The housing discussion in Seattle lacks a solid intellectual footing in economic principles. When people debate housing here, there is rarely a clear starting point when people take positions or make “bargains.” I would suggest that those who build housing need a set of simple, clear principles to judge whether something is a bargain or not for us and for our customers. And when Council asks us to give up housing capacity somewhere, that we demand that they replace that capacity somewhere else.

At last weeks hearing on the proposals contained in the report of the Mayor’s Housing Affordability and Livability Agenda (HALA) Committee and here on the blog, I voices skepticism about the so called “Grand Bargain” between developers and others to accept inclusionary zoning to avoid linkage taxes. In the post on The Stranger’s blog, a commenter summarized my points perfectly:

1. The HALA report falsely assumes that growth is an impact, when actually it is quite beneficial.

2. Some developers (“some of my guys”) will find that the incentive of being allowed to add an extra floor in exchange for providing 10% affordable units just won’t pencil.

3. Inclusionary housing is an inherently inflationary policy.

The first and last point is a perfect example of how we’re adrift. I realize that the political reality at the negotiating table was “developers have to give up something” to avoid linkage taxes, a per square foot tax on all new development which was proposed by Councilmember O’Brien. But new housing is not a bad thing that needs some kind of offset and adding costs to new housing won’t make it cheaper. Making that point isn’t breaking away from any coalition or coming out against the Grand Bargain, it’s simply holding the whole process accountable to our own bedrock economic principles.

Our intellectual operating system should be programmed to always start up with these points:

• If it is argued that housing prices are too high we need to ask, “by what measure?”
• If prices are high by an acceptable metric, then we know that scarcity is the reason and therefore we need more housing.
• That new housing will sell or rent for more than older existing housing.
• That’s ok, because that means newer housing can absorb demand from people with more money to spend and they won’t compete with existing tenants of older housing or new arrivals to the city with less money.
• That new housing, built at private risk and expense, is a public benefit to the whole community.
• Anything, even things that are vital and necessary like health and safety requirements, that add costs and limit capacity always increases the price.
• So any regulations or added costs should more than offset the loss of housing and that lost capacity should be replaced.
• Any value capture scheme to take advantage of increasing or improving housing shouldn’t add time or costs to the production of new housing
• Numerical targets for housing are by their nature arbitrary and should be revisited in favor of careful tracking of how the market is responding to demand
• At whatever point the market fails to meet demand, interventions to support people too poor to pay rents to support the cost of land, construction, financing, and operations should be broad based and expect contributions from those most inefficiently using limited land in the city (i.e. Single-family homeowners)

Let me say that had the negotiators been armed with these principles (which each have strong data and deep, well argued intellectual roots to support them) and had they held themselves accountable to them, we almost certainly see Councilmemeber OBrien’s disastrous linkage scheme forced fed to us. Why? The view that housing scarcity is the source point of higher prices is still a novel one both intellectually and politically. Politicians and voters still think, along with other wrong ideas, that building more new housing makes all housing more expensive.

Yes, I’m saying that even if we had principles and stuck to them, some inflationary scheme would have been imposed on us. But having principles is starting to work. When I spoke over the last week at different times with a reporter and a candidate for the City Council each expressed the following in a very matter of fact tone: “If we don’t get more expensive, newer housing then those people who can afford those prices will bid up cheaper, older housing.” This reality is now becoming conventional wisdom among the press and the political class partially because we’ve argued for it over, and over, and over, and over again in comment threads and blog posts for years!

We’re winning! Or at least there is hope. And when we do lose, we must be able to understand that we did, indeed, lose and exactly why. Ronald Reagan as Governor campaigned against a withholding tax saying his feet were in concrete on the issue. But when subsequently signed the tax into law after losing a political battle, he said “I can hear the concrete cracking around my feet.”

Intellectual concrete around our feet isn’t just optional it’s essential if we are going to get to a cultural norm in Seattle that supports all new housing as a public benefit. Even when that concrete breaks there is something left to repair and build up again. People are starting to get it. Let’s not stop now.