Where Did All The Money Go?

Dear Governor Inslee, 

We sent the attached letter to you back in December of last year asking you and the legislature to use financial institutions to rapidly issue rent relief, a system like the successful Paycheck Protection Program (PPP). This kind of program would have paid rent first and then documentation. Your Commerce Department rejected this idea without any explanation and instead created an elaborate granting process to counties and non-profits. One of your staff said, in effect, that relief would be “a social program, not an economic one.” We sought guidance from the Treasury Department through United States’ Senator Rob Portman’s office; Treasury had no objection to the idea of treating rent relief like the PPP.

Today, President Biden’s spokesperson said this,

Some cities and States have demonstrated their ability to release these funds efficiently to tenants and landlords in need. But even though funds began to be distributed in February by the Biden Administration, too many states and cities have been too slow to act.

Governor, you lead one of those states. Many housing providers in the state are not receiving assistance on behalf of their residents. The answer is not eviction ban extensions, but fast relief for families that need help with unpaid rent and utility bills. They need that help NOW.
We heard from at least one financial institution that was ready to work on disbursing funds. We urged you to reach out to banks and credit unions to send the cash out now and settle the details later. Now the urgency has increased. 

We’re ready to talk with you about how to implement this kind of program with direct transfer of funds to cover unpaid rent quickly. Please act now and contact us and financial institutions to get this program moving today. 

Roger Director 
Seattle For Growth 
roger@seattleforgrowth.org
CC Washington State Legislature 

Mark Sidran on Compassion Seattle: It Makes Things Worse

Lately, I have done most of my blog post writing at Forbes. Along with my series about the future of rental housing in the United States, I wrote about something called Compassion Seattle, a campaign to amend the charter of the City of Seattle, called Charter Amendment 29 (CA 29). Many of you will be approached to contribute to this effort and to support it. Don’t.

There is, in my view, a difference between chronic homelessness and illegal encampments. There is certainly overlap, but the encampment problem isn’t economic, but about mental health and chemical dependency. In short, what Compassion Seattle is trying to do is amend the operating system of the City to force the people at City Hall to act to remove the irregular and illegal use of public and other spaces for encampments. As I point out, this is existing policy and it has been a failure.

The current barriers to clearing encampments are not legal, but political.  CA 29 will create new legal barriers that will make the political barriers more difficult to overcome.  Rather than “making City Hall clear encampments” as some supporters argue, CA 29’s “balancing test” can be used as a shield to explain why an encampment is not cleared.  And even if City Hall were more willing to clear encampments, CA 29’s legal barriers will stand in the way.

Former Seattle City Attorney, Mark Sidran on Compassion Seattle’s proposed Charter Amendment 29

Not long after I distributed my post, someone sent me a damning memo from former City Attorney Mark Sidran. I had a very enlightening, yet discouraging call with him about the Compassion Seattle effort and what it would do to the already complicated effort to deal with encampments. Sidran’s memo points out that along with enshrining existing sweep policy, the measure would essentially make even that process worse by introducing a higher legal threshold to enforce existing law.

Furthermore, the changes to the charter would give more leverage to defenders of allowing encampments to remain in place, creating a “balancing test” that would expose almost any removal to extensive litigation, litigation that might well end with rulings that protect encampments.

And almost as important, Sidran implies throughout that the whole effort to stick this amendment into the code is because some business interests downtown haven’t had the will or found a way to elect rational actors to serve at City Hall. I agree. However, this proposal simply hands the implementation of a hard-to-change amendment to the same regime that has failed to deal with the encampment issue to anyone’s satisfaction.

You can read the full memo below.

Charter amendment 29 analysis from Roger Valdez

PART 3. THE PRICE OF LOVE: HOUSING, ECONOMICS, POLITICS, MONEY, AND BEING LOVED

I often find myself frustrated with just about everything and everyone in this town, including developers, builders, and housing providers. Four years ago I was feeling about the same way and I wrote this three part indictment of how screwed up Seattle’s discussion of housing was then. Sadly, things haven’t gotten any better. I’ll post them in order tonight, tomorrow, and Wednesday. Part II originally Posted on Thursday, March 9, 2017

When I was in elementary school I took some pleasure in telling other kids on the playground that Santa Claus didn’t exist. I remember the look on their faces, the fear and disappointment. Then I saw the furrowing brow and anger. They knew Santa was a hoax. But as long as believing in him and colluding with the parental story about where the presents under the tree came from meant presents, then why challenge it? The myth was working for them. Of course this didn’t make me popular or loved by my colleagues.

The same kind of collusion is going on in Seattle when it comes to housing. And unlike my hapless playground victims who suffered what I hope was an early encounter with their conscience, real damage and hurt is being done to real people with the City’s blind pursuit of more units with no vision about how we should define and address housing needs in our growing city. A big part of our problem around here is the breathless and desperate need people in the sphere of Seattle political discourse need to be liked.

Let’s go back to economics for a minute. We don’t need to debate and argue about what high prices mean. We know that high prices mean that more people want housing than is available. But what makes otherwise smart, educated, talented, and accomplished people agree to tax the production of new housing to meet the arbitrarily set unit goal? The answer is a combination of politics, money, and the need to be liked.

In 1986 the Reagan administration created a program called the Low Income Housing Tax Credit program or LIHTC (pronounced Lie Tech). The LIHTC was intended to incentivize multifamily construction that had been lagging, and apartments were seen as a lower cost option for many families.

What ensued in Washington State and in Seattle in particular was the development of an industry around the tax credit model of financing low-income housing. The way it works is that local leverage and bank loans are used to capture dollars from private investors who get a credit against their corporate taxes. Along with an almost dollar for dollar credit, the private investor also gets the benefit of at least a decade of depreciation on the construction of a low-income housing project, provided that the project rents to people earning 60 percent of AMI or less.

Smart people figured out how to turn this crank, and part of it was building, over decades, strong political connections with local and state elected officials. These smart folks created non-profit housing organizations, found land, used local government grants and loans from banks looking to meet their Community Reinvestment Act (CRA) obligations, and built housing projects to meet the needs of households struggling with poverty.

So far so good. I must say here, that I was a non-profit housing director for one project. I also believe in the concept of leveraging private investment and capitol to benefit people and families struggling with poverty. In fact, I don’t think there is any other way to end generational poverty than to create a growing economy that provides incentives and opportunities and encouragement and resources to people who are poor so that they can earn more money. I don’t think anyone is entitled to be rich or to be poor. Subsidized housing can be part of the pathway from economic bondage to choice, freedom and unleashing the creativity and productivity.

But over the years, the non-profit housing builders have accumulated tremendous political power. The current Speaker of the Washington State House of Representatives is one of the early pioneers of non-profit housing development. The Chair of the Mayor’s Housing Affordability and Livability Agenda (HALA) Committee Faith Pettis runs a for-profit law firm that acts as the lawyer for the Washington State Housing Finance Commission (WSHFC), an organization that grants tax credits. My project paid her firm significantly and one non-profit developer told me her firm collected $60,000 in fees at closing of his project.

Not a single newspaper or reporter has commented or written that some of the fees associated with Mandatory Inclusionary Zoning (MIZ) will find their way into Pettis’ pockets. When I asked the Seattle Ethics and Elections Committee whether Pettis had to disclose this conflict they said she didn’t. Imagine if a well-known attorney representing for-profit developers was a chair of the HALA Committee? The headlines would have been Pearl Harbor sized.

I asked Mike Baker at the Seattle Times to report on this and he’s declined. I also sent a message to Danny Westneat, a columnist at the Times. He didn’t respond. I had forgotten that Weastneat’s wife works for Mercy Housing, a huge producer of non-profit housing. I guess we won’t be seeing a screed from Westneat anytime soon on the high costs of non-profit affordable housing.

I could name more names and associations, but the fact is that the non-profit housing producers have a lock on Seattle and state politics and the press. Their business is producing units, sometimes as in Pettis case, for a profit. And in Westneat’s case, the association is so close how could he challenge the machine. So is it any wonder that the Mayor and Council have proposed a scheme that would tax the production of new market rate housing development to produce money that would funnel into non-profit housing development?

I’ve already pointed out that non-profit tax credit housing is far more expensive that market rate housing. Really, really expensive; Capitol Hill Housing produced 88 units for $47 million. Everyone agrees this is an extraordinarily expensive project by any standard.

This is all a vicious circle. We regulate land use and the building of housing in a way that produces the high prices we have. Through zoning, design review, infrastructure requirements, taxes, fees, other rules, regulations, and the slowness of the permitting process we slow the production of housing, limit the number of units possible, and add costs. All of these things mean higher prices.

The City Council and Mayor turn up the regulatory dial to protect the equity of single-family incumbent homeowners, and then prices go up. As a red herring, incumbents yell about price. Seattle politicians respond by dialing up regulation, ensuring higher prices.

Non-profits show up saying they’ll produce affordable units. Remember the number of units is our measure of success in combating the “crisis,” right? The cost to build housing is now as high as $500,000 a unit, and that is extremely inefficient. Much of that cost is transaction costs charged by lawyers like Pettis and others. Because it is expensive and inefficient they need more and more cash. Time to turn that unit crank again, and again, and again. And with MIZ they’ll shakedown small and medium sized builders to flush more cash into their own coffers.

This is Seattle’s solution to the housing crisis, the extraction of money from new housing production along with more regulation that means even higher prices, more complaints about greedy developers, and more regulations and taxes. Rinse and repeat.

As I said in a Facebook post recently, the whole thing is a nightmare.

The mostly Democratic politicians in Seattle and Olympia, the press, the business community, and the non-profit establishment don’t see any reason to rock the boat because they’re in it. Rocking the boat might mean someone might fall out and lose money. That would be sad, and if the boat were upset, it would have to be by someone who didn’t care about being loved. Machiavelli advised The Prince that as to the question of whether it is better to be feared or to be loved,

It may be answered that one should wish to be both, but, because it is difficult to unite them in one person, is much safer to be feared than loved, when, of the two, either must be dispensed with. Because this is to be asserted in general of men, that they are ungrateful, fickle, false, cowardly, covetous, and as long as you succeed they are yours entirely; they will offer you their blood, property, life and children, as is said above, when the need is far distant; but when it approaches they turn against you. And that prince who, relying entirely on their promises, has neglected other precautions, is ruined; because friendships that are obtained by payments, and not by greatness or nobility of mind, may indeed be earned, but they are not secured, and in time of need cannot be relied upon; and men have less scruple in offending one who is beloved than one who is feared, for love is preserved by the link of obligation which, owing to the baseness of men, is broken at every opportunity for their advantage; but fear preserves you by a dread of punishment which never fails.

PART 2: HOW PRICE BECOMES AFFORDABILITY AND PEOPLE BECOME UNITS

I often find myself frustrated with just about everything and everyone in this town, including developers, builders, and housing providers. Four years ago I was feeling about the same way and I wrote this three part indictment of how screwed up Seattle’s discussion of housing was then. Sadly, things haven’t gotten any better. I’ll post them in order tonight, tomorrow, and Wednesday. Part II originally Posted on Wednesday, March 8, 2017

——-

This is a second of what will be three posts about the current state of the debate in housing in Seattle. I may add one more about where things might go and if there is any hope we can rescue the debate and policy direction. And I lied. The third post is going to cover the politics. The last post covered how sloppy and lazy analysis of housing prices leads to bad outcomes. This post is more in the spirit of The Road to Serfdom and how unit count becomes the measure of the crisis and it’s resolution. 

As we saw last time, we do have a measure of scarcity of housing: it’s called price. When price goes up, that means there isn’t much housing compared to the number of people who want and need it. But the idea that we ought to hurry up and build lots of housing is a controversial one and some think building more might even raises prices higher. This strange self-imposed fantasy ends up turning what is an obvious solution to rising prices, into a wrenching debate over affordability – essentially how people feel about prices. And what ends up happening is a “solution” that becomes about turning a crank to grind out a programmed number of units, an approach that ignores economics and the people who are living in our city and the ones that want to.

Here’s how I described this shift in a post a long time ago on Publicola, about incentive zoning,

Actual people in the housing market can get frustrated with the price of housing options relative to other important things like location, floor plan, windows, and parking. As people work through their options, they often say, “It’s just too expensive here.” But what policy makers hear is, “new housing development is not affordable.” Since we have only our arbitrary measure of affordability—housing cost to income ratios—that’s what they grab hold of. Their brains put together the solution, “Let’s lower the price of housing for some units in some neighborhoods and we’ll be able to achieve affordability in the city.

Affordability becomes about the number of people who are paying something other than 30 percent of their gross income on housing. We hear about the cost burdened households who pay more, but the implication is that there are some that pay too little. If we follow those breadcrumbs, we find our way back to the quantitative normative standard: everyone should be paying just about 30 percent of their gross monthly income for housing.

This standard shapes everything now with a twist. In order to account for local incomes, the Area Median Income (AMI) is applied. The common language of affordability is set: everyone speaks of people and households in terms of their percentage of AMI and the price of the unit in question. This now renders as, “That unit is affordable to a household earning 50 percent of AMI.” Again, the decision has been arbitrarily established that we should worry about people earning around 60 to 80 percent of AMI or less.

Using census data, the City establishes the next step: how many units do we need? Easy! Just figure out how many households, according to the United States Census, are paying some percentage, lets’ say about 50 percent, of their gross monthly income for housing. That number now represents the number of units we need in Seattle and becomes the driver of policy. Units. Units! More units!

There are a number of problems with this. First, remember those several thousand people who are homeless. They don’t pay rent. So they aren’t even part of this discussion. The discussion and the urgency about that issue are supplanted by a new sense of urgency about people who are paying too much rent (and too little). Now our affordability discussion is about units. Units at this price lost, units at that price being too expensive, and those units being priced about right but there aren’t enough. One big problem with this shift toward unit talk is that it displaces human experience in favor of a formula.

Now we’ve decided that the measure of the crisis and its end point are the production of a set number of units priced according to the number of households paying a percentage above the normative ratio of gross monthly income to monthly housing cost. Questions never asked or answered:

• Are the units, some 6000 demanded by the Mayor over a decade, going to be set-aside for those families currently paying the requisite amount of money for rent?
• What happens in the market if demand continues to rise and with it, the number of households who fit the need profile set by the City?
• Are the units created going to be distributed based on those who have been paying the biggest share of their income for the longest?
• Can newcomers get those units first? What happens to those households who set the standard of success who are still paying more than they should?

I could go on, but the conversion of high prices in the market to a standard of affordability that drives a planning target for unit count is complete. No more questions please. The end game is cranking out a set number of units priced just so. Will this solve the “crisis” of affordability? Is that even part of the question or of the end game here? It isn’t. What is? Politics and money. I’ll cover that in the next post.

Read Part 3. The Price of Love: Housing, Economics, Politics, Money, and Being Loved

PART 1. AFFORDABILITY, PRICE, AND MEASURING A “CRISIS”

I often find myself frustrated with just about everything and everyone in this town, including developers, builders, and housing providers. Four years ago I was feeling about the same way and I wrote this three part indictment of how screwed up Seattle’s discussion of housing was then. Sadly, things haven’t gotten any better. I’ll post them in order tonight, tomorrow, and Wednesday. Originally Posted on Tuesday, March 7, 2017

When we talk about housing in Seattle, affordability dominates the conversation. Close behind are parking and design issues that tend to bother neighbors, and after that is the notion that somehow we’ve grown too much, too fast and the quality and character of life in Seattle is changing for the worse. But housing prices, expressed as numbers, and how people feel about those prices and the effect they have on people, and what to do about the situation eventually eclipse every other aspect of the discussion. Why and how did housing affordability become the political, economic, and ideological battleground it has become?

Affordability, Price, and Measuring a “Crisis”

Price is a relatively simple thing to understand for most people. If you ask a cross section of people what happens to the price of a product when it is scarce, they’ll certainly say, “The price goes up.” That same group, if asked about whether something is affordable, would likely respond, “It depends.”

For most human beings, whether something is affordable is a complex relationship between utility, values, income, hope for the future, and even things like vanity and personal disposition. Everyone can think of that cheap friend or relative, or the one who spend extravagantly on his car or clothes even though he doesn’t earn very much money.

Price doesn’t mean very much by itself until it hits the real world and people make decisions based on these complex, vague, and qualitative notions of what is “affordable” and what isn’t.

Here’s another factor: poverty. There is a big difference between a person who is struggling what is affordable on a dinner menu at a fancy restaurant and one who doesn’t have enough money to buy food at all. This distinction, one between what Keynes calls marginal disutility and catastrophic poverty is important, and easy to see in extreme cases. But when does marginal disutility become poverty; that is, when does a person’s relationship to price given their income and resources go from being an inconvenience to a crisis?

If you want to throw a monkey wrench into discussions about Seattle’s “housing crisis,” ask the person using the term, “When did the crisis begin.” They’ll have no good answer. The smarter person will recognize the intellectual blind alley you’ve invited them to enter and respond with some point in time at which price started going up. Others might cite month over month or year over year rent increases so often uncritically written about in the Seattle Times. Most will roll their eyes, wave their hands, and say “C’mon, you know what I’m talking about!”

The truth is that Seattle’s “housing crisis” resides somewhere between hysteria and hoax. The housing crisis is what analysts of language and culture often refer to as a shibboleth, something everyone simply accepts as true without much thought. It is happening, and to question it is automatically discrediting to the person questioning it’s relaity.

But if we critically think about how we make economic policy in the wider world, one measure used as common currency is the term recession. A recession has a clear, quantitative definition: a “period of general economic decline, defined usually as a contraction in the GDP for six months (two consecutive quarters) or longer.”

People of all types – experts, lay people, and politicians – can and do argue about what a recession means, how deep it is, how long it will last, and whether it really reports what’s going on in real people’s lives. But it has a beginning, middle, and end. We know when it starts and when it’s over. But the housing crisis? Nobody has a clue.

That fact itself is easy to dismiss, and the City bureaucracy, the brainiacs at the Sightline Institute, the Mayor and Council, and the Mad Lib writers at the Seattle Times have all just joined in decrying the “crisis” and offering solutions to how to put it to an end. The problem is that how will we know it’s over, the crisis not having any measurable beginning or any quantitative measure to express what not being in crisis is like.

To be accurate, prices have gone up (prices for X have gone up Y percent over X period of time) and we can measure that phenomenon. But when did such rises in price become a crisis? And what do we think accounts for that price increase, who is impacted, and what are the policies that might increase housing production adequately enough to alleviate suffering or disutility?

We don’t know or have even a method to work that out. Sure, we have the sledgehammer of assuming that people ought to spend 30 percent of their gross monthly income on housing, but that’s it. Based on that, the solution to the “crisis” would be that all or most households at least (what percent is a mystery) are paying 30 percent of their gross monthly income on housing. Again, almost everyone on all sides will wave their hands at this as if it is not only unimportant but also almost mean or discourteous.

Finally, we do know that several thousand people will sleep outside, in tents, or in their cars because they have no other good options. Some will be in shelters. Some will stay in dangerous or harmful situations to avoid being without shelter. And some other number of people is facing the real possibility they won’t be able to pay rent next month. For these people, by almost any measure, housing and many other aspects of their lives are in or entering what could be considered a crisis phase as defined in the dictionary, “an unstable or crucial time or state of affairs in which a decisive change is impending.” For many, however, the change for the worse happened some time ago.

Now some will say, “Those are the people I’m talking about.” Really? If that was the case, then our policy discussion wouldn’t be about the rent for a one bedroom apartment in Capitol Hill and it’s change over months, but the urgent need to bring a broad range of resources to address people without adequate shelter and how we might prevent others from joining them. But that discussion has already been going on for decades – remember the 10-year plan to end homelessness that was promulgated well over a decade ago?

Today’s housing policy conversation is one characterized by muddy thinking about what the problem is even though we know that rising prices are an indicator of scarcity, that is, lack of supply. Addressing that lack of supply, still, is a matter of controversy. And even those who agree that more supply is needed, usually hedge, giving in to what they call, “political realities.” I’ll dig into those in the next essay.

Go to Part 2.