Facebook Shrugged: Bargain Supporters are Losing Patience with Criticism

I’ve been called obsessed and delusional about the Grand Bargain by one of its supporters. It’s true I have been going on and on at every  opportunity to point out that the Bargain is just one of 65 recommendations and that the biggest piece of the Bargain–Mandatory Inclusionary Zoning (MIZ)–is likely to raise housing prices if it can even work. But more likely it’s infeasible and probably illegal.  I guess I went too far in a Facebook thread about the Multifamily Tax Exemption (MFTE) program:

No wonder you don’t have any friends anymore, Roger. It’s sad. You’ve turned into an Ayn Rand-esque absolutist who thinks getting your views heard is more important than telling the truth or having relationships with other people. That’s something I’m saying to you personally, not in the comment threads.

Yep. Rough stuff. This happened after I called this person out for being on the pay roll of Seattle for Everyone, a front organization pushing the broader HALA recommendations but fueled by support from Vulcan and others in Downtown and South Lake Union that will not have to build under MIZ, just pay a lower fee. I don’t think it’s wrong to take money to support a cause, but that’s advocacy not journalism.

Ironically it was the fact that I am paid to support Smart Growth Seattle’s agenda that drew this rebuke from another Bargain supporter.

Roger, Yes, you have a voice, a very important voice, in all this, just like the other organizations do, and just as I did when I was working for one of them. I was writing on my phone too quickly and should have been clearer: you are perceived to be a monied interest and people use that to discredit you. I am not saying it is RIGHT that you are distrusted by some because of your funding; I am just saying it is FACT. It’s not meant to be an attack; it is just a statement of how things look to people.

Hmmm. Funny how the shoe sometimes fits just perfectly.

I will continue to call out the problems with MIZ no matter how many “friends” I lose or who gets upset. Hundreds of builders and evelopers have their livelyhoods at risk by people who would rather agree on something (even if it’s a bad thing) just to be agreeable. I can’t simply stop and give up when builders are out there everyday creating housing. They’re not doing anything wrong — in fact, they are building the city! I’ll do everything I can to slow or stop MIZ if it is going to harm that work.

Things will, I’m sure, get even more interesting in the months ahead.

 

 

MFTE Creates More Savings for Renters than Mandatory Inclusion

Let’s do a more detailed comparison of housing produced under the City’s Multifamily Tax Exemption (MFTE) Program and the housing that might be produced under the Mandatory Inclusionary Zoning (MIZ) proposal that is part of the so called Grand Bargain.

Example: A 50 Unit Small Efficiency Dwelling Unit (SEDU) Project on Capitol Hill, near a transit station.

MIZ

50 Unit Project

If we start with roughly an extra floor the project could add 5 additional units. Since 7 percent of the whole building needs to be affordable (55 units x .07 = 3.85 units that you round up), 4 of those units would have to be rent restricted.

The 51 market rate units would be priced at about $1600 per month, so to meet the minimum affordability in the Bargain, the 4 rent restricted units would be priced at $942 per month to meet the 60 percent of Area Median Income (AMI) requirement. Based on the new rules, SEDUs need to be at 40 percent of AMI or $628 per month.

It is important to note, however, that as we’ve pointed out, nobody is building SEDUs using MFTE because participation at 40 percent AMI makes most projects financially infeasible.

So, for our example we’ll assume a total of 55 units with 4 rent restricted units. The total rent savings is $658 times the 4 units for $2,632 per month or $31,584 per year.

Here it is in a table format:

MIZ — Small Efficiency Dwelling Units (SEDUs)
Units	50	Low-Rise 3 Zone
Bonus Units	5	10 percent increase in FAR (Estimate)
Rent Restricted Units	4	7 percent of entire building (60 percent AMI)
Market Rate Units	51	$1600 per month
Total Units	55
Rent Savings
Market Rent	$1,600
Rent at 60 percent AMI	$942
Monthly Savings per Unit	$658
Total Monthly Savings (4 Rent Restricted Units)	$2,632
Total Annual Savings (4 Rent Restricted Units)	$31,584

MFTE

50 Unit Project

With MFTE the inclusion rate is higher, 20 percent so there would be 10 rent restricted units and 40 market rate units priced at $1600. We’re going to use the older rules for MFTE for this comparison, since, as I mentioned above, nobody is building SEDUs at the newly required 40 percent AMI requirement.

Not only that, the new requirement for SEDUs, it is 25 percent inclusion of the units (so 13 rounding up) at 40 percent of AMI, which is $628 per month. But the total loss of rents is $972 multiplied by the 13 units or $12,636/month and $151,632 per year!  The annual property tax savings granted by the MFTE program on this project is more like $43,680, nowhere near the total lost rents.. Typically the deferred tax value is calculated like this:

Total Units	Market Rent per Unit	Gross Annual Income	Net Income (subtract 35% of gross income)	Approximate Value of Improvements (7 Percent of net income)
50	$1,600	$960,000	$624,000	$43,680

Under the previous regime the 10 rent restricted units would rent for $1020 or 65 percent of monthly AMI, a rent savings of $580 per month multiplied by 10 units which is $5800 per month or $69,600 per year.

Here it is in a table format also:

MFTE — Small Efficiency Dwelling Units (SEDUs)
Units	50	Low-Rise 3 Zone
Bonus Units	0
Rent Restricted Units	10	MFTE Inclusion rate is 20 percent (65 percent AMI)
Market Rate Units	40	$1600 per month
Total Units	50
Rent Savings
Market Rent	$1,600
Rent at 65 Percent AMI	$1,020
Monthly Savings per Unit	$580
Total Monthly Savings (10 Rent Restricted Units)	$5,800
Total Annual Savings (10 Rent Restricted Units)	$69,600

When compared side by side, it’s hard to argue that the Grand Bargain will produce more rent savings for housing consumers or that it will create more units than the MFTE. In this example, renters more renters will benefit and will save $38,016 more than with MIZ.

True, the income levels are higher by 5 percent for the SEDU product in this example, and in reality the new standard has essentially killed production of SEDUs priced at 65 percent of AMI. So already, even without accounting for additional construction costs likely to make projects like this infeasible, it’s easy to see that the Grand Bargain will not be a big advance for so called “workforce” housing.

The problem isn’t the idea of upzones or value exchange. Upzones are good all by themselves because they create more housing supply that ameliorates scarcity in the housing market. The MFTE program creates lots of savings for housing consumers by locking in lowered rents for years, money that can go toward tuition or to pay student loans or in savings for other uses later.

Finally, zoning is a terrible way to create an affordability program. Tying something like percentages of inclusion and AMI an unchanging formula enshrined in the land use code is a recipe for inflexibility and suppressing new housing construction. The housing market changes (supply and demand aren’t stagnant and neither are construction or land costs) as do incomes. The MFTE provides lots of flexibility for the City and builders to incentivize the construction of rent restricted housing.

The MFTE program is a direct apples to apples exchange where the owner reduces rent in exchange for lowered expenses. No complicated math is needed to analyze what the “fair” discount should be. MIZ requires a fairly complicated translation of an FAR boost into an equivalent present land value into a future rent discount, all of which hangs on a set of assumptions that will change a lot over time and thus be quite difficult to administer.

Notwithstanding the fact that the City has been making mistakes in these percentages, they can fix them all across the city, legally and quickly. To adjust for changes in the economy and financial requirements, the Bargain would require zoning changes. Think adding one floor is going to be hard in the neighborhoods? Imagine going back to add more zoning capacity later to rationalize more affordable housing. The zoning code is hard to change, while the MFTE is comparatively easy to adjust.

And the impact of the MFTE program in lost tax revenue to city taxpayers is small, like $10 per year for a median priced home. Helping people save on rent is spread evenly across all property including big buildings downtown and single-family homes, not just new renters or homebuyers.

So we have a great way of building housing priced like City leaders want while we build new housing priced for the market. If we allow more market rate, and we adjust the tax deferral, AMI levels, and room sizes appropriately, MFTE can produce lots of housing units legally and cheaply all over the city. Also, changes to the MFTE program are being considered at the State Legislature that would provide a path for MFTE projects to continue on in the program once their original 12 year participation has expired, allowing them to continue on if they increase their participation to 25% at 60% AMI. That’s something EVERYONE can cheer about.

A Great Debate: Harvey and Glaeser on Housing Markets and Poverty

This debate between geographer David Harvey, an avowed Marxist and  author of Rebel Cities and Harvard economist Edward Glaeser, author of Triumph of the City who calls himself an old New York Republican, took place awhile ago, at the end of 2013. I’m posting it now because the discussion of the economic forces of growth are changing New York then are relevant to discussions about growth in Seattle now.

There are two points made during their discussion that bear on our local debate. The first, raised by Harvey, is the nature of the commodification of housing. Housing is like bananas or cars or anything else produced then bought and sold in a market  Harvey doesn’t like that. In his view, housing is a right and an entitlement: everyone should get an equal share.

This view, while intellectually consistent, isn’t a recipe for an abundance of housing. Even if today, we collectively decided housing to be a right we’d still have to produce enough of it to keep up with demands. Housing scarcity would take the shape of rationing, meaning long waits for promised housing to be available. Nevertheless, it would seem that many in Seattle favor this view.

Second, Glaeser points out that increases in poverty around transit is not necessarily a bad thing. On the contrary it could be a good thing, indicating lots of poorer people saving money by giving up their cars  or shortening their commutes. His point is a good one, too, because locally we hear that light rail somehow causess the destruction of neighborhoods around it. It changes those neighborhoods for sure, but maybe it opens them up to poorer people as well rather than forcing them away as some have argued.

Part of this misunderstanding of poverty rates and what they mean is linked to the strange ways we measure poverty and affordability in the United States. What does it mean to be poor? What is affordable? We’ve got terrible ways to measure these very qualitative experiences and we use those measures poorly when making policy. I’ve pointed out that there isn’t a single reference to price or how we’d measure, as a city, the impact of the Grand Bargain on housing prices. Instead, the proposal relies on a deeply flawed affordability measure based on a normative standard that dictates a household should spend 30 percent of its gross monthly income on housing, hardly a standard that gives an accurate sense of what it means to be poor in Seattle or the way in which people trade housing costs (either paying more or less) based on things like schools, location, and other household costs.

The debate between these two thinkers might not be as quite as exciting as a throw down between Bernie Sanders and Donald Trump, but it certainly presages the substance of that spectacular debate: will it be the market or governments that determine the future or cities or some balanced and nuanced reliance on both?

 Thanks to Simone Keyah for sharing this video with me. 

Does Mandatory Inclusionary Housing Work?

I’ve been obsessed (as one Facebook commenter said) with trying to disentangle the recommendations of the HALA Committee from the Grand Bargain. The ideas in HALA are not dependent on the Grand Bargain’s mandatory inclusionary zoning scheme. And it is crucial as the Mandatory Inclusionary Housing requirements are discussed that everyone think the proposal all the way through. Are there better, more effective options like the Multifamily Tax Exemption (MFTE) Program?

But do mandatory schemes even work? Here’s what one study called, “Housing Supply and Affordability: Do Affordable Housing Mandates Work?” found:

Inclusionary zoning has failed to produce a significant number of affordable homes due to the incentives created by the price controls. Even the few inclusionary zoning units produced have cost builders, homeowners, and governments greatly. By restricting the supply of new homes and driving up the price of both newly constructed market- rate homes and the existing stock of homes, inclusionary zoning makes housing less affordable. Inclusionary zoning ordinances will continue to make housing less affordable by restricting the supply of new homes. If more affordable housing is the goal, governments should pursue policies that encourage the production of new housing. Ending the price controls of inclusionary zoning would be a good start.

Even better would be to never pass one of these schemes in the first place. This study was on mandatory programs for sales not rentals. But the same market principles apply; mandates to build price controlled housing of any kind make things worse. We still have a lot of work to do to demonstrate the negative impact of MIZ on supply of  housing to City leaders. Making housing harder and more expensive to build won’t lower its overall price.

But hopefully the more questions that get asked, the more people will try to use what’s already working, especially MFTE.

 

 

Cheerleading Won’t Help Confusion About HALA and Grand Bargain

Yes, confusion. And being confused about the Mayor’s Housing Affordability and Livability Agenda (HALA) Committee’s recommendations is not the sign of being poorly informed or not that bright. It is confusing, especially if you’re not doing this work all day. Over the weekend I pointed out on the City Builders page on Facebook that even neighborhood and anti-growth advocates are confounding the recommendations of the HALA Committee (there are 65) and the Grand Bargain, the scheme that would force developers and builders to include rent restricted housing in their developments. Here’s what the Seattle Neighborhood Coalition (an anti-growth leaning group) said about the HALA recommendations and the Grand Bargain:

Elements of HALA are already in front of City Council.  Backyard cottages and mother-in-law units (Accessory Dwelling Units – ADUs) are getting a public airing and will likely see a loosening of requirements, including parking and owner-occupancy, in order to boost what is currently a very marginal production.   The cornerstone of the HALA recommendation however is the mandatory production of affordable units (or payment of fees) 

I was rebuked by a commenter on the page,

Roger. Most people on City Builders aren’t “confused.” They just don’t agree with your POV that Grand Bargain isn’t the cornerstone of HALA. That’s your personal opinion, and believe it or not, lecturing everyone who disagrees with you about how confused they are won’t make them come around to your way of thinking. They just disagree.

So I looked up the word, “cornerstone” in the dictionary.

An important quality or feature on which a particular thing depends or is based:a national minimum wage remained the cornerstone of policy

Hmmm. So this recommendation from the 50 page plus document “depends” on the Grand Bargain?

4. More Resources: Call on the State and City to Create Additional Resources for Affordable Housing

• Strategy R.2 – Create a stable source of funding by enacting a Real Estate Excise Tax (REET) dedicated to affordable housing

• Strategy R.6– Expand the size of the critically important State Housing Trust Fund • Strategy L.1 – Prioritize use of surplus and underutilized public property for affordable housing and promote co-development in conjunction with public buildings • Strategy R.7 – Dedicate property taxes derived from new construction to affordable housing by reinstating the City Growth Fund

I don’t think so. And as I pointed out in a earlier post, the HALA recommendations are, mostly, a disparate collection of ideas and proposals. And even if they were all put into effect today, it’s hard to say what impact they would all have on housing prices or on the housing economy as a whole. The Grand Bargain is just one of those proposals. That the NIMBY set is also saying that the Grand Bargain is essential for the all these ideas to happen is an indication, yes, of confusion about how all this might work.

That is no surprise when boosters of upzones without inclusion for big downtown developers like Vulcan keep cheerleading the HALA recommendations as if it was one piece of legislation or a single, monolithic proposal that the Seattle City Council could act with a single vote. As I’ve pointed out, the cheerleaders, even some who are in the press and media, are putting HALA and the Bargain together. What does saying “HALA Yes!” really mean? Does it mane supporting the Grand Bargain even though it’s probably infeasible and maybe even illegal or does it mean supporting

Provide assistance to homebuyers between 80-120% AMI. With the current median home value in Seattle at $468,900, many middle-income homeowners are also becoming locked out of the homeownership market. However, there are limited resources to help these middle-income homebuyers. The state constitution prohibits public funding to households above 80% AMI, so these homebuyers cannot access direct assistance such as the City’s down payment assistance program. This strategy is not about changing the state constitution, but instead about exploring other ways to provide assistance that work within the current constitutional limits.

Hard to fit that paragraph from Appendix F-16 of the HALA document on a handy sticker, isn’t it?

We need to stop cheerleading the HALA document as if it was a uniform and fully vetted proposal. It simply isn’t. We’re not helping solve the problem of real people by trying to shove every single hope and every single fear in to a document that can’t possibly define and solve our housing issues. We have to do that together, and that starts with asking questions, not slapping stickers on everyone.