Will Any Candidate Stand Up to “Angry Seattle?”

When I first visited Seattle way back in 1983 I fell in love with the city. My affection for the place grew from afar; I lived in Albuquerque, New Mexico where I would finish high school. After high school I set out for Tacoma, and the University of Puget Sound, largely because of its proximity to Seattle. And eventually, after two years of graduate school in California I came back and this time to Seattle where I’ve been ever since. For the first time in all those years, almost 30 now, I am beginning to feel like I don’t belong here anymore. The upcoming election has started to solidify this feeling.

How much The Stranger reflects the broad viewpoint of the people and voters of the city is a question I can’t answer. But I think their language and coverage of housing issues reflects some significant part of that view. Here’s the headline from their recent story reporting their own election endorsements:

HELLO, ANGRY PEOPLE! Stranger Endorsements! Are! Out!

That’s right, the headline speaks directly to the “angry people,’ angry one would suspect at all the jobs, economic growth, and increasing opportunity for everyone as that growth continues bringing with it more demand for housing. Angry not because of the growth, they’d argue, but its unequal distribution.

Hence the move by the City Council to pass an illegal tax on income; illegal not just because of previous court interpretations of Washington’s Constitution, but existing law that doesn’t allow local jurisdictions to impose taxes without the approval of the legislature. It’s pretty simple. They can’t do it.

Angry Seattle believes that if someone is doing well financially and having success that the success and the money must have been swindled from poor people who, presumably by some measure are more deserving. It’s the notion that the pie is of fixed size: if your slice is bigger, then mine will be smaller. That’s not fair or moral. Angry Seattle doesn’t believe in baking more pies. That would be “trickle down baking.”

The Stranger goes on in their more detailed endorsement to bemoan the fact that their endorsement board, and the angry people in Seattle, can’t vote against Republicans. They say there are only 6 viable candidates.

But it can be hard to tell the six incomplete-jokes-to-serious candidates apart. All six want more affordable housing, reformed police, and better options for the homeless. All six say the rich don’t pay enough taxes and the poor pay too much. And they’re all pissed off, card-carrying members of The Resistance.

For someone who understands basic economics and how Seattle broadly denies the function of supply and demand, reading this paragraph is like biting into a donut filled with nuts and bolts. Ouch! And imagining Jenny Durkan and Jessyn Ferrell as The Resistance is worthy of an eye roll and a face palm and shaking my head. I’m trying to imagine them throwing the tear gas canisters back at the cops while their faces are wrapped in a bandana.

In reading through the answers of these two candidates in particular, the pain continues. One would have guessed that whatever membership in “The Resistance” (whatever that is) had by Jenny Durkan, a United States Attorney, and Ferrell also an attorney and recently a State Legislator, would be ameliorated by their knowledge of basic economics and their confidence in their own depth of experience. But their answers on housing are pabulum stirred together to create the sense of satisfaction for a hunger for strong answers and also enough of the right words to appease Angry Seattle.

Here’s Durkan (from the Downtown Seattle Association’s (DSA) candidate page):

One of the most critical issues facing Seattle is the lack of affordable housing supply. This problem will only grow as our population grows. I will look to leverage City and regional tools and partnerships to help meet this need. I strongly support the implementation of the HALA recommendations. I will focus on the “highest impact recommendations” first as identified by HALA. At the same time, we must ensure implementation delivers the promised benefits and that impacts on neighborhoods are mitigated.

Supply of affordable housing? See, housing is affordable when the supply keeps up with demand. There is no such thing as creating “affordable housing supply.” When the market produces (whether it is market rate or subsidized, new housing or old housing, individual units or shared ones) more housing that there is demand prices go down, and it becomes more affordable. But Durkan knows she has to say those words “lack of affordable housing supply,” a formulation that doesn’t fool me or, really, Angry Seattle. I know she doesn’t mean it or understand it, and so do they.

Ferrell seems to know what she’s talking about (from the same DSA page).

Housing affordability is an area where the current administration has made important strides, but we can do more. Every day we’re generating only about 30-40% of the housing supply needed in Seattle to match the demand of newcomers to our City. To keep our City affordable and inclusive, we need the right set of policies that ensure that our housing supply keeps up with demand.

Pretty good, right? But the problem is that Ferrell supports Mandatory Inclusionary Zoning (MIZ) fees, and she supports impact fees both because she says that developers need to “contribute” to you guessed it, “affordable housing.” When we met with her, I told her she had to change her thinking if we truly want to get at this problem; we already contribute, as much as $75 million per year for infrastructure through Real Estate Excise Taxes (REET) and the current system to producing “affordable housing” is creating units that cost as much as $500,000 per unit.

These two women got into law school, finished law school, passed the bar exam, and have had stellar careers. But when people so smart run for public office, they end up reduced to babbling out buzz words and phrases designed to reassure some while appealing to others. In this case, these two were on their best behavior, trying to sound business friendly. When they’re out in the general population their language gets even more sloppy and desperate. There’s nothing like an election to turn otherwise bright people into contestants in a “Me Too” tournament.

What’s left? Not much. We’ve got Mike McGinn who said that he doesn’t want the endorsement of the development community. McGinn seems to be counting on his name familiarity and his pervious experience as Mayor and the promise that time, as he puts it, mellowed him out. Here’s what he says on the same DSA page.

If elected I would immediately start a broad based public process to identify how to address housing prices. This will include a discussion of how neighborhoods can accommodate housing growth, and how to accompany growth with appropriate investments.

Wow. Right answer. I’d give anything if the City staff had bothered to do a little work, maybe some extra reading on their way home on the bus, or even just lazily accepted supply and demand as they did the idea that taxing housing would somehow help prices. Instead, the City simply went the route of squeezing developers for cash to give to non-profit housing builders, something that will raise prices and ensure more fees and taxes in the future as a response. I wish I could trust McGinn; but I worry he’s just pandering to Angry Seattle, this time the neighbors who don’t want anymore housing.

And almost everyone in town, including the candidates, keeps calling the MIZ scheme “HALA” when we know HALA is just a raft of recommendations. Whatever. I give up on that one. In our interview, I even asked Durkan to tell me the difference. She never did.

So out of all the “serious” candidates, two look like they might be close, Ferrell and Durkan, but say things that make it clear that they know that to win, they need to be members of The Resistance to appeal to Angry Seattle, and that means proposing bad policy. The other candidate, McGinn, sounds like he’ll put a break on the MIZ scheme. That’s great! But why? To allow Angry Seattle to make it even worse? He’s not very clear on that topic, suggesting that he understands making the fees higher won’t work. Then why have fees at all? Again, he’s sketchy.

As for me, there are no candidates in this race I find personally or intellectually resonant with what I value. The closest is McGinn, and it maybe that he’s the best bet to at least slow down the disastrous spiral we’ve begun. All the candidates want to appeal to Angry Seattle.

And here’s the thing, I’m not angry that other people are making money. It makes me feel good that we have more money in our economy. I think it is a hopeful sign for people less fortunate and for those who are trying to make it. What does make me angry is when well meaning, mostly white, housed, educated people get angry about other people doing well, then propose and implement horrible policies that will make life worse for those people striving to dig out of poverty or to get further ahead in the economy. I don’t see anyone running for Mayor at this point that understands that the pie is not one size, it can get bigger and we can bake many more pies. I’m tired of well off, educated, white people in a great city with great opportunity complaining and being angry. I wish we had a viable candidate that would tell them to get over themselves and support a real solution: more housing of all kinds, all over the city, for all levels of income.

July 5, 2012: A Reminiscence on a Defense on Density

Facebook has evolved much over the last decade and even over the last five years. A feature I have grown to appreciate is the “On This Day” feature that allows one to go back to see what one posted exactly a year ago, or three years ago, or depending how long one has been on Facebook eight or nine years ago. A little while ago I found this very economical use of words that I posted as a status update. I think it still articulates my basic view that there are some pretty deep reasons why cities (and this is almost a synonym for density in this case) make sense and are important. You can read a much longer exposition on my old Seattle’s Land Use Code blog

I am a density advocate because more people in a smaller space is the most efficient and sustainable use of our limited resources. Density has fewer impacts on the environment. Rather than limit our choice and freedom, land use policy that promotes density helps make us more free, prosperous, and can help us realize some the most basic and accepted goals of every human society, including the Golden Rule, “do unto others as you would have them do unto you,” or “to love our neighbors as ourselves.”

Contracts and love are felt and made between people, not by individuals in isolation. 

In order for this to make sense, we have to start with the principle that freedom derives from a social contract between people and that the contract is best enforced by good government; good government doesn’t limit our freedoms–whether we are born with them or not –but instead helps us realize those freedoms. And if we are to love our neighbor as ourselves, we can best do that when our neighbors are close by and plentiful. Contracts and love are felt and made between people, not by individuals in isolation.

These positive outcomes of density are best achieved when government regulates the exchange of ideas and money with broadly written rules, adjusting them only occaisonally and in a limited way. Rules need referees that don’t rewrite rules each time they are violated or declare success each time they are followed. And governments are best when they last long enough to earn reelection because their rules are truly beneficial or lose reelection because their rules truly failed.

I Love Speculators! The Story of the Transatlantic Cable Guy

In case you missed it, there has been a lot of press lately about the notion that the reason that Seattle housing prices are so high is because, “speculators” are roaming around the city snapping up land, parking wads of capital everywhere and leaving all these homes empty. Once again Sightline is late to the party, but at least they showed up. Dan Bertolet wrote a nice post taking down this nonsensical view.  I wrote a post about this a while back and even went on the radio to dispute it and wrote about it at Forbes. It’s not happening! But as I point out in my posts, this narrative allows some people to still accept the fact of supply and demand, but argue that someone is gaming it. Sure, they say, there really is short supply, but it is because somebody is taking supply off the market. Or, another argument goes, all the money pouring in is making people who own land push their prices up and up and up, and the speculators (knowing some secret we all don’t with money we don’t have) are paying those prices. Speculation, doesn’t work like that, and housing and real estate investment is almost never speculation.

[speculation is the] assumption of unusual business risk in hopes of obtaining commensurate gain.” 

Here’s the definition of speculation from the Merriam-Webster dictionary: “[speculation is the] assumption of unusual business risk in hopes of obtaining commensurate gain.”

If you take a big risk, like betting $1000 on a long shot horse at the race track, and the horse wins, you’ll win a lot of money. If you guess that tomorrow everyone will love the color blue, and you buy a million blue things, and they do love blue, suddenly, you’re making lots of money.

Americans have a very paradoxical and unforgiving view of speculators: we admire and resent them. When a person spends lots of money on an idea and loses big, we take a kind of satisfaction in that. “Thought he was a big shot. Now look at him.” Failed speculation makes us feel like we made the right bet taking our paychecks and sucking up to our stupid boss.

When someone invests in  an idea that everyone thought was a bad, but turns out to be good, we think of that person as a hero. What a genius! She figured out we all really wanted blue things, and we did, and she made a billion dollars. But there is still resentment there. “I could have told you that. She had family money and went to Harvard. She was born on third and thought she hit a home run.” When her business fails, lots of people stand around and say, “Well, that’s what happens when all you care about is money,” as they fondle their blue thing she invented.

People are out and about and everywhere in Seattle decrying “speculation” as being the reason why housing prices are so high. Nonsense. The reason prices are high for anything, blue things or any other thing, is because lots of people want that thing and there are few of those things. Housing is scarce, lots of people want it, so it’s expensive. That’s a long settled point and not worth arguing about again here. And we’ve already explained that in order to have even a blip of an effect on housing prices, speculators would have to buy enormous amounts of land and housing, on the order of thousands of units. It’s just not happening.

Let’s be absolutely clear: real estate investment, whether in the form of development of property with high potential of financial yield or regular old townhouse and apartment development requires borrowed money. When people lend money they tend to be very demanding about getting their money back. This is even more true for institutional investors like pension funds and banks which aggregate capital to create return for their depositors. In reality, housing and real estate financing is set up to specifically discourage speculation. 

So anyone who understands the world of housing finance and economics knows that it isn’t wild speculation in real estate but limited supply and high demand that drives housing prices. As Bertolet deftly points out, the extent to which there is in investment in real estate by larger financial interests is because it is scarce and delivers a return. If you have some problem with people making money buying real estate, open the supply spigot and build housing like crazy; prices will fall and so will the investment by bigger entities like pension funds.

But finally, speculation is the life blood of innovation. Some people in Seattle are so small minded, envious, and just plain confused, that they insist on characterizing people who speculate as bad, greedy people bent on destroying life as we know it. This is just wrong. Consider the story of the transatlantic cable. Telegraph messages, phone calls, and even today, internet connections don’t happen magically in the ether or even via satellite. There’s a bunch of cable running under the Atlantic Ocean. How’d it get there? A speculator made it happen, and his name was Cyrus West Field, and he lost a lot of money on what even by today’s standards seems like a stupid project: unspooling a cable thousands of miles under the ocean. But he did it. And eventually he made money. Without the occasional speculator with lots of money and a crazy dream, many of the things we take for granted wouldn’t exist.

Your homework is to watch the story of how this all happened.

The Dori Monson Show Highlights Non-Proift Housing Industrial Complex

Once again Dori Monson gets it and then says something about it. And, as I wrote last week here and at Forbes, Governor Jay Inslee simply doesn’t get how housing works; or he does and he doesn’t want anyone to know about it. Every time I point out and criticize spendy subsidized projects, I get defenders of the system that produces them that say, “That’s not a fair comparison,” or “That isn’t the way to calculate unit costs (take project cost and divide by the number of units).” OK, I’m doing it wrong. Then how should we calculate unit cost if it isn’t taking the $92 million spent on 200 units and dividing and getting almost $500,000 per unit? Then there’s just crickets. One person offered a scheme by which all the money from non-housing sources would be subtracted then somehow the retail would be taken out, producing the laughable per unit price of $97,000. Right.

The fact is we simply don’t know how housing units compare across industries, across neighborhoods, cities, urban, suburban, and rural. There are many different nuances in how projects end up coming together. Wouldn’t it make sense to dig into those with some experts and get a really accurate accounting of costs? Then we could all work together to reduce those costs. Some of the things pushing up housing costs and slowing production might be regulatory, some might be related to labor, others might differ from place to place and time to time. We need to know if we’re going to figure out how to lower housing prices. We do know that just adding taxes, fees, and more process with Mandatory Inclusionary Zoning is not the answer. Let’s find out what the answer is to lower costs, increase production and thus, lower prices.

Here’s the segment.

Happy 4th of July: Taxes, Revolution, and Housing

I always try to write something for the July 4th holiday, whether it is on Facebook or here or somewhere else. The holiday for me has always aroused mixed feelings. There’s the crowds and the heat, but also the food and, sometimes, connecting with people in backyards or some public place or somewhere with an exceptional view to watch fireworks. It’s also all about America’s Birthday, the anniversary of the signing of the Declaration of Independence. And the revolution was, ostensibly, about “taxation with out representation,” a notion that can be challenged but is still bedrock in our national consciousness (this is actually a fundamental misunderstanding of the American Revolution and you can read more about that in a different post).

While people have called me a libertarian as an insult, I’m not. I don’t see taxation as necessarily theft, although it can be in some circumstances. I have a pretty simple view of taxation. Taxes are important and useful for three reasons.

First, taxes are a way of gathering money to pay for things that the market would struggle to produce. For example, think about a park. Land can be worth a lot in a growing city, and taxes can be raised to purchase land and set it aside for free open space. While someone could do this as a money making venture, they probably wouldn’t. Housing or commercial space would be far more lucrative, so taxes are a good way to pay for this kind of community benefit that otherwise might happen.

Second, taxes also influence behavior by raising or lowering prices. As a Hayekian liberal, I see prices as the most important signal in the market place. When prices go up or down, various behaviors ensue. Taxes or subsidies (a negative tax) either encourage or discourage behavior. Increasing taxes on things like gasoline, cigarettes, or water would likely result in people trying to use less of those things, either through conservation, finding substitutes or giving up using them all together. Making those things cheaper would have the reverse effect.

Lastly, taxes move money around the economy by redistributing wealth. I acknowledge this not as a normative or prescriptive motivation; it’s just a fact. When taxes or subsidies are used, money moves out of some people’s pockets into others. Whether that transfer is fair, equitable, or otherwise depends on many factors, but it is what taxation always does. Policy makers must always recognize that there is no perfectly fair tax and must always be considering who is benefiting, who’s losing, and why and adjust accordingly.

Seattle is faced with the greatest crisis it has faced since it was first founded out at the edge of the wild frontier. We are a place in the world with tremendous growth and opportunity, growth that means more jobs, and more people. Those new people need housing, and our production is not keeping up, so prices are rising. Pressure is building to tax housing production in the name of lowering its price. This is folly.

But this move is rooted in a reading of economics and politics that would claim that building more housing, encouraging more economic growth, and welcoming new people into our community is coming at the expense of something called “social justice.” The notion is that poor people, people of color and especially black people, are being oppressed by this growth.

However, this view benefits existing property owners who, having already invested in property, now benefit from the scarcity of housing; they have a scare thing that is in high demand. Meanwhile the people that are supposedly being oppressed are certain to suffer more with higher prices.

The solution of adding costs through taxation of new housing product which would actually meet demand and have a salutary impact on prices isn’t a solution at all, but an insurance policy for those who already own a place to live.

Going back to my basic formulation of taxation, we are now on the verge of discouraging the production of housing and redistributing wealth from poor renters to wealthy homeowners. As per square foot fees add to rents and limit production, prices for single-family homes will certainly go up; it’s almost as if every dollar coming out of the pocket of a renter in the Central District, Capitol Hill, and Ballard, will now be vacuumed up into the equity of homeowners in Laurelhurst, Magnolia, and Arbor Heights. How is this social justice?

Instead of filling the streets in protest against the taxes imposed on new housing that will make their lives worse, renters are being encouraged to call for more taxation than is already proposed by the City in it’s Mandatory Inclusionary Zoning (MIZ) scheme. The supposedly revolutionary, socialist element is demanding more taxation of a good thing, housing, to stop inequality.

Instead of a revolution, this movement is reactionary, seeking to take the city backward, to a time of no or slow growth. Yet almost every candidate running for City office says this is a plan they’ll keep going with it. What’s happening to our city is that the banner of “social justice” has been transformed into a set of taxes that will siphon money from the poor into the hands of wealthy property owners.

If our city to step away from the brink of this disaster, City government must stop MIZ in it’s tracks immediately and reassess how we can develop an approach to housing that dramatically increases the production of market rate housing so that it meets or exceeds demand, then efficiently distributes subsidies to people still struggling with costs of living (not just housing). The taxes we collect from the levy can buy the public benefit that the market can’t produce.

By doing this, we would create a public benefit that the market can’t produce (low priced housing and guaranteed income for people struggling), incentives for the market to produce more of a good thing (housing), and take wealth from existing homeowners and give it to poorer people who rent (use the levy to redistribute wealth). This is a plan that isn’t revolutionary but just makes common sense, something that, along with housing, is in short supply in Seattle.