Our Comments on Seattle’s Draft Environmental Impact Statement on MIZ

The following is our comments on the City’s Draft Environmental Impact Statement (DEIS) for the proposed Mandatory Housing Affordability (MHA) Program.

In testimony before the Seattle City Council the City’s planning staff have said that 120,000 people will be moving into the city of Seattle in the next two decades, creating a demand for at least 75,000 new units of housing. Other versions of this the story of growth suggest that about 1,000 people are moving to the city every week. No matter the source or the number it is clear that every measure points to job growth (unemployment is at a historically low 3 percent) and high demand for housing. People want to live in Seattle.

The City of Seattle should be developing policy that supports the building of a supply of housing that can accommodate new people moving here. The City’s version of Mandatory Inclusionary Zoning (MIZ), the MHA program will render many new housing projects infeasible, will increase prices to rationalize fees and mandated inclusion of rent restricted housing, and is illegal based on the State’s prohibition of taxing new housing construction (see RCW 82.02.020).

The impact of this proposal will result in new significant adverse environmental impacts as to transportation, as more new regional residents are forced to find housing further from, and commute longer distances, to their jobs. Some of this transportation and transit impact will fall inside the City of Seattle and some will fall outside the City borders. The City must meet its obligation and identify and evaluate these internal or extra-jurisdictional impacts on the environment.

The DEIS states

Housing costs will continue to be a burden for a segment of the Seattle’s population due to high demand and competition for housing generated by a strong job market and attractive natural and cultural amenities. Therefore, even with implementation of MHA in the study area, Seattle will continue to face a significant challenge in the area of housing affordability. This condition is a result of market and economic forces, however, and not an impact of MHA (emphasis mine).

This last statement is false.

On the contrary, an analysis done by our own builders and by the Sightline Institute has found that the fee structures for the program will harm housing production in areas best suited to accommodate new growth, the city’s low-rise zones. Fees from MHA will make many projects infeasible and thus reduce supply or the price will increase to absorb the additional costs. And by its previous actions, the Seattle City Council has already lowered capacity in those zones in legislation it passed in 2015. And it is currently considering imposing impact fees, a move that would add even more costs to the production of market rate housing.

When taken together with numerous other mandates, fees, taxes, and restrictions (e.g. decisions to impose building code standards that push up the size of small apartments, mandates to extend unnecessary water mains and drainage, a failure to clarify existing exemptions for parking in areas with frequent transit etc.), the City Council is already engaged in what might appear to be a wide ranging strategy to actually suppress housing supply in the face of rising demand.

At the same time the City appears to be imposing more costs and constraints on the production of market rate housing, it is also engaged in an effort to channel more and more capital to subsidized non-profit housing, a needed product in a time of high demand; however, the costs to develop these units is climbing as land and labor costs along with the many transaction costs associated with Low Income Housing Tax Credits (LIHTC) consume more and more subsidies.

The City, whether intentionally or blindly, is constraining the production of market rate housing, pushing up its price, then rationalizing the imposition of more constraints through the illegal extraction of value from new construction to pay for subsidies because of rising prices. The City is rigging the system in a way that ensures higher prices and thus a swelling demand for subsidies that it will wring from market rate housing, a recipe for perpetual increases in housing prices and thus more and more pressure on people with fewer resources to find housing elsewhere.

The City is creating both an economic and environmental disaster, and the DEIS fails to assess this damage. The City needs to take responsibility for the its continued actions to thwart the production of housing even while its elected officials and staff say publically that rising prices have created a “crisis.” The crisis, to the extent there is one, is entirely self imposed, and the DEIS should assess the quantitative impact of its actions on housing prices and how that will contribute to environmental impacts.

Election 2017: Women Ascend, McGinn Fades, and Angry Seattle is Confused

Well the first numbers are in, and because of the goofy way we run elections in Washington (votes aren’t reported out all night like in the old days, just once a day for weeks) we have some very preliminary results in the Mayor’s race that tell an interesting story already. 

First, Seattle wants a woman to run the City. Women candidates got a staggering 74 percent of the vote. Regardless of one’s opinion about it, voters were enthusiastic about having a woman as mayor and voted accordingly. I’m almost positive if asked voters would say this mattered to them. 

Second, former Mayor Mike McGinn failed to show up to the fight, getting single digits. He finished dead last out of the big six. That’s going to leave a mark. Ouch! This was both a rejection of the notion that his name  familiarity was enough to carry him through the primary and his veiled appeal to angry neighbors (and unintentionally to me) to bring a halt to Mandatory Inclusionary Zoning, the damaging scheme to charge a per square foot tax on all new housing to fuel reckless spending on non-profit subsidized housing. 

Third, Angry Seattle doesn’t quite agree on what it’s angry about. Are they angry at homeless encampments which Jenny Durkan has promised to keep sweeping, or the police, which Nikkita Oliver has hinted she’d abolish? Are they mad about extortionary upzones because of the density or because the rate of inclusion is not high enough? Are they mad at non-existent shadowy syndicates of foreigners buying up all the housing and leaving it vacant that Cary Moon has promised to tax to death?

Durkan will have to reach out to a lot of people that voted against her to win. The question is will she face the scary story telling Moon or the socialist Oliver. Both Moon and Oliver are dangerously unqualified to take over the City bureaucracy. Neither has the kind of significant and high level experience Durkan does. But Durkan is too much in the thrall of big shot developers like Vulcan. Vulcan will have walk in privileges to the Mayor’s office and their pro formas will dictate the rest of city’s fees for builders and developers. And Durkan has outrageously said she doesn’t want to “leave any money on the table” when she said she’d consider supporting impact fees.

Moon or Oliver will have to deftly focus all the melt downs and anxiety about growth and its discontents into a single and clear message for Angry Seattle to come together. Durkan herself is the perfect target, dripping with the approval of the Chamber of Commerce and the so called “establishment” (whatever that is). This is the so called group of power brokers that has been a door mat to communists and socialists and labor unions rallied by Sawant to impost a growing catalog of inflationary and damaging interventions in the city’s economy. Does Durkan have the courage to look out for all businesses in the city, even the small ones? Can she make a strong case that socialism won’t work? Will she stand on principle or appeal to what will be the voters growing realization the Moon and Oliver would likely spend four years in on the job training?

We’ll see. The right thing to do would be for Durkan to run a strong and aggressive campaign on getting the city back on track, focused not on Donald Trump or socialist nonsense, but an expansion of the housing market by scaling back rules and regulation, ending MIZ, and staying away from popular but self-defeating proposals like impact fees. She has the kind of strength to do that, but will she.

The City Council race looks to be coming down to union organizer Teresa Mosqueda and rent control fanatic Jon Grant. Both will further damage the city with backwards housing policies. Maybe Sara Nelson will make a come back; she’s not that far behind. More on that race later.

Seattle City Council Gone Fishing…For Impact Fees

Charging impact fees will make Seattle housing prices worse!
Please work with us to find real solutions to rising housing prices and welcome growth to Seattle. 

A Small Landlord Explains Rents, Market, and Why Caps Won’t Help Renters

The constant outrage over and focus on month to month increases in rent and rent increases overall is leading to calls for rent control and other measures to penalize landlords for rent increases. This misses an important point. Landlords make rent increases and pace them out over time based on various factors.

When rents don’t go up on a regular basis and follow the needs of maintaining and operating a building, landlords can sometimes end up having to play catch up with rents, and this can lead to larger one time increases. On the other hand, landlords can often push off increases in rent, and over time make smaller increases.

Let’s take an example of a unit that signs first year for $1,000 rent.

In year 1, tenant pays $1,000 per month, for a total of $12,000 that year.

Now the situation changes. On the left is a landlord that raises the rent $50 yearly, for the following two years. On the right is a landlord that skipped raising rent after year one, only raised rent at the end of year two.

The tenant on the left has only about 5 percent of a rent increase, which sounds nice. Over three years, the tenant pays a total of $37,800.

The tenant on the right has a big 10% rental increase at the end, which sounds rough, but they actually pay less over the three years, for a total of $37,200 for the three years. That’s $600 less!

Here is that same chart but the landlord who was even more lax on the right. Again, in the last year shown they pay the same amount as the tenant with the yearly raises, $15,600 that year. But the tenant on the left paid $9,000 more than the tenant on the right over the lifetime of the tenancy. The tenant on the right just paid a single 30% bump instead of a little over the years.

I remember a horror story about a person who lived in Ballard for 20 years in an apartment and never got a rent increase, and then had the rent doubled all at once. Here’s a chart showing the amount of deferred rent on that apartment over time and how much that saved the tenant.

Over time, because the rent never went up, the tenant saved, in theory, a hundred thousand dollars over the life of that tenancy. Mike Scott putt this effect into a graph.

When put all together, rents go up and they go down over time. Landlords and tenants are buyers and sellers in a market. Sometimes landlords make good deals and sometimes they don’t. Sometimes they raise the rent too much and see their vacancy rate go up. Other times, to avoid the potential of losing tenants, the defer rents or even lower them by offering a free month to a tenant who is considering signing another year long lease.

The tenant landlord relationship is like any other relationship between buyers and sellers. Landlords want a steady stream of income, no trouble, and minimal maintenance costs. Tenants want a place to live that serve various needs and that they can pay for. Each side makes a deal. When rents go up steadily, it isn’t because of landlord greed, it’s because tenants are competing with each other for a limited supply of units.

The truth is most landlords, including me, don’t want to raise rents dramatically; it’s a good way to lose tenants that otherwise are providing a steady stream of rental income that covers costs and maintenance.

If suddenly some outside force like City Hall controls rents, this relationship is gone. I won’t be as free to decide how much rent goes up or down. I’ll have to raise rents regularly to be sure I keep up with everyone else and my operating costs. I won’t be able to hold off increases, and then catch up later. Sure, for some people this will be more predictable, but it takes away the real savings that can be passed on by holding off on increases or coursing them out. Deferred increases of $50 or $100 add up over time. That’s money that’s in my tenants pockets for tuition, childcare, or whatever.

Putting caps and controls on rents might seem like a good idea, but it takes away choices and, in the end, will only cost tenants money and landlords flexibility.

Jenefer Monroe is a Seattle landlord with a small number of rental properties and tenants. Most landlords in Seattle own and rent 4 units or fewer.

What is Causing Seattle’s Slide Toward Being the Next San Francisco?

I’ve already written about the San Francisco Death Spiral: limit supply, prices go up, blame developers and landlords, impose supply killing regulation, watch prices go up, repeat. Well, we’re right at the top of the spiral and getting ready to take the plunge. Local wannabe elected officials don’t have the intellectual acuity to offer solutions and reassurance to people angry about housing prices and others are taking advantage of the anxiety and stoking it with really bad policy ideas like impact fees, Mandatory Inclusionary Zoning (MIZ), and a host of other things sure to increase costs and limit supply. But all the bad ideas get lots of applause because, as I wrote yesterday, the villain gets his just punishment. Before we can offer solutions, I think we need to figure out, in the simplest syllogism possible, what is causing the problem. Here’s my first draft:

• Rising housing prices make people unhappy, but are usually associated with many other factors outside of what we know creates higher prices, inadequate supply and rising demand;
• Therefore, interventions to affect housing prices by local government are usually more regulation which increases costs and reduces supply, and thus increases prices;
• Then, since people don’t associate rising prices with lagging supply, they assume housing is not being regulated enough and demand more regulation in the face of even higher prices; and
• Extracting money and value from the production of housing to solve growth related problems (e.g. funding non-profit housing, building infrastructure, etc.) further exacerbates cost related production issues, limiting production and leading to higher prices.

For many people the response to this might be, “Duh!” and a forehead slap. But for most people in Seattle here’s how it works.

• Housing prices are rising because Amazon and other tech related business are paying young kids lots of money to work at highly specialized jobs;
• Since they are young, don’t have many other financial obligations, these young tech workers are willing to spend enormous sums of money on their housing costs, including for rent;
• Rather than build housing for ordinary people, greedy developers are building “luxury housing” for these young tech workers and landlords are raising their rents to force out ordinary people so that they can rent to higher paying tech workers; and
• Since greedy developers and landlords control City Hall, the Mayor and the City Council have agreed to massive upzones so that developers and landlords can build even more of this luxury housing to make more money from tech workers and squeeze poor people and people of color out of the city.

There it is folks. Two different movies playing the same screen. I’m working on what we’ll have to do to overcome this dangerous dissonance in the next few years ahead. It may be too late. If MIZ goes forward without pause and the City Council continues to add more and more regulatory costs and if we get rent control (it’s illegal, but that didn’t stop the Council from imposing an income tax which is also illegal), it will be exceedingly difficult to reverse this. Leadership matters, and today we have no leaders, only people that are selling stuff we don’t need.