I often find myself frustrated with just about everything and everyone in this town, including developers, builders, and housing providers. Four years ago I was feeling about the same way and I wrote this three part indictment of how screwed up Seattle’s discussion of housing was then. Sadly, things haven’t gotten any better. I’ll post them in order tonight, tomorrow, and Wednesday. Part II originally Posted on Thursday, March 9, 2017

When I was in elementary school I took some pleasure in telling other kids on the playground that Santa Claus didn’t exist. I remember the look on their faces, the fear and disappointment. Then I saw the furrowing brow and anger. They knew Santa was a hoax. But as long as believing in him and colluding with the parental story about where the presents under the tree came from meant presents, then why challenge it? The myth was working for them. Of course this didn’t make me popular or loved by my colleagues.

The same kind of collusion is going on in Seattle when it comes to housing. And unlike my hapless playground victims who suffered what I hope was an early encounter with their conscience, real damage and hurt is being done to real people with the City’s blind pursuit of more units with no vision about how we should define and address housing needs in our growing city. A big part of our problem around here is the breathless and desperate need people in the sphere of Seattle political discourse need to be liked.

Let’s go back to economics for a minute. We don’t need to debate and argue about what high prices mean. We know that high prices mean that more people want housing than is available. But what makes otherwise smart, educated, talented, and accomplished people agree to tax the production of new housing to meet the arbitrarily set unit goal? The answer is a combination of politics, money, and the need to be liked.

In 1986 the Reagan administration created a program called the Low Income Housing Tax Credit program or LIHTC (pronounced Lie Tech). The LIHTC was intended to incentivize multifamily construction that had been lagging, and apartments were seen as a lower cost option for many families.

What ensued in Washington State and in Seattle in particular was the development of an industry around the tax credit model of financing low-income housing. The way it works is that local leverage and bank loans are used to capture dollars from private investors who get a credit against their corporate taxes. Along with an almost dollar for dollar credit, the private investor also gets the benefit of at least a decade of depreciation on the construction of a low-income housing project, provided that the project rents to people earning 60 percent of AMI or less.

Smart people figured out how to turn this crank, and part of it was building, over decades, strong political connections with local and state elected officials. These smart folks created non-profit housing organizations, found land, used local government grants and loans from banks looking to meet their Community Reinvestment Act (CRA) obligations, and built housing projects to meet the needs of households struggling with poverty.

So far so good. I must say here, that I was a non-profit housing director for one project. I also believe in the concept of leveraging private investment and capitol to benefit people and families struggling with poverty. In fact, I don’t think there is any other way to end generational poverty than to create a growing economy that provides incentives and opportunities and encouragement and resources to people who are poor so that they can earn more money. I don’t think anyone is entitled to be rich or to be poor. Subsidized housing can be part of the pathway from economic bondage to choice, freedom and unleashing the creativity and productivity.

But over the years, the non-profit housing builders have accumulated tremendous political power. The current Speaker of the Washington State House of Representatives is one of the early pioneers of non-profit housing development. The Chair of the Mayor’s Housing Affordability and Livability Agenda (HALA) Committee Faith Pettis runs a for-profit law firm that acts as the lawyer for the Washington State Housing Finance Commission (WSHFC), an organization that grants tax credits. My project paid her firm significantly and one non-profit developer told me her firm collected $60,000 in fees at closing of his project.

Not a single newspaper or reporter has commented or written that some of the fees associated with Mandatory Inclusionary Zoning (MIZ) will find their way into Pettis’ pockets. When I asked the Seattle Ethics and Elections Committee whether Pettis had to disclose this conflict they said she didn’t. Imagine if a well-known attorney representing for-profit developers was a chair of the HALA Committee? The headlines would have been Pearl Harbor sized.

I asked Mike Baker at the Seattle Times to report on this and he’s declined. I also sent a message to Danny Westneat, a columnist at the Times. He didn’t respond. I had forgotten that Weastneat’s wife works for Mercy Housing, a huge producer of non-profit housing. I guess we won’t be seeing a screed from Westneat anytime soon on the high costs of non-profit affordable housing.

I could name more names and associations, but the fact is that the non-profit housing producers have a lock on Seattle and state politics and the press. Their business is producing units, sometimes as in Pettis case, for a profit. And in Westneat’s case, the association is so close how could he challenge the machine. So is it any wonder that the Mayor and Council have proposed a scheme that would tax the production of new market rate housing development to produce money that would funnel into non-profit housing development?

I’ve already pointed out that non-profit tax credit housing is far more expensive that market rate housing. Really, really expensive; Capitol Hill Housing produced 88 units for $47 million. Everyone agrees this is an extraordinarily expensive project by any standard.

This is all a vicious circle. We regulate land use and the building of housing in a way that produces the high prices we have. Through zoning, design review, infrastructure requirements, taxes, fees, other rules, regulations, and the slowness of the permitting process we slow the production of housing, limit the number of units possible, and add costs. All of these things mean higher prices.

The City Council and Mayor turn up the regulatory dial to protect the equity of single-family incumbent homeowners, and then prices go up. As a red herring, incumbents yell about price. Seattle politicians respond by dialing up regulation, ensuring higher prices.

Non-profits show up saying they’ll produce affordable units. Remember the number of units is our measure of success in combating the “crisis,” right? The cost to build housing is now as high as $500,000 a unit, and that is extremely inefficient. Much of that cost is transaction costs charged by lawyers like Pettis and others. Because it is expensive and inefficient they need more and more cash. Time to turn that unit crank again, and again, and again. And with MIZ they’ll shakedown small and medium sized builders to flush more cash into their own coffers.

This is Seattle’s solution to the housing crisis, the extraction of money from new housing production along with more regulation that means even higher prices, more complaints about greedy developers, and more regulations and taxes. Rinse and repeat.

As I said in a Facebook post recently, the whole thing is a nightmare.

The mostly Democratic politicians in Seattle and Olympia, the press, the business community, and the non-profit establishment don’t see any reason to rock the boat because they’re in it. Rocking the boat might mean someone might fall out and lose money. That would be sad, and if the boat were upset, it would have to be by someone who didn’t care about being loved. Machiavelli advised The Prince that as to the question of whether it is better to be feared or to be loved,

It may be answered that one should wish to be both, but, because it is difficult to unite them in one person, is much safer to be feared than loved, when, of the two, either must be dispensed with. Because this is to be asserted in general of men, that they are ungrateful, fickle, false, cowardly, covetous, and as long as you succeed they are yours entirely; they will offer you their blood, property, life and children, as is said above, when the need is far distant; but when it approaches they turn against you. And that prince who, relying entirely on their promises, has neglected other precautions, is ruined; because friendships that are obtained by payments, and not by greatness or nobility of mind, may indeed be earned, but they are not secured, and in time of need cannot be relied upon; and men have less scruple in offending one who is beloved than one who is feared, for love is preserved by the link of obligation which, owing to the baseness of men, is broken at every opportunity for their advantage; but fear preserves you by a dread of punishment which never fails.