On the eve of Mayor Murray’s big press conference (today at Beacon Hill’s light rail station at 11AM) on his Mandatory Inclusionary Zoning (MIZ) scheme, Daniel Beekman at the Seattle Times has finally written a story blowing the lid off the confusing and somewhat sorted reality of the much touted and hailed Grand Bargain. It’s a great piece of reporting, and it validates a lot of what I’ve been saying for months. I’ve also been attacked pretty viciously for my criticism. Beekman’s story finally points out what I’ve been saying, the Grand Bargain isn’t much of a bargain and it really won’t create a lot of housing.

But I would have written it differently, of course. That’s not a criticism of the work, just that I have my own take on the story. So I am going to post the story (mostly) with my commentary. Bottom line: Beekman nails it with this one sentence about the scheme:

But Murray was overstating the strategy, and repeating the promise didn’t make it true.

Also the story seems to imply that we need more inclusionary units as part of the mandate. I don’t think we need MIZ at all. We have programs like the Multifamily Tax Exemption (MFTE) Program that are already doing what the Mayor wants to do without driving up all housing prices and risking a law suit.

He’s right; MIZ is a promise that doesn’t deliver. But let’s dig in.

When Mayor Ed Murray unveiled a sweeping plan to make Seattle more affordable, he said a new strategy called inclusionary housing would combat “economic apartheid” by growing mixed-income neighborhoods across the city:

“For the first time, through mandatory inclusionary housing, we will require market-rate developers to build a minimum number of affordable units in any new construction,” Murray said in a speech last summer.

For emphasis, the mayor repeated himself.

“I’m going to say that one more time,” he said, before doing just that.

But Murray was overstating the strategy, and repeating the promise didn’t make it true.

A really nice bit of writing; The Mayor has been all over town and so have his intermediaries dramatically calling the MIZ scheme, a mandate to build rent restricted housing in every new development, a major accomplishment. His staff, I think are finding it unworkable which is why the story exposes some major stepping back even while the Mayor keeps talking.

Under the plan the mayor intends to send to the City Council on Wednesday, Murray officials anticipate that 3,700 affordable units would be created through inclusionary housing.

But they expect that fewer than half of those units — only 1,500 — would be constructed as part of market-rate buildings.

We have been hearing over and over how the program would produce 6000 rent restricted units of housing by mandate over 10 years. It turns out the City is backing off this number. Late last year I asked where that number came from. Leslie Price on the Mayor’s staff made it clear my letter would never receive and answer. Now we know why: that number was never going to be used anyway. The real number was a paltry 150 per year, 75 units less than what the Multifamily Tax Exemption (MFTE) Program produced in 2014.

And zero or close to zero would be constructed as part of market-rate buildings in South Lake Union and downtown, neighborhoods undergoing a high-rise construction boom.

That’s because Murray’s plan would give developers the option of paying a fee in lieu of including affordable units in their buildings and because developers in South Lake Union and downtown would play by different rules than other developers.

Thank you Mr. Beekman. You just validated what I’ve been saying with little effect for months; downtown and South Lake Union developers are playing by a totally different set of rules, and while their surrogates cheerlead HALA recommendations, they are really cheerleading this unfair policy.

The in-lieu fees would be used to help nonprofit developers construct buildings for low-income households on other sites.

And of course the other winners in the Bargain are big non-profit developers who build very expensive subsidized housing. And of course, after processing by the City bureaucracy, only some fraction of the fees will wind up in actual housing.

Maybe that’s why Murray officials late last year rebranded the strategy “mandatory housing affordability — residential,” removing the word “inclusionary.”

Yes. Maybe. You can call MIZ whatever you want, but it just won’t work. Changing the name is, well, putting lipstick on a pig.

Experts say there are some advantages to collecting fees rather than mandating the construction of affordable units.

The advantages accrue mainly to the non-profits and their consultants who will get the money to build housing. But because of the costs associated with their model, the units that finally do get built will be far more expensive to and, therefore, there will be fewer of them. Who loses? Clearly the consumer loses. It’s the family that needs help finding a place to live that will have fewer choices.

But they also say Seattle residents should know what they’re getting with the mayor’s plan.

That’s all we’ve ever said, “Let’s talk about how this will work or not work.” But our questions go unanswered and the Mayor grinds ahead. 

‘Grand bargain’

Inclusionary housing was among 65 strategies recommended last year by the mayor’s Housing Affordability and Livability Advisory (HALA) Committee and then adopted by the mayor himself.

The strategy was part of something Murray called the “grand bargain,” a last-minute compromise that made it possible for the 28-member panel to achieve consensus.

The HALA Committee had spent months wrangling over what developers would do to help the city create low-income housing.

Hanging over the group’s work was the threat of developers suing the city over an alternative, more-aggressive plan proposed by the City Council and widespread anxiety about working people being priced out of Seattle due to average rents climbing above $1,500 in many neighborhoods. The members missed their deadline twice.

I’ve told several reporters that this take simply isn’t true. What was hanging over us was the threat of the imposition of a linkage tax a threat the Mayor renewed just the other day. The linkage tax is a per square foot charge on all new building that would go on forever. It is a disastrous policy and that was the real threat, not the lawsuit we would have pursued to protect against its imposition. Legal experts agreed that a linkage tax wouldn’t survive a challenge, not to mention the fact it would only increase the price of housing by adding costs to development.

Then six of the panel’s most influential members, including three nonprofit developers, huddled with a lobbyist and a lawyer representing downtown developers to negotiate the bargain.

Yes. The Bargain was really about 6 people representing a segment of the community, excluding a great many stakeholders and experts who know how to finance and build housing.

They agreed the city would rezone neighborhoods across Seattle to allow larger, taller buildings. In return, commercial developers would pay fees on office and retail buildings to help the city create affordable units, while residential developers would be subject to mandatory inclusionary housing.

Exactly. The 6 people agreed on the imposition of a mandate on hundreds of other people and companies without really processing how that would play out.

The in-lieu fees for residential developers were part of the plan from the start, if developers wanted to pay 10 percent more than the cost of including affordable units in their buildings.

But the fees weren’t what Murray and other proponents of the recommendations touted as they laid out the grand bargain. The mayor made no mention of the in-lieu option during his summer speech, instead emphasizing the concept of inclusion.

Low-income people are more likely to climb into the middle class when they live in mixed-income neighborhoods, he reasoned.

Under Murray’s plan, the affordable units included in market-rate buildings would be reserved for households making no more than 60 percent of the area median income. Rent would be about $950 per month for a one-bedroom apartment, for example.

“That’s at the heart of what we’re trying to do … to ensure that every neighborhood in Seattle is a neighborhood of opportunity,” Murray said, adding, “Seattle is stronger when neighborhoods … when people of all backgrounds live together.”

The Mayor’s rhetoric and speaking points always emphasized 6000 units created as part of market rate development, something we have been skeptical of all along. It looks like the City is too.

In-lieu fees key part of proposal

This entire section of Beekman’s story just speaks for itself. It sings really.

For months, officials called the strategy mandatory inclusionary housing. More recent documents are scrubbed of the word “inclusionary” and use the name “mandatory housing affordability — residential.” They identify in-lieu fees as an important part of the strategy.

The fees would help nonprofit developers construct 2,200 units, while developers would construct 1,500 units as part of market-rate buildings.

Only 300 of the units constructed with the in-lieu fees would be in South Lake Union and downtown, a chart from Murray’s office shows.

That’s only 150 units per year! Drive up housing prices, get sued, rewrite the entire code for 150 units per year? It’s not worth it. The MFTE program produces more affordability. 

None or close to none of the units constructed as part of market-rate buildings would be in those booming neighborhoods, and developers in those areas would be required to pay lower rates.

Murray officials say they expect scant inclusion in South Lake Union and downtown because constructing affordable units in those neighborhoods is particularly expensive, due to property costs and how high-rises are built, with steel and concrete.

They say the lower in-lieu rates in South Lake Union and downtown make sense because the high-rise developers there wouldn’t benefit from the rezones as much as developers elsewhere in the city.

Economic segregation

Here’s one think I will agree with Rick Jacobus, the Music Man of housing taxes: there are just as many arguments that poorer people could benefit from staying together as being mixed in with people who have more money. I’m not going to debate that here, but the basis of the policy now being backed away from is at least unproven if not just plain wrong. And we’ve pointed out that we already have a good mix all across the city of subsidized and market rate housing.

Though many of the hundreds of U.S. cities with inclusionary housing offer developers an in-lieu option, the trend is in the opposite direction, says Robert Hickey, a national affordable-housing consultant.

Buildings using developer fees are often sited in low-income areas, where land is less expensive and where neighborhood opposition can be less intense, Hickey said.

That perpetuates economic segregation and is why Washington, D.C., which began mandating inclusionary housing in 2008, doesn’t offer an in-lieu option.

“We’ve seen a lot of new research over the last year about why doing affordable housing in mixed-income neighborhoods is better,” Hickey said.

Liz Etta, executive director of the Tenants Union of Washington State, said Seattle officials need to make sure the strategy doesn’t backfire.

“If too many developers choose the fee option, we would simply incentivize the continuance of the concentrated and disparate levels of poverty already existing in neighborhoods,” Etta said.]

Lance Matteson, executive director of South East Effective Development, supports the HALA committee’s recommendations but views the in-lieu option as less than ideal.

“The policy of inclusion should be real,” he said. “If I could write it from scratch, I would put affordable units in every building, period.”

New York City Mayor Bill de Blasio’s similar plan, approved last month by the New York City Council, offers an in-lieu option only to buildings with 25 or fewer units.

De Blasio’s plan also requires more affordable units in market-rate buildings than Murray’s plan: 10 to 30 percent, as opposed to 2 to 7 percent, Hickey noted.

Kirkland and Redmond each require 10 percent of units in new buildings to be set aside as affordable.

Beekman doesn’t explain that the levels of income are set very high, at about 80 to 100 percent. 

Using fees for leverage

Here’s where the story starts to implicate the wrong outcome: we don’t need more inclusion; we need a better strategy to begin with. Shaking down builders for fees or squeezing units into their projects will just raise housing prices for everyone to create a few expensive and scarce subsidized units. The MFTE program is already doing what the Mayor wants to do, and much more effectively.

Murray officials say the in-lieu option provides crucial benefits and contend a mix between payment and inclusion makes sense.

The city will use the fees in combination with money from other sources to help nonprofit developers complete projects, said Viet Shelton, a spokesman for the mayor.

“The city can leverage every one dollar invested with three dollars of other government subsidies,” he said.

Ubax Gardheere, a HALA committee member and program director at Puget Sound SAGE, a nonprofit advocacy organization, says that while economic integration is positive, a striving immigrant family might prefer to live in an low-income building near people with the same background rather than a market-rate building in a wealthy neighborhood.

“People should have a choice,” she said. “Sometimes when you gain access to opportunities you lose social cohesion and culture and your support system.”

Rick Jacobus — like Hickey, an affordable-housing consultant — says Seattle has a better track record than other cities of siting low-income buildings in a range of neighborhoods.

Jacobus studied Seattle’s existing incentive-zoning strategy, a voluntary setup that gives developers in certain dense neighborhoods more room to build in return for fees.

Incentive zoning has helped nonprofit developers construct more than 30 buildings, including two in Ballard, two on Capitol Hill and one near Green Lake.

“Seattle has been able to produce dramatically more housing with fees than they would have with units on-site and their map looks really good,” Jacobus said.

Jacobus thinks the benefits of including affordable units in market-rate buildings have been overblown.

“The research hasn’t supported that conclusion,” he said. “People don’t really interact much with their immediate neighbor, anyway. If everyone is closing the door and watching TV, what really matters is whether you can access jobs, quality schools and services. That’s really different from one part of town to another but not that different block to block.”

But a sociology Ph.D. candidate at the University of Washington offers a different view. Tim Thomas, who published a working paper with colleague Ryan Gabriel this month on racial segregation within Seattle neighborhoods, found blocks with more black residents to have fewer amenities than nearby blocks with mostly white residents.

Greenwood includes dozen of blocks, but 50 percent of the neighborhood’s black residents live on just two of them, Thomas and Gabriel found. “Segregation exists down to the block level,” Thomas said.

Strategy linked to rezones

I guess I almost get the last word: it won’t work. The MIZ scheme will just raise the cost of all other housing. And yes, it would likely end up being challenged successfully in court as a taking.

The inclusionary-housing strategy wouldn’t take effect unless the council also greenlights Murray’s rezones. That process should prove more contentious and will take at least a year.

Roger Valdez, a lobbyist for a group of neighborhood developers, is skeptical the rezones will pass. Regardless, he argues, the strategy won’t work. Neighborhood developers would react by hiking the rents for the market-rate units in their buildings or by suing the city.

Murray’s plan is a work in progress, said Jason Kelly, a spokesman for the mayor.

“We always knew that as we moved … to the specifics of the legislation, there would be considerable discussion and some adjustments in the details,” Kelly said.

He added, “The mayor’s goal is an agreement that is fair and balanced.”

But Jacobus, despite seeing the in-lieu option as a reasonable part of Murray’s strategy, sounded a warning note.

“Fees aren’t what people picture when they hear about inclusionary housing,” he said. “They picture on-site units, which have symbolic value. You get the sense that people are sharing the costs and benefits of growth in Seattle. That’s true for off-site units, too, but you don’t feel it in the same way. That can erode voter support.”

The whole Grand Bargain is about symbolism and solving political problems, not housing problems. We still have time to stop and start over with interventions that would work.