Seattle City Council Gone Fishing…For Impact Fees

It is supposed to be summer and slow. Not at City Hall. The Council is hard at work thinking up new ways to make housing more expensive while blaming people who build housing for “skyrocketing” prices.
Today, the Council will start the process for imposing impact fees after announcing their intentions in an op ed in the Seattle Times. After I saw the op ed last week I called the editor and asked for equal time. Read my response to the Council here:
Charging impact fees will make Seattle housing prices worse
Also tomorrow, August 1st, is an election for Mayor. I wrote a post at Forbes hoping we get at least one candidate that will step back from the brink of the San Francisco Death Spiral.
Seattle’s Next Mayor Must Step Back from the San Francisco Death Spiral
There are also two Council seats up for grabs, and the Council will consider legislation to, hopefully, make dealing with vacant buildings easier. Thanks to the folks at Weld for showing the Council that we not only care about the community but builders and developers also have lots of really good ideas about housing. After all, you build it for a living.
I’ll make it quick: take a moment to send a very quick message to the Council that impact fees won’t make housing prices better, they would make prices worse.
Sally.Bagshaw@Seattle.gov
Mike.Obrien@Seattle.gov
Lisa.Herbold@Seattle.gov
Bruce.Harrell@Seattle.gov
Kshama.Sawant@Seattle.gov
Rob.Johnson@Seattle.gov
Debora.Juarez@Seattle.gov
Tim.Burgess@Seattle.gov
Lorena.Gonzalez@Seattle.gov
You can put “No Impact Fees!” in the subject line and just send them this simple message with the link:
Charging impact fees will make Seattle housing prices worse!
Please work with us to find real solutions to rising housing prices and welcome growth to Seattle. 
It’s summer. The temperature is going to hit triple digits. I’d keep it simple.

A Small Landlord Explains Rents, Market, and Why Caps Won’t Help Renters

The constant outrage over and focus on month to month increases in rent and rent increases overall is leading to calls for rent control and other measures to penalize landlords for rent increases. This misses an important point. Landlords make rent increases and pace them out over time based on various factors.

When rents don’t go up on a regular basis and follow the needs of maintaining and operating a building, landlords can sometimes end up having to play catch up with rents, and this can lead to larger one time increases. On the other hand, landlords can often push off increases in rent, and over time make smaller increases.

Let’s take an example of a unit that signs first year for $1,000 rent.

In year 1, tenant pays $1,000 per month, for a total of $12,000 that year.

Now the situation changes. On the left is a landlord that raises the rent $50 yearly, for the following two years. On the right is a landlord that skipped raising rent after year one, only raised rent at the end of year two.

The tenant on the left has only about 5 percent of a rent increase, which sounds nice. Over three years, the tenant pays a total of $37,800.

The tenant on the right has a big 10% rental increase at the end, which sounds rough, but they actually pay less over the three years, for a total of $37,200 for the three years. That’s $600 less!

Here is that same chart but the landlord who was even more lax on the right. Again, in the last year shown they pay the same amount as the tenant with the yearly raises, $15,600 that year. But the tenant on the left paid $9,000 more than the tenant on the right over the lifetime of the tenancy. The tenant on the right just paid a single 30% bump instead of a little over the years.

I remember a horror story about a person who lived in Ballard for 20 years in an apartment and never got a rent increase, and then had the rent doubled all at once. Here’s a chart showing the amount of deferred rent on that apartment over time and how much that saved the tenant.

Over time, because the rent never went up, the tenant saved, in theory, a hundred thousand dollars over the life of that tenancy. Mike Scott putt this effect into a graph.

When put all together, rents go up and they go down over time. Landlords and tenants are buyers and sellers in a market. Sometimes landlords make good deals and sometimes they don’t. Sometimes they raise the rent too much and see their vacancy rate go up. Other times, to avoid the potential of losing tenants, the defer rents or even lower them by offering a free month to a tenant who is considering signing another year long lease.

The tenant landlord relationship is like any other relationship between buyers and sellers. Landlords want a steady stream of income, no trouble, and minimal maintenance costs. Tenants want a place to live that serve various needs and that they can pay for. Each side makes a deal. When rents go up steadily, it isn’t because of landlord greed, it’s because tenants are competing with each other for a limited supply of units.

The truth is most landlords, including me, don’t want to raise rents dramatically; it’s a good way to lose tenants that otherwise are providing a steady stream of rental income that covers costs and maintenance.

If suddenly some outside force like City Hall controls rents, this relationship is gone. I won’t be as free to decide how much rent goes up or down. I’ll have to raise rents regularly to be sure I keep up with everyone else and my operating costs. I won’t be able to hold off increases, and then catch up later. Sure, for some people this will be more predictable, but it takes away the real savings that can be passed on by holding off on increases or coursing them out. Deferred increases of $50 or $100 add up over time. That’s money that’s in my tenants pockets for tuition, childcare, or whatever.

Putting caps and controls on rents might seem like a good idea, but it takes away choices and, in the end, will only cost tenants money and landlords flexibility.

Jenefer Monroe is a Seattle landlord with a small number of rental properties and tenants. Most landlords in Seattle own and rent 4 units or fewer.

What is Causing Seattle’s Slide Toward Being the Next San Francisco?

I’ve already written about the San Francisco Death Spiral: limit supply, prices go up, blame developers and landlords, impose supply killing regulation, watch prices go up, repeat. Well, we’re right at the top of the spiral and getting ready to take the plunge. Local wannabe elected officials don’t have the intellectual acuity to offer solutions and reassurance to people angry about housing prices and others are taking advantage of the anxiety and stoking it with really bad policy ideas like impact fees, Mandatory Inclusionary Zoning (MIZ), and a host of other things sure to increase costs and limit supply. But all the bad ideas get lots of applause because, as I wrote yesterday, the villain gets his just punishment. Before we can offer solutions, I think we need to figure out, in the simplest syllogism possible, what is causing the problem. Here’s my first draft:

  • Rising housing prices make people unhappy, but are usually associated with many other factors outside of what we know creates higher prices, inadequate supply and rising demand;
  • Therefore, interventions to affect housing prices by local government are usually more regulation which increases costs and reduces supply, and thus increases prices;
  • Then, since people don’t associate rising prices with lagging supply, they assume housing is not being regulated enough and demand more regulation in the face of even higher prices; and
  • Extracting money and value from the production of housing to solve growth related problems (e.g. funding non-profit housing, building infrastructure, etc.) further exacerbates cost related production issues, limiting production and leading to higher prices.

For many people the response to this might be, “Duh!” and a forehead slap. But for most people in Seattle here’s how it works.

  • Housing prices are rising because Amazon and other tech related business are paying young kids lots of money to work at highly specialized jobs;
  • Since they are young, don’t have many other financial obligations, these young tech workers are willing to spend enormous sums of money on their housing costs, including for rent;
  • Rather than build housing for ordinary people, greedy developers are building “luxury housing” for these young tech workers and landlords are raising their rents to force out ordinary people so that they can rent to higher paying tech workers; and
  • Since greedy developers and landlords control City Hall, the Mayor and the City Council have agreed to massive upzones so that developers and landlords can build even more of this luxury housing to make more money from tech workers and squeeze poor people and people of color out of the city.

There it is folks. Two different movies playing the same screen. I’m working on what we’ll have to do to overcome this dangerous dissonance in the next few years ahead. It may be too late. If MIZ goes forward without pause and the City Council continues to add more and more regulatory costs and if we get rent control (it’s illegal, but that didn’t stop the Council from imposing an income tax which is also illegal), it will be exceedingly difficult to reverse this. Leadership matters, and today we have no leaders, only people that are selling stuff we don’t need.

Seattle’s Aggrievement Industry is Growing Too

As Seattle has grown we’ve seen a lot of new jobs and the growth that comes with it. One of the areas of growth in the new economy is the aggrievement industry, the business of cataloging and stirring up the concerns, worries, and anxieties people feel about the changes created by economic growth and opportunity. Change by definition means things won’t be like they were yesterday, and it also means that some people will feel as though they are worse off after the change or because of the change. We can respond it two ways, either reassuring people that overall change will be better and coming up ways to make growth easier for everyone, or we can stoke those worries and feed off the anger and resentment.

I think to get a sense of why things keep going this way it would help to read some of the responses published by the Seattle Times recently in a article headlined, “Seattle Doesn’t Know How to Handle the Boom.” I love the headline because, for once, it is subtle. I agree, people in Seattle are having a melt down about growth and it’s getting ridiculous. Here’s one of the complaints:

I have experienced much more competition for jobs, of which I now have three to try to get by. My friends and I all live in constant terror of losing our places to live. My landlord is selling at the end of my lease & the rent on a 2 bedroom apartment is more than the mortgage for a half a million dollar home. You have to make $7,500 a month to qualify for either. It’s pricing normal people that are from Seattle out.

Forget about the numbers and consider the frustration and worry. It is real. People are facing challenges as the city changes. But the Seattle Times offers no solutions nor does it when it puts together stories ever focus on the source of the problem or even defining it. For the Times, it’s enough to say that prices are “skyrocketing” and then dump anecdotes about people complaining about the prices. Who needs to report on causes or solutions?

And when the press does identify the cause, it is most often some external existential threat. In the case of Charles Mudede at The Stranger, the cause of this person’s angst and struggle is what has called the “dark energy” of capitalism expressed in the form of international speculation in real estate. The story goes that Chinese billionaires are buying up all the land and housing in Seattle and leaving it empty, rendering it impossible to create new housing for real people. His latest lament takes over all average prices downtown, about $2400 for new apartments, and suggests that these “luxury apartments” are all that exists in the market.

Another group is fomenting anger toward landlords for high prices with a campaign to “make landlords pay for economic evictions” (see the featured image above). First of all, so-called economic evictions simply aren’t clearly defined or tracked. What does the term even mean? These people would say that it’s when people are pushed out of their apartment for a renter that will pay higher rent. That simply isn’t good business. And nobody collects that kind of data, only anecdotes to stir up anger at landlords and pack the Council chambers with angry mobs.

When rents do go up dramatically, it’s usually when buildings have been purchased and get upgraded, making up for years of deferred maintenance which is why the rent was low. And the price of course is determined by demand and relative supply. It wouldn’t make sense to buy an old building, spend millions on it, and rent out the renovated units unless prices covered those costs because so many people need housing and are having to pay more an more for it because it is scarce.

But who wants to organize people to expand programs that we know work like the Multifamily Tax Exemption (MFTE) that creates a 20 percent rate of inclusion for rent restricted units so that it can be applied to existing buildings? Nobody gets punished with MFTE. There is no blame. There is no outrage. It’s too wonky. Organizing requires a villain and a victim. Programs like MFTE have been a workhorse for saving real people money, but the aggrievement industry can’t stoke anxiety by proposing a solution that doesn’t involve punishment for the villain, in this case landlords.

And politicians follow along. It wouldn’t makes sense, I guess, to run a campaign for office that pointed out that we need more housing, of all kinds, in all parts of the city, for all levels of income. That campaign doesn’t have a villain and doesn’t have a victim, just a solution that would offer more of a good thing to more people. Instead, the raft of people running for office in 2017 all have their own suitcase of implements of destruction for greedy developers and landlords like impact fees, rent control, and higher rates of inclusion in Mandatory Inclusionary Zoning (MIZ).

The press loves to stoke aggrievement, groups and individuals love to play off it and to use it to gain power, and politicians are frightened by the aggrievement and fear and pander to it, promising to find the culprit and make them pay “their fair share.” And all those “solutions” are like bloodletting and leeches; they just makes things worse, which makes the press happy, gets more power through blame for those people, and builds political careers. And the wheel keeps turning.

 

More Thoughts on the Election in Two Weeks

I often get queries about how I’ll vote in the upcoming election. I sent a message to our mailing list giving a lot of detail about how I’ll mark my ballot on the election for Mayor and to replace the retiring Tim Burgess. Here they are. 

——————

Greetings,

If you are a Seattle voter you likely have received your ballot for this year’s primary election. You’ll need to return that ballot (postmarked) on or before that day. Here’s my general answer on the question “How should I vote?” I think it’s pretty much the same for, “Who should I support financially.” I think the primary will sort out many things for us; there will be fewer candidates and we’ll have a better sense of where the conversation will go until November. Meanwhile these are my thoughts on the question about voting.

My first involvement with a campaign for City office was in 1993 when I managed a City Council campaign for a lawyer named James Fearn. Fearn was a supporter of the Seattle Commons, a project that ended up being voted down by the city a year later. Subsequently I managed Peter Steinbrueck’s campaign in 1997 that started out as a campaign for Mayor, but he switched to a Council run. I could go on about that year’s election. I’ve been around this town and its politics for close to 25 years, and I’ve never seen the city in so much trouble as it is today, especially when it comes to issues related to growth and housing.

One note before I talk about candidates. I don’t vote anymore for candidates unless I believe that they are likely to do what I want them to do. I don’t vote for the least bad candidate or the candidate that’s “close.” And please don’t vote for a candidate because, “she’s a nice lady,” or “we had lunch one time” or “she seems really smart.” One of my mentors, Larry Kenney, asked me when I said a candidate was a smart guy, “yeah, but how does he vote?” All that matters to me anymore is whether a candidate will hurt or harm the cause of housing production in Seattle. If I can’t answer that confidently I will leave my ballot blank rather than vote for the least bad option. You should too. Voting “present” is participation; voting for bad candidates is giving assent to bad policy.

For City Council the only candidate out there I can vote for is Sarah Nelson. I’ve known Nelson for a while including her days as staff for Richard Conlin. Nelson, with an editorial in The Stranger, finally came out as an actual supporter of business and basic economic fact rather than fantasy. The Affordable HousingCouncil (AHC), the Political Action Committee for the Master Builders Association, also endorses her. I am betting on Nelson because I hope that she’ll encourage her colleagues to make better decisions and that she’ll work behind the scenes to moderate the rhetoric and process on the Council. I am also hoping she’ll communicate with us, listening to what we say and taking it seriously, something nobody seems capable of doing on the second floor of City Hall. She was the first person on City Council staff to alert understand the gravity of the downzone of the low-rise zones that was proposed by then City Councilmember Sally Clark, legislation we eventually appealed.

UPDATE: It was pointed out to me yesterday that Nelson was a supporter of the One House, One Lot movement, an effort to squash small lot development. It is true that Councilmember Conlin and Nelson favored ending the increased production of housing on small legacy lots. This is problematic and one more thing to consider. However, I’d say that since that time Nelson’s help with low-rise zones and her eventual embrace of our efforts to make small-lot development easier, along with her subsequent record reflects maturity and evolution. And all of the other candidates are rent control supporters and are likely to support making Mandatory Inclusionary Zoning (MIZ). This isn’t to suggest that Nelson is the “least bad option,” and her record is worth considering when marking your ballot or making a contribution.

When it comes to Mayor, I have thoughts in a long blog post up today. There isn’t any candidate I can enthusiastically endorse. I will say that Mike McGinn is most likely the candidate, if he gets through the primary and gets elected, that could slow down or stop the imposition of Mandatory Inclusionary Zoning (MIZ).

In other City races on the ballot and on the Port I have no recommendation and I’ll leave my ballot blank on the seat currently held by Lorena Gonzalez.

Email or call with any questions or comments. Thank you for the work you do to make this a great city.