Grand Bargain: City Responds to 10 Questions (Sort of)

Last week I received an e-mail response from Robert Feldstein, Director of the City’s Office of Policy and Innovation, in response to the letter I sent asking 10 questions about the so called Grand Bargain being offered as a solution to Seattle’s housing issues. My reaction varied over the hours from annoyance that the response seemed a bit canned–explaining the motivation behind the Bargain is if emphasizing the motives would make me stop and say, “Oh, right, this is a partnership!”–to sympathy since, after all, making the Bargain work, even if we were a party to it, is not going to be easy practically or politically for City staff. I responded a day and a half later mostly to clarify and dispute some of the assumptions in Fedstein’s reply as a way of setting the stage for what we hope are further discussions. Here’s the full text of the e-mail and my e-mailed response. 

December 23, 2015 at 9:02 AM

Dear Roger,

I am writing in response to your letter to Mayor Murray dated December 14, 2015.  Thank you for your interest in the Mandatory Housing Affordability programs and the details of implementation.  The ‘Grand Bargain’ represents a significant body of work that city staff are diligently working on to meet our goal of full implementation by September 2017.

The HALA agenda is a multi-pronged approach to deliver more housing across the housing spectrum, including the streamlining of city codes and processes to better facilitate quality housing development.  Indeed, one aspect of the HALA effort is to work toward increased housing supply to accommodate our city’s growth, evidenced by the inclusion of a market-rate target in our 50,000 unit goal and the commitment to increase the efficiency of the city’s processes for all development.

However, addressing the housing affordability crisis is not just about adding more housing capacity.  In a city with more than 2,800 people are experiencing homelessness and sleeping outside and more than 45,000 households are spending over half their income on housing costs, there is a shared responsibility between the City, residents, businesses, nonprofits and developers to support construction and preservation of affordable housing.  Growth and new development must also contribute to our affordable housing stock.  The “Grand Bargain” gets us there by moving away from the previous Linkage Fee proposals and toward an acknowledgement of this partnership.  The program is being developed so there is both a requirement for contribution to affordable housing and additional development capacity.  In early 2016, we will begin a citywide conversation about how to implement these zoning changes equitably across the city to meet our goals.

We would be happy to meet with you to discuss the variety of questions that you have posed in your letter.  Please let me know who you would like to bring to the conversation and I will work with our staff to find some time after the holidays.

Sincerely,

Robert

—————————————-

December 24, 2015 at 2:07 PM

Hello Robert and Happy Holidays,

Thank you for your response. We do appreciate it.

Let me emphasize something clearly and up front: we were not a signer of the Grand Bargain. While we want to collaborate as you suggest, up till now, the City’s record on collaboration with builders and developers is very bad. We can point to many examples of occasions when we’ve offered data and even project level pro forma financials to show why a legislative or other regulatory proposal would translate into higher costs and higher prices for buyers and renters of housing. Yet those efforts, sometimes weeks long participation in City process, yielded exactly what asked the City not to do. And, yes, costs and production are affecting the market and will translate into higher costs — even for housing built by non-profits since they are subject to all this same regulations.

As I have pointed out in various meetings, all of these regulatory initiatives proposed and implemented by City, usually at the request of people already living here, won’t stop the development and building of housing as long as there is demand. But contrary to what is often suggested, that isn’t because of profit motive; it’s because as the City dials up costs and dials down supply, rents and housing price will continue to go up which will rationalize investment by banks, lenders, and other equity sources like pension funds to build in our city. As much as some at the City would like to carve out profits for solving a problem, in the end, the people that pay for efforts to make private developers “contribute” will be those looking for housing who will find it scarce, expensive, and located inconveniently. 

 

It’s a Wonderful Fractional Reserve System!

It’s that time of year when you’ll see It’s a Wonderful Life playing here and there on television or cable or perhaps you’ll have it delivered for your holiday gathering via the internet. No matter how you get it, please watch the movie. It’s a story about what really matters in life and how to gain some perspective on things both personal and professional. It also has one of the finest tutorials on economics in the history of film, the bank run scene which I’ve featured above. Here’s the text of the key speech, delivered by George Bailey played by the legendary Jimmy Stewart:

No, but you… you… you’re thinking of this place all wrong. As if I had the money back in a safe. The money’s not here. Your money’s in Joe’s house… (to one of the men) …right next to yours. And in the Kennedy house, and Mrs. Macklin’s house, and a hundred others. Why, you’re lending them the money to build, and then, they’re going to pay it back to you as best they can. Now what are you going to do? Foreclose on them?

Why is this so important to what I you do everyday? Well, one thing people (like the people in the scene) forget is that even though banks might seem like impersonal, faceless corporations they actually allow real people to collaborate with each other to create a better life. Builders and developers are dependent on banks to build housing. Buyers are dependent on banks to help make the loans for buying housing. We’re all connected, whether the bank is a small local one like the Building and Loan or a huge one like Bank of America.

Here’s one of the finest videos on the subject of the mechanics of what George describes in the film, fractional reserve lending, done by Sal Kahn of the Kahn Academy.

As I have mentioned over and over again, development is a risky business and financial institutions make it possible for people to borrow the money to build the future. The added value created pays back the investor. All of this feeds the economy. It’s a very intuitive system built on trust not profit and one that creates our housing and office space in Seattle.

It’s hard to feel warm and fuzzy about banks and developers, but watching these videos might throw another log on your fire. In order to create affordable housing we need lenders, builders, and people who are willing to take the risks and work together to create housing options and choices for people of all walks of life in our growing city. .

Merry Christmas and Happy Holidays!

Year of the City Builder? We Are Getting Closer to Changing the Story

We set out at the beginning of this year calling it the Year of the City Builder, a year in which we’d see a noticeable shift in anti-developer sentiment. While we made an effort and a difference, the narrative in Seattle remained hostile to the building and development community. Part of that was losing a volunteer that we dedicated to writing profiles about local builders and developers. We did get a lot of good stories told, but our efforts soon shifted to dealing with the Mayor’s Housing Affordability and Livability Agenda (HALA) Committee. Still some of our message is getting through to the right people.

In a recent article in Seattle Magazine, Alan Michelson of the University of Washington said,

Many people wish we could slow down the development process a bit, get developers to work together to ensure we have a livable city full of light and air . . . But how do get Type A, ‘make money’ developers to cooperate or compromise? Think of Donald Trump. He’s a developer. Does he seem like the sort of guy who’d want to compromise on livability issues?

Hardly the positive and collaborative view of builders that we want. What we know is true is that builders and developers are hard working people like anyone else, and the nature financing makes building new housing a risky business that sometimes pays and sometimes doesn’t. Sure, Donald Trump is a developer and some people think he’s an ass. But being an ass isn’t a character trait limited only to developers; there isn’t anything about being  builder that means a person is going to be ‘Type A,’ whatever that means.

However, a new conventional wisdom about new housing construction is beginning to form. For a long time now, we’ve been telling anyone who’d listen or read that building new housing, even when it comes with higher rents, is the best way to ameliorate rent rises in the overall housing market. That’s having an impact. Twice I’ve heard this from people who matter in the housing discussion, a reporter and a candidate for the City Council. In the tower spacing debate going on about downtown, a reporter who often writes about housing said something like, “if those pricey towers don’t get built, the people that would have lived there would go and bid up the price of existing, lower priced housing.” Yes! I didn’t say it, she did. During a candidate interview, the aspirant said roughly the same thing unprompted; more housing, even when it comes with higher prices, is positive for everyone, including people with less money.

I also think that when a strong voice of skepticism about growth, Knute Berger, says he’ll try harder to look at the idea that new housing and growth is a positive, we’re on the right track and influencing the right people. Earlier this year Berger said he was willing to explore the idea that new growth isn’t as bad for the character of Seattle as some people are making it seem.

Why does this matter? The argument that new housing is more expensive is almost always trotted out by economic Ptolemists who say that increasing supply won’t help stabilize or lower housing prices. Countering that argument is important because lots of people intuitively believe it when they see the prices on new development. What follows from seeing new construction that is touting $1100 a month studios is that far from making things better, new housing is making things worse. If the collective conventional wisdom–among reporters and politicos anyway–starts to shift, other besides growth advocates can push back when this argument is made. Getting passed the mental block of “building new housing just makes it more expensive” means making better policy will be easier.

And this is also about pedagogy. Nobody gets more tired of repeating the same thing over and over and over again about supply, demand, and what Mike Scott calls the skew of the new; new housing helps even though it is more expensive. But all that repetition in comments sections, blog posts, articles, news stories, and in conversations is paying off.

Also, teaching people something, especially a new concept, is a lot easier when the new concept is connected with something that people have already committed to, in this case helping the poor. We’ve pointed out in our repetitive statements that no matter how odd it may seem, building that new studio in Ballard for $1100 a month makes life easier for the artist on Capitol Hill who works three jobs to support her art. The person who can afford that unit in Ballard won’t be bidding up the price of her lower cost living arrangement or apartment on Capitol Hill. So new, more expensive housing lessens market pressures on people with fewer housing dollars.

And speaking of that artist, stories are far more effective than facts. The story about how new housing can help the poor makes sense to most people. When they relate that, like cars, old products lose value and thus price, this aspect of new housing development and how it helps people makes more sense. We can show all the charts and graphs we want, but anti growth activists can always rely on the press to feature the hard luck story and attribute it to growth; it’s a lot harder to explain how that new unit makes everyone better off.

So 2015 comes to a close with a mix of success and failure on trying to tell a different story about housing and the people that build it. We haven’t yet gotten some people–even those who should know better–to realize that builders and developers are building something everyone needs: housing. Builders and developers have to be constructively engaged in making policy, not the target of punitive measures. On the other hand, our work of repeating the message, connecting the dots, and telling the story of how new housing helps, not hurts, people with less money is yielding some benefit, slowly shifting the conventional wisdom among policy makers and the press.

 

Good News! Rob Johnson is New Land Use Chair

Earlier this year we took a look at the candidates for City Council and found the field lacking with a couple exceptions. One of those bright spots was Rob Johnson who won his campaign for the District 4 spot. Sadly, another candidate that seemed to understand builder and housing issues, Shannon Braddock, lost to long time Nick Licata aid Lisa Herbold in a squeaker of a race. The next big question was who would hold key committee assignments. The Committee that will play the biggest role in the housing discussion over the next year is the Planning, Land Use, and Sustainability (PLUS) Committee. New Councilmember Rob Johnson will chair that committee which will still include Councilmember Mike O’Brien and will add new Councilmember Herbold. Taking the alternate spot is Lorena Gonzalez.

The fact that Johnson is chair is a very good thing. However, the membership of the PLUS could not be described as overly sympathetic to builders and developers. In fact, it’s Councilmember O’Brien that has done more damage to the local housing economy than any one person I can think of. Also, as we’ve seen in big votes related to housing, any Councilmember can show up and cast a vote. Johnson can control the rhythm of the committee, what comes up for a vote, and other aspects of work done by the committee staff. His chairmanship is a hopeful sign (Publicola calls it a “huge win“), but we’re still up against some Councilmembers who will need some education on our issues to say the least. Johnson will still have to deal with the rest of the Councilmembers outside of the PLUS Committee too when trying to pass positive legislation, something Councilmember O’Brien was unable to do.

Below I’ve pasted the text from the Seattle City Council’s press release and after that full Committee rosters and meeting times.

Councilmember Sally Bagshaw will chair the Human Services and Public Health Committee. Councilmember Bagshaw will oversee Council’s work on issues relating to services provided by the Human Services Department, including programs that meet the basic needs of the most vulnerable people in our community. The committee will also consider matters involving public health and Law Enforcement Assisted Diversion (LEAD), which allows law enforcement officers to redirect low-level offenders engaged in drug or prostitution activity to community-based services.

Councilmember Tim Burgess will chair the Affordable Housing, Neighborhoods and Finance Committee. As chair of this committee, Councilmember Burgess will focus on issues relating to housing-investing and promoting the development and preservation of affordable housing, and building strong neighborhoods through outreach and engagement. Councilmember Burgess will also chair the Budget committee, overseeing the review of the Mayor’s proposed budget.

Councilmember Lorena González will chair the Gender Equity, Safe Communities and New Americans Committee. As chair, Councilmember González will consider policies to address gender equity and help improve the lives of Seattle’s immigrant and refugee residents.  The committee will also focus on fostering safe communities, improving police accountability, crime prevention, criminal justice, emergency preparedness, and fire and medical services.

Councilmember Bruce Harrell will chair the Education, Equity and Governance Committee. As chair, Councilmember Harrell will focus on issues relating to public schools and improving student success rates, intergovernmental relations, technology, ethics and elections, prisoner reentry and equity issues for underserved communities.

Councilmember Lisa Herbold will chair the Civil Rights, Utilities, Economic Development and Arts Committee. Councilmember Herbold’s committee will manage issues relating to labor standards, civil rights, Seattle Public Utilities, and economic development. The committee will also manage issues relating to arts and culture in Seattle, which includes nightlife issues.

Councilmember Rob Johnson will chair the Planning, Land Use and Zoning Committee. As chair of this committee, Councilmember Johnson will take up issues involving City zoning, planning, major institutions, quasi-judicial decisions, community development, and land use regulations.

Councilmember Debora Juarez will chair the Parks, Seattle Center, Libraries and Waterfront Committee. As chair, Councilmember Juarez will focus on issues relating to City parks, community centers, and public grounds, including the Seattle Center.  Her committee will also manage legislation relating to the Seattle Public Library system.  Councilmember Juarez will also chair the Central Waterfront committee.

Councilmember Mike O’Brien will chair the Sustainability and Transportation Committee. Councilmember O’Brien’s committee will handle matters pertaining to city-wide and regional transportation policy and planning. These issues range from pedestrian and bicycle programs, traffic control and parking policies, and overseeing the City’s coordination with regional and state departments of transportation. The committee will also have a shared-focus on Seattle’s Climate Action Plan to reduce carbon emissions.

Councilmember Kshama Sawant will chair the Energy and Environment Committee. Councilmember Sawant’s committee will handle policies relating to Seattle’s energy usage, as well as issues relating to alternative energy sources, air pollution regulation, energy utility rates, and Seattle City Light finances. In addition, Councilmember Sawant will take up matters that relate to climate and environmental protections, conservation programs, and green infrastructure.

 

Standing Committee	Committee Members	Committee Meeting Days and Times
Affordable Housing, Neighborhoods & Finance	Chair:  Tim Burgess Vice-Chair:  Lisa Herbold Member:  Rob Johnson Alternate:  Mike O’Brien	1st and 3rd Wednesdays 9:30 a.m.
Civil Rights, Utilities, Economic Development & Arts	Chair:  Lisa Herbold Vice-Chair:  Kshama Sawant Member:  Mike O’Brien Alternate:  Bruce Harrell	2nd and 4th Tuesdays 9:30 a.m.
Education, Equity & Governance	Chair:  Bruce A. Harrell Vice-Chair:  Lorena González Member:  Debora Juarez Alternate:  Tim Burgess	1st and 3rd Wednesdays 2:00 p.m.
Energy & Environment	Chair:  Kshama Sawant Vice-Chair:  Debora Juarez Member:  Lorena González Alternate:  Sally Bagshaw	2nd and 4th Tuesdays 2:00 p.m.
Gender Equity, Safe Communities & New Americans	Chair:  Lorena González Vice-Chair:  Tim Burgess Member:  Sally Bagshaw Alternate:  Debora Juarez	2nd and 4th Wednesdays 9:30 a.m.
Human Services & Public Health	Chair:  Sally Bagshaw Vice-Chair:  Bruce Harrell Member:  Tim Burgess Alternate:  Rob Johnson	2nd and 4th Wednesdays 2:00 p.m.
Parks, Seattle Center, Libraries & Waterfront	Chair:  Debora Juarez Vice-Chair:  Sally Bagshaw Member:  Bruce Harrell Alternate:  Kshama Sawant	1st and 3rd Thursdays 9:30 a.m.
Planning, Land Use & Zoning	Chair:  Rob Johnson Vice-Chair:  Mike O’Brien Member:  Lisa Herbold Alternate:  Lorena González	1st and 3rd Tuesdays 9:30 a.m.
Sustainability & Transportation	Chair:  Mike O’Brien Vice-Chair:  Rob Johnson Member:  Kshama Sawant Alternate:  Lisa Herbold	1st and 3rd Tuesdays 2:00 p.m.

 

Non Sequitur: How Housing Price Becomes an “Affordability Crisis”

I noted in my letter about the Grand Bargain to the Mayor and members of the Seattle City Council that

If the stated problem being addressed by the [Housing Affordability and Livability Agenda] . . . effort and the Grand Bargain was housing price, we have yet to see any metric established for determining how these interventions (regardless of our skepticism) would reduce overall housing prices, the very worry that inspired the creation of the Housing Affordability and Livability Agenda Committee.

I decided to do a review of both the recommendations of the HALA Committee and the Final Framework of the Grand Bargain, looking for any sustained discussion of price or housing prices or how the ideas in the report or proposals in the Bargain would lower prices. It should not come as a surprise that I found none of these. To be fair, the HALA report mentions “price” or “priced” on twenty separate occasions. The Bargain doesn’t mention it at all. Here’s the opening paragraph of the HALA report (report) that I think captures the tone and nature of that document.

As Seattle expands rapidly and experiences massive economic and population growth, we are confronted by the reality of more people chasing a limited supply of housing than ever before in our history. This, combined with a booming regional housing market, fewer and fewer federal and state funds dedicated to subsidized housing, and widening income inequalities locally, nationally and globally, have created – and will likely sustain – a housing affordability crisis unlike any Seattle has experienced since the Second World War. At the same time we are constrained by outdated policies and historical precedents that are no longer viable for the long-term health of our city. Some of the challenges are intrinsic to Seattle, for example tight limits on housing supply epitomized by the fact that at present almost two-thirds of our urban land is restricted to Single Family zoning.

To me this mostly gets it right, but what follows in the Report doesn’t seem to substantively deliver answer to the fundamental question raised by this paragraph – what will we do to lower housing prices? The syllogism of the paragraph is worth exposing for review.

Seattle is growing
More people chasing limited housing
Less funding for housing subsidies
More income inequalities nationally
At the same time housing supply is constrained by bad policy
Therefore we are going to have a sustained housing affordability crisis

What is glaring here is the complete absence of clearly defining how price and affordability relate. Instead, there is the sloppy assumption that, I guess, “Everyone knows what we’re talking about.” But do they? Almost every basic discussion of how to define inflation usually uses the term “too many dollars chasing too few goods.”

I appreciate the nod to the economics textbooks. But the paragraph is emblematic of how our discussion confuses “price” with “affordability,” two entirely different though related concepts. The confusion feeds an ideological “crisis” that means, in Seattle, we can’t simply accept the idea that housing prices are related to supply, so we invent an “affordability crisis” to cope with the dissonance between the reality of supply and demand and the need to address “equity.” Something we don’t need to do if we listened to Paul Krugman, who points out regulation limits supply and increases prices.

When we look at the logic of the first paragraph of the report, and simplify it even more it goes like this: lots more people, too few housing options, and that means an “affordability crisis.” But price is an objective number and affordability is a subjective relationship to price; price is a number, neither good nor bad, but whether that price is affordable is a much more complicated question and hard to measure. Think about it in an analogy to another quantitative measure, height. Johnny is eating lots of food, his parents are tall, Johnny is going to grow up to be tall,  and therefore Johnny is going to have a problem getting along with other kids in school.” Huh?

The affordability crisis is a non sequitur in the logic of the housing discussion. Why? Because if we followed the logic to where it really leads, we’d come out with a pretty simple solution to the scarcity being described: Build more housing to meet the housing needs of all the new people. Instead, the word price and the outward and qualitative empirical symptoms of inflation in the market are put into a blender and turned into a smoothie called the “Affordability Crisis.” And just like we don’t know what Johnny’s relative height means for his future unless we go deeper into other data, saying he is going to have trouble with other kids in school is just way too many leaps.

But leaping over logic in politics, as in nature, is a survival mechanism. Voters say we’re having a housing crisis so we must be having one. What’s the solution to this crisis? The answer is lots of programs, ideas, proposals, and schemes that various groups claim will address the problem but also support important political and economic interests, but not address the underlying issues of where the prices we don’t like are coming from. Non-profits can claim through the Grand Bargain that greedy developers are paying their share, and developers can be told that they are getting more development capacity. Never mind that none of this addresses overall housing price.

Like I said before, this confusion of terminology and data doesn’t come as a surprise. But it is still disappointing that the moment of pulling together such a wide array of local leaders and people worried about housing was lost to politics rather than having a comprehensive and quantitative discussion about housing prices and how to effectively address them. Sure, lots of numbers were pushed around, but none of them had anything to do with measures that would have a beneficial impact on price, only how many units should be cranked out. It’s as if having concluded Johnny will be vertically challenged, City leaders unveiled its solution: give Xbox Johnny an XBox for Christmas! That solution won’t address his height relative to his colleagues, but it’s sure to make him feel better this holiday season.

Below, I have every instance of the word “price” or “priced” in the HALA Report with a page citation. Many of the sentences are accurate and even bold statements in the broader context, especially the connection of housing price to parking. One important note is the section that explicitly ties seemingly small or bureaucratic items like permitting and utility hook ups to housing price (pages 38-39). Again, great comments by themselves, but not part of a red-flashing-light legislative agenda like the Bargain. 

Leslie Brinson Price, Mayor’s Office of Policy and Innovation

Page 1

As rents and prices rise, individuals and families are too frequently displaced from their homes and or pushed out of Seattle altogether.

Page 5

In response to this urgent need, in September 2014, Mayor Ed Murray and the City Council adopted Resolution 31546 calling for the development of a Seattle Housing Affordability and Livability Agenda (HALA) to support development and preservation of a diversity of housing types at a broad range of prices for Seattle residents over the next ten years.

Page 10

Household size is considered to correspond to the size of the housing unit (1 person for 0 bedroom units and 1.5 persons per bedroom for other units), which is the method used by HUD to adjust income limits for subsidized housing for purposes of determining affordability of rents or sales prices.

Page 10

R.2   Enact a Real Estate Excise Tax (REET) for Affordable Housing

Washington’s REET is an excise tax imposed any time a property is conveyed to a new owner. It is assessed on the property seller, and levied as a percentage of the sale price . . . This additional REET capacity, which the HALA recommends be 0.25% above and beyond the existing State cap, would allow local jurisdictions to capture a portion of the appreciation of real estate prices upon the transfer of property and reinvest it in affordable housing.

Page 16

Parking quotas act as density limits, inflate the average size and price of housing units, and prevent some smaller properties from being developed altogether.

Page 29

P.4    Engage Private Owners with New Financing Tools and Technical Assistance

Some owners who operate rental housing that is currently priced for lower income tenants are faced with a tradeoff between raising rents and making much needed improvements, or selling their property due to an inability to obtain needed financing when major repairs are required.

Page 32

Housing prices in Seattle have risen to such astronomical levels that city funds dedicated to allowing at least a few low-income households to reap the benefits of homeownership are stretched extremely thin.

Page 35

RP.3 Improve Interdepartmental Coordination

To build in Seattle, developers must first obtain permits from at least 3 departments of city government. Running the permitting gauntlet commonly takes 10 – 14 months from permit application to building permit issuance for a complex multifamily development, and adds thousands or tens of thousands of dollars to the cost of each new dwelling. Each of the permits required has a legitimate purpose, but the could dramatically speed housing construction in Seattle, lower its cost, and temper housing prices by better coordinating the way these public agencies process permit applications.

Pages 38-39

Uncertainty is a cost—a damper on investment—and it raises the price of housing.

Page 39

Three-quarters of survey respondents would be comfortable with increased density if housing prices were more affordable.

Appendix C

Issue: Parking is a key factor in the cost of building new housing, the supply of housing and therefore its price, and in the livability of neighborhoods.

Parking requirements can act as a density limit and inflate the average size and price of housing units.

Appendix F-6

Increase the number of homeownership units that are affordable to homebuyers at or below 80% AMI. With housing costs increasing rapidly, actions should be taken to create affordably priced homeownership units that will keep low-income homebuyers in the City.

Appendix F-16

Opponents offered that rent control has been consistently proven to be a failure, would not add to housing supply or affordability, and is a price control that will lead to shortages and thus higher rents.

Appendix G

Proponents acknowledged that many major U.S. cities have some kind of assistance for homebuyers at these income levels and that moderate income homebuyers are being priced out of Seattle.

Appendix G

Committee members also raised that zoning flexibility, which could result in smaller homes at lower price points, might be the best approach at this time to support moderate-income homebuyers.

Appendix G

The Committee rejected this proposal for a number of reasons, including concern that the strategy would amount to a government taking of a property right and skepticism that the City could act quickly enough or offer a competitive price

Appendix G

CPI: Consumer Price Index

Appendix H