PSRC: “Expand the Housing Trust Fund” for Transit Communities

I wrote last week about the importance of increasing funding to the State’s Housing Trust Fund (HTF). I suggested the importance of the HTF to supporting the intent of the Growth Management Act. Recently I discovered that the Puget Sound Regional Council (PSRC) for similar reasons. Our region’s tax payers have spent billions on light rail infrastructure because they have been convinced that it would reduce carbon emissions, support compact, dense, and walkable communities, and, in the long run transition us away from auto dependence.

But does Seattle have a commitment to supporting these kinds of transit communities? Part of that means creating more density which means fewer rules, regulations, and fees in those areas and increasing density there. The Council has a very poor record on this. Just consider the story of the Roosevelt rezone, where the Council dithered over a rezone that resulted in only 20 feet of increased height. If the region is going to benefit from all the spending we’ve done on light rail, we need more housing for all levels of income. Here’s the PSRC’s legislative agenda on affordable housing for the 2015 session.

Affordable Housing. In order to meet the diverse needs of current and future residents, transit communities require an adequate supply of housing affordable to a full range of incomes. Transit communities provide a unique opportunity to create and preserve housing that is affordable and close to frequent transit service. The benefits include lower housing and transportation costs and equitable access to transit service and regional opportunities. We support legislation to provide more funding and financing mechanisms to meet this need. We urge the Legislature to: 

• Support the Regional Equitable Development Initiative (REDI) Fund with funds awarded through the 2016-2017 Regional Mobility Grant Program, the Capital Budget, or other sources;
• Expand the Housing Trust Fund to support affordable housing in transit communities;
• Authorize new local options to fund affordable housing, such as clarifying the near term use of lodging tax revenues for affordable housing production and preservation; and
• Preserve and enhance programs that support affordable housing, while meeting our state’s other obligations, such as fully funding education.

Transit communities are essential to support sustainable and efficient growth in Seattle. That means more density and more housing around light rail stations, which taxpayers have supported again, and again. If all levels of income are to benefit from housing development in transit communities, more funding needs to be added to the Housing Trust Fund. Hopefully the legislature will get the connection in 2015.

 

Washington Policy Center on Linkage Tax

I checked in with Paul Guppy of the Washington Policy Center to find out his thoughts on the proposed linkage tax. The Washington Policy Center is “an independent, non-profit, think tank that promotes sound public policy based on free-market solutions.” So it’s not a surprise the Guppy doesn’t agree with the proposal. But I asked him to share his thoughts and I find his last point about the politics of district elections most interesting.

–Roger

We are opposed to the city imposing a “linkage fee,” because it would only serve to increase the already-high cost of housing in Seattle.  Here are the points that Washington Policy Center would make against this proposal if it is formally introduced next year.

First, imposing a new tax (which is what a “linkage fee” is, no matter what nice-sounding name city councilmembers give it) would only drive rents up higher, because all building costs must be passed on to renters.  Enacting a new Seattle tax would only make the problem the City Council is trying to solve worse.

Second, the city already runs a subsidized public housing system.  It’s not fair to impose a new tax only on renters in certain neighborhoods when public housing is already funded by general taxes and federal grants.  Public housing should be a shared responsibility of the community, not a cost targeted at renters.

Third, instead of increasing the tax burden on renters, city officials should look at the high property taxes, high sales tax, high utility costs and impact fees they are already charging that make living in Seattle so expensive.  Some commonsense policy changes by the city would make Seattle more affordable for everyone.  City councilmembers should lead by example, to show what they are willing to do to make housing more affordable, instead of simply seeking more money from others.

Lastly, an important political consideration is that in 2015 Seattle is moving to a system of district elections for city council positions (instead of all council members being elected city-wide as they are now).  City councilmembers may find it unpopular to vote for a new tax on renters in the same neighborhoods where they plan to run for re-election – they may just be handing a controversial issue to their opponents.

Paul Guppy is a graduate of Seattle University and holds graduate degrees from Claremont Graduate University and the London School of Economics.  He worked for 12 years in the U.S. Congress as a Chief of Staff and Legislative Director.  He is currently Vice President for Research at the Washington Policy Center, where he writes extensively on tax policy, public finance and other issues.  He is a frequent commentator on radio and TV news programs, and in newspapers across the state, and he is editor of the Policy Guide for Washington State.

Microhousing on KCTS

Even though microhousing legislation has passed and is now in effect, the interest in microhousing is as hot as ever. I was interviewed for the KCTS program In Close along with Daniel Stoner a microhousing developer and neighbors. The Mayor was also interviewed. The same strange comments are repeated by Greenwood neighbors about the people living in microhousing and what they think of them.

Everybody there is going to be a single person because you can only have one person per unit. So they’re not going to put down roots in the neighborhood so they may or may not be as involved in neighborhood activities, community things, stuff like that.

These comments never fail to amaze and annoy me. It’s as if renters are a different class of people, immune from the same worries about safety in their neighborhood or the desire to keep their own neighborhood livable. The comments made by the neighbor amount to nothing less than prejudice against people who happen to pay rent rather than a mortgage. It’s unfounded and really inconsistent with the values we all hold in this city of diversity and welcoming people different from ourselves.

Stoner does a great job of explaining his project and the Mayor makes some positive comments. I said this about the economics of microhousing and why legislation passed earlier this year was a deal breaker.

 The thing that makes these projects work is that you’re able to get more people in a smaller footprint, and it’s more efficient and more affordable.  But when you start to increase the size of the unit and force other things onto that lot, your unit count starts to go down and the price goes up, and you might as well build one bedroom apartments.

All in all, the show was pretty balanced and I think showed everyone explaining their perspective — I still think neighbors years from now will look back and feel embarrassed about some of their comments. Once the new project goes in, life will go on, and the controversy will fade — and 36 new people will have found a home in our city.

The Parable of Newton’s Apple Stand

I’ve been using a parable to respond to some of the more off base views of housing economics I run into, especially the oft repeated syllogism, “increasing housing supply won’t lower prices because more housing attracts people who earn lots of money; so developers will just build more housing for the rich.” Oddly, these people do agree that more jobs create increased demand for housing that increases prices. Fewer jobs that pay less, they argue, might ease the rise of housing prices. But build more housing? No way! Maybe supply and demand works for Pepsi, but not housing.

There are various versions of this, including one that I have already written about.  Here’s one Facebook comment about the first article I linked:

The article says everything I have to say. It’s driven by demand, not supply. Upzoning and building more high-end units will never create more units affordable to those making substantially less than median wages.

The argument is strange, bordering on Lysenkoism, the views of Soviet biologist who claimed, wrongly, that traits acquired by an organism are passed on to offspring. This view of evolution was hospitable to Marxist views that the Paradise of the Proletariat could be made by enforcing changes on people’s wants and behaviors. People could be trained out of their capitalist greed. But Lysenko’s views were terrible science, and people that disagreed were sent to the gulag.

The tortured economics of supply deniers follows a similar pattern. They accept the “demand” part of supply and demand but argue against the supply side. So here’s an extended version of the parable about the notion that builders build housing for the rich. I call it Newton’s Apple Stand.

—-

In the town of Woolsthorpe there was a man named Newton who heard there were lots of people interested in buying apples, but only a few people selling them.

He had and idea. He had an old friend, Faccio, who had an orchard. He contacted him and talked about how much he would charge to sell him apples. He calculated the labor and transportation costs of transporting the apples to a market stall, which would have to rent at a cost. Once he had all these numbers, he did the math, and he figured out what he needed to earn to quit his day job and still pay all his own bills and put a little savings away for his astronomy hobby.

Now he went to the bank and worked out a decent loan for his new business. The interest rate was good, but he had to put his house and a big chuck of his savings down as collateral. He thought about it for a long time, and even though it was a risky proposition, decided to do it. Newton’s Apple Stand would be a reality.

Across town and City Hall, some City Councilmembers wrapped up the third in a long series of meetings about apple prices. People had come by the dozens to complain about “skyrocketing apple prices.” One man said he couldn’t even find an apple—the town was running so low on apples there were waiting lists.

“We’ve got to do something about this,” said Councilmember Hooke.

“Yes, but what?” asked another Councilmember.

“We’ve got to make some rules about apples,” Hooke replied, “and I have a plan.”

Meanwhile Newton got working. His initial asking price for his apples was $1 per unit. That price was based on being able to get the apple off the tree, transported to market, cover his other costs including the interests on his loan, and still pay himself a salary—slightly less than what he earned at his desk job. Because he was new to the business and starting small, his price was a little lower than Gottfried’s Apple Stand down the street.

Things were going pretty well. People lined up to buy Newton’s apples.

“We’re so glad you’re here,” one man said. “And your price is pretty good considering how expensive apples are.”

The man paused.

“Have you heard about Councilmember Hooke’s idea to make prices even lower?” the man asked.

Newton felt a little pang of worry.

“An idea to lower my prices?” Newton wondered out loud.

“Yes,” said the customer. “Has something to do with charging a tax for every apple and setting limits on how many you can sell.”

Newton felt a little weak and sat down. He’d heard about Councilmember Hooke and his schemes. Like the time he tried to lower milk prices.

Sure enough when the paperboy dropped off the evening edition of the paper, and there it was.

COUNCILMEMBER HOOKE PROPOSES APPLE TAX AND LIMITS

The smaller headline underneath said, “new measure to lower prices, pay for more apples.”

In a matter of weeks the inspector from the Department of Planting and Development shared the new rules. Newton could only sell 100 apples a day and for each apple he brought to the market, he’d have to pay a 10 cent tax which would go to buy apples and sell them to people who had less money to spend on apples.

Soon, as the new rules kicked in, Newton realized he was in trouble. To sell his apples and still make his loan payments and pay himself he’d have to raise the price of his apples. After all, he could only sell 100, fewer than he had estimated when he wrote his business plan; and then there was the tax. And there was much more demand for his apples than just 100 a day.

By the end of the first week of the new limits and the tax Newton had no choice to raise the prices of his apples to $1.25 to pay the tax. The problem was that he was selling out too quickly. His customers were getting frustrated. Newton tried various things to make his apple supply hold out. He had deals on the first apple if a person agreed to buy three more apples later at the full price. It worked, but soon people were offering to pre-buy apples at as much as $1.50. Newton kept resetting his prices to keep up, but he kept running out of apples with the new rules, and that kept pushing people to offer more for apples. With prices rising so fast, it’s better to buy today. Who knows how much apples will cost tomorrow? Some people were even selling illegal apples, or sharing apples to get around the rules.

Then lots of young kids from the new company Microsauce started dropping buy. They were young, and had an eye for apples. The kids from Microsauce were willing to spend as much $2.00 for a shiny apple. Hal was stunned. He created deals to pre-sell apples to the kids from Microsauce and try and keep some of his other apples priced lower. But he kept running out of apples to sell.

The good news was that Newton was managing to keep his business going, but he worried that prices would get too high. Lots of his old customers couldn’t afford to buy apples anymore – they’d stop by and talk to Newton, but they couldn’t afford to buy anything. And the bank was getting nervous too. They kept asking for a meeting. Newton worried that they might want all their money back now.

When Councilmember Hooke heard about the rising prices he directed the Director of the Department of Planting and Development to reduce the limits on apple sales to 75 and raise the tax to 20 cents. During the first months of the apple tax the City had raised lots of money – but they couldn’t find any apples to buy to sell at lowered prices to people with less money.

“Why aren’t we finding any apples out there?” Hooke demanded.

“There aren’t enough,” an official told him. “Most apples get bought before they even leave the farm. In fact, some people are buying apples at one price and figuring out how to sell them for even more. We have poor people that haven’t eaten an apple in months.”

“Who is buying all these apples?” wondered Councilmember Hooke as he pounded the table.

“Sir, it’s those rich kids from Microsauce,” the official said. “They have so much money they keep biding up the prices. They just make too much money, and it’s making prices go up!”

“And the people selling apples are making a killing!” said another. “They’re laughing all the way to the bank.”

Another bookish staffer made another suggestion.

“Perhaps we should increase the supply of apples,” he said.

They all guffawed. “You must be a shill for the apple sellers,” they said.

“Everyone knows that the more apples we allow to be sold, the more the apple sellers will charge so they can make more profit!” said another. “It’s obvious. Letting them sell more apples will just increase prices.”

“Enough!” thundered Councilmember Hooke. “Get the car. We’re going downtown to talk to these greedy apple sellers.”

The motorcade raced out of City Hall and the first apple stand the Councilmember saw was Newton’s.

Newton was already long sold out of apples. And a banker was visiting him.

“We want out,” said the banker. “This whole apple thing is making us nervous. It’s too risky now. We want to collect our loan now, in full. You’ve already pre-sold a month’s worth of apples. This can’t last forever. It’s time to back off.”

One of the other bankers smiled knowingly.

“All the smart money is investing in gold!”

Newton was in a panic now. He could sell even fewer apples now and had to pay more in taxes for each. Not only that, even though the kids from Microsauce could pay, he wasn’t sure he could meet their demand for apples at the new limit of 75 apples a day—no matter how much they paid. Now the bank wanted their money back. If he scratched everything together, he could pay the bank off. But he’d be right back where he started at the beginning.

The bankers passed Councilmember Hooke on the way out. He slapped their backs and thanked them for the bonds that were being used to build the bridge across town. They all laughed. As they were shaking hands, an old lady walked up looking sad.

“I haven’t even seen an apple in a month, much less be able to afford one,” she said.

“We’re working on that!” said Councilmember Hooke. “We’ve got new rules in place. We’re reducing how many apples the apple sellers can sell and charging them a tax on each apple. Don’t you worry! We’ll get you an apple soon enough.”

The Councilmember and his staff now turned to Newton.

“Did you see that lady?” Councilmember Hooke asked Newton. “She and I want to know, why is it that you only sell apples to the rich?” 

Image of Sir Isaac Newton’s apple tree from Wikipedia Commons. 

Put More Money in the Housing Trust Fund

I’ve already written about the basic math when it comes to meeting the demand for affordable housing in the next two decades: the Multifamily Tax Exemption Program and the Housing Levy very efficiently can meet that need. Meanwhile, the linkage tax being promoted by Councilmember O’Brien is a pricey solution that will raise rents—exactly what the city doesn’t need! Part of what makes the Housing Levy work is funding from the Housing Trust Fund (HTF), which provided over $12 million dollars for 9 Seattle housing projects that produced 663 units of affordable housing. Dollars from the HTF are used along with local levy funds, loans and Low Income Housing Tax Credits (LIHTC) to build and preserve affordable housing. Unfortunately funds in the HTF have declined by 64 percent over the last 7 years, a trend that needs to be reversed.

The money in the HTF is appropriated by the Washington State Legislature and funds the construction of new housing affordable for people earning from 0 to 60 percent of Area Median Income (AMI), exactly where there is the most need for affordable housing in Seattle.

Here’s some detail on who benefits from HTF investment from the Washington Low Income Housing Alliance (WLIHA):

The vast majority of people living in homes built or preserved by the HTF are extremely low-income, earning less than $19,000 per year for a family of three. HTF has also funded first-time homeownership programs, & homes for vulnerable communities, such as veterans, people with disabilities, & seniors (read the whole WLIHA One pager).

Every two years the Legislature debates how much money to put in the HTF and what kinds of projects should be prioritized. Over the years this process has varied, with some Legislatures picking specific projects and others simply outlining a broad criteria for funding.

The HTF is administered by the Washington State Commerce Department and funding is awarded through a competitive process supervised by Commerce Department staff and the Policy Advisory Team (PAT) which is a committee appointed by the Affordable Housing Advisory Board (AHAB).

Some years the process for funding gets caught up in local and partisan politics with legislators pushing for funding in their districts. Other budget cycles have had broader directives from the legislature to fund Farmworker housing, or housing for people who are homeless.

The process needs improvement; there are far too few people with interest pushing lots of money around for housing. What’s needed is a reform of the way HTF funds get allocated. Nevertheless, the fact that the HTF has dramatically declined over the course of the last several years is unacceptable—especially for Seattle, a city facing the greatest demand pressures on housing from all levels of income.

Let’s start to make the case that the HTF can and should be a tool to support the Growth Management Act (GMA) and part of a broader commitment to end generational poverty by providing families living (or who want or need to live) in our region’s most job and opportunity rich city Seattle. We believe the city can be transformative by giving people a chance to grow personally and economically in a way that is profoundly more sustainable than other arrangements. Dollars from the HTF accounted for only 8 percent of the funding mix for recent Housing Levy projects and that percentage should be expanded to make all the other dollars go further.

Therefore, the City’s Housing Affordability and Livability (HALA) Committee, the Mayor, and the City Council should urge the Legislature to consider doubling the State’s commitment to funding the HTF (or more, say $150 million for the next biennium) and targeting a substantial portion of those funds for supporting affordable urban housing solutions that leverage local housing levies. Seattle is an economic engine for the state, producing jobs that can lead to prosperity—but that prosperity means we need more housing for all levels of income. The State Legislature should invest in that prosperity to ensure that it doesn’t leave out the people who would benefit from it the most.