Surprise! Taxes (and Fees) are Paid by Consumers

The City Council is beginning the process of passing its version of Mandatory Inclusionary Zoning (MIZ), Mandatory Housing Affordability. This will charge fees on every square foot of new housing in the City beginning later this year. It’s called a fee, but it really works more like a tax, taking money from the market’s production of housing and giving the money to non-profits to build rent restricted housing units. We’ve said a million times that this tax, like all others, will be paid by the people buying housing. This is exactly what’s happening with the sweetened drinks tax passed by the City according to a study featured in the Seattle Times. And why tax sugary drinks?

When the City Council approved the tax in 2017, many proponents said the goal was to decrease consumption of unhealthful beverages by driving up prices, while others supported the policy because they said it would raise money for healthful-eating and education programs.

All you have to do to find out what will happen if MHA is imposed by the Council is substitute some different language like this:

When the City Council approved the tax in 2019, many proponents said the goal was to decrease consumption of housing by driving up prices, while others supported the policy because they said it would raise money for non-profit housing.

But the big difference is there is no substitute for housing like there is for sweetened drink. So the option for consumers of housing won’t be choosing something else, and they will see more of their income consumed by housing costs, exactly the “crisis” that MHA is intended to address. But it doesn’t address the problem of price, it makes price worse to fill the coffers of non-profit developers. This is what some people call a “compromise.”

Remember what taxes do.

• Change behavior by raising or lowering costs on products or behaviors;
• Buy things the market can’t or won’t produce;
• Redistribute wealth

What MHA does is discourage the production of housing, the opposite of a program like the Multifamily Tax Exemption (MFTE) program that creates an incentive to build housing and create rent restricted units. And it outproduces MHA by a lot. But the market can produce lots of housing if it is allowed. We have way too many rules, creating higher costs and creating what some would call a market failure: expensive housing. But that’s a self-created problem. And yes, wealth is being redistributed by MHA, from the pockets of renters who’ll pay higher rents and into the pockets of other renters who will get access to a few rent restricted units someday.

And the other winner from MHA is homeowners who have equity in their homes. With the scarcity and higher pricing created my MHA when production lags or gets more costly, the lack of supply means their home increases in value. We simply need more housing of all kinds in all neighborhoods in the city for people of all levels of income. We’ve created a mess that necessitates clean up, but the Council insists on making the mess work by adding even more costs to production. And like the tax on sweetened drinks that means higher prices. Maybe that’s good for people who benefit from averting health risks of too much sugar, but when it comes to housing higher prices and scarcity just hurts people with less money.

Where Did Everyone Go? Twitter!

I’ll admit that awhile ago, I shifted away from social media and comment sections as my preferred location for engaging on the topic of housing and economics. It wasn’t necessarily a conscious choice, but part of a changed dynamic in the discussion. In Seattle, it’s almost as if people said everything that could be said about 100 times. I found myself having the same arguments over and over. I rationalized arguing in comment threads and on Facebook as a way to sort of train for combat. Comment threads required efficient two or three sentence responses that could sum up complicated issues. Also, I felt as though for every troll engaged, there were 10 people lurking in the audience. Maybe those people could be persuaded. Last week I discovered that all the debate is now on Twitter.

Until last week, I largely have avoided responding to stuff about that I’ve seen on Twitter. Much of it is a lot like the sound of nails on a chalkboard, inaccurate, off base, confused, and misdirected. I’ll skim through the feed and like something here and there or resist the urge to make a snide comment. Other times I will Tweet myself, often a sharp rebuke of a Tweet by the  City Council or Mayor. Otherwise the Seattle For Growth feed is mostly posts from here or from Forbes. But generally I find that Twitter can devolve into an ugliness absent from even the toughest slog through comments 5 or 10 years ago. Threads can quickly turn from substance to attacks on a persons legitimacy and presence in the discourse.

But this post got under my skin, not because I oppose what Senator Palumbo is proposing but because, well, you can see what I said.

 

Increasing allowed density limits in outlying areas of King County isn’t a bad idea. I hope the proposal passes. The problem is that groups like Futurewise are fighting new housing outside the Urban Growth Area (UGA), something that makes sense if they were fighting for lots and lots of housing inside the UGA. This was part of why I made the point about taxing new housing; Futurewise supports Mandatory Inclusionary Zoning (MIZ) called Mandatory Housing Affordability (MHA). So we’re taxing housing in looking to impose impact fees in Seattle while also squashing housing outside the UGA. That’s maddening. And that provoked my response.

I was a bit surprised by what followed, which might be worth of a post all its own, but the following morning after all the exchanges Senator Palumbo posted this.

I responded.

I followed up with our still growing list of costs that are making it harder and harder to build housing in Seattle. Finally, I made this point.

So does any of this change anything including any minds? Probably not. Part of my job is to make principled arguments for growth and new housing. As I point out to our supporters, “I do this so you don’t have to!” Most builders and developers are busy working and trying to get their projects built. They don’t have time to engage in the intellectual battles on Twitter or anywhere else.

Is this worth doing? I’m not sure Twitter is worth it, but standing on principle is. Will housing get built even if Seattle and other local governments pass really bad housing policy? Of course. It will just take a lot longer and cost a lot more. What’s driving policy these days isn’t economics but politics. And the politics are driven largely by resentments from single-family homeowners protecting their equity and socialist who think the answer is wringing out the market for more and more money, something sure to boost housing inflation.

How do I know sticking to a message works? The $15 Now! movement succeeded in getting a $15 minimum wage in Seattle because that dollar figure, $15, was repeated over, and over, and over, and over. Where did it come from? It was completely made up. Most data point to a much higher minimum wage, closer to $20, when inflation and other factors are considered. Yet, this flawed idea won the day. Repetition works. What is our message? It’s one based on solid ground and it is, “Allow more housing of all kinds in all neighborhoods for people of all levels of income.” We’re sticking to it.

 

Looking Back at 2018 and Forward to 2019

The end of the year always brings reviews of the past twelve months and prognostications about the future. Here are mine about the past year and next year in housing policy and politics. 

Warning: Be Careful of what you conclude about the rejection of the “Head Tax”—Lots of people in the business community, I think, are patting themselves on the back, assuming that the backlash against the Seattle City Council’s efforts to tax jobs was about people supporting business and the jobs that have been created. That is a big mistake. 

In talking over polling data with people who saw it up close and having been in the room where a mob gathered in Ballard to express their feelings about the tax, I have to say this was about homelessness not about jobs or taxes. 

When people eagerly signed petitions to put the tax on the ballot, they weren’t saying, “I love Amazon and all the jobs it creates!” they were saying, “No more money for the City Council until they “clean up” the homeless problem, especially the tents down the street!” 

These are very different messages. Many of the same people who oppose the tax on jobs also opposed microhousing, small-lot development, and pushed for downzones in the low-rise areas of the city.  

These angry neighbors will be back in 2019. They will likely push for and get higher rates of inclusion and fees in the City’s Mandatory Housing Affordability (MHA) scheme. That’s not good news at all. The neighbors know that higher rates and fees mean killing new housing. The Council is likely to oblige and, ironically, call it a compromise for housing.

The election will be ugly—The Head Tax debate was nasty from both the socialist left and from the angry neighbors. Expect more of this in the upcoming election. Candidates will be pilloried from both sides based on litmus tests about the Head Tax, views about sweeps of encampments, and on MHA. The attacks from The Stranger on candidates deemed insufficiently doctrinaire will be brutal. And people aligned with various groups pushing for legal action against homeless camps, and against MHA will be similarly personal and bare knuckled. We’ll likely see some candidates implode even before the primary. 

Will there be a pro-growth candidate?—It infuriates some people when I say that there simply isn’t going to be a “pro-growth” candidate. Many in the development and business community are hungry for candidates that are willing to listen and even do something about overregulation, taxes, and the latest scheme to show just how liberal and anti-Trump Seattle it. 

But don’t be fooled. Some candidates will fill their mouths with words that sound like they know what they’re talking about. I won’t forget sitting in my office listening to Rob Johnson talk about how he would pay attention to the business cycle when making housing policy. Those were words I wanted to hear. But Johnson turned the corner and wouldn’t even help work behind the scenes on things he said himself were bad ideas like rent control and efforts to make MHA worse. 

There will likely be lots of smart and nice people tossing their hats in the ring, but don’t forget the basics: no MHA, no rent control, and no head tax. The answer to each isn’t a lot of words, only one: no! Anything less tells you the candidate wants to win. Ironically, winning in Seattle means punishing people who make and operate housing. That’s the zeitgeist. We need to change that, but it probably won’t happen in the next 6 to 12 months unless we invest in deep research into what might persuade people to support a truly pro-growth candidate. 

The two “parties” in Seattle—And we have two parties in Seattle as I suggested above, the socialists-lefty axis, and people who are growth resisters and want homelessness cleaned up. We don’t have Republicans in Seattle, but this second group is what you’d loosely call the “right.” The left is angry at developers and landlords who they blame for high rents and displacement, and the right is angry at the City for not locking up the homeless.  

In the end, I think both of these groups are small in number, maybe a quarter of the voters on each side. People in the middle, mostly Trump haters and lefties themselves, will be the battleground in 2019. Candidates from each side will both bash developers and landlords. Both will likely support some form of tax on growth and new housing (including impact fees). And both will make the argument that growth is mostly a bad thing. 

Oddly, most people don’t agree with that. Research from the Quinn Thomas firm found lots of support for growth. But we have yet to get solid research on what a moderate candidate would say to persuade people to turn their general support for the good parts of growth and the opportunities and possibilities it provides into votes. Without that message that resonates with those in the middle, they’ll have to choose from candidates whose base is built on a minority of people angry about growth. And those candidates will offer punitive taxes and fees on growth, not expanding it. 

What will happen in Olympia?—My crystal ball is hazy here. This is Speaker Frank Chopp’s last session as Speaker. Chopp has been receptive to messages about making non-profits more efficient but resistant on doing anything about it. Some suggest that the left leaning parts of the caucus will win the day and proposes lots of heavy-handed regulation and lots of taxes. 

Others say wiser heads will prevail, and a speaker from outside the Puget Sound will be selected to balance the leftward drift of the House of Representatives after Democrats picked up seats. This is a plausible outcome. 

Most agree that the Senate will continue to be skeptical of things like another carbon tax and a capital gains tax. But that chamber lost its moderate edge too with more Democrats being added there. This uncertain dynamic from both houses means it’s going to be an interesting year for housing policy. 

Will we find some principles in 2019?—I wrote a post at Forbes about the principles we should follow on housing. I’m not optimistic that we’re going to suddenly find advocates and elected officials getting their minds around the notion that more jobs and more housing are good, period. The dominant culture in our city and state is that making money is a bad thing, especially when someone else is suffering. That sounds compassionate on the surface, but its really selfish. 

As I pointed out many times in 2019, we don’t need more affordable housing, but we need more housing so that it will be affordable. Even in the debate about single-family housing, I marvel at the discussions about wanting duplexes and triplexes all over town. But nobody talks about who is going to build all that housing. When I remind them that people would make money building that housing, there’s a blank stare from “urbanists.” I point out that we tried to expand single-family housing in single-family zones by allowing building on smaller lots; angry neighbors squashed this idea. 

So as long as we see new housing as an impact and the people that build and operate it as greedy, we’ll never solve the housing price problem. It’s that simple. The entrepreneur is the best person to build and operate housing because they have a motivation to be efficient and produce product that people want to live in and can afford to live in. If we let them do this, prices will fall and people will create jobs, pay more taxes, and yes, make more money. Anything less than this will fail. We must learn to include the producers and operators of housing; they know how to make and operate housing. Why are they being excluded and vilified? 

Is there any hope for the year ahead?—Yes. If we can keep Seattle For Growth powered up, good ideas will continue to have a voice. And we’ll have a critical voice to speak against ideas that won’t work. There simply isn’t any other organization or voice in the city or the state that can speak to the issues facing the housing market with the clarity we do. A big message I’ve been repeating is, “Efficiency is compassionate.” Wasteful programs fueled and funded by what I call grievance taxes—schemes like MHA and the Head Tax—don’t help poor people. Instead they raise prices and produce very few units of housing. Making housing more expensive in the name of creating a few subsidized units because housing is expensive probably fits the definition of “crazy.” We need someone to keep making the case that we can have a healthy productive and prosperous economy for everyone but only if we get out of the way and let it happen.  

Please click on the button below and give today before the year runs out! 

And if you want to see what Seattle and our region may become, take 15 minutes and watch this video (I’ll be using it a lot in the month ahead). Then donate!

The Folly of the Fashionable War on Single-Family

I think I am probably over-promising in the headline. As I’ve pointed out before, people who somehow get that prices have something to do with supply but who can’t support people making a living producing it, are all a twitter about what they’ve been reading about Minneapolis. The truth is that what Minneapolis did is adopt a comprehensive plan amendment to allow triplexes in zones currently zoned single-family. This move comes while they are also considering the disastrous policy of Mandatory Inclusionary Zoning (MIZ). In a Facebook thread, someone seemed to get this and said that Minneapolis is about where we were with the Housing Affordability and Livability Agenda (HALA) Committee recommendations — good ideas, but without any implementation. In a rant that followed, I agreed. Here’s the rant. I don’t usually publish at this hour and it’s a really slow time, even on the internets, but I thought it is worth putting on the record. 

I think that is a reasonable analogy I might adopt. Keep in mind that the menace of Mandatory Inclusionary Zoning is being pushed there as well.

There are a number of problems here. Again, this war on single family isn’t bad, but it is a distraction. We don’t need villains, we need solutions. I have long advocated for the abolition of ALL zoning. It is a 20th century solution to a 19th century problem. So I would never oppose an end to single-family zoning.

But declaring war on single-family homeowners is a waste of time. They are rationally defending the value in their homes. Much of my reputation comes from having called this out to their faces for years when most people on this page were saying we should have tea and cookies with the neighbors. At the Roosevelt station I battled for free because it was the right thing to do: it was a 100 year mistake not to allow whatever density the market would carry there.

The problem is the notion that we can somehow adopt the fashion statement of being socialists while having the market as the operating system. You can’t do that. It’s all or nothing folks. When prices go up, let people make lots and lots of money building housing and the price will go down. If you can’t accept that, go into the woods and find your spirit animal or get an exorcism or something. That’s the solution!

What the war on single-famliy does is it gives fashionable socialists a villain, mostly white, that comes to the battle with vitriol and lots of super charged red herrings. They look stupid and sound silly. Look how much better we are than them!

But what you’re seeing is the animal instinct to protect territory. It’s like the monkeys around the water hole in 2001: A Space Odyssey. These single-family homes have those pencil marks where the family measured their kids growth spurts, it’s what they saved for years to buy, it’s what they hope to have and rely on for retirement.

They are a problem but they aren’t THE problem. I see people on this thread and elsewhere patting people like Mike OBrien and Rob Johnson on the back because they’re such nice guys; but they have perpetuated the problem by supporting the notion that we can tax our way out of the problem. See, we just tax all new housing, transfer that money to a vanishingly small number of units, someday, and that way we don’t have to confront the neighbors, the greedy developers pay and we all can say we “solved” the problem.

Meanwhile we’ll flirt with rent control and impact fees.

Folks, it’s time to stop. It’s the end of the year. Take a break. Go for a walk. Think about what you’re doing and why you’re doing it.

We have people who are demanding a utility that has no substitute, housing. If people were starving we would not tax food. If people were starving we would not review the packaging of the food to be sure we were happy with it. We would not declare a crisis and then sweep bodies into mass graves and wonder, “How do we solve the crisis?”

On the other hand, based on what I’ve seen, maybe we would.

Yes, Virginia, Supply and Demand Really Does Exist!

It’s Christmas Eve! Here’s a recent email I sent out highlighting our recent work and what we’ll be working on next year. Things will likely quiet down for the next week, but it is a busy year ahead. 

It all starts on the playground. My first recollection of telling people the truth was when I was in first grade. “Santa Claus isn’t real,” I said. “It’s your parents that bring the gifts!” The ensuing controversy on the playground isn’t surprising. And it isn’t surprising that the powers that be in Seattle and Washington state also struggle with the idea that when prices are high the way to lower them is more supply; whether it is fruit cake or housing, more really does mean less. It isn’t a miracle just basic economics.

Here’s a quick end-of-year summary of our work to disrupt the status quo.

Appeal of impact fees– this week we’ll have the pre-hearing conference for our challenge of the City of Seattle’s ill-advised effort to impose even more costs on housing even while they fret over high housing costs.

MFTE legal Challenge– We need your help if you are participating in the City’s Multifamily Tax Exemption (MFTE) program. The City is violating state law as well as the Seattle Municipal Code not tracking rents in the program to HUD standards but instead just making up their own. Let us know if you’re interested in supporting this effort.

Opposing rent control– We’ll be in Olympia to educate legislators and other about why rent control and other measures won’t help renters but make housing prices worse.

MHA Legal Challenge– We continue to explore the best way to legally challenge the City’s blind charge to impose fees on every square foot of new housing in the city. Read my editorial in the Seattle Times.

Ongoing cost studies– We’ve given our initial thoughts to the cost study by JLARC that we supported and we’ve just completed our own. The bottom line: non-profit housing is inefficient. The solution to the housing problem is more housing, not more money.

Fair Housing Washington– We’re headed into Olympia with a broad agenda to stand up to bad ideas and support good ones. For example, we’re hopeful that the legislature will extend and fund the Early Release Voucher program, a program that helps people leaving jail with real solutions not headlines. Read the agenda here.

FREOPP– As a visiting fellow at the Foundation for Research on Equal Opportunity, I’ve created a one pagerthat lays out path to fix housing. You can read a longer version at Forbes.

We do a lot of work for very little. And we do it because it is the right thing to do, building the intellectual and economic case to support the hard work of people who build, operate, and finance housing. You are the good guys! Now is the time to donate to Seattle For Growth.

Please consider a donation today either on-line or send a check made out to Seattle For Growth, and send to Roger Valdez, PO Box 2912, Seattle, Washington 98111.

And yes, Virginia, supply and demand really does exist!

Please consider a donation today either on-line or send a check made out to Seattle For Growth, and send to Roger Valdez, PO Box 2912, Seattle, Washington 98111.