Mayoral Candidates: Tax the Rich!
Each of the major candidates for Mayor, Nikkita Oliver, Mike McGinn, Cary Moon, and incumbent Mayor Ed Murray are all advocating an illegal tax on income for the city of Seattle (Moon says she doesn’t support the passage of the tax because it’s illegal, but my guess is that if it was legal, she would). What motivates this is politics pure and simple. I’ll go a step further (without any hard data to support this) and suggest that the demand by people in Seattle to “tax the rich!” is a mix of simple envy, thoughtless adherence to ideology, and resistance to growth. There are serious problems with the idea of taxing the rich aside from it being illegal under state law. These kinds of proposals have very little data to support them, don’t have any clear redistributive plan for plundered wealth, and have unintended negative consequences.
First, all we ever here from people angry about income distribution is stuff about how X percent of the population has Y percent of the wealth. A recent article was posted to the City Builders Facebook group headlined, NYC’s Top 0.1 Percent Makes Four Times The Income Of The Bottom Half Of Earners. These stories are part of what today would be called fake news. Their purpose is to stoke outrage. One can almost feel the head shaking and eye rolling and expressions of exasperation all over the town. “Damn those rich people! Pass the butter, please.” Here’s what I wrote in response,
Remember the common sense side of this. The rich are called rich for a reason : they have more by definition. So in a room full of people wealth, like height and weight of other characteristics are not distributed equally. These stories are as relevant as saying “the people in the room with the biggest bodies weigh four times the smallest people in the room.” So what?
The implication is that the ratio is wrong. The weight or wealth in this case should be distributed more evenly. But what should the ratio be? Three times? Twice the income? Or should everyone earn the same?
There isn’t a normative quantitative standard for what the ratio should be and a good rationale for that standard. This is data abuse. We’d be better off without these pointless stories that do nothing but rile people up against high earners.
Sure, it’s frustrating that one person works two jobs and earns as much as a rounding error in someone else’s income. What do we do? Yeah. I know. Taxes. But why not encourage and improve the earning power of the poor person.
Dang Xiaoping once said “I have two choices. I can distribute poverty or I can distribute wealth.” You can’t create wealth if it’s creation is punished and discouraged.
Every time I hear people demand that we tax the wealthy because they have too much and others have too little, I never hear what the ratio should be. Never. I also never hear what method and means would be used to redistribute the cash.
That’s problem two. We’ve already seen the horribly wasteful mess that is non-profit housing development. I might warm up to the “tax the rich schemes” if I had a sense of the normative ratio of wealth and what would be done with the money from a wealth tax other than simply pouring it into existing programs that have clearly not been effective; if they were, why do we have such a disparity of wealth. In other words, why would we give a raise to a system that so clearly hasn’t ameliorated the problems of wealth maldistribution and are inefficient. It takes money to spend money. Even if the budget for social service programs was doubled or tripled it takes lot of resources to collect then spend that money, even if it was just poured out of money bags off the top of the Columbia Center.
Finally, what message are we sending to entrepreneurs and businesses that are looking to locate in prosperous, growing Seattle? The message is clear: go away! We don’t want you here, you make too much money. Imagine a tax that was a tax on unicorns. Tax the unicorn ranchers! Why would a unicorn rancher move her heard to Seattle. Wealth isn’t unicorns? Right. But is it a bad thing? That’s the message implicit in schemes aimed at taxing some group of people. Their wealth is somehow ill gotten, bad, and harmful to the community. This mindset is closely aligned with the people in Seattle who marched for science this last weekend, but still believe that building more housing makes it more expensive. Whatever, Galileo.
Taken together, a mayoral candidate or anyone who proposes a “tax on the rich” needs to explain the quantitive basis of the problem of wealth distribution (i.e. when is someone too wealthy and thus deserving of a tax and why), what the collection and distribution of the new revenue will accomplish and how and why will it reduce income inequality, and lastly, how will it not discourage entrepreneurs and innovation when the reward for success in Seattle is punishment. Support for these schemes, in my view, is disqualifying for office unless there are really, really, good answers to these questions. Don’t hold your breath waiting for them. The candidates measure their success in applause and votes, not actual success in addressing poverty.
So Far, the Race for Mayor Doesn’t Look Good for Housing
Note: Mayoral Candidate Mike McGinn will visit our regular Seattle Builders Council Breakfast Thursday morning at 7:30, May 4th. All candidates and public officials are welcome at our breakfast to have some time to share their thoughts and their messages although we don’t have a formal endorsement process. McGinn wanted a chance to express his views directly. My analysis of his and there other candidates views is my own and based on the public record so far.
Well, as I’ve said before, Seattle simply isn’t producing good candidates for City office and it looks like the Mayor’s race is becoming a bizarre race to the left. The featured image is from a Mayoral candidate forum hosted by the 46th District democrats. Our city is in real trouble, folks.
So let’s take the housing relevant items first. McGinn’s answer to the question “Do you support HALA (the Housing Affordability and Livability Agenda recommendations)” is as strange as the question itself. No answer. Based on his speech, I’m guessing that McGinn is playing to the neighbors expression his doubts about the process more than the specific recommendations. I guess I was a bit too optimistic that his speech was about starting over again and that McGinn would halt the MIZ process and reconsider. That isn’t consistent with already deciding he wants “higher developer fees.”
Oliver’s “No” answer means, in my estimation, that she simply doesn’t understand (and most people don’t) the difference between the 65 recommendations in the HALA report and the Grand Bargain up zones including Mandatory Inclusionary Zoning (MIZ). She’s publicly stated she wants a 25 percent inclusion rate. And I think Carrie Moon, based on an interview, is cheering the up zones in the Bargain as somehow helping the housing “crisis.” And the Mayor is the one that created the MIZ mess in the first place, so there’s no surprise in his answer and what it means.
What’s disturbing about the answers is that the right answer (discounting the fact that it should have been about MIZ), “No” is for the wrong reason. Oliver wants to wring out more cash to punish developers. McGinn’s non answer is likely a sop to angry neighbors. Just look at the answer to the second question about “higher developer fees.” Everyone said yes, and the question itself is an indication of the mood of the electorate: we should punish developers for building more housing.
The next question about duplexes and triplexes is interesting. They all answered yes, but it’s hard to know what each of them mean. The Mayor already famously backed down from any increase in density in single-family zones. And the HALA process unleashed a bizarre war on single-family zones by so called “urbanists.” I’ve already said that we don’t really need to mess with single-family zones if we did what we should be doing in every other residential zone; but we’re not. Instead of upping the capacity of all multifamily zones the City Council has reduced that capacity in low-rise zones and then added it back with mandates for inclusion or fees in lieu with MIZ. So in a demonstration of the politician brain’s ability to hold wildly inconsistent views, the “Yes” answer doesn’t make any sense. Add more density to single-family zones in spite of opposition by the very people that want higher developer fees and downzones in areas that already can accommodate more density. Weird.
The question on the tree canopy is a red herring and a proxy, again, for “do you want to limit housing?” I suppose even I would have answered “Yes” to this question knowing full well that the tree canopy is just fine. In fact, we have more canopy now than we did twenty years ago and development and trees get along just fine.
And rent control. Wow. McGinn got a blast from me in a text message as soon as I saw this. When I took him to task about this answer he said,
Roger, I’m happy to meet your folks and talk directly. Basing a decision on lightning round flash cards would be premature.
And I replied,
Cmon. You know better than that. I read it as disqualifying. You based your campaign the first time on decisive answers. We don’t have time for that. Yes or no. Raising fees and rent control would kill our housing economy and you know that.
The last time around, in 2013, McGinn said this about rent control
I am skeptical of rent control because of the experience of other cities,” he wrote. “I am looking at what we can do to change our rules to require greater advance notice of rent increases, and increased relocation expenses.
Murray’s pretty much capitulated on rent control and said so when he ran the first time. From Capitol Hill Seattle,
Rent control is an issue that both candidates have been loathe to take a strong position on. When an audience member asked directly if rent control was off the table, McGinn simply pointed out it was out of the hands of the city. Murray was a little warmer to the idea: “If the city wants it, I would work towards it” (emphasis mine).
That McGinn so readily embraces rent control says a lot about the continuing leftward lurch of the city. I don’t think any candidate determined to win can be openly against rent control. Murray actually was pretty adamant about rent control a couple years back, saying on KIRO that,
“I know it’s possible to get difficult things done, but rent control was one that never even got out of hearing, much less out of committee, and that’s when the Democrats controlled it. I need to get affordable housing in Seattle immediately,” Murray said.
Along with rent control, all the candidates support an illegal income tax proposal as well (Moon answered “No” to this question because of the legal issues, but it’s a safe bet she’d support an income tax if it was legal and we’ll see if she’ll change her mind as time passes and pressure builds to support it anyway). McGinn and Murray have essentially said they don’t care that it’s illegal, they’re going to propose an income tax anyway and let the City get sued over it. I suppose they’d all do the same for rent control too. Why not? The City’s MIZ program is illegal, and Councilmember Mike O’Brien brazenly proposed and the Council passed a plainly illegal proposal requiring design review for projects below the threshold for the process because of development on an abutting lot.
So what the field of candidates has demonstrated is either an ignorance of why rent control simply doesn’t work or a willingness to pretend like they don’t know that, a willingness to propose things that aren’t legal to win votes, and a willingness to boost fees in the face of our explanations (corroborated by Sightline) that making housing more expensive won’t lower its price. One of those people will be our next Mayor.
Like I said, our city is in real trouble.
Cortright: The High, High Price of Affordable Housing
Joe Cortright who writes for City Observatory has corroborated what I’ve been saying for quite some time now: the non-profit housing industrial complex produces subsidized housing very, very inefficiently.
The costs are substantial. In San Francisco, one of the largest all-affordable housing projects, 1950 Mission Street, clocks in at more than $600,000 per unit. That number isn’t getting any lower: new units in that city’s Candlestick Point development will cost nearly $825,000 each, according to recent press reports. Brown’s point is that at that cost per unit, its simply beyond the fiscal reach of California or any state to be able to afford to build housing for all of the rent-burdened households.
You can and should read the whole post here.
Locally, I’ve pointed out that two projects, one built on Beacon Hill and the 12th Avenue Arts project on Capitol Hill produced 200 units of housing for a total cost of $92 million dollars, or about $460,000 per unit. Taken by itself, the 12th Avenue Arts project produced 88 units for $47 million or $534,090,91 per unit. To give you a sense of how ridiculous this is consider this townhouse for sale in the Greenwood neighborhood in Seattle:
That’s right. For roughly the same price that the non-profit complex produced 200 units, that cash could have bought those 200 families three bedroom homes, free and clear with no debt. Done! Imagine a household just being given a house or if the funding was used to purchase existing assets rather than using the money to buy pricey land, high cost labor, and lots and lots of transaction fees. The system used to produce free standing subsidized housing is grossly inefficient but very politically powerful.
What makes this worse, is that here in Seattle, the non-profits are now strong arming the City to impose a fee scheme to wring money out of the private development of housing to fuel their excesses. Mandatory Inclusionary Zoning (MIZ) is being deployed because the non-profit costs are skyrocketing. Far from being some kind of Bargain, MIZ is nothing more than an extortionary scheme to raise the funds for ridiculously expensive housing.
Ironically, the townhouse in Greenwood will be taxed and the only way to pay for those taxes is to raise the price of the house. That means that incrementally, all new housing will go up in price. While it may not seem important to many in town, those incremental boosts mean some families will not be able to complete financing. And some projects won’t get built. And many, many more people will be faced with fewer choices. The real toll is the households who might want to buy but won’t be able to, so they’ll stay in an apartment that would be affordable to someone else. This stacking effect of deferred purchases, fewer apartments and houses, and increasing demands means even higher prices and sustained scarcity.
And every candidate for Mayor supports “higher developer fees.” I’ll have more on the Mayor’s race tomorrow.
From HUD: MIZ Produces Few Units, More Study of Costs Needed
This was originally a follow up e-mail to the Housing Affordability Response Team (HART) I posted yesterday.
PS I wanted to share this article, Producing Affordable Housing in Rising Markets: What Works? for what it’s worth.
Along with a critique of Inclusionary zoning it also calls for more study of costs and production, especially of government supported programs.
A better understanding is needed of why existing state and local programs have produced only modest amounts of affordable housing and whether these programs could be redesigned to be more productive. Better data on output are therefore essential. State governments, affordable housing advocacy and research organizations could be useful allies in collecting and disseminating data. Not only do they have more resources than many local governments, they could play a valuable role in standardizing data reporting. Prior research has focused mostly on how program design impacts output. Equally important is an understanding of the political dynamics of both local and state programs.
Not long ago, at a collaborative meeting on reducing infrastructure costs associated with water, we heard from an architect who designs for non-profit housing developers and found out that his frustration with infrastructure requirements is similar to our own. The costs that are being imposed throughout the economy are often well intended, but also frequently redundant. For us, that means raising prices, for non-profits it means fewer units.
We can trace the “modest amounts” cited in this article to regulatory overreach. The architect noted that the City of Seattle’s Office of Housing issues the grant of funds, while another City Department demands funds for redundant infrastructure in the six figure range. For example, a non profit agency is successful in getting a grant from the Office of Housing, those funds are paid out to a project, then the funds end up paid back to another Department, Seattle Public Utilities, in the form of new and expensive water mains or combined sewer overflow for wider public benefit. Challenging this makes no sense for the project managers, especially when the City is the source of funds. “Why would we make trouble with our funder,” the architect said.
This is common throughout our system of funding non-profit housing and there has been zero effort by the City or the Washington State Finance Commission to at least surface this as a serious problem nor to address these kinds of costs as aggressively they have in seeking more money. So far, we’ve been alone in asking to reduce housing costs and choke points for production. Further study of these costs and eliminating them would help all housing production, everywhere and address many of the issues the HART is grappling with. And as the article points out, state level government is uniquely positioned to do this through studies like the one we’ve proposed in the Senate budget.
Tax payers are wearing out, and so are consumers of housing. Smart Growth Seattle simply can’t allow the costs of these gross inefficiencies to be transferred to the private sector and ultimately to home buyers and renters. That will lead to higher prices and more regulation and higher prices. Notwithstanding the politics and personalities we should — we must — work together to account for these costs and eliminate them across the housing economy.
McGinn In Again: Maybe We Have a Chance on Slowing, Stopping MIZ
Former Mayor Mike McGinn is running for Mayor against incumbent Mayor Ed Murray. The current Mayor has stubbornly clung to the concept of Mandatory Inclusionary Zoning (MIZ), a scheme that requires the inclusion of rent restricted housing in every new housing project. If a project doesn’t include rent restricted housing, then it must pay a square footage charge to the City which in turn funnels that cash to non-profit housing developers, who in turn will build ridiculously expensive subsidized housing in several years. This won’t do anything to lower over all housing prices, in fact in will increase them as projects rationalize the additional costs by raising their prices. The Mayor and his staff have called this Mandatory Housing Affordability (MHA) and it was the product of a “Grand Bargain” between Vulcan’s lobbyists, a lawyer that charges non-profit housing projects for legal advice, non-profit developers, and Councilmember Mike O’Brien.
What did Mike McGinn say about the so called Grand Bargain in his announcement speech yesterday?
That is why housing costs, like our budget and taxes, must also be a priority. I commend Ed Murray for asking stakeholders to bring forward their best ideas to address housing. HALA – the Housing and Livability Agenda – has some good ideas in there. But ideas are not enough. If you want public support, the public has to be involved. You can’t tell them that a bunch of people in a room have made a “Grand Bargain” when the people most affected – the public – didn’t have a seat at the table. I’m reminded of the old proverb – if you want to go fast, go alone. If you want to go far, go together. And we have far to go.
If elected, immediately upon taking office, I would launch true neighborhood driven planning across the city. Invite everyone – those who think we’re growing too fast, those who think we need to build more housing fast. Homeowners, renters, builders. And let’s have it out.
Let’s take this apart. First, it was pointed out to me by someone that when McGinn says, “the public” he doesn’t necessarily mean us, hardworking builders who build single-family, low-rise, and apartment housing. That is, perhaps he’s pandering to angry neighbors who simply don’t want any more growth at all, and certainly don’t want any additional density even if it comes with an exaction on all new housing for subsidies. Is McGinn send a dawg whistle message to embittered neighbors in Wallingford, for example, that want to grind all new housing development to a halt?
Maybe. But lets’ consider the second paragraph.
McGinn sounds like he might simply be hitting pause on the whole mess of MIZ outside Downtown and South Lake Union. Maybe if he gets elected, “immediately upon taking office,” MIZ gets shut off. That’s exactly what we’ve asked for. Second, he’s sounding a similar call to one I’ve made before, and that is go back to the promise of neighborhood planning 20 years ago when there was a real Grand Bargain struck between single-family neighbors and the need for more growth in already dense areas. This is something we would likely support since it makes the angry neighbors promise to support growth in areas already zoned for density in exchange for leaving single-family, single-family.
Who knows. But based on the plain reading of these two paragraphs I am hopeful. I have had many, many differences over the years with McGinn, someone who I’ve known well and personally for over a decade. I’ve also supported his work at the Seattle Great City Initiative, working as a volunteer and paid staff, and I contributed to his first and re-election campaign. Once McGinn got over months of turmoil starting his term, his staff was very responsive and we got answers and more certainty about what the executive branch was up to. We didn’t always get what we wanted, but we at least got clearer signals, and certainty matters in development.
On the other hand, McGinn has demonstrated an annoying me-too drift to the left that I find worrisome. I think he likes being associated with the cool kids and the socialists and social justice crowd that is so hopelessly confused about economics and doesn’t seem to want to understand how housing actually works. McGinn is smart. He gets how the economics of housing works. He also gets politics. And the politics of Seattle is deeply and deliberately self-defeating, promoting the notion that taxing and adding costs to housing somehow punishes developers and helps poor people. It doesn’t. Can he appeal to those people rhetorically, but support the creation of a process and policy that leads to more housing, lower prices, and, as he put it, saving us from being San Francisco? I don’t know. Only time will tell.
