A Tax for Housing? OK, Sure!

Ok. I give up. Let’s tax ourselves for housing. After all, housing is essential for job and population growth. We should support more of a good thing, right? But here’s the deal, the tax should be legal, equally assessed, and the revenues generated ought to solve our greatest housing need, housing for poor families. And here’s a spoiler alert: we already have a tax just like that.

First, a word about taxes. Taxes have three intended outcomes: redistributing wealth, affecting economic behavior, and generating revenue. Councilmember O’Brien’s linkage tax intends to do all three. But it doesn’t do the first thing because it subsidizes housing that is already in abundant supply, not at the expense of the rich but at the expense of other renters. Second, his tax would boost costs of housing, raise rents, and reduce supply. Hardly a recipe to encourage building of housing, an economic activity we want more of. And revenue? We’ve already shown that the Mutlifamily Tax Exemption could match housing production under O’Briens tax scheme. The Money O’Brien’s tax would raise wouldn’t match existing, legal and fair tools we already have.

What would work?

If we need 70,000 units in the next 20 years that would be 3,500 units per year. If we guessed that about a quarter of those needed to be built with an average cost of $250,000 per unit (with a 33 percent subsidy, or 82,500 per unit) that would be 875 units for a total of $72,187,500 a year. The full cost would be leveraged with other funding sources like the Housing Trust Fund and the Low Income Housing Tax Credit Program.

If this cost was divided evenly across Seattle’s roughly 350,000 households that would be about $206.25 per household per year, or about $17.18 per month. (Oddly, when I do the math and divide the $72 million by Seattle’s total assessed property value of about $123 million and then multiply by the median house value, $350,000, I get a total about about $204 in tax. This is typically how a tax like this would be assessed, the total budget needed divided by property values. But someone should check my math).

A legal way to assess this tax would be using Washington State’s property tax system which requires taxing property equally. O’Brien’s tax proposal is illegal because it taxes property unconstitutionally — government can’t tax one property more than another without violating the Constitution’s uniformity clause (Article VII, Section 1). His tax has other legal hurdles too.

And O’Brien is kind of a sideways Robin Hood, stealing from renters earning 60 to 80 percent to help other renters at 60 to 80 percent of AMI. That’s because O’Brien’s tax doesn’t help the poor at all by taking from the rich, it just raises the rents of some renters to supposedly help other renters. Rich people and single-family property owners, and developers really pay nothing.

However a tax across households would spread the responsibility for creating new housing evenly among everyone. And the tax wouldn’t be onerous ($16 per month or about 50 cents a day!) and could even be income adjusted. O’Brien’s tax is regressive, penalizing newcomers to our city, ironically, to help newcomers. Why not just skip the tax and and allow more housing ?

Finally, the new tax will raise millions in revenue-but for what? O’Brien’s tax isn’t connected to any plan for housing. At least the proposal I’m offering has a number hooked to growth targets. And all the dollars his tax collects will have to managed and processed by a City bureaucracy that will turn each dollar into 85 or 75 cents. Wouldn’t it be better to use the MFTE program create subsidized units that are already being built in market rate projects? Over 15 years, the MFTE program created 15,000 units of housing without having to buy land, ramp up financing, or displace anyone.

The truth is that there is a housing tax with a broad base that generates millions of dollars for housing. It’s called the housing levy and its legal and we’re all paying it right now. The levy created over 1,600 units over three years. That’s below the rate that I suggested we might need which would be more like 2,400 in three years; but boosting the levy by a third and expanding MFTE would certainly get us there.

So, yes, let’s tax and spend for housing. But let’s be smart and legal about it. And why not use tools we already have, the MFTE for workforce housing and the levy for housing for poor families. The levy money can be matched and even doubled by other sources. If Councilmember O’Brien wants to be Robin Hood, he needs to figure out who the rich and the poor really are and tax accordingly. His proposal does nothing but lower rents for a few at the expense of  many other renters.

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