districts, and mass transit including light rail supports Dwell Development’s philosophy to develop homes in dense, walkable urban areas and support Seattle Parks. Genesee Park is a 57.7-acre park that was recommended for acquisition in 1908 by the Olmsted Brothers because of its “fine views” of Lake Washington. Set back in a quiet area, the park contains large open grass play fields, walking trails, child play areas, wild bird habitats, picnic shelters, and a turf field for soccer and football. Genesee also boasts a fully fenced 2.5 acre off-leash dog park, complete with a dog drinking fountain and kiosk for community notices. The L-shaped park is bordered by Lake Washington, the Stan Sayers Memorial Park, and the Mount Baker Rowing and Sailing Center. The park also plays host to the popular summer event on Lake Washington, Seafair, which includes hydroplane races and air shows every August. With its proximity to the park, large lush yard, and multiple outdoor entertainment spaces, the home offers a variety of reasons to go outside.

Project Information

3909 43rd Ave S, Seattle, WA 98144
3,700 SF home, 8,000 SF lot
4 bedroom, 4 bathroom, den, bonus room, 2 car garage
Architect: First Lamp Architecture
Contractor: Dwell Development
Structural Engineer: Carissa Farkas
Photography: Tucker English
Green Certifications: 5-Star Built Green, U.S. Department of Energy Net Zero Ready, Energy Star and InDoor Airplus
3rd Party Verifier: Tadashi Shiga, Evergreen Certified

About Dwell Development

Dwell Development LLC is an award-winning sustainable residential builder based in Seattle, WA and the Grand Winner of the U.S. Department of Energy’s 2016 Housing Innovation Awards. Dwell Development’s contribution to the Greater Seattle area has transformed the traditional landscape for residential design and construction by exclusively building energy-efficient homes featuring high performance properties and sleek modern designs. Follow the latest updates from Dwell Development on Facebook, Twitter, and Instagram. For more information visit http://dwelldevelopment.com.

Dwell Development LLC
4501 Rainier Ave S
Seattle, WA 98118
(206) 683-7595

Press Contact: Amy Leedom
amy.leedom@paxsonfay.com
718.924.4096

Seattle Mayor’s Race: Who’ll Say, “Me Too!” First

It’s been two weeks since the election in Seattle and now the that the dust has settled we know who the candidates for Mayor will be, former United States Attorney Jenny Durkan and urban planner and activist Cary Moon. In my view, builders, developers, and people who operate housing need to hold off on supporting either candidate. I think the picture going forward is a lot more complicated the one might first think. The real question is whether Durkan moves toward Moon’s views, or whether Moon backs away from some of hers.

The Durkan Effect

It’s going to be really tempting to support Jenny Durkan at this stage. “Why not?” you might wonder, “after all she’s pro-business and she’d be a lot better than Cary Moon for builders and developers.”

Not so fast. It is true that Durkan was supported by the Greater Seattle Chamber of Commerce, but that organization hasn’t exactly been effective against City Council actions that impact small and medium sized businesses in Seattle, the minimum wage (they slowed implementation), were unable to stop the Council from meddling in how workers are scheduled, and didn’t stop an illegal income tax. The other candidate they supported, Sara Nelson who ran for City Council didn’t win. And the Chamber along with others spent hundreds of thousands of dollars trying to knock Kshama Sawant out of office unsuccessfully.

Along with being largely ineffective, the Chamber has never demonstrated any interest or support for small and medium sized developers outside of downtown. Their support of Durkan should be greeted with skepticism; it means their leadership thinks Durkan will keep supporting downtown developers, and their support will be confirmatory to Moon supporters that Durkan is the “establishment” candidate, which will rally the supporters of other candidates around Moon. Chamber support means Moon will be able to consolidate the substantial number of votes left by Oliver, Hasegawa, Farrell, and McGinn who all in their own ways ran against the “establishment.”

But isn’t Durkan the “adult in the room?” When I asked her intently and pointedly if she could describe the difference between the Mandatory Housing Affordability (MHA) program, a forced sale of density to builders and the broader recommendations of the Mayor’s Housing Affordability and Livability (HALA) Committee she bristled at the question. She didn’t really answer, repeating bland statements about housing and affordability. She didn’t seem to understand the difference or really think that it mattered. Housing. Housing. Housing. We’ve got to do something. The bromides were not impressive.

When I challenged her about having one of her first meetings as a candidate with big Downtown and South Lake Union developer Vulcan, she said, “Don’t believe everything you read.” Hmmm. So the Seattle Times is fake news? The truth is that on day one, Durkan will be on the phone with what she apparently considers to be the “development community,” big time land use attorney Jack McCullough and Vulcan. Another supporter of Durkan is another big time attorney, Faith Pettis, who runs a practice that makes millions from transactions associated with Low Income Housing Tax Credits (LIHTC), expenses that drive up the cost of non-profit subsidize housing and have forced non-profit developers to use the MHA program to shake down small and medium sized builders to pay her fees. She was, without even blinking, the chair of the HALA Committee that recommended MHA. Can you say, “Conflict of interest?”

Jenny Durkan has yet to demonstrate an interest in the problems of the people who build and manage the vast majority of housing in the city. She has a lot of work to do to show she cares and will stand up for the real development community.

Cary Moon and the “Dark Energy” of the Real Estate Economy

Cary Moon believes in the Loch Ness Monster and Big Foot. And maybe even aliens. I’m kidding, but she and Charles Mudede at The Stranger effectively reprised the roles of Scully and Mulder on the X Files with their thousands of words long ghost story about sketchy foreign investors buying up all the housing in town and leaving it empty. That, she argued, is the reason why housing prices are “skyrocketing.”

Back in the real world, we all know that housing prices are up because supply isn’t keeping up with burgeoning demand and job growth. I wrote about the fact that even if there were dark forces (Dark Energy Mudede calls it) roving around the edges of the city, reviewing maps, and planning big buys, those evil foreign forces would have to buy 1400 apartments and empty them out in order to boost prices by 1 percent. Her views on speculation and the people she listens to about it are, simply put, absurd.

Moon has never managed anything as large as a city (neither has Durkan) and she has been on the outside of government, pushing it to pay attention to things like the waterfront and the viaduct. But it was her activism, combined with demands from the freight industry, which gave us the tunnel. Love it or hate it, the tunnel was a huge waste of energy for the city, as we battled over it for years. Moon oddly argued we needed access to the waterfront; we already have it both downtown and at places like Myrtle Edwards and Alki. We hardly needed such a battle and billions of dollars to let me launch my kayak from the deck at Ivar’s.

Now What?

I know. You’re thinking, “So what the hell are we supposed to do? Who do we support?”

I don’t know. But what I will be carefully watching like a hawk with progressive lenses (and so should you) is which candidate pulls the other candidate. Will Moon start abandoning her conspiracy theories? Will Durkan say that rent control is another “tool we should have in our tool box?” Which candidate will break first? Which one will say, “Me too!” first and most often? I have my guess and my bet. What’s yours? Call me and we can talk. Until then I’ll be watching, waiting, and listening. And yes, you can have my invitation to the Chamber’s Christmas party.