Eagan: Amazon Took the “Soul” of Seattle?

A recent column in the New York Times by Timothy Egan exposes the depth of assumptions held by many in our community about Amazon, growth, and housing. The exposure isn’t so much in the content of Egan’s column but it’s form, a kind of wistful obituary for a city that, according to Eagan, was once a leisurely and simple town. That’s gone, sucked away by Amazon, the online giant that has been growing in leaps and bounds, creating lots of jobs here and around the world meeting demand for services and products. Amazon has also drawn blame for everything from wiping out books and bookstores to, well, sucking the soul out of Seattle. Eagan’s column has so many tacit assumptions that if you don’t share most of them, the column feels more like a sad diary entry rather than something that should take up real estate on the pages of the New York Times.

What comes with the title of being the fastest growing big city in the country, with having the nation’s hottest real estate market, is that the city no longer works for some people. For many others, the pace of change, not to mention the traffic, has been disorienting. The character of Seattle, a rain-loving communal shrug, has changed. Now we’re a city on amphetamines.

Sad! Eagan is disoriented, stuck in traffic, and the once plaid ridden and lazy city is now full of amped up kids bouncing around in fancy cars. Eagan sounds very much like local curmudgeon Joel Connelly or Danny Westneat, essentially lice action and column writing versions of Mr. Wilson from the Dennis the Menace cartoons.

But median home prices have doubled in five years, to $700,000. This is not a good thing in a place where teachers and cops used to be able to afford a house with a water view.

Dammit! My kids teacher now has a view of a brick wall. That’s just terrible.

As a Seattle native, I miss the old city, the lack of pretense, and dinner parties that didn’t turn into discussions of real estate porn. But I’m happy that wages have risen faster here than anywhere else in the country. I like the fresh energy. To the next Amazon lottery winner I would say, enjoy the boom — but be careful what you wish for.

I just wonder where these parties are and what “real estate porn” might be. Is there a centerfold in the local Apartment Guide I don’t know about?

I was up in Everett for a meeting a couple weeks ago and I made a point to spend the whole day there. Two things came to mind. First, the town reminded me of the song Brandy by Looking Glass. Second, Everett seemed like the room mate asleep in front of the television, with a trucker hat over his face and a PBR on the coffee table while Seattle is like the room mate with a $1000 Italian suit who is having a “crisis” because he can’t find the keys to his Mercedes.

I get it.

But do we really want to be like Everett. It is a fine town and I liked my visit a lot. However, Seattle is never going to be like Everett again. We are becoming a big, global city with lots of innovation driving jobs, diversity, and much wider and cosmopolitain world view. These are not things to be trying to stop. Sure, it can be scary, but change always is. An article in Slate magazine about technology quoted author Douglas Adams on change:

Anything that is in the world when you’re born is normal and ordinary and is just a natural part of the way the world works. Anything that’s invented between when you’re fifteen and thirty-five is new and exciting and revolutionary and you can probably get a career in it. Anything invented after you’re thirty-five is against the natural order of things.

I think guys like Eagan and Connelly and Westneat and everyone else need to just soak that in for a minute. They’ve become the creaky old guy on the porch in a rocking chair complaining about “those damn kids!” Yes, change can be very difficult and it can create real pain for real people. But the best thing we can do about it is not talk about the good old days, but prepare for the good new days ahead by allowing the market to produce lots more housing and lower the barriers to entering the prosperity and boom we have going. That’s the answer. Feel sad about the loss of the past, sure. But let’s not let being sad get in the way of making progress.

Too often the tone about Amazon is all about how they are hurting people. They aren’t. People are getting hurt because of nostalgia and envy, not greed and wealth. The sooner we stop fretting about Amazon and making way for the world that wants to live here, the sooner we can overcome housing scarcity the does make it expensive.

Mental Health Issues: Angry Magnolia Neighbors Open Their Heads

In this line of work I’ve heard just about everything from worries about exploding sinks to weepy testimonials about how some townhouses mean certain death. When people fear change they’ll come up with just about every excuse why the change is bad except for what they’re really worried about: it’s called a red herring, something that just simply isn’t credible as a reason to oppose change but has to be exhaustively debunked anyway. The red herring defense chews up time and energy while proponents of new kinds of development, for example, have to spend lots of resources showing why small units with one sink won’t result in an outbreak of the plague. But sometimes the angry neighbors skip right to the real reasons they’re angry:

This comment comes from Magnolia neighborhood where there is a proposal to build housing at Fort Lawton near Discovery Park. The angry neighbors want the old Fort Lawton site to simply go to seed:

We believe that the Army Reserve parcel in its entirety, should be incorporated into Discovery Park. To accomplish this, we urge that all man-made structures at the site be removed and the site be completely reforested with native trees and understory.

I’m not going to wade into any of the issues at Fort Lawton because there’s nothing to discuss. The neighbors should be ignored and lots and lots of housing should be built at Fort Lawton. As far as I’m concerned, they should be welcomed to the discussion if they want to help make that happen and shape it, but otherwise I’d suggest they’d work on their lawns.

What’s astonishing in the comment I point out, is the revelation of what so many entitled people in Seattle really think about density and housing that would accommodate renters, especially those with not a lot of money. I’m posting this because I’m always surprised by the shock supporters of more housing express when they see these things; I’m surprised by the surprise, not the neighbors. In private and in hushed tones, angry neighbors almost always have really bizarre foundations for the opposition to new housing. The real problem is City Councilmembers (the worst is Mike O’Brien) who want to spend time processing the red herring cover stories which are just a cover for classism and racism. There’s no room for red herrings or angry neighbors in our city.

What’s truly sad, is the person that wrote this comment probably has one of these signs in their giant and landscaped front yard. I don’t think hypocrisy has made it into the Diagnostic and Statistical Manual of Mental Disorders (DSM5) yet, but I suppose the next addition could add that as well as the disorder of listening to hypocrisy and putting it into our land use code. In that case the biggest concentration of people with mental disorders would be found in Magnolia and City Hall. They need help, “services” as Jenny Durkan often says. And no, everything won’t be “just fine” as long as we keep killing housing because entitled, incumbent neighbors get their way.

New York Example: What Happens When Housing Supply Increases? Prices Go Down!

Remember my frustrating conversation with a legislator about there not being any guarantee that builders and landlords wouldn’t just pocket the difference if costs created by regulation went down? I pointed out that if costs went down and supply went up competition would ensue and prices would fall; it’s called the invisible hand. Well here’s a long quote from a story about the housing market in New York City.

Manhattan landlords offered concessions on 27 percent of all new leases signed in September, almost double the share from a year earlier, Miller Samuel and Douglas Elliman said. That’s helped keep rents relatively steady, with the monthly median falling only 0.4 percent to $3,334 after incentives are subtracted.

In Brooklyn, 20 percent of new leases came with concessions. But there, the deals weren’t enough to contain a slide in rents. The median last month dropped 5.6 percent, the most since March 2015, to $2,757.

There were 2,467 apartments listed for rent in Brooklyn at the end of September, which is 37 percent more than the monthly average for the last five years, Miller Samuel and Douglas Elliman said. Manhattan’s inventory of 7,363 units was 21 percent higher than the five-year monthly average. The vacancy rate in the borough climbed last month to 2.63 percent from 2.38 percent a year earlier.

The added supply eased the search for Garrett Barnard, who returned to New York last month after almost a year in San Francisco. The 27-year-old web designer set a rent budget of $4,500 for a two-bedroom apartment in the vicinity of Greenwich Village, to share with a roommate who’s attending New York University (emphasis mine).

There really isn’t much more to say, it’s right there in black and white. Not only to prices go down and landlords compete with landlords over tenants rather than tenants competing with tenants, but those tenants don’t need subsidies of any kind. When market prices fall, the ratio of lots of people’s income reaches the governments normative standard of 30 percent or less spend on housing as being “affordable.” While I don’t think this measure helps very much, it does drive out subsidy dollars. Part of what is frustrating is the ongoing disbelief here in Seattle that increased supply will lower prices, period. When those prices go down, more demand is absorbed by the market and subsidies for truly struggling families go a longer way.

This is not an oversimplification. But ideology and mythology die slow and painful deaths. What we need now is an analysis of what happens when market prices fall like they are in New York to waiting lists for subsidies. My guess is that the pressure on the housing authority and non-profit waiting lists drops, and more people are able to get into those apartments. But this won’t happen if we keep stifling supply with a growing list of impediments to building housing.

Seattle Times is More Incoherent on Housing than Ever

I’ve tried. I really have. But I think the Seattle Times is officially hopeless. Here’s what they said in their endorsement of Jenny Durkan last week:

On housing, both candidates should be more cautious about upzoning single-family neighborhoods. That can decrease affordability by making houses and older buildings more valuable to speculators. Housing policy should be guided by data and collaboration with residents, not special interests, backroom deals and divisive rhetoric.

Rental supply is rapidly increasing in Seattle with nearly 37,000 apartments being built now or in the pipeline. But the supply of houses to own is at risk. City plans say there is enough capacity for projected growth without rezoning.

Single-family neighborhoods are essential to Seattle’s livability and appeal as a place to start careers, companies and families.

Buying homes is hard in today’s market but remains an important path to the middle class for immigrants, millennials and others. This opportunity shouldn’t be further diminished.

First of all, and those goes to the Times and to “urbanists” who have been distracted by single-family upzones, there are not going to be any upzones to single-family zones. It’s not going to happen. Furthermore, it’s a red herring. Builders are struggling to build housing in the low-rise zones because of overreaching regulation. The so called missing middle (which I wrote about a long time ago) is already being built, but it’s slowly being stomped out by the Council.

Second, a much more rational City Council than the current one decided to eliminate most new single-family housing in single-family zones! As Mugatu would say, “I feel like I’m taking crazy pills.” It’s as if our long battle to save small-lot development and our total defeat at the hands of the Council never happened.

I’ve used the graphic above as a reminder. Our proposal was totally rational and proportional. We wanted to build small houses on small lots with set backs on the front, back, and side along with height limits. You can see that the small-lot housing we were talking about legalizing would have been smaller than what the code already allows for single-family housing. Furthermore, lots in our proposal would only be buildable if they were no smaller than the average size of all the lots on the block face. This proposal was totally and completely rejected and ended small-lot development as a source of housing supply in single-family.

Do you get it now?

And no, allowing more housing in single-family zones doesn’t make it more valuable to speculators; it makes it more valuable to the owners of existing single-family lots! 

Hello? Can you hear me?

The last two paragraphs have left many people in town slack jawed. What? With single-family housing prices reaching into the low $600,000 range in Seattle how in the hell is anyone supposed to “start a career” or find a path to homeownership. Immigrants? Huh? If anything what I just said ensures that the prices will keep climbing. We’re not building anymore but the demand isn’t going to diminish.

And as if it wasn’t obvious enough how confused and upside down the Seattle Times editorial board and their reporters are, here’s what Seattle Fair Growth, an anti-growth single-family protectionist group, said in response to the editorial:

We appreciate the above statement from the Seattle Times editorial board.

Will a Carbon Tax in Washington State Raise Housing Prices?

My first answer to the question in the headline is, “Of course!” Taxation, especially indirect taxation of the fuel that is used in trucks and equipment used in the construction process, would boost costs that would have to be passed on to consumers. The more honest answer is, “I have no idea, only a guess.” What do the experts say? It’s difficult to tell because after looking around the Internets I found very little in terms of answer the exact question in the headline. Why bring this up? Well, Washington state could be on the verge of passing a carbon tax, especially if Democrats take over the state senate with a win in a hotly contested election on the eastside of Lake Washington, Legislative District 45. What are the questions I’d ask economist on this topic?

(I’m not going to have a discussion about the history of the carbon tax in Washington, but here’s a good post about where things stand currently).

This post is really a think-out-loud post, not a treatise, but I should start by restating my rule of thumb on taxation. Taxes

  1. Raise revenue for things considered to be beneficial to the wider community but that the market may not produce efficiently. For example, parks are not likely going to ever be the highest and best use of a piece of urban property. Therefore, we pay taxes to buy and hold that land for the broader benefit of the community.
  2. Encourage or discourage behavior. We ought to tax things that we want less of and tax in reverse (subsidize) things we want more of. For example, we want less consumption of scarce resources like fossil fuels that also add to pollution and carbon emissions, but we subsidize, in many ways, homeownership by granting tax exemptions.
  3. Redistribute wealth. Taxation can capture and move money around the economy. For example, a single-family homeowner has a lot of wealth in the form of equity in their home. Taxing that equity to support a housing voucher program for a renter with less money is redistributive; so would upzoning the single-family neighborhood to increase supply, although zoning is not taxation.

A carbon tax, therefore, is, in my view, a “good” tax in that it is aimed at reducing the use of a product that contributes to climate change. But back to what it might do to housing prices.

Does taxation lead to inflation?

Here’s a pretty good answer from the Internets:

In Keynesian economics framework, taxes are determinants of aggregate demand. So, increases in taxes lead to lesser demand (as consumers will have less money to spend) and, hence, their impact tend to be deflationary. Similarly, it can be argued that tax cuts will lead to more consumer spending and their impact tend to be inflationary. But aggregate supply remains completely unaffected by changes in taxes.

On the other hand, those who discard the above framework, believe that from a supply side perspective, increases in taxes tend to increase the production cost and the burden is passed on from the producers to the consumers in the form of indirect taxes. So, the prices of goods and services will rise leading to inflation. Therefore there is no perfect equation between taxation and inflation.

I think that says it all. It depends on the assumptions made on how the market will react to a tax; less spending and lower demand, or higher costs passed on through higher prices.

What about indirect taxation?

This question is more complicated, of course. This whole question has a lot to do with elasticity, that is, how high can a price for something go before people just quit buying it. Things that people can’t live without can rise in price a lot before they stop buying it or find substitutes. Milk can probably increase in price a lot before people switch to drinking their coffee black or eating cereal with orange juice. Gasoline and housing really don’t have very many substitutes, but people can take transit or move to an area with lower housing prices.

We do have in the United States from all levels of government, indirect taxes. Europe and other countries have often used a Value Added Tax or VAT. This is a tax that is on the incremental increases in value of the production of a product from raw materials to point of sale to the consumer. Theoretically, these kinds of taxes mean the final price of the product reflects all the taxes paid a long the way. A study by the Bank of Greece looking at whether these taxes contributed to inflation led them to conclude that, “in general, although the importance of indirect taxes as a factor influencing inflation is indisputable.” But they also found that,

The contribution of indirect taxes to inflation for the year 2012 came mainly from the rise in the special consumption tax on heating oil in the last quarter of the year and from the changes in VAT (mostly moves to different rates) carried out in 2011 and fully reflected in prices in 2012. This carry-over effect was 0.19 percentage point from the VAT increase and 0.29 percentage point from SCTs. In total, indirect taxes contributed 0.48 percentage point to inflation

Do carbon taxes boost inflation?

Our neighbor to the north, Canada has a carbon tax, and it has been identified as a cause for an increase in overall inflation:

Canadian inflation spiked to its highest rate in more than two years in January, as new carbon taxes in Alberta and Ontario fuelled a surge in gasoline prices.

Statistics Canada reported that the consumer price index was up 2.1 per cent year over year in January, the fastest pace since October, 2014, and up sharply from 1.5 per cent in December. It said gasoline prices were up 20.6 per cent from a year earlier, the biggest increase since September, 2011. The increase reflected the introduction of a carbon tax in Alberta and a cap-and-trade carbon pricing system in Ontario, both of which came into effect on Jan. 1, as well as higher crude-oil prices, which lifted fuel costs nationwide.

However, the same article offers that

Economists said generally rising inflation numbers reflect the pickup in Canada’s economy over the past six months, although they have been tempered by a generally rising Canadian dollar, which cools costs for imported goods.

So when carbon taxes kick in, they boost fuel prices that contribute to the overall measure of inflation. But that addition to aggregate price increase is a contribution doesn’t mean inflation is attributable to a carbon tax.

Does taxation boost the price of housing?

Well, it’s a complicated and tangled issue because most of the literature considers “housing” almost as the same as “mortgage;” that is, people, even researchers and economists think of housing as single-family housing purchased with a loan as an investment in an appreciating asset, not an apartment paid with a rent check once a month. And our tax code strongly favors mortgages (remember my #2 rule of thumb above). So an analysis by the Brookings Institution found

As capital gains taxes go up, so does the value of the capital gains exclusion on housing. (To put it another way, if capital gains and dividend tax rates were 100 percent, all investors would put their money in tax-favored investments like housing and municipal bonds.) Like the increase in ordinary income tax rates, a higher capital gains rate makes housing more valuable.

This comment is about 7 years old and is looking at a proposal on increase capital gains taxes. But because exemptions on mortgages would be exempt, then people subject to those taxes would push money there. So, the researcher said,

In recent research, I’ve found that increases in rates on both capital gains and ordinary income would boost metropolitan housing prices by between 7 and 10 percent, with larger hikes for cities on the coasts.

That doesn’t help us learn very much about how increased costs of production impact all housing prices, including rentals. It does show how we’ve slanted our tax structure to favor and incentivize ownership of single-family homes.

Conclusion

My guess is that a carbon tax in Washington State would increase overall inflation since the tax will eventually get passed on to the consumer in higher fuel prices, and fuel prices are always part of the calculation of the inflation rate. Producing housing does rely significantly on vehicles and equipment that use fuel, and that means those costs will end up in the price tag of housing. How much additional cost? It’s hard to say. Most carbon tax proposals have provisions to help poorer families with the additional costs associated with the tax. How would this ameliorate higher costs of living associated with a carbon tax? I don’t know.

As of today, my big concern is that along with impact fees, Mandatory Inclusionary Zoning (MIZ), proposed increase to the Real Estate Excise Tax (REET), design review requirements, and the myriad of other fees, regulations, and rules already choking supply, a carbon tax would be yet another log on the inflationary fire. Does that mean the legislature shouldn’t pass a carbon tax? Not necessarily. But it does mean that proponents of more housing supply need to lean on state and local government to stop taxing new housing and slowing its production. Pass a carbon tax, but not before we ensure that we’ve reduced all the other bad taxes that are adding to people’s struggle to make ends meet.