It Isn’t Too Early to Say it: “I told you so!”
Laocoon, follow’d by a num’rous crowd,
Ran from the fort, and cried, from far, aloud:
‘O wretched countrymen! what fury reigns?
What more than madness has possess’d your brains?
Vergil, Aeneid, 2.40, John Dryden Translation
The media in Seattle has been lagging in its curiosity about the City’s Mandatory Housing Affordability (MHA) scheme. It was impossible to get the to cover the problems with the idea. So I wrote an editorial in the Seattle Times. I said first,
The fees negotiated for extra capacity were favorable to projects in downtown and South Lake Union, not projects anywhere else. Second, the MHA fees cancel benefits from extra capacity in other neighborhoods.
We have always said that builders don’t need or want extra height and that paying for it would make projects infeasible or more expensive.
But a story on KUOW finds that what we’ve been saying about the consequences of MHA are now starting. By imposing fees in exchange for a little bit of additional development capacity, the City is first making many projects infeasible and second adding costs to new housing that will be passed on to consumers in the form of higher rent or sales price. Here’s what the story tells us about the Miller families efforts to develop in the Alaska Junction.
But the problem for small developers like Miller’s family is that the right to build a taller building isn’t necessarily a gift because it’s so much more expensive. “To do that you’d have to change your whole structure,” Miller said.
For example, in Miller’s case, his part of the neighborhood was upzoned from 85 feet to 95 feet. The extra height would make his building a high rise. High rises are built out of concrete or steel, which is much more expensive than wood. “So it’s kind of like sticking a carrot out there that nobody’s going to go for,” he said. “It sounds nice, but it doesn’t work.”
“Sounds nice, but it doesn’t work.”
Exactly.
And there is more.
Neiman said mom and pop developers are showing up less frequently in his office now. Instead, he’s seeing interest from a different kind of developer: institutional investors.
Some bring money from places like San Francisco and Vancouver, B.C., Nieman said.
Others manage the investments of wealthy people from all over the world. Their projects have a very different reason for getting built. They don’t need to make a quick profit, Nieman said.
David Neiman describes the “existential crisis” being experienced by small and medium sized developers faced with fees. So those builders are trying to avoid the fees by getting their projects entitled before MHA kicks in, or buying projects that were permitted in the last year or in process already. They can’t take the risk.
But large pension funds that have lots of scale can afford to sit on land for a longer period of time and pay bigger fees as Nieman points out. As I have said over and over again, it doesn’t matter if the fees were $1,000 a square foot; housing will get built. But the only companies able to build housing with square footage fees will be large ones. And as costs climb, those costs will be absorbed then will get passed on eventually.
This isn’t too hard to understand. It isn’t complicated. And it doesn’t make any sense. What we’re seeing in this story is simply the beginning of slowed production while investors and builders try to figure out how to build in the MHA environment. When they can’t avoid the hassles and costs of the new regime, they’ll either have to raise their prices or rents or sell to the kinds of builders that Neiman mentions.
This didn’t have to happen. We’ve been warning about this for a long time. Unfortunately, it will likely be a court that will have to intervene to fix the damage.
Tunc etiam fatis aperit Cassandra futuris
ora, dei iussu non umquam credita Teucris.
Nos delubra deum miseri, quibus ultimus esset
ille dies, festa velamus fronde per urbem.
