Must Watch: The Panic of 2008

I’m kicking off a series of posts at Forbes today about the housing discussion. The series is partially to get a lot of thoughts together in one thread. Lately I’ve been saying again and again to anyone that will listen, that we need to tackle some key problems today — like the notion that we’re having an eviction crisis — as well as proposing some positive solutions, and then figuring out how to capture peoples brains back from the fear and suspicion that are driving bad policy. Yesterday, I prefaced this series with a review about a great documentary, Panic: The Untold Story of the 2008 Financial Crisis. Here’s a part of what I wrote about the hour long film and the consequences of the economic meltdown of 2008.

This has meant that the housing discussion has become about how to squeeze money for entitlements for housing, a rejection of industry expertise in favor of academic finger wagging, and a view that holds that somehow economic growth and new jobs cause suffering and homelessness. In Seattle and Chicago, this urge to pander to fear and suspicion has led to actual socialists being elected. Nationally, we see the same trend. It is as if the cold war never happened. How do we turn this around?

Sadly, many people around here and across the country will say, “Turn it around? This is exactly where we want to go!” I was amused and frustrated when I saw lots of “Urbanists” posting a New York Times article saying what I’ve been saying for years, wealthy, white liberals are making housing impossible for everyone else in growing cities. Nothing new here. But social media says a lot about people. People post things on Facebook or Twitter either to shame someone or to pat themselves on the back. “Look how stupid these people are!” or “Look how smart I am.” The problem is that most “Urbanists” support the single worst policy ever devised to address Seattle’s housing “crisis,” Mandatory Housing Affordability (MHA).

I’ve got thoughts about why this is the case. Part of it is the natural human desire for a resolution whether watching the last episode of Game of Thrones or finishing the New York Times crossword. The idea that MHA is a compromise that resolves the need for more market rate housing and to shovel cash to non-profits makes people who know nothing about how to build housing feel better even though MHA offers no compromise (only one big developer was at the table) nor will it address the problem of supply, too many barriers to the market. Still, the proposal was shoved through the process and will likely take legal challenges to reverse.

Watch the film. Read the series. We can turn this thing around. It will take time. It will take money. But it is what we have to do.

 

It Isn’t Too Early to Say it: “I told you so!”

Laocoon, follow’d by a num’rous crowd,
Ran from the fort, and cried, from far, aloud:
‘O wretched countrymen! what fury reigns?
What more than madness has possess’d your brains?

Vergil, Aeneid, 2.40, John Dryden Translation

The media in Seattle has been lagging in its curiosity about the City’s Mandatory Housing Affordability (MHA) scheme. It was impossible to get the to cover the problems with the idea. So I wrote an editorial in the Seattle Times. I said first,

The fees negotiated for extra capacity were favorable to projects in downtown and South Lake Union, not projects anywhere else. Second, the MHA fees cancel benefits from extra capacity in other neighborhoods.

We have always said that builders don’t need or want extra height and that paying for it would make projects infeasible or more expensive.

But a story on KUOW finds that what we’ve been saying  about the consequences of MHA are now starting. By imposing fees in exchange for a little bit of additional development capacity, the City is first making many projects infeasible and second adding costs to new housing that will be passed on to consumers in the form of higher rent or sales price. Here’s what the story tells us about the Miller families efforts to develop in the Alaska Junction.

But the problem for small developers like Miller’s family is that the right to build a taller building isn’t necessarily a gift because it’s so much more expensive. “To do that you’d have to change your whole structure,” Miller said.

For example, in Miller’s case, his part of the neighborhood was upzoned from 85 feet to 95 feet. The extra height would make his building a high rise. High rises are built out of concrete or steel, which is much more expensive than wood. “So it’s kind of like sticking a carrot out there that nobody’s going to go for,” he said. “It sounds nice, but it doesn’t work.”

“Sounds nice, but it doesn’t work.”

Exactly.

And there is more.

Neiman said mom and pop developers are showing up less frequently in his office now. Instead, he’s seeing interest from a different kind of developer: institutional investors.

Center for Housing Economics, Part 3: Today, Tomorrow, and After That

The last couple days I’ve been parceling out a short proposal to found and build an institute that would push a pure form of supply side economics for housing policy. I’ve called it my message in a bottle. I’ve already written at Forbes about narrative. In what follows I try to reduce this down to fewer words and some specific actions. As I said, about five times to someone recently, unless and until we can shift the bigger narrative that leads reporters and politicians to simply accept the idea that building more housing won’t work, we’re never going to solve the smaller problems. As Hayek points out in The Use of Knowledge in Society, 

The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on and passed on only to those concerned. It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they may never know more than is reflected in the price movement.

The beauty of the price system is that price is all we need to know; when it goes up, we know we need more. I’ve likened the process of achieving social change as being like vaccination. We know measles are bad and we don’t want them so we get vaccinated and we don’t have to think about not getting measles. Changing the narrative is essential and efficient. It must be the end goal at all times, even while trying to get  permit, respond to a bad headline, or advocating for a specific policy. 

Principles

• Price signals help solve problems and create solutions
• Markets allow the Exchange of ideas and values and expands opportunity
• Efficiency is compassionate
• Do not tax what we need more of; and
• The solution for high prices is more supply

What do we do?

Today	Intermediate	Longer Term
Data: Produce original reports using the best data possible to support the principles. Effectively respond to use of data that undermines the principles in the public discussion and in the media. Get press coverage for our reports and our data and our stories.	Policy: Produce and advocate for policies (legislation and regulations) that advance the principles; work to eliminate existing polices that don’t. Using our data and our communications, defend against proposals that threaten our principles.	Outcome: Complicate the housing narrative so that when problems arise people don’t look for villains to blame but demand solutions that efficiently expand housing opportunity, including fewer rules, more direct cash benefits, and efficient collaborative efforts for those in the greatest need

Concept for Think-Do-Communicate Tank

Short Term	Intermediate Term	Longer Term
Principles	Projects	Narrative
·  Price signals help solve problems and create solutions ·  The market allows the Exchange of ideas and values and expands opportunity ·  Efficiency is compassionate ·  Don’t tax what we need more of ·  The solution for high prices is more supply	1.     Finance, build, and manage projects that: Use value capture; 2.     Use few if any public dollars; 3.     Demonstrate the limits of the existing system; 4.     Demonstrate the potential of a new way; and 5.     Provide real lasting solutions for people struggling with poverty, addiction, and their mental and physical health.	Outcome: Complicate the housing narrative so that when problems arise people don’t look for villains to blame but demand solutions that efficiently expand housing opportunity, including fewer rules, more direct cash benefits, and efficient collaborative efforts for those in the greatest need.

Center for Housing Economics, Part 2: Housing Policies for the Future

I have been getting the sense that if I wandered into the woods, cut off from all communication, spending my days just surviving for five or even ten years, I’d return to find the housing conversation stuck in the same place it is today; one group vigorously opposing increased housing supply to solve price issues, another using the word “supply” but espousing a bunch of really bad policies like Mandatory Inclusionary Zoning, and, well, people like me, those that aren’t willing to comprise the basic notion of the price system. So if I had my way, I’d start an institute kind of like the Institute of Economic Affairs in the United Kingdom to build a strong base for intellectually principled supply side housing economics. I’ll post my draft proposal. It is sort of pie in the sky, something someone may discover someday like a message in a bottle. Here’s the second part. And you can read part 1 here. 

Housing Specifics

• End zoning– Zoning is a 20^th century solution to a 19^th century problem and premised on the notion that separating use is good planning; it isn’t. Allowing many uses – manufacturing, retail, and residential, for example – closer together is more sustainable and efficient that separating uses. Zoning also creates geographic differences in typology that heighten scarcity of housing choices. Zoning also segregates people, limiting their opportunities.
• Support ownership– Ownership of a home doesn’t have to mean a detached single-family home. Policies should be developed to create equity in housing for as many people as possible.
• Incentivize density– It is efficient to have more people living on less land and it is more sustainable. Tax incentives should be structured to allow fewer people on more land but with incentives for people who live in greater concentrations.
• Get out of the way – Producers can meet most of the demand in the economies of most urban and rural areas if government allows it and incentivizes it.

1. Encourage more mixed use multifamily housing
2. Allow smaller units with shared kitchens and common areas
3. Eliminate design review and restrictions
4. Eliminate all height, bulk, and scale limits
5. Eliminate redundant and excessive utility requirements (including impact fees)
6. No parking minimums or requirements
7. Incentivize the speedy processing of permits
8. Require annual review of building and land use codes
9. Eliminate all rules, restrictions, code requirements not benefiting health or safety
10. Require consumer cost impact for all existing and new rules or regulations

• Cash for rent– As long as the normative standard for housing costs is 30 percent of gross monthly income, buy down the “cost burden” with direct cash payments for rent rather than building new subsidized housing. Cost burdened households don’t need a unit years from now – they already have one – they’re just paying more than the normative standard today. Most cost burden could be eliminated quickly and efficiently with cash payments.
• Impact investing– People with less money with needs that they can’t meet create costs to the broader community. These costs can be identified and if they can be reduced through intervention, that intervention has a value that can be monetized. Providing low or no barrier shelter and housing along with case management and other services is a short term cost, but if it is effective those costs can be paid back, with interest, when savings to government budgets are realized.
• Tenants and property owners – When a person or business rents private property to a person or business the property owner is taking a risk and is entitled to benefit from that risk. The only role that government has in the relationship between a renter and an owner is to enforce the rules of a contract, not to impose a contract terms on the renter and owner. Individuals and businesses have no right to use other people’s property and a private property owner is under no obligation to rent property to anyone else with no terms.

The Center for Housing Economics: Can We Build an Intellectual Case for Housing Supply?

We’re making it happen! Go to The Center for Housing Economics website.

I have been getting the sense that if I wandered into the woods, cut off from all communication, spending my days just surviving for five or even ten years, I’d return to find the housing conversation stuck in the same place it is today; one group vigorously opposing increased housing supply to solve price issues, another using the word “supply” but espousing a bunch of really bad policies like Mandatory Inclusionary Zoning, and, well, people like me, those that aren’t willing to comprise the basic notion of the price system. So if I had my way, I’d start an institute kind of like the Institute of Economic Affairs in the United Kingdom to build a strong base for intellectually principled supply side housing economics. I’ll post my draft proposal. It is sort of pie in the sky, something someone may discover someday like a message in a bottle. Here’s the first part. 

The Center for Housing Economics

The Center for Housing Economics conducts research, communications, and creates projects that support policies and investment to create an abundance of housing options for everyone.

Spontaneity, Government, and Markets

People are at their best and most successful when they are able to be spontaneous, creative and realize new opportunity. Good government encourages and supports this by providing an ordered and predictable commons through laws, policies, regulations and taxes that allow everyone to be free to exchange ideas and values openly and without restriction in a mutually beneficial way. Individuals and communities achieve their full potential when they are free to share and exchange value with each other. Everyone benefits from a common experience of life with limits but limitless potential.

A market is a place where people bring their own unmet needs and their ability to meet other’s unmet needs; seeking and satisfying each other’s needs begins with ideas, and therefore to restrict or limit the ability of people to find each other and to satisfy one another’s needs spontaneously and creatively must not be taken lightly. People naturally seek each other out to offer their own potential and find the potential of others to meet their own needs; limiting this can alienate people from each other and themselves.

Housing

The need for housing and shelter are best met when housing providers can meet with those who need housing with as few barriers between them as possible. The role of government is to protect health and safety and, when possible, provide incentives to ensure that housing supply meets or exceeds demand for housing. When housing is scarce because there are too many rules and restrictions limiting its production, then prices go up. Housing inflation harms poor people the most and benefits those who already own property and housing since the value of their asset goes up with inflation. But when housing is abundant tenants and buyers are empowered with more choices and freedom to live where and how they want, regardless of their race, class, or economic status.