Harvard Avenue: Rich Neighbors Win

I’ve already written about the nasty invective that comes from the neighbors on Harvard Avenue on Capitol Hill who opposed a microhousing project, filing a law suit that resulted in forcing the project to change it’s room count and raise rents. Here’s an example:

I am one of the victims of support for a five story building on Harvard Avenue East and I am going to continue to be extremely vocal until my neighbors and I are fully heard.

The “victims” of Harvard raised $55,000 to stop the project and plan on raising another $30,000 to keep fighting the project. Will they reach $100,000? A recent post on Capitol Hill Seattle characterizes the NIMBYs as “activists.” But one of their neighbors begs to differ. Howard Metzenberg who also lives on Harvard had this to say in the comments section:

I am a neighbor of 741 Harvard Avenue East. The construction of micro-housing at this address, currently occupied by a rundown apartment building, seems appropriate. In a few years the North Broadway Extension of the First Hill Trolley as well as the Capitol Hill Light Rail Station will give this neighborhood easy access to mass transit. A micro-housing solution for 741 Harvard Avenue East would provide ideal housing to employees of nearby hospitals, theaters, restaurants, stores, and so forth.

He goes on to say:

Although I am not a real estate investor, except indirectly through REITs in my retirement account, I know from my own background in business that investing in new construction for low income housing is financially not feasible without incentives or subsidies, since other investments present better opportunities. Most housing for the poor comes from the trickle down of housing that was originally constructed for others. Micro-housing is perhaps the single housing solution that the private marketplace has for providing inexpensive housing that is affordable to single moderate income residents of Seattle.

As a wealthy individual who has worked for many years to be able to afford to live in such a nice neighborhood, I welcome the arrival of diversity in the form of new housing. The proposed housing at 741 Harvard Avenue East, like nearby micro-housing units, will be managed and maintained professionally. Most of the problem buildings in my neighborhood are either single family homes or rundown apartment buildings that are privately owned. Let’s welcome the arrival of new neighbors, and let’s not place a stumbling block in the way of developers who are meeting the needs of ordinary people of Seattle.

I know that my neighbors on Harvard Avenue East are generally wealthy professionals and investors to be able to afford such property. I am surprised that some of them resort to silly populist rhetoric about rich developers, when they are frankly rich people who are trying to keep less wealthy people from encroaching on their swanky neighborhood.

You can read the entire comment by clicking on this link. What’s ironic is the a group of developers who face having the new rules applied to the Harvard project applied to their project decided that further legal action against the City would be too expensive. That’s right, the developers–mostly small businesses working to make ends meet on projects–couldn’t outspend the well heeled neighbors on Harvard Avenue fighting affordable housing. Who are the rich and poor in this story? The Harvard neighbors along with the Department of Planning and Development have shown that it’s true, if you spend enough money, you can get your way at City Hall.

 

Slides From First Meeting of Mayor’s Housing Committee

Here is a data rich slide show from the first meeting of what’s being called the Housing and Livability Agenda or HALA.

I picked this up from Seattle Bubble (and also got the link from others) which had a great comment about supply I  agree with even though I have not reviewed the entire deck:

I would argue that new supply could be sufficient to achieve affordability if there were enough new supply. The city is predicting that 70,000 new housing units will be built in the next 20 years. Imagine if the city adjusted zoning, permitting, and incentives such that 700,000 new housing units came on the market instead. There is no way that would not drive prices down dramatically.

I’m not saying that’s the best solution, but it definitely seems like something that could work.

There are going to be three public meetings to gather thoughts from the community. Each will be held from 6:00 PM – 8:30 PM on the following dates and locations:

• November 19, South Seattle: Ethiopian Community Center
• November 20, Central District: Garfield Community Center
• December 04, Northgate: Olympic View Elementary

Can Tiny Houses Help Solve Homelessness?

Another of my fellow panelists at last week’s Housing Land Advocates Conference in Portland was the Reverend Dan Bryant of First Christian Church in Eugene, Oregon. Bryant is the President of the board of directors of Opportunity Village Eugene or OVE. OVE is a village of very small houses organized as a community and built cooperatively by homeless and housed people from Eugene. Here is Seattle, of course, we have the Tent City movement as well as Nickelsville, both similarly organized communities.

OVE is a bit different because it is a permanent settlement on what is essentially donated land. The City of Eugene has approved of the the development that houses about fifty people in thirty small houses. The PBS video that I’ve featured above tells the story well. What’s notable is how safe, organized, and affordable the tiny houses are. From the PBS story:

Conventional development of low-income housing costs on average about $200,000 per unit.  They are a little larger, of course, and they have indoor plumbing, electricity.  But all the little houses here, all thirty of them added together cost less than half of one federally funded unit, and they didn’t cost taxpayers a single dime.

And how much does it cost to operate OVE?

The cost comes down to three dollars a night per person, and one of those three dollars is paid by the villagers themselves. They all pay thirty dollars a month for their utilities, for the water, and electricity and Internet service even. So we are running this facility for two bucks a head a night.

Are $250,000 units ideal for everyone? Maybe or maybe not. But Bryant’s point is that the OVE community is self-sustaining and therefore doesn’t rely on the many rules, regulations, and additional financing requirements of housing paid for or subsidized by the government. This goes back to what I’ve pointed out before, that higher costs and more regulation also make subsidized housing more expensive in the same way it increases costs and rents of market rate housing.  The OVE community acted quickly and addressed a problem more efficiently that if they tried to build 30 financed units.

We’ve been talking with Councilmember Sally Bagshaw and Real Change Director Tim Harris about whether and how tiny houses might work in Seattle along with other options. Housing supply in the years ahead needs to include housing and shelter options for people who arrive homeless or become homeless. The problem for a project like OVE in Seattle is likely the same as the one for other types of housing: neighborhood opposition.

We already know thees options can work well, the question is where should they go? And shouldn’t residents of these housing options have access to all the things people housed in conventional housing have access to like transit, grocery stores, and other amenities. That means building closer to single-family and multifamily neighborhoods. If neighbors opposed small-lot houses and microhousing developments will they welcome tiny houses for homeless people? There are about 3,000 people every night who would be interested in knowing the answer to that question.

Oregon Leads on Accessory Dwelling Units

I attended the Housing Land Advocates Conference in Portland last week and presented on what happened to microhouisng. Microhousing is a new thing in Portland. My presentation had to highlight the fact that Seattle pretty much has closed down the microhousing product; some will still get built here, but not as many as before. But there is some good news coming out of Oregon about Accessory Dwelling Units (ADUs or what we call Detached Accessory Dwelling Units DADUs in Seattle) in single-family neighborhoods. Oregon’s Department of Environmental Quality is aggressively promoting ADU’s all over Oregon. Here’s a map that tracks the growth of ADUs over the last 15 years.

The DEQ has organized resources for homeowners wanting to build and ADU. Their website is a treasure trove of information for prospective homeowners, including the video on financing ADUs that I have embedded above. Here’s what you can find on their website.

Accessory Dwelling Unit (ADU) Resources

• Finance Guide for ADUs
• ADU Survey Evaluation Report for Portland ADU Owners
• ADU Survey Results for Portland, Eugene, and Ashland, Oregon
• Guide to Appraising ADUs
  produced jointly by DEQ, AccessoryDwellings.org, and Earth Advantage
• Accessory Dwelling Units – Take the First Step
  View a short video that explains the benefits and flexibility that ADUs can add to your property.
• ADU Zoning Code Matrix

My co-presenter on the panel,  Jordan Palmeri, pointed out the environmental, economic benefits of ADUs. They also don’t really create parking problems either (you can see his entire presentation here).

That is good to know, because similar efforts to promote ADUs in Seattle are sure to face resistance similar to what small-lot housing ran into earlier this year. People worry about change — and parking. If efforts ever do come together in Seattle to promote DADUs we have a lot to learn from Oregon. But we’ll have to find the political courage to resist neighbors who don’t want things to change as more people move into the neighborhood.

 

 

 

MFTE, Levy, More Efficient Than Linkage Tax

What follows is a comparison of two existing housing subsidy programs that are lowering people’s rents and housing costs in Seattle today, at this very moment, the Multifamily Tax Exemption (MFTE) and the Seattle Housing Levy (Levy) with Councilmember Mike O’Brien’s “linkage” tax.  Right up front I am going to say that supporters of the linkage fee won’t like this comparison.

They’ll say:
The MFTE is a developer “giveaway” because the builder of the housing units gets an exemption from property tax in exchange for lower rents.

My answer:
The fact that the tax savings is passed on to the renter means it’s kind of a renter “giveaway,” isn’t it? Don’t we want to save people money on housing costs? The MFTE program does that, and at a reasonable cost. Just like Councilmember Burgess said, for the price of a muffin and coffee.

They’ll say:
Your math is wrong.

My answer:
Show me how it’s wrong and we’ll reassess the relative value of either the MFTE or the Levy program. My guess is that either of these programs is already far more efficient than the “linkage” tax could ever be and neither raises rents unfairly on new people moving to the city, many of which are already struggling to make ends meet.

By the way, the Office of Housing didn’t return a few phone calls asking for clarification about the math of the program.

They’ll say:
The MFTE program only lasts 12 years, and it high end renters who earn 60 to 80 percent of Area Median Income (AMI).

My answer:
Well, yeah, isn’t that what all the fuss is about, people who need “workforce” housing? And it is true that the number of MFTE units changes, new ones coming on line and others dropping off. But this is something that we can look at if we want to improve the program.

They’ll say:
Your projections of rent increases are way too high, and besides rents won’t go up because land values will drop exactly in the same amount as the tax.

My answer:
We won’t know the true impact on rents until the tax is imposed, but it’s hard to argue that such a tax won’t create costs since it’s likely the tax will be paid at time of permitting. It will have to be financed and that will have to be off set somehow. The argument about land values dropping is too long to get into here, but I’ve addressed it elsewhere. Most people who know real estate agree that it’s highly unlikely the drop would equal the tax, and if the drop in value is too much, people won’t sell land, which means no project, which lowers supply.

Comparisons of “Linkage” Tax with Existing Funding Sources for Housing

Assumptions

The City’s Office of Housing and consultants hired by the City to make recommendations on a linkage tax, project that of the 70,000 housing units we’ll need to accommodate coming growth, 28,000 would need to be affordable[1] to people who earn between 0 and 80 percent of Area Median Income (AMI). The consultants further project a total cost per unit of $95,000.[2] The following comparison assumes a production rate of about 1400 units per year.

Multifamily Tax Exemption Program (MFTE)

The MFTE program grants a property tax exemption to housing projects that set aside at least 20 percent of its units for housing for people who earn between roughly 60 and 80 percent of AMI.

There are currently 4,369 units in the MFTE program. The total annual cost of the program in deferred property tax is $3.6 million. That means that, on average, an MFTE unit costs the city under $900 per year. [3]

Costs to Produce 1400 Units Using MFTE

• $860 X 1400 = $1,204,000
• Cost: $10 for a median valued single-family home per year[4]

Seattle’s Housing Levy

The Seattle Housing Levy is a property tax on all property in the City and generates funding for new housing, operations, and rehabilitation of existing affordable housing. The Levy typically funds housing for people who earn 0 to 60 percent of area median income. In 2013, the Levy produced 314 new housing units costing $13.4 million in Levy funds. Those funds were more than matched by other sources, including the largest source of capital, Low Income Housing Tax Credit equity; this enabled the City’s contribution to be $42,675 per unit.[5]

Costs to Produce 1400 Units Using Levy Funds

• Levy $42,675 x 1400 = $59,475,000
• Cost: $65 for a median valued single-family home per year[6]

O’Brien/Jacobus “Linkage” Tax

The linkage tax would generate money for housing by taxing, at variable rates (very likely in conflict with Article VII, Section 1 of the State Constitution requiring “uniform taxation”) across the city, each square foot of new construction. New and existing single-family construction would be exempt. The assumptions by the consultant Rick Jacobus is that the 1400 units would be built new at a cost of $250,000 with the city covering more than a third of that cost, or $95,000 per unit.[7]

Costs to Produce 1400 Units Using the “Linkage” Tax

• Linkage tax $95,000 x 1400 =$133,000,000
• Cost: $420 rent increase per year for a midsize multifamily rental unit[8]

Here’s a table showing the analysis for the predicted rent increase.

 

City of Seattle
Impact of Linkage Fee (proposed) on Rents
Assumptions	Amount
Building Size	22,400	gsf
# of Units	48
Linkage fee/gsf	$10.00
Weighted Average Cost of Capital (WACC)	9.00%
Expected Rent/Mo	$1,395	pre-linkage
Impact
Total fee	$224,000
Fee/unit	$4,667
x WACC	9.00%
Additional Rent/unit/yr	$420.00
Additional Rent/unit/mo	$35.00
Percentage increase	2.5%
Expected Rent/Mo	$1,430	post-linkage

It may not seem like much, but $420 might mean a lot so some people; if the charge was at the higher end, say the $22 figure that Councilmember O’Brien has outlined in the resolution, that number might be twice that or more.

What Does the MFTE Look Like at the Project Level?

The program generates different actuals depending on the size of the project and the number of units. But here’s simple example of the bargain the City gets through the MFTE program (depending on your browser, you may have to click on the image to see the whole table).*

Yes, the developer’s pro forma benefits from some extra savings from taxes every year. In this case the developer gets a savings of $12,000; but so do the dozen renters in the building. And what does the City pay in lost tax revenue for achieving this policy goal of affordable “workforce” housing: $.50 for each renter dollar saved. The County and other jurisdictions pick up the rest. You can see this play out over all the units in Attachment D: Tax and Revenue Impacts for 2014 in the City’s report I’ve already cited.

Why is MFTE so Efficient? Can We Expand and Improve it?

My view is that this program is so effective because it comes with a real incentive: it lowers costs for builders who are creating housing and it takes advantage of existing construction. The MFTE is actually inclusionary in the way that advocates of forced inclusion want; in fact a look at the MFTE program roles will show that fancy pants new buildings like the Stack House and Amli in South Lake Union, and Lyric and Joule on Capitol Hill, have dozens of these units—totaling well over 100 units of subsidized, rent controlled units.

The advantage is that the City or non-profits doesn’t have to buy the land, go through financing, lease up, or deal with the myriad of challenges getting a project entitled. The units are built and ready to go. There’s no management cost and no capital costs either. The renter gets a lowered rent, the developer saves some money, the public gets the benefit of an affordable unit for someone earning 60 to 80 percent of AMI in a new, market rate building, in an awesome neighborhood.

And yes, we can expand on this program. Perhaps there might be ways to lock in the savings for a longer period. Maybe there might be more incentives to lower the threshold below the 60 percent level. There are probably many ideas the development community could think of that would produce even more cost savings that could be passed on to the renter.

The point with MFTE is that it is already doing what advocates say they want: inclusionary, affordable housing for people earning 60 to 80 percent of Area Median Income. Why impose a tax that will raise rents for people earning that same amount (as much at $420 per year) in the name of building very expensive housing ($133,000,000 a year!) for other people earning 60 to 80 percent AMI? That just doesn’t make sense. It’s time to look at the tools we know are working well, and MFTE is one of the best.

* I made an error in this table. The rent savings in this hypothetical example would be $14,400 per year and the cost per dollar of savings $.42.