The red light on the dashboard of state government is flashing. There is a growing worry about housing prices at that level of government as well. While Mayor Murray set about to create a high profile committee to wring hands about the “crisis” of housing prices, the State of Washington has taken something of a quieter approach, creating something called the Housing Affordability Response Team or HART. The group was convened to respond to a letter from Governor Inslee to take a look at what is driving up housing prices and impacting affordability. I was hopeful the HART would lead naturally into our request for a budget proviso to take a hard, objective look at housing costs in the state. However, I think now the HART is becoming a state level HALA with the next meeting being a voting meeting about specific recommendations. My guess is that there will be a lot of good or interesting ideas offered: and then the ones that generate money for non-profits will end up getting all the attention and will drive future legislation. I sent the email below to the chair of the Committee Peter Orser and HART member Svenja Gudell. 

At the end of that e-mail I closed with this sentence: “During the HALA process I made the mistake of not standing in the road or at least on the side of the road waving my arms. I didn’t raise enough of an alarm then, and so I’m doing what I can now. Thanks for taking my concerns seriously.” 

Hello Peter and Svenja,

Price is a funny thing; get out of its way, and price will tell you all you want to know about a market and people in it, what they want, where, and how and whether suppliers can meet that demand. Price tells the story that almost every other data just hints at. Yet politics dictates that when some constituencies are paying too much or too little, we must intervene before we understand how the complex relationships between buyers and sellers resolve, and too often we make things even worse.

When we try to wrestle price into submission and use qualitative, socio-political normative standards to be sure one group doesn’t pay too much or another too little, we end up creating perverse incentives, and often, inflation. Add to this aesthetics, transportation, and a host of other utilities and disutilities we wish to manage for various real or perceived benefits, and you have a real mess. I think we saw that on Thursday and I think my example demonstrates the real damage done when data is misused, misapplied, or misunderstood.

I’d ask that the Committee keep first principles as your measuring stick for any and all proposals you consider.

• Does the proposal add or reduce costs to housing? By how much?
• Does the proposal generate new money for subsidies? How?
• What is the corresponding data point or points for the proposal?
• What is the measurable impact of the proposal on a current housing related problem?
• Will the proposal positively or negatively impact consumer-housing prices? How?

For example, if I suggest direct cash payments of levy dollars to defray the costs of “cost burdened” households (i.e. if a household at 30 percent of Area Median Income is paying $235 above 30 percent of their gross monthly income, just deposit that amount in it’s bank account each month) I’d express it this way:

I think if the HART is going to entertain a grab bag of proposals, it needs to be very diligent about being accountable. If I put Mandatory Inclusionary Zoning  (MIZ) on this table, it would be impossible for anyone to support it because it would plainly show that the intervention of mandating performance or fees in lieu would firstly increase overall housing costs and prices, and it wouldn’t correspond to any data point that is relevant to us (e.g. reduction of the number of identified “cost burdened” households).

The HART won’t have much creditability with the people I work with and for (or among the legislature, press, and wider community) tif it does not acknowledge these points and seek better analysis if an answer can’t be had by an outside objective review. This is why we advocated for the proviso for the JLARC study in the Senate budget. I’ve attached that proviso along with proposed merge of that proviso language with a similar provision in the House budget. We need a study of how the costs we’ve added to housing production are impacting its price and why.

As I’ve said before, we’re not recognizing price for what it does best: send signals. I understand that politics doesn’t allow us to use the economy as a real time experiment in supply and demand; we want to be sure nobody is harmed that shouldn’t be, and those that should, are. But when we distort the housing economy with interventions intended to fix prices for some at the expense of others, we end up creating more problems.

And when, like Goldilocks, we try to make everything in housing production, “just right,” we can’t even figure out and agree upon what’s buildable land.  All land is buildable within the limits of engineering and financing. When we attenuate that envelope we add costs and thus limit supply which increases price. Examining all the ways we’ve done that makes good sense because it would help us debate the real quantitative impacts of our values rather than trying to impose them on the market and blame others for the outcome if it doesn’t work out.

If I could, I’d make every member of the HART and every planner in the state read Hayek’s The Use of Knowledge in Society (or watch this segment from The Commanding Heights about the so called German Miracle), a very brief essay that, I think, clears the head on what we can know and what we can’t using data. In the end, this is not about the ‘A’ in the HART it’s actually about price. I hope that the HART will build that into the essence of whatever it produces and recommends going forward.

I suppose I run the risk of being dismissed as a free-market kook. Oh well. The truth is we’re at a critical moment; we can either step back and consider what regulation has done and is doing to housing production or we can add more in hopes that it will somehow work if we keep doing it. Unless we’re careful, we’re going to increase the suffering of the people with the least resources in our economy regardless of the sincerity of our motivations.

Roger–