A Builder Weighs in On Mandatory Inclusionary Zoning

Rob McVicars is a principal and builder at Build Sound, a firm with the mission “to compose inspired, timeless architecture, and green, sustainable projects. He sent this comment in to the Mayor and Seattle City Council about the Mandatory Inclusionary Zoning (MIZ) scheme being proposed by the Mayor and considered by the Seattle City Council. You can send an e-mail to the Mayor and the City Council at our petition page. 

The idea of adding square footage fees to speculative housing projects in Seattle is simply the wrong path to go down.  The added costs from these fees will not be borne by the developers but rather the end buyer, making a small handful of new home buyers responsible for the costs of subsidizing another small handful of lower income residents.  These buyers are borrowing money and paying interest on that money to purchase their new homes and it seems extraordinarily unjust to have them pay for the needs of others with that money.

This is not a tax, this is a specific effort to take from a handful of people that are perceived to have extra means and distribute it to others.  The simple fact that someone can afford a new house in Seattle does not mean they can afford to pay additional subsidies.  If the City Council is looking for an avenue to subsidize housing in Seattle then a referendum needs to be put on the ballot to tax all citizens in the city, including those that are gaining the most from the proposed fees.

There is another economic factor in this equation: if the developers cannot pass on these added fees to the home buyers due to a slow down in the market, the margins in building will no longer make sense and the building will stop.  This is not an over dramatization, this would be reality.  As builders and developers we put our family’s financial well being on the line every time we sign loan documents.  If the reward for our risk is diminished there would be no sense in taking the risk.  We are all very capable people and have other pathways to making a living and if these fees are added I believe  you will find less building and prices soaring.  At that point it doesn’t matter how many fees you raise, families that are unable to afford buying or renting in today’s market will never be able to afford living in the city with the added fees.  You will price even more people out of the city.  The answer to affordable housing is not to add costs housing.

 

Sincerely,

 

Rob McVicars

manager

Knee Deep in The Big Muddy: Will City Press On with MIZ?

June 20, 2016

Re: Mandatory Inclusionary Zoning Proposal in PLUZ Committee on 6/20/2016

Mayor Murray and Councilmembers,

Attached you will find a three page list of process hang ups, rules, regulations, and code language that each add time and cost to the production of housing in Seattle. Each of these is a solvable challenge and impacts the production of all kinds of housing, both market rate and subsidized, throughout our city.

Taken together, all of these problems are creating what is becoming a crisis in housing production. Yet City staff, the Mayor, and the City Council are putting all their energy and time into the proposal you will consider this today to impose Mandatory Inclusionary Zoning (MIZ), and almost no effort into addressing these serious issues that are resulting in higher housing prices.

Mandatory Inclusionary Zoning does not incentivize housing production, but creates additional costs for construction to take advantage of upzones, and it reduces rent revenues from the required rent restrictions. In lieu fees also push up the price of for sale housing. These increases and losses will make many projects infeasible.

Additionally, because of legislation the Council has passed and the many problems cited in the attached document (e.g. the increase of set backs for power lines from 10 feet to 14 feet), much of the additional Floor Area Ratio (FAR) that is part of the so called “Grand Bargain” is of no value and can’t be used to offset costs and lost revenue created by the MIZ proposal.

More broadly, this proposal will not improve overall housing prices in the city of Seattle. It will do the opposite. Because you are repeatedly taking actions to slow and reduce supply (e.g. last years low-rise legislation, the elimination of microhousing, reduction of single-family housing production in small lot legislation, abutting lot legislation, etc.), make operating buildings more challenging, and failing to address serious issues like the definition of frequent transit service, you have made it more difficult for housing producers to keep up with growing demand. That’s why housing prices go up.

By forcing projects to build more FAR, restrict rents, and assume more costs in additional fees you’ll create some additional rent restricted units. But those units will be paid for by higher rents and prices in the balance of housing produced, not in lost profits. That means higher overall prices. And judging from the City’s past performance on these issues, what will result from any ensuing outcry from the public will not be an elimination of barriers to production but more restrictions, rules, regulations, fees and taxes. You will be putting us on course to be the next San Francisco.

Lastly, the legislation you are considering has serious legal problems. State law is abundantly clear that inclusionary housing programs must be voluntary and that there must be a fair exchange of the value of private benefit with public benefit; MIZ programs cannot make projects infeasible. The City also can’t create what amounts to a tax on housing production nor can it impose what amounts to an impact fee. As a matter of process, we are not a party to your agreement for this legislation (see page 3 which states, “all parties agree to develop and consider options.”), in fact we have been completely and repeatedly ignored in our request for information about the numbers behind this legislation (see attached).

And that leaves us with the fact that this legislation, too, has no numbers. This puts the City at risk of failing to meet proportionality requirements in State law. While the City and some advocates have been congratulating themselves on the innovative nature of this proposal, nobody has even seen the assumptions behind it. You’re considering legislation that is essentially a blank check: “Trust us, we’ll do the math later.”

But it isn’t too late. We are only knee deep in The Big Muddy at this point. We would ask that the Council do nothing until City staff engage the wider development community and demonstrate the fair exchange of value between increases in FAR and fees and rent restrictions. Let’s see some numbers. Unless and until we can see numbers and that the imposition of this proposal won’t result in creating more challenges to housing production that lead to higher prices, we simply can’t support it. And please spend more of your time addressing the real issues that impact and slow housing production and result in higher housing prices.

Thank you,

Roger Valdez
Director

Lot Suit: City’s Motion to Dismiss Fails, Compares Housing to Porn, Drugs

Often, when the City is challenged in court, they make procedural motions to try and kill the appeal or suit before the merits of the case can be argued. The City made this move when they move to dismiss our appeal of low-rise legislation as the work of “a creature of the internet.” That move failed and so has the City’s motion to dismiss a builder’s law suit challenging a law passed last year requiring projects to go through the onerous design review process based on what the unit count on a adjacent parcel. But in arguing their motion, the City’s lawyer, Roger Wynne betrayed their substantive defense of the abutting lot policy: housing is like pornography and drugs, something harmful that needs to be ‘dispersed’ to reduce its harmful effects.

The City’s main argument argument was about the ripeness or timeliness of the suit. They argued that even though the case challenges the law based on its constitutionality, the as applied nature of the case (a case based on actual facts not just a legal theory) means that ”

The key factual issues will remain awash in speculation until Bendare completes the permitting process. This case cannot be resolved on guesswork.

It’s a typical argument made in these kinds of cases. A party challenging a law can’t just say “I will be hurt by this law sometime in the future,” but they have to actually be harmed by the law. It’s the reason that often, once a law is passed, it takes time for a test case, an actual person caught up in the harmful effects of the law, to emerge. The City’s point is how can we know there is harm when no harm has happened. The problem with that argument is that this is not a damages case; the builder is claiming a dollars and time impact but saying the law will unjustly expose him to prohibitive costs that won’t allow him to get a return on his investment.

But in trying to prove their point, Wynne said something that made me smile. He said that there is nothing onerous about design review at all. What’s the big deal? Lots of projects go through design review. So even if it is granted that the law drags the neighboring lot into the design review process, that process doesn’t really discourage people from building and therefore there will be no damages. Wynne hilariously dismissed the brochure on the City’s Design Review requirements as a five year old pamphlet “issued by some anonymous bureaucrat!” There was something satisfying hearing him say that.

But everyone knows, including the City which found in its own study that design review isn’t working that efficiently, adding time and costs to housing. And a Hearing Examiner ruling quoted City staff saying that design review “would tend to discourage new development.” And along with the brochure issued by the anonymous bureaucrat, the City has a complicated document easy to find on-line laying out all the costs in fees and hourly review time required by design review. It’s all right there. And there is no doubt that requiring a project to go through design review would often mean the project simply wouldn’t happen.

But the surprise was how Wynne signaled part of the theory that the City plans to use to defend against the challenge: dispersion. The theory is that housing is a lot like adult entertainment or marijuana stores; one project being too close or too dense to other housing is a bad thing. Dispersion allows the City to spread those dangerous or potentially offensive things around so they don’t concentrate in one place, making that place, presumably, more dangerous, ugly, or contributing to other social problems. Wynne said the burden of the abutting owner forced to go through design review is just like someone who wants to open up a strip club next to a strip club. Too bad, the other guy got their first.

Wynne said that these dispersion requirements are common and that our City Council has decided that when  there is  a concentration of it’s not a big deal to go through design review. He suggested that builders will say it’s a big deal, but there is no way to tell. He said when it comes to arguing the merits of the case, the law will be easy to defend because its is just like any other dispersion requirement. When there have a concentration of something, even housing, we can treat it differently. The first house or unit is not a concentration but the second one is and therefore can be dispersed by making it difficult to build.

The logic here is twisted. Housing projects won’t be harmed by design review, but design review acts like a dispersion requirement, preventing a concentration of housing by making it onerous to build. What?

But there you have it. The City’s official view of housing is that when it becomes concentrated (what we usually call density)  it’s like adult entertainment or liquor stores or marijuana stores: a potentially dangerous thing that can and should be dispersed. If you’ve ever wondered why dense housing solutions are so hard to achieve in Seattle there it is.

 

 

 

HALA Recommendations: Stop Death by 1000 Processes!

There is a lot of talk about supporting what people point to and call “HALA,” which is supposed to be shorthand for the recommendations of the Mayor’s Housing Affordability and Livability Agenda Committee. Unfortunately, often what “I support HALA” means is Mandatory Inclusionary Zoning (MIZ), the inflationary scheme that will add costs, reduce rent revenues, and boost overall housing prices in Seattle. I want to point out a key section of HALA on pages 37-39 called “Reform the Review Processes,” on page  that is being largely ignored and the consequences of inaction even contradiction of the section is higher housing prices. Here’s the paragraph summing up the section:

Construction of housing requires permits from a range of different agencies within the City of Seattle – Department of Planning and Development (DPD), Seattle Department of Transportation (SDOT), Seattle Public Utilities (SPU), and Seattle City Light (SCL). Long permitting processes and unpredictable timelines make housing projects difficult to develop and add to the cost of new housing. It is estimated that if significant reforms were made to Design Review and Historic Review, and improvements were made to the predictability of permitting within and between departments, total timelines for a complex multifamily development could be reduced by up to 2 months, and cost savings could total up to $4,000 per housing unit.

So it’s right there. Processing permits, poor coordination, and extended review add to the cost of housing. But are things getting better? Not so far. Smart Growth Seattle is working on this list of some issues currently impacting getting housing product onto the market and adding costs for people who need it:

• Abutting lot ordinance – a legislative “fix” that has resulted in lawsuit. The ordinance passed last year requires adjacent properties go through full design review based on units built on the lot next door. This has resulted in many projects not going forward or being significantly delayed.
• Definition of “development site”– there are variety of issues associated with how a proposed project is classified, especially if it involves a short plat, Lot Boundary Adjustment (LBA), or Unit Lot Subdivision (ULS). The worry here is about density and whether a project will trigger additional review or utility requirements. This internal lack of clarity and extra process and review is impacting the schedule of intakes for short plats, LBA, and ULS permits adding time and costs to projects.
• One Strike or Two Strikes – an issue related to the question of development site is a new requirement that is impacting live work housing. Previously live work projects were considered one development site, but new interpretations are indicating that they are more than one site and therefore require additional electric “strikes” or connections. That means additional cost of extending what amounts to redundant electric power connections either overhead or underground.
• Length of time for intake for permit review is now about 10-12 weeks and could get longer as regulatory agencies and City Departments struggle with staffing deficits and try to maintain training and new hiring efforts.
• Street Improvement Plans (SIP) have to be 60 approved prior to intake scheduling for permits. This ads time and costs.
• Seattle City Light high voltage power line setback from 10’ to 14.’ Setback requirements are important for worker safety, but the new requirement is often too much and is removing productive square footage from projects, resulting in less housing, adding delays, and even affecting feasibility of some projects.
• SPU storm main extension requirements—previously, projects with less than 5000 square feet did not have to add new storm water drainage infrastructure on streets without existing service. Regardless of efforts to treat and manage water on site, now all projects are being forced to put main extensions for surface water management, adding huge costs and making some projects infeasible.
• Long waits for Seattle City Light to grant temporary power, and for design for permanent electric service to projects. The wait creates delays for Master Use Permits and other permits and completing construction.
• Requirement that the same Traffic Control Plans be submitted by and get approved by multiple departments. Some projects have to show how traffic will be redirected in the event of having to work in the Right of Way (ROW). But frequently these plans need multiple approvals and add delay and costs.
• Lack of clarity about the definition of Frequent Transit Service – while there have been efforts by staff to work through an adverse Hearing Examiner decision, some projects are still running into issues meeting the threshold of having access to frequent transit service, meaning adding expensive and perhaps infeasible parking to projects otherwise not required to build parking.
• Tree regulations – there a requirements for exceptional trees that create impacts on new building. Usually these requirements can be met either with replacement or working around the tree, but review and the requirements can add time and costs to building housing in order to preserve or replace a tree on a building site.
• New requirements in Pavement Opening and Restoration Rules (PORR)—these rules govern what a builder or utility has to do before, during, and after opening pavement in the ROW for utility service or other site work. Restoring the roadway is important and a benefit to the public, but new requirements might add costs and delay.
• Rules impacts small affordable housing development – there are new requirements for Small Efficiency Dwelling Units (SEDUs), the replacement for microhousing after the Council wiped them out, for the calculation of square footage requirements that are pushing up unit size, costs, and rental price. There seems to be an interpretative bias against smaller units in how rules and the code are being applied that is impacting the number of units feasible in a project and their price for the end user.

This list does not include neighbor-initiated appeals, staffing shortages that slow down utility connections, SEPA requirements, design review, historic preservation issues, and other site related and regulatory issues that emerge during permitting and construction.

And these delays and costs impact ALL housing being built by private businesses or non-profit housing organizations. Building housing is already costly and risky as it is, but taken together all these issues combine to have a multiplying impact on the cost of production that get passed on to buyers and renters and to the public.

For non-profit builders these costs get passed on to tax payers and other funders of housing, reducing the ability of agencies and non-profits to build subsidized units, increasing waiting lists for families in need, and creating more pressure for subsidies. This list, of course, doesn’t even consider the sizable transaction costs (lawyers, consultants, etc.) required by regulatory and funding agencies for non-profit housing. This cost pressure then takes the form of schemes like MIZ that try to syphon money from the production of private housing development and toward more subsidized housing, raising the price of all that other housing in the process.

People who actually build and finance housing know these problems exist, and they know that the issues don’t reduce profits but increase housing prices. That’s exactly what the HALA Committee concluded too. Now if we could get a few City staff to break away from the march toward unworkable and inflationary mandates like MIZ and rent control and get them to work on solving these issues, we’d be “supporting HALA” and doing something real to lower housing prices.

Airbnb: Burgess’ Short-Term Rental Gambit Redistributes Scarcity

To this end, some propose mere welfare measures – while others come forward with grandiose systems of reform which, under the pretense of re-organizing society, are in fact intended to preserve the foundations, and hence the life, of existing society.

Frederick Engels, on Bourgeois Socialists
The Principles of Communism

Seattle is entering a dangerous phase in its experimentation with socialism. City government has declared a housing “crisis,” and while it convened a task force (commonly known as the HALA Committee) that recommended building more housing to ameliorate rising prices, it’s doing exactly the opposite, engineering legislation that is intended not to expand supply, but to spread existing supply thinner. The latest example is a crack down on short-term housing rentals, more commonly called Airbnb.

The argument made by the legislation’s sponsor is that by imposing limits on the number of days a housing unit can be rented using a service like Airbnb, owners of the units would be incentivized to turn them back into long-term rentals. How many units? Burgess said in the Seattle Times that,

“We don’t know how many of those are primary residences,” Burgess said. “But imagine if we put 300 homes back on the long-term rental-housing market. That would be worth a lot. To build 300 new units would cost more than $70 million.”

Oddly, the same Burgess said this, through a staff person, about the loss of 250 units from a similar crack down he supported against building on smaller, irregular lots in single-family neighborhoods that dominate the share of land in Seattle.

Single-family zones are not the most efficient zones to target for new development to achieve greater density and affordability. The number of additional development sites [250] created through the proposed exception is not likely to meaningfully add to the overall supply of housing in the City.

In the small-lot case almost the same number of units would have been added into the city’s housing supply. Seattle saw 4,337 units built between April of 2010 and April of 2012. So 250 new single-family units would have been an annual increase of about 5 percent per year if built over a similar comparable period, hardly meaningless.

But Burgess, Mayor Ed Murray and his colleagues seem to think they are being champions for the poor, not by building or incentivizing the building of 300 new rental units, but taking those units out of circulation for short term rentals.

The demand for short-term rentals won’t go away. Instead people in need of short-term housing solutions will now be wading into the long term housing market to compete with people looking for leases. And many of those looking for housing for a few weeks or months are not sightseers — they’re coming to work in Seattle’s hot job market.

In fact, the City’s own projections are that between 2005 and 2024 the city will add 47,000 households or about 2,350 households per year. So what will happen as Burgess and the Mayor apply their cure of not building when there is opportunity and creating more competition for existing scarce housing while demand increases?

With short-term workers now on the long term housing market it’s likely that those workers will out bid local workers for cheaper housing solutions. The room in a house, the month to month basement, or that cheap apartment will get snapped up; better than paying $160 a night at a suburban hotel. Meanwhile, a person who needs that unit for a year or more will have to look elsewhere.

And the extent to which short-term rentals do accommodate tourists, the demand to build hotels on scarce land that would otherwise be used for long-term housing will increase. So we’ll get hotels instead of housing? Wasn’t there supposed to be a housing crisis?

What Burgess and the Mayor apparently believe in is taking the existing housing pie out of the oven, counting out how many people they thing want a slice, and then slicing that pie as thinly as possible for existing demand. Never mind that people with more money can buy more slices, and as the line for a slice grows longer and longer those with less money walk away with nothing.

What would motivate his kind of thinking and policy? A big supporter of the crackdown on short-term rentals is a group called Puget Sound Sage, a group that infamously argued that Seattle’s Rainier Valley remain “majority minority.” How they would accomplish that is still unclear (maybe they could build a wall!), but the organization seems to the single purpose of seeking penalties for new housing development and having those dollars wind up with their non-profit housing allies.

The problem in Seattle is that many people see housing as a right, not a commodity. But what they fail to see is that even if it were a right established and enshrined in some legally binding document, someone would still have to produce that entitlement. Simply calling housing a right that nobody should profit by building doesn’t magically end the housing shortage in Seattle or anywhere. It seems that Burgess and the Mayor, philosophically anyway, would rather have rationing and waiting lists that high housing prices. Either way, it’s the people at the bottom of the economic ladder that hurt the most when production is stifled.

The most sensible thing to do with short-term rentals like those proliferating through services like Air BNB is to tax them appropriately but allow them to thrive. And if we want more long-term rental options why not just allow them to be built. There is simply no good reason to force competition between long-term and short-term renters for scarce housing while demand continues to rise.

Perhaps it’s unfair to socialists to call what Burgess and the Mayor are doing in their efforts to stifle entrepreneurial and innovative housing solutions socialism. Even Deng Xiaoping recognized his choice was between redistributing poverty or redistributing wealth. Perhaps the effort to slice the housing pie thinner and thinner in the face of rising demand in order to prevent anyone from earning additional money should be just called what it is: misgovernment.