Mike Scott: A Crisis of Hyperbole

Over at the City Builder page on Facebook there’s been a fair amount of confusion about the idea that we’re not in a rental housing crisis — at least in terms of price. It’s worth watching the video and reading the original blog post on his site.

 

 

Economics, Not “Social Justice,” is How We Solve Housing Problems

I was sitting a meeting about affordable housing last week hosted by Seattle City Council candidate Lorena Gonzalez. The emphasis was “social justice” and housing. Gonzalez, after listening to a discussion about housing prices and City policy, concluded that the best way to understand and deal with rising housing prices was to look at the issue through a “social justice lens.” There may be people in Seattle who know that that means, but I don’t. In Seattle the words “social justice” have come to mean roughly what the words “family values” mean in Bartlesville, Oklahoma; code language to sort “us” from “them.” Social justice is rhetorical stick used to beat back perceived enemies and keep allies in ideological lock step. It’s useless for solving any problems; if we want to address price and other issues we need to use economics. Here’s a real life example.

Here’s what Tim Harris, founder of Real Change Seattle’s groundbreaking homeless newspaper, had to say on Facebook about my comments in the KING5 story featured above:

Has there ever been a developer slime that Roger Valdez won’t defend?

I get that it’s Facebook and not exactly a high flying intellectual forum for discussion. But I generally expect Harris’ comments to sharp, funny, but thoughtful. The truth is the whole story misses a key point raised by another person in the comment thread.

It’s odd, there was no mention of the rental inspection legislation that is coming down in the next few years and how that might impact renters, landlords and the safety of units across the city.

Exactly. The issue with this property has a lot to do with legislation requiring landlords to keep up their property or face serious consequences. That’s a good thing. The legislation, if we give it the benefit of the doubt, was designed to find exactly the kind of conditions at this property and get them fixed. After agreeing with this point, I followed with a comment.

I have never will speak of you without respect–because I do respect your work. Don’t expect anything from you but you’re smart enough to know the facts. Get them.

As far as I am concerned Tim Harris is one of the smartest and most talented and well read individuals I’ve met in the city over the last decade; principled, determined, and unafraid of taking tough stands and calling people out. He and I don’t agree on many things, but we’ve had good conversations in the past. That’s what makes his quick, knee jerk response so unfortunate; people listen to Tim Harris.

Anyone who spent time digging into this sad story about this property would find the irony that Councilmember Nick Licata, a champion of rental inspection legislation would show up, have a photo op in front of the building attacking the new owner for raising rents on a building with terrible conditions, call for rent control legislation, and then take off, leaving the tenants and the landlord with nothing but a news cycle of bad press.

Here’s part of the text I sent to reporters covering the story and it states what’s really going on here:

The previous owner deferred maintenance of the building, not spending money to keep it repaired. This meant lower rents, but a the expense of the quality of life of the residents.

Now a new owner has purchased the building and intends to bring it up to the standard required by the City for rental housing.  That costs money, and will mean higher rents.

What Councilmember’s Sawant and Licata and Sawant should be proposing in the upcoming budget discussions is a fund to help the new owners make the repairs and pass the savings on to the tenants. Otherwise the new owner has no choice but to increase the rents to help cover necessary costs.

Deferred maintenance often creates more affordable units, but new owners who have to raise rents to make improvements are doing it out of necessity to make the buildings habitable. The City, if it wants to help keep rents low in buildings sold with deferred maintenance needs a program to help with needed repairs.

It may feel good to look through the “social justice lens” because it shows a simple story of an evil, greedy landlord raising rents on horrible apartments and victims who are immigrant families. But when you look at the math and the policy, it’s an equally simple story. If you’re going to raise standards on rental housing someone has to pay for that. That someone is going to be renters both in the long run and the short run. If we want to avoid owners subsidizing rents with deferred maintenance, then we need to use public resources to make the repairs. It’s that simple. Otherwise we’ll see more sales of older run down buildings to new owners doing the right thing and fixing up the buildings but having to raise rents.

Investors and banks are not charitable organizations, if they loan money to buy a building they want a return. When a run down building turns over, eventually rents will have to go up to improve the quality of the building to meet the City’s standards. Rental housing is a product and is sold based on supply and demand and costs. If the new owner fixes the roof, she’s going to have to find the money to do that work from her operating budget. Where does the operating budget come from? Rents.

Forming a mob against landlords and developers won’t help the tenants in these buildings. It won’t. All the social justice lens does is needlessly polarize people into good people that “believe” in social justice (whatever that means) and cold hearted people that do the math. Holding press conferences in front of substandard buildings pushing for bad policies that have no relation to fixing the building won’t help the tenants. It won’t. Doing the math, raising the standards in our community so people don’t have to trade low quality for low rents is something that would actually help poor people having to make that trade off today. But that doesn’t fit the social justice narrative.

And to answer your questions Tim Harris, no there isn’t a developer or landlord I won’t defend from the social justice mob when the mob is wrong on the facts and wrong on the math.

 

 

Commercial Linkage Hearing: Lots of Love for Fees, Little Support for Upzones

Last night I attended the public hearing for the so called Affordable Housing Impact Mitigation Fee or Commercial Linkage fee associated with the Mayor’s Housing Affordability and Livability Agenda (HALA) Committee recommendations. The commercial linkage tax was agreed to by commercial developers because it has made financial sense for those developers to pay a fee for additional development capacity. In fact, over the years most of the participation in the City’s Incentive Zoning program was from commercial developers. For a variety of reasons commercial development can better absorb fees for some additional floor area, while residential developers haven’t found incentive zoning to be much of an incentive at all. There was lots of support for the new fee last night, but not much for residential upzones, the key component of the “Grand Bargain” struck as part of the HALA process. It’s why I am skeptical the Bargain will hold together under the steady opposition of social justice, anti-growth, and neighborhood activists.

Oddly, if one didn’t know better, one would have thought that jobs and new housing were like toxic waste; something dangerous, deadly, and a mess that needs to be cleaned up. Throughout the proceedings speaker after speaker stood up and said, “I support the fee,” and followed it by reasons why new housing and job growth were bad things that the fee could somehow offset. That’s just bad economics. New housing is good all by itself. Speakers continually talked about the “housing crisis” and “displacement,” both things that we’ve got evidence are not really happening. Rents aren’t “skyrocketing” and displacement, quantitatively, is very small compared to new units being built. I got up and left after about an hour and a half of listening to this. I’m guessing the hearing last night is just the beginning of lots more fee boosterism with no upzones.

And remember the upzones come at an additional cost which may not really be offset by the additional capacity created. There are lots of problems with this “Bargain.”

Design Review: Room for Improvement 

Last night I attended the first of two community meetings hosted by the City of Seattle’s Department of Planning and Development (DPD) on proposed improvements to the Design Review process. Many people, both developers and neighborhoods, are not happy with Design Review. Builders often feel like the process is expensive with very little benefit and neighbors feel like they don’t have enough control over the outcome. Can the process be improved?

I’m skeptical. The problem with Design Review is fundamental: it’s impossible to mandate, or even define perfectly, “good” design. So many of the elements reviewed by design review boards are qualitative. Windows, doors, paint colors, and massing are all important visually, but do they really matter if people can live in the building? Some argue that community involvement makes buildings better and therefore should gain support from neighbors.

But that’s rarely the case. People who oppose new development generally don’t oppose it because of windows or paint colors but because of all the new people. Density is people after all. Would moving windows around on microhousing have made opponents suddenly say, “oh, well, now I don’t hate microhouding anymore!” Unlikely.

The process for reviewing the process includes one more meeting on October 14, from 6:00 – 7:30 p.m. at University Heights Community Center, 5031 University Way NE.

According to DPD staff the Council is likely to act sometime next summer. We’ll be watching the process carefully  until then. Our bottom line? As long as design review exists it should be predictable and add as little time and cost as possible. The City Council needs to balance production needs and affordability with design, and, generally, production and affordability should win.

 

City Council Uses Fuzzy Math and Invisible Methodology on MFTE

Councilmembers,

As a HALA member I took a keen interest in discussions around the MFTE program.  I am pleased that the program will be made permanent, expanded in geography, and now includes all unit sizes.  I am also pleased that the council has committed to work with the state on a number of potential expansions of the program.

Having said that, I am profoundly disappointed with the policy direction that has been taken with regard to small scale development.  In my recent conversations with the Mayors staff, the Office of Housing, Council Central Staff, and Councilmember Okamoto’s office, I have discussed problematic elements of this new legislation, primarily:

Raising the required participation rate from 20% to 25% for small-unit development.  The only rational outcome that can be expected from this policy change is that the participation rate for these project types will decline.  As small-unit development provides MFTE units that reach deeper levels of affordability (40% to 65% AMI), policymakers should not be indifferent to this outcome.  The Office of Housing’s stated rationale is that the participation rate has been raised because “the rent buy down is smaller per unit for small units”.  That explanation is an expression of circular logic, not math.  The relevant measure is the percentage of the rent reduction, not the absolute value.

There has been no attempt to calibrate MFTE rent levels for Small Efficiency Dwelling Units (SEDU’s) in a reasonable manner.  MFTE rent is identical for congregate units and SEDU’s despite the fact that SEDU’s are about 50% larger than congregate units.  In an industry that uses rent/ sf as a fundamental unit of analysis, this is a transparently false assumption. Robust market survey data on housing prices, units sizes, and how rent correlates with unit size is readily available.  At this stage pegging MFTE rent for SEDU’s might entail marginally more guesswork than for other housing types, but the current legislation does not even make an attempt.

As a result of the above policy decisions, I expect to see participation rates for small projects drop from current levels, with participation rates for SEDU’s close to zero.  This is unfortunate.  Every year that policies like these are in place we miss out on the opportunity to increase our supply of rent stabilized affordable units in the 40% to 65% AMI range.

Which brings me to my last point, which is that the above missteps are made possible because the policy review for the MFTE program is done in narrative form using fuzzy math and an invisible methodology.  In all of my discussions, I have emphasized first and foremost that the method of calculating MFTE rents and participation rates should be made explicit and published prominently.  Disclosure of the methodology would both assure skeptics of the measurable public benefits and help explain for present and future policymakers the direct relationship between market rents,  MFTE rents, and required participation rates.  I was assured by councilmember Okamoto that he agreed this was an important element of the public policy debate.  I have yet to see this calculation method published, and I did not see it presented at the council hearing on Sept 24^th.

I offer this critique from the standpoint of someone who wants the policy to work.  I want my clients to participate in this program, and I want the work of our office to help contribute to the affordability in our city.  The HALA committee urged expansion of this program because it has enormous potential to leverage market rate development to help provide stabilized affordable housing stock.  The current legislation might be at best characterized as “two steps forward, one step back.”  We must do better.

Regards,

 

David Neiman

 

P.S.  To see my my original recommendations, please see my previous post on this topic.