Power of Narrative: Things That Make You Go, “WTF?”

I’ve been writing a lot lately at Forbes about the power of narrative, the way stories and perceptions can take hold and be incredibly hard to overcome. The most obvious one lately is the notion that eviction is a “crisis” or an “epidemic;” it’s neither, but all it takes is a slapped together “report” and the media and politicians snap into action. There are three stories that demonstrate this power locally, the recent DADU dust up, the weird story about where MHA came from, and the attack on neighborhood councils a couple years ago. All three are a bit mind bending.

First, Detached Accessory Dwelling Units (DADUs) were outlawed more than two decades ago. About 15 years ago, conversation started about allowing the again both new and making existing ones legal. The Council passed legislation that allowed a pilot project in Southeast Seattle for 50 DADUs; about 35 or so actually applied for permits. I wrote about it more than a decade ago, urging that the Council allow DADUs citywide. A few years later they did exactly that. The DADU has been legal citywide for about a decade now, but I had someone the other day tell me, “I can’t wait until Marty Kaplan’s appeal is defeated so I can build a DADU!” I said, “Dude, DADUs are legal already!” He said, “They are?” Yes. But somehow one appeal has turned into a battle over making DADUs legal; they already were folks.

The second example of this is the notion that the City’s Mandatory Housing Affordability scheme somehow helps developers and that “greedy” land grabbers twisted the City Council’s arms to pass MHA so they could get all that extra density. I was talking with a member of the neighborhood group that filed the appeal on MHA because they oppose the density. There was astonishment that most developers and builders outright oppose the scheme or are extremely wary of it because while there is a bit of added density. The additional additional capacity forced by MHA simply isn’t worth the hassle or the cost of the fees being mandated on projects to pay for it.

Finally, a couple of years ago in a Trump like rage, former Mayor Ed Murray declared war on Seattle’s old and venerable Community Council system. The 13 districts had already been decimated with the shrinking of Department of Neighborhood staff when Greg Nickels was Mayor. The Community Councils were hardly a hotbed of NIMBYism; I know, I’ve been fighting NIMBYs and angry neighbors for more than 20 years. The Council’s were actually sane and relatively diverse groups that are made up of representatives from neighborhood chambers or commerce, community councils, and crime prevention groups. In my years working with these Councils when I was at the City and since, I have found them to be more or less clearing houses for information as well as the group that divides up Neighborhood Street Fund money.

In each of these cases, lots of hullabaloo was made by so called, “Urbanists” who saw each as some kind of battle against racist neighbors or something. In each case, anyone with just a bit of knowledge and history would know that the narratives in each were false. Sure, some community councils like Wallingford’s and Eastlake’s and Roosevelt’s are hotbeds of angry neighbor sentiment. Those groups can and should always be ignored on land use issues; the Council and Mayor can simply shut off their microphones and move on. But the District Councils are a pretty functional and even useful group. Instead of blowing them up why not encourage more participation in them so they can act as a filter for some of the more bitter acrimony at the community council level? Who cares? Just push the story that the District Councils killed microhousing, small-lots, and hate DADUs even though it was community councils that did most of that work.

And as far as DADUs the Seattle Times is announcing that the appeal is over.  Great. But as I’ve pointed out, the code is not the problem keeping DADUs from proliferating; the problem is lack of financing. The changes being contemplated will make some DADUs easier for sure and there may be an uptick, but neither the angry neighbors or “Urbanists” are right about the idea that suddenly DADUs will spring from the ground like toadstools after a rain storm.

And MHA? I’m tired of talking about it. Anyone who builds housing Seattle isn’t battling for more FAR, they just want to get their permit to build what they’re already allowed to build. The “Urbanist” crowd shuns developers as much as the angry neighbors. The real road kill of MHA isn’t the neighborhoods, but people trying to get projects for what we need – more housing – to pencil. The entire MHA mess is all about grabbing cash for inefficient non-profit housers who simply have no interest in addressing overregulation; the answer is always more money, more money, more money.

So there you have it. Three fake narratives that have always left me shaking my head. I’m no longer surprised. This is what happens when people who know what they are doing – builders, developers, and landlords – are vilified and excluded from discussions about what they do, build and operate housing. Instead, the Council makes stuff up and imposes it. It’s like having a space program not run by physicists and engineers but the lady that walks her dog down the street and the local communists who pack meetings. Maybe someday this will change. But it won’t happen by itself.

Help stop the crazy pointless fake narrative machine in our city; give to Seattle For Growth! 

Are You Worried About Increases In the Real Estate Excise Tax (REET)?

Well, you should be. But were you concerned two and a half years ago when I wrote this?

This Week in Olympia: Another Cash Grab by Non-Profit Housers

Maybe not. Mostly, back then, I got shrugs and “whattyagonnados” from just about everyone I complained to about it. I expressed my concerns and doubts about messing with REET, especially about funneling more cash to housing non-profits.

As it turns out, this years proposal grabs cash for education funding; the claim is that somehow the equalization aspect of the legislation makes it ok. The argument goes that smaller residential transactions — like the sale of a $175,000 house in Yakima — will see the tax on the sale drop, while the sale of a “mansion,” a single family home selling for $5 million will go up.

All that sounds like perfect populism and socialism, right? In fact The Stranger hilariously showed a picture of Leschi and suggested that a person buying a “mansion” there pays the same tax as a person buying a trailer in Yakima. Of course that’s false; they may pay the same percentage but that’s not the same as the total dollar amount.

Here’s the details from the summary of the final passage of the legislation:

Summary: Graduated REET. Beginning January 1, 2020, the real estate excise tax is imposed at the following rates:

• • Ÿ1.1 percent if the selling price is equal to or less than $500,000;
  • Ÿ1.28 percent on the portion of the selling price that is greater than $500,000 but equal to or less than $1,500,000;
  • Ÿ 2.75 percent on the portion of the selling price that is greater than $1,500,000 but equal to or less than $3,000,000; and
  • Ÿ3 percent on the portion of the selling price that is greater than $3,000,000.

Finally, a rate of 1.28 percent is imposed on the sale of undeveloped land, timberland, agricultural land, and water or mineral rights, regardless of selling price.

Much, if not most of the higher tax will be absorbed by sales of bigger properties that are being sold for multifamily housing. Some signed onto all this, I guess, because they bought The Stranger’s logic; that the trailer buyer in Yakima will pay less. Maybe. But a new housing project with a land sale price of $10 million will get hit but a substantially higher tax bill. Who will pay for that higher tax? Renters of course. That adds to the problem of higher housing prices.

In an effort to slow down the bill as it was poised for final passage, Senator Jon Braun, a Republican representing the 20th legislative district made this important point about raising and raiding REET:

We know about twenty five percent of that [money] is going to come from [the sale of] rental properties, and we know Mr President from previous versions of this bill and over the years, that that’s going to add up to about two hundred dollars a year in extra rent. Now that may not sound like a lot to you, Mr President, but for folks in my district an extra two hundred dollars is a lot of money. These are folks that are often living from paycheck to paycheck. We hear about that from from all over, from both sides of the aisle, real people, they’re just barely getting by renting. Rental markets are already very high we have a very, very low inventory compared the population and the demand for rentals, rents are very high and we’re going to add two hundred bucks a year.

Where was the real estate interest, you know, the powerful lobby with deep pockets and lots of lawyers?

We are running out of time and everyone has been moving faster than usual to pitch in given the timeline and ramifications of being passive.

That’s a quote from an email sent by someone in the business asking for support to oppose the legislation in late March of 2019. That was way too late, especially when the equalization feint was bought buy most of the legislature the year before.

This is where I say, “I told you so,” again.

One would have thought people would have woken up the raising and repurposing of the REET years before when it was originally proposed. And it’s stunning that many legislators, even some claiming to be worried about housing costs, fell for the ploy that “everyone wins” when we tax housing like this. We don’t. Yes, education is important. But I thought we had a housing crisis, too.

I often think that we get what we deserve; waiting until the waning days of a legislative session to unveil a battle plan to stop something that is inevitable is irresponsible. The same is true of Mandatory Inclusionary Zoning, arbitrary changes to the Multifamily Tax Exemption (MFTE) program, and eventually, rent control. Meanwhile, Democrats are touting all the great things they’ve done for housing like the totally voluntary HB 1923 which will likely deliver zero supply.

We’ve got to do better, find some principles, and hold ourselves and elected officials accountable. That means opposing rules, regulations, fees, and taxes that push up housing costs at all levels of government when they’re proposed, not when they’re already moving toward final passage.

Don’t be roadkill on the regulatory superhighway that is Seattle and Washington State. Contribute to our work today. 

We Don’t Need Rent Control: We Already Have the MFTE Program, Rent Restrictions

Exactly a four years ago yesterday, I wrote a post at Publicola about why we don’t need rent control. The post was built on the idea that we already have thousands of rent restricted units, that is, units of housing that have rents that can’t go up because they are restricted to rents by covenant, contract, or because they are publicly owned. At the time I wrote the post the number of rent restricted units was in the tens of thousands. From that post:

The truth is we don’t need rent control because we already have price controls in place for many units in the city. Based on the Puget Sound Regional Council’s database on affordable housing, Seattle has about 82,000 rental units that are priced affordably—with rents that are 30 percent of monthly area median income (AMI)—for people who earn zero to 80 percent of AMI. That’s the income band targeted by the mayor’s call for 20,000 new affordable housing units in the next 10 years. (Eighty percent of AMI for a single person is $44,750; that band should pay about $1,198 in rent. Fifty percent of AMI for a single person is $39,000; renters in that band should be paying about $827.) Of those 82,000 existing units, there are already 36,000 that are rent restricted, meaning the rents of those units are locked in—controlled if you like—for anywhere from 12 to 40 years.

Those 36,000 units, roughly 44 percent of all the units at those levels of income are set by government agencies and covenants; they are a mix of units paid for by government grant, the city’s housing levy, through the city’s Multifamily Tax Exemption (MFTE) program, or vouchers issued by the Seattle Housing Authority. The rents won’t go up unless those units go though an extensive process or are converted into market rate units. That happens, but the city has a lot of control over that even though the Office of Housing only tracks a fraction of these units to be sure they aren’t in financial trouble or has an owner that is having trouble operating them.

So there are two important things lost in the discussion of rent control. First, the Multifamily Tax Exemption (MFTE) Program accounts for roughly 8,000 of these rent restricted units according to the City’s annual report on the program. The MFTE program exempts a portion of the property taxes in exchange for restricting rents in 20 percent of the units in the project. Yes, 20 percent, more than twice the percentage in the Mandatory Housing Affordability (MHA) program. I’ve argued that the MFTE program performs much better than the MHA program ever will in terms of providing people with lower rents. In fact, if the MFTE program us unleashed instead of limited, MHA would never catch up. That means less suffering and frustration for renters.

Second, there are a lot more rent restricted units that have contracts or covenants that require restricted rents in addition to those 8,000 units. The City doesn’t track these. And that’s why we get the stories from time to time about residents being “evicted” from buildings that have been sold with these units in them. The reason why these transactions move forward is because the contracts with the Department of Housing and Urban Development (HUD) or some other agency expire. Buyer and seller haven’t done anything wrong, but the media covers this as if the buyer is targeting the people living in these units. This is unnecessary. From my post from four years ago:

Today, the city could start tracking every single one of these rent-restricted units, determine how long their rent restrictions are in effect, and develop backstops to be sure they stay rent controlled. Additionally, the council could adopt a strong resolution directing staff to develop a workable plan to use the city’s borrowing (bonding) authority to build housing on usable pieces of public land and to buy rent-restricted buildings that are in trouble. The council could push to expand the Seattle housing levy, the MFTE program that uses reduced property taxes to stabilize rents, and expand SHA’s voucher program. And they should stop wasting time worrying about rent control.

Has the City done anything like this? Of course not. Instead we’re debating about rent control, whether Seattle is dying, how much to tax jobs, imposing taxes on new housing, and who is a journalist and who isn’t. Math and economics don’t matter; it’s scorched earth for the extreme sides of the debate on homelessness in Seattle, a poorly defined problem with only ideological solutions offered. The solution to much of the housing problem is right in front of everyone’s face. All those buildings out there have lots of rent restricted housing that is based on fair exchanges of value, existing covenants and contracts, or because they are older buildings. Yet, Seattle is doing nothing but claiming we have a “crisis” and trying to squeeze more money to punish prosperity. Who will try to change this? We will! More on that soon.

Gotta get down to it: Ohio Ready to Stand Up to Eviction “Crisis”

Last Tuesday I presented to the Ohio Realtors’ Legislative Conference in Columbus, Ohio. I learned a lot about Ohio including that they still have Republicans there. The state truly is a crossroads, with big cities that lean more Democratic and lots of rural areas that lean Republican. But Democrats in Ohio are often of the hardhat variety, pro-union and strongly in favor of government intervention in the market to favor workers. But the legislature is dominated by Republicans, a features, some say, of a districting process that has preserved rural Ohio’s control over state government. And Ohio elects Republican governors. So Ohio seems to be a great place to test messages on eviction, and push back on the efforts of socialists and anti-rental property crowd to impose unhelpful regulation on tenant-property owner relationships. Here’s the PowerPoint I presented on Tuesday. I am hoping we can support the real estate community to show that there is no eviction crisis in Ohio or anywhere else. The real issue is lack of supply.

An American Story: Henry Clay, Andrew Jackson and the Maysville Road

Well there’s a young man in a T-shirt
Listenin’ to a rock ‘n’ roll station
He’s got a greasy hair, greasy smile
He says: “Lord, this must be my destination”
‘Cause they told me, when I was younger
Sayin’ “Boy, you’re gonna be president”
But just like everything else, those old crazy dreams
Just kinda came and went

Pink Houses, John Mellencamp

This week I’m speaking at the Ohio Realtors legislative conference. But I arrived early to make a pilgrimage to the south to visit the homes, burial places, and museums of two giants of American history, Henry Clay and Andrew Jackson. To me they represent almost perfectly the great American dichotomy between our  need for independence and individuality but at the same time our urge to pull together and have unity. The two men were opponents, and one event stands out in their decades long feud and is emblematic of the American dichotomy : the Maysville Road project.

Jackson and Clay: Jacksonian Democracy and Clay’s American System.

Andrew Jackson was born in 1767 on the border of North and South Carolina and Henry Clay was born a decade later in Virginia. While they were both southerners who came of age during the Revolution they settled in what was the American west, Clay in Kentucky and Jackson in Tennessee; it was a lush region, untamed and bristling with opportunity. It also had people already, indigenous people who would end up being decimated by removal and outright murder. Clay believed the country would benefit from what we would call today infrastructure using the tools of finance, in other words borrowed money. He was what I would call Hamiltonian. Jackson, on the other side, was more Jeffersonian, suspicious of government and especially of banks and borrowed money.

The Maysville Road

By 1830 the west was expanding. Rivers like the Ohio were being linked to inland farms and factories by canals, roads, and new harbors for barges and boats. Clay had already argued for a system of improvements he called the American System and it included protective taxes for American industries along with big government funded projects. The Maysville proposal was made after Clay had stepped down as Speaker of the House, but Jackson’s eventual veto of the road from Lexington to Maysville was not only his first veto, but also a shot at Clay’s vision. Clay was also preparing to challenge Jackson for the presidency in 1832. It would become a major campaign issue in that battle.

My Trip on US 68

I flew to Columbus, picked up a rental car and drove to Lexington to visit Ashland, a somewhat modest Italianate estate not from Downtown Lexington. Clay is buried up the road on the other side of downtown. The next day I traveled to Nashville and to Jackson’s somewhat more expansive Hermitage where Jackson is buried. I decided my trip back would include a trip up the Maysville Road built, finally, in the early 20th century.

Route 68 is a much longer road, but it includes roughly the same segment proposed in 1830 and supported by Clay and vetoed by Jackson. I liked the idea of taking that drive after my visits to their museums. Perhaps I’m the first person in a long time to get satisfaction from driving on a road subject to a contentious ideological battle almost 200 years ago.

The route starts in Paris, in Bourbon county and ends in Maysville in Mason county. It is a beautiful drive with flatter country giving way to undulating hills dotted with farmhouses, cows, horses and stables and barns and hemmed in with white wood fences or stone walls. Economically, the wealth of horse breeding sand stately homes south of Paris give way to auto parts stores and defunct industrial buildings. Finally, in Maysville itself I found the most striking town, a place that had an apocalyptic feel to it. The walk up the levee on lonely stairs, and then down the other side to the Ohio was nothing less than dream like. This river, this border, fueled westward expansion with its churning depths, and marked the final natural barrier for fleeing slaves on the Underground Railroad. Now Maysville is impoverished, with about a quarter of the shrinking population below the poverty line.

Thoughts

So what does this reverie and trip have to do with housing — or anything? Well, I’m still puzzling that out. What I can say is that Hamilton and Clay won the question of finance and internal improvements. We expect and depend on investment using borrowed money and the value generated for debt service. That’s the way the world works now; except when it comes to housing. The Jeffersonian-Jacksonian principle of, “leave me alone!” has been subsidized since the end of World War II with backing and deductions for mortgages.

We’ve chosen, as a nation, to slant tax policy toward inefficient use of land with free highways, street parking, and tax breaks for mini estates, single-family homes on 5000 square foot lots. But that’s not all. Local government has decided to choke supply of new housing. This creates a “crisis” of higher prices solved by taxing new multifamily housing and jobs, and then handing that cash to inefficient, expensive, and slow construction of rent restricted units. Meanwhile, poor people face housing inflation which consumes their dollars disproportionately as prices rise.

What would Clay do? I don’t know. But his American System was based on value capture. Ours is too, but the value we’re capturing is equity for single-family home owners. Yet, we have a Jacksonian contempt and suspicion for Amazon; isn’t it all the jobs creating the problems after all?

Here’s the thing I will leave for any reader. That veto by Jackson, political, wrong headed, and aimed at Clay’s American System, killed the Maysville Road project. But I just drove down US 68 from Lexington, through Paris, and to Maysville on the Ohio. Clay’s vision won. Clay said he’d rather be right than be President. I’d rather be right than have friends or funding for supporting horrible ideas like Mandatory Inclusionary Zoning and rent control. Our vision, like Henry Clay’s, can win too. We need more housing of all kinds in all neighborhoods for people of all levels of income. But we have to be as persistent and principled as a Clay was. I just hope it doesn’t take us 100 years to get from here to there.

https://www.sightline.org/2010/07/20/the-truth-about-thomas-jefferson/