Last week I upset some of my urbanist friends by once again suggesting that the market alone could not build its way out of Seattle’s growing affordable housing crisis. Yes, our current NIMBYist regulations have helped create the current crisis, so of course we need to free private developers to build more density. “But…” I insisted, “if we want to substantially add and retain middle and low income housing in Seattle than we’re going to have to build and retain tens of thousands of units outside of the market.”
So what exactly do I mean “outside of the market?” I mean the city is going to need to build and own these units itself. And if done right, we can do this at no cost to taxpayers.
Specifically, the city and county have hundreds of millions of dollars of untapped bonding capacity that we can use to build middle-income and workforce housing at below-market rents. And we can do this because municipal governments have three huge advantages over private developers: we can borrow money more cheaply, we don’t have to produce a return on investment, and have we no incentive toward extractive “rent seeking.”
Here’s how it works: The city sells bonds to purchase and develop a piece of property, pledging revenue from that development (not taxes!) to pay off the bonds. You know, just like private developers borrow money. But cheaper. We then hire the same private architects and private contractors that private developers hire, because that’s how you build stuff. No need to reinvent the wheel.
In fact, the whole process works pretty much like a typical private development, using the same standard math that private developers use to determine if a project pencils out (banks won’t lend to them if it doesn’t). The only difference is that absent a profit motive, the goal of our bond-backed public development will be to charge as little rent as possible, not as much. We want to build as affordably as we can on any particular piece of land while charging rents sufficient to service the bonds, pay for management, maintenance, and improvements, and keep sufficient financial reserves. The larger rental market will necessarily influence our design decisions, but not define it. As a result, we will make different design choices than the typical private developer.
For example, in order to keep costs down, we might opt for smaller bedrooms and communal laundry rooms rather than washers and dryers in every unit. And rather than providing an off-street parking spot for every unit, we might build only a limited number of spots, made available to tenants at an additional cost. On the other hand, we might provide onsite dedicated parking spots for car-sharing services like Car2Go and Zipcar, or in a family-oriented development, we might include space for onsite preschool and childcare, thus reducing the need for young families to own a car.
It’s not about building cheap. It’s about building smart. We want to provide those amenities that best serve the needs of median-and-below-income tenants, rather than those amenities that might fetch the highest rent from a crowded market of well-paid tech workers.
And finally, even if we initially fail to offer these units at substantially below market rates, public ownership will allow us to impose our own voluntary form of rent control, only raising rents to meet our actual costs or necessary improvements, rather than hiking rents to take advantage of whatever the market will bear. If managed properly, over time these public developments would grow increasingly affordable relative to the larger profit-driven market. In fact, if we meet or exceed our goals, we may even be able to collateralize these developments in order to free up bonding capacity for additional projects.
To be clear, this is not subsidized housing—although additional subsidies could be leveraged to further reduce rents for low-income households. It is more like a public utility: like Seattle City Light pledges revenue from ratepayers to bond the investments necessary to build and maintain a system that delivers some of the cheapest and greenest power in the nation. The goal is to provide affordable rent-stabilized housing to as many customers as possible.
Also, this is not an entirely radical idea. Many state and local governments already offer low-interest municipal bonds to finance projects from both for-profit and not-for-profit developers in exchange for setting aside a number of low-income units for a specified number of years. I propose departing from this model in two ways: 1) We build for median income households as well as low income, and 2) We maintain public ownership and operation, keeping these units outside the market in perpetuity. I don’t have all the details worked out, but the research I’ve done convinces me that the basic premise is sound.
As for the risk to taxpayers, of course, nothing is risk free. Gross incompetence, corruption, a natural disaster, or an economic collapse could leave taxpayers holding the bill. But that’s true of anything we bond. The upside is that we could leverage our AAA credit rating to add hundreds or even thousands of affordable housing units to the region every year… units that would stay affordable regardless of market forces.
Is that enough to address our affordable housing crisis on its own? Of course not. Above all, we need more density, and that’s mostly going to come from the private market. In addition to publicly built and managed housing, I believe we must broadly lift height restrictions throughout much of the city, particularly near transit hubs, while freeing up homeowners to build “accessory dwelling units” (ADUs), both mother-in-laws and backyard bungalows. Additionally, we should liberally waive the requirement to provide off-street parking for new construction, and do the best we can to streamline the review and permitting process while maintaining reasonable standards of safety and aesthetics. NIMBYism is the enemy of density; while neighbors certainly should have input into local development, they should not have veto power. I’m not anti-zoning or anti-regulatory—I also support workforce housing set-asides and fees—but I do believe we have to be a lot smarter about the regulations we have now, and a lot more resolute in resisting our “Lesser Seattle” instincts. We need to build more housing.
So I really wish density advocates would stop viewing me as the enemy. I’m with you on almost everything.
But that said, and for the reasons stated in my earlier post, the private market is not going to solve Seattle’s growing affordability crisis on its own. As long as Seattle remains affordable compared to competing high-tech centers like San Francisco and New York, added housing supply will only increase demand. And with the possible exception of some ADUs, private developers simply aren’t going to voluntarily build many units aimed at median-or-below-income households: Buildable land is scarce and high-end housing has higher margins, so developers are going to try to squeeze as much profit as possible out of every square inch by aiming as upscale as the parcel will support.
So if we want middle-class and workforce housing in Seattle, the city is going to have to build and manage it itself, outside of the larger housing market.
What’s the problem? The $15 minimum wage will drive jobs and people out of Seattle in droves. Problem solved.
“Vienna’s unique public housing adventures have proved effective since the projects began to spring up over a century ago, with about 60% of the Viennese population living in municipally built, owned or managed housing (compared to the 70-85% of New Yorkers who live in privately owned residences).”
http://www.huffingtonpost.com/.....54446.html
As you point out, added housing supply currently only increases demand, but this is entirely dependent on the present tech bubble. What happens when it finally bursts, as it did in 2001? Whereas we were then left with unfinished condominiums, we will soon be left with vacant Apodments.
The gold rush mentality of private development in Seattle will not intentionally produce affordable housing, but the current inflated housing market is based on speculation and venture capital that I believe is unsustainable. Do we want the city to be on the hook when the bubble finally bursts?
Another public enterprise for Republicans to privatize. Unless, of course, Seattle keeps electing socialists to its city council in perpetuity.
As for density being the solution to everything, owners of single family detached houses (the “NIMBYs”) can look forward to their neighborhoods resembling Kabul someday.
http://allworldtowns.com/data_.....bul-06.jpg
This is a brilliant idea. It creates housing, meets a growing demand, creates jobs, restores some rationality to the market and builds a better, more sustainable future. I’m forwarding this post to everyone on the Seattle city council.
@4,
There’s a very good chance Seattle will elect socialists to the city council.
Another public enterprise for Republicans to privatize
So we shouldn’t even try? Republicans will try to privatize anything and everything, that’s not news. We still come out ahead if we do this and it gets sold to private owners down the line – the important thing is that the housing aimed somewhere below the top end gets built.
“So we shouldn’t even try?”
I didn’t say that. Defeating Republicans is a better solution to that problem, and many other problems, too.
Without wading into other issues, the current real estate market in Seattle is very different from the past. When the economy crashed in 2007, sub-prime mortgages played a large role. Lots of people bought real estate at prices detached from reality with little or no money down. Today, buyers are coming in with cash. Not just large down payments but cash. And not just entry-level homes either.
Some buyers have sold homes in other high-cost areas and brought that money with them. In my neighborhood I’m seeing lots of young couples with two incomes from tech. Couples with a combined income of $200-$300K wanting an in-city house or condo are pushing prices up and away from people with more modest incomes. It’s wage disparity with a vengeance.
If Amazon, Microsoft, and Google all crash then yes, Seattle could end up with overpriced real estate but should that crash come some vacant real estate will be the least of Seattle’s problems.
I’m not understanding how the bursting of the tech bubble would affect this. Many market prices fluctuate, but rent never goes down. Those high end places will socialize their losses through the tax code before they drop the rent. It seems to me a bursting of the tech bubble would make affordable housing even more in demand.
I grok what Goldy is saying. The same applies here in Bellingham and most likely other western Washington cities. I don’t know if the political will is there to do what should be done to make our cities more egalitarian. Just the fact we have homeless people should be enough reason to really look at housing. Some folks who visit the United States are bothered by the fact we have so many homeless. Developers are of course chasing the money, and there are some out there support the status quo, but the country is becoming more urban. Does one really own the land in a city? What is enough house? Apartment? I hope it’s not cookie cutter, but the density needs to actually are going up to levels seen before WWII in our cities cores. And there will be more of a push as suburbia becomes unsustainable. Small to medium size towns may enjoy a renaissance as companies realize they can operate in a town very well and are willing to insist on the town meeting a certain level of amenities, infrastructure, and vibrancy.
@11,
“…but rent never goes down”.
Perhaps. But units go vacant. That may not be a huge risk. I’m not betting on a collapse of the tech sector just yet. Fundamentally, Amazon is poised to grow for the next few decades. Microsoft will muddle along in an agonizingly slow decline into irrelevancy. And the mobile/IOT revolution is just getting started. But people felt very much the same way about Seattle in 1960. And by 1970 the population had fallen by nearly half. If anything like that happens again, I’m going all Hugh Sisley on Seattle’s ass. It won’t. But a girl’s gotta have her dreams.
80% of Singapore live in public housing similar to what you describe. http://en.wikipedia.org/wiki/P....._Singapore
@12 “Does one really own the land in a city?”
Ownership of land is a somewhat flexible concept. Legally speaking, ownership is a bundle of rights conferred and enforced by the state. It also comes with obligations, such as paying property taxes. Ownership of land can be broken up into present and future estates, occupancy rights, etc. You can play with it. But the rightwing notion that land rights are somehow God-given and beyond state control is sheer nonsense.
@15,
just try explaining that to a Libertarian some time. Even the idea of individualism is a state construct. Doubt it? Go try being an individual in Somalia. See how far you get before you have your shins broken and are trussed in the bilge water of a freighter bound for someplace even worse than Somalia (but a place with a state apparatus that respects and enforces the right to own people). I owe my individual rights to the state and I submit gladly to the compulsion of the majority because it is just so much better than the alternatives.
@13 Seattle’s population dropped 4.7 percent between 1960 and 1970, and another 7 percent by 1980, before starting to grow again. But that was largely due to the expansion of nearby suburbs. Meanwhile, King County continued to grow throughout that period.
There are two main factors driving Seattle’s recent growth (we were the fastest growing big city in the nation last year). One is our economy, and the other is a broader urban revival. Virtually all big US cities are growing again. It’s where people want to live and work for all the obvious reasons.
In any case, we have a much more diverse economy than we had back when we lived and died with Boeing. And it’s hard to see this urban revival reversing anytime soon.
@16 Being obstinate doesn’t make them right.
http://www.dailykos.com/story/.....s-edition#
This housing could and should, in my opinion, be cooperatives. Bonds are one way to finance. Hud loans are another. The thing that does not get talked about much is that renters pay all the costs for apartment buildings including interest and principle. The difference between cooperatives and privately owned buildings is that the people who pay the costs end up owning the buildings.
“I owe my individual rights to the state and I submit gladly to the compulsion of the majority because it is just so much better than the alternatives.”
My, aren’t you just the BEST little boy ever!
If the bonds are revenue backed the interest rates will be the same as private sector revenue backed bonds. Municipal governments get lower interest rates for two reasons: 1, taxing capacity and 2, interest on municipal bonds is tax deductible. The bonds suggested here wouldn’t benefit from taxing capacity and whether or not they would qualify as tax deductible is questionable.
@20 He made it through kindergarten graduation.
the single quickest easiest change to make is liberalize ADU rules and DADU rules. eliminate the parking requirement. eliminate silly rules like the LIMIT on size. (I once had a 1500 SF garage, rules said only 800 SF of it could become a DADU — what a waste of space). Because:
-we have what, 200K or 250K SF homes? if just ten percent got ADU’s or DADU’s that an additional 25K units!
-NO GOVERNMENT COST AT ALL.
-benefits flow to middle class homeowners.
-they would be affordable — every one knows the sister’s kid who is 22 going to community college needs that unit costing $700 a month. perfect, basement, unit, renter. or a nanny. or your ma or pa. or a six month stay for a divorcee who lost her house and needs to just downsize her rent.
having a huge government program using up bonding capacity ….well, sure, but takes long time to build out. and could reduce bonding capacity needed for other stuff. it’s not exactly like we’re ahead on sidewalks, road potholes, etc.
and many of the rule changes goldy envisions for the govt. units could be made today fore private units. there should be NO required building of parking spaces, period. there should be allowed private garages to be built in commercial or multifamily type zones. tons of public land is simply not used densely enough from NSCC to the green lake parks dept. garage off ashworth and then we have vast parking lots at fred meyers and northgate where we give permitting approval but could require, subtly, at little cost to government, that they build or allow building of units above the vast swaths of parking.
what we really need is a conscious plan of “how do we add 80K units kinda fast including lower rent” and not just the hodgepodge of efforts, prpograms, especially those relying on government cost which ultimately are paid by citizens thus RAISING costs of life for everyone else which is a primar factor in driving out our strugging middle class and making seattle impossible for the working class. they need our bonding capacity for adding tons of say, express busses….community centers and other things. tons of things can be done with out massive expansion of government and frankly judging from past government experiences in public housing, and real estate deals of all kinds, you have to expect government won’t be that competent. we couldn’t project pacific place garag revenues, we blew the mohai deal, government is constantly screwing up real estate deals and building expensive and ineffectively. yesler terrace, did that rebuild work well?
Just to respond briefly to commenters contrasting the current situation with the pre-2001 dot-com boom, I realize that that bubble was largely the result of sub-prime lending on a scale that is not currently happening.
What is driving housing costs in Seattle right now is an influx of young renters making 50-200k a year with no kids and a huge portion of their income going to housing. While the top performers of this class can afford to buy single family homes in the city with a reasonable mortgage, the average worker is moving from contract job to contract job and is unable to acquire any assets or even pay down their massive student loan debt.
They are entirely dependent on non-union jobs in the tech or service industry that offer absolutely zero job security and are dependent on rapid growth in the high-tech sector that is (in my opinion) unsustainable.
This is, of course, largely based on anecdotal evidence and pessimism, but that’s just my .02. It is also certainly possible that wealth will continue to endlessly flow into a few urban areas in the US (like Seattle) while the result of the country goes to shit.
One correction to Gold’s excellent idea:
There is a subsidy ay time taxable property is made non taxable. Non profits owning housing .. including cooperative arrangements … need not get a direct subsidy but avoiding taxes is a BIG deal!
On the other hand, a huge part of the cost of housing .. new or acquired .. is leverage. Investors buy (and lenders lend) on the assumption that they will make capital gains, That is why a money losing baseball team is a great investment! These loans as well as the expectation for capital gains are the major reason such properties increase in value, driving rents and taxes higher.
Property that is removed from the profit making sector, on the other hand, has no expectation of capital gains .. thus making a loan harder to get. GOLD’s solution is brilliant!
“Fuck Rick the Scrotum”
http://talkingpointsmemo.com/c.....o-anything
@26 – Meant to post on Open Thread
@22,
Ooooooh, so he’s QUite the scholar!!!
The $15 minimum wage will drive jobs and people out of Seattle in droves.
Like Expedia? Best Buy?
Thank you for validating the need for more housing in Seattle. Goldy’s ideas here all seem pretty good.
@28 Envious?
@29 It’s a crying shame anyone is forced to subsist in this city on $15/hr., but I guess entry-level has to start somewhere.
@30,
No.
You can draw a direct correlation between vacancy rates over the years in the Seattle market and rent hikes. It’s been done, several times. The charts are on the internet, Google them.
Supply and demand is a real thing. It is not the only thing involved, but is an actual market force, no matter how many commenters dig in their heels and deny it.
25% fewer homes on the market in Seattle this year than last year, but more home shoppers in the market. It does not take a genius to figure out that if this trend continues, we, as a city, are screwed.
Anti-density activists will point out that the Ballard building boom raised average rents in Ballard, because the average Ballard building got newer, but will conveniently ignore that average rents dropped citywide at the same time, thanks to the added supply. Units 10-20 years old, built in the 90’s and early 00’s, saw their prices in particular plummet when the recent wave of new buildings opened up.
Various employers are bringing tens of thousands of new jobs into the city. Meanwhile, the city issues permits for just 1800 new units, and trots that number around proudly, patting themselves on the back as if it was meaningful, and not just a drop in the bucket.
The City should build more public housing, just like Goldy says. In the short term, it’s the only way to reduce housing costs immediately. The Sisley properties would be a great place to start, rather than bulldozing the buildings and leaving a giant pointless lawn next to a transit station in a neighborhood full of lawns.
But in the long term, if supply is not increased, we’ll be looking at a San Francisco problem, with two markets separated by an insurmountable chasm: the rent-controlled public units, and the insanely expensive private one. Any long term solution must aim to close that gap – ideally by cheapening the private market.
@15
Thank you that is part of what I’m thinking about the flexibility. In say aboriginal communities there usually aren’t a whole lot of private property rights. Land and housing is communal. Still when your talking a city it’s something beyond most aboriginal communities unless they happen to live in exactly the right place like where there is a great abundance of salmon. Then they may develop a more complex society. That is still perhaps going in a direction I’m not really thinking in.
I do like some of the shows about the infrastructure of say New York and how it’ as if the city itself is alive and almost a entity to itself and it’s 10 million plus inhabitants and workers just cells.
When talking housing what is it that the common man wants in housing? Their own space. Space that will accommodate and make their life more comfortable and better. If they like raising chickens or having a garden is important. If they are a motor head then you can’t entirely ignore they need some space for that 1969 corvette and/or VW bug. For the festive a YUGO and the man who has everything a Bentley. |For the sensible woman executive an electric Bentley.
Some like it intimate and others need space for the friends and relatives that frequently are over and then stay. I think this is the reason that the projects failed as they did not really meet the needs of real people living in them. Your just a poor person, just a brick in the wall.
I do believe cities should be walkable, but you do need a real public transportation network within. There are times when we individually are going to want our own personal mode of transportation, but the urban person most the time should be able to do without (even if they are very wealthy) but businesses are going to need vehicles and need rods or something to move employees and goods, and I’m sorry Amazon drones is not going to do it. Use the bloody post office.
I think Goldy’s idea here has merit, but the result is that people living in whatever is built needs to feel like this is home and hopefully will want to remain in that home for years, decades or a lifetime or heaven for bid generations. All which is somewhat like hobbits or Europeans but doesn’t seem to be the American psyche.
So I hope there will be more discussion as I’m playing with the idea still.
Cover them in solar panels and they could even turn a profit.
Municipal bonds definitely have a cost associated with them. The debt service and structure of the bond mean that taxpayers pay millions to service the bond over it’s lifetime, which is typically 10 to 30 years. Particularly with rising interest rates set to be voted upon soon by the Fed, municipal bond prices will go up because yields go down. The title of this piece is extremely misleading, and indicates that the author does not understand the basic mechanics of bonds. Please research this topic further before labeling your article in such a misleading way. A good source of information for those interested in learning about how bonds work is here: http://www.investinginbonds.co.....sp?catid=8
using public debt capacity for one thing not another thing is a cost; there is really no free lunch.
almost everything has a cost.
Anytime you rent housing for less than market value that is subsidized housing. So giving someone cheap rent is definitely subsidized housing. And this idea is drastically different from a public utility because everyone (more or less) pays the same rate for electricity so the benefits of investing in the power system are pretty equally shared. But if some people saved, invested, and bought a house (at market price) and some are getting cheap rent, the benefits aren’t equal and there’s no similarity to a public utility.
@38 It’s not a subsidy because no money is going to subsidize it. We’d simply be using our bonding capacity to build affordable housing, and then charge enough rent only to service the debt and pay for maintenance and management, rather than charging the highest rent the market will bear. That’s not a subsidy.