There Is No “Law” of Supply and Demand

Rents at newer luxury “Class A” apartment buildings in Seattle are rising at twice the rate of rents at older “Class C” buildings, despite having twice the vacancy rate. Which which is weird because…

The data seem to defy the law of supply and demand. I asked Cain about it; he believes it has something to do with the different types of ownership models at luxury apartment buildings compared with the older ones.

Premium Class A properties are typically owned by institutional investors and managed by a national property-management company.

In contrast, Class C properties are usually owned by people with a connection to Seattle — either a family (though that’s become a lot less common in recent years) or a small group of local investors.

“Also, these owners seem to hold the properties longer,” Cain says, “and as a result, they have lower debt coverage ratios.” The less debt they have to service, the less pressure to push rents to the maximum.

In other words, many of these landlords aren’t jacking up rents to whatever the market will bear. It’s a refreshing change from the all-too-common stories of brutal rent hikes forcing tenants to relocate.

Except, of course, it’s not weird. Because there is no “law” of supply and demand. Supply and demand is a useful construct for describing, in general, how markets tend to work. But it’s not a law. People—and thus the markets they create—are a lot more complicated than any three-word phrase can describe. So no, merely adding more supply is not the only (or even an adequate) solution to Seattle’s growing affordability crisis.

I’m not saying we don’t need to add more housing units. Of course we do. Massively. But the market alone will not solve this crisis because the form of ownership matters.

Open Thread 4/15

- Did you pay your taxes? I’m sure this open thread will be all the reminder you need.

– Yesterday I had a post complaining about how much money was in the City Council race. Maybe comparing it to last time isn’t as bad after all.

– Patty Murray is working hard for the Healthy Families Act for paid sick leave.

– Is it possible we’ll have some action on oil trains, or is anything good just going to die in the State Senate?

The recent push for guns on campus in the name of rape prevention, then, adds just another data point to the long story of the gun lobby’s fight to arm white people, and only white people, for self-defense.

– It’s kind of sad that a silly cartoon about Hillary Clinton has more useful info on her policy than most think pieces.

All Of The Money

Over at Seattlish, they’re looking at how much money is being raised on the City Council races. And with like half a year left, it’s quite a lot.

So far, the Seattle City Council races have raised a total of $1,007,381.09, according to the most recently reported totals – an average of about $23,000 per candidate out of everyone that has filed at any point, including people who have since dropped out. For contrast, in 2013, 11 filed candidates raised an average of about $87,000 each over the course of the entire race – most notably, Richard Conlin raised (and spent!) $241,986.31 trying to defeat challenger Kshama Sawant.

Sure. But that was also the only competitive race last time. This year we have quite a few. So maybe our too-damn-rich people will hit the limit on more races. Also, it’s possible that seeing Conlin lose has prompted the incumbents who’ve stayed to think they need more money to defeat a possible challenger.

Drinking Liberally — Seattle

DLBottle

It’s Tuesday…and that’s Drinking Liberally night in Seattle. So please join us for an evening of politics under the influence at the Seattle Chapter of Drinking liberally.

We meet tonight and every Tuesday at the Roanoke Park Place Tavern, 2409 10th Ave E, Seattle. Our starting time is 8:00 pm, but some folks stop by earlier for dinner.

Can’t make it to Seattle tonight? Check out one of the other DL meetings this week. The Tri-Cities and Redmond chapters also meet tonight. The Lakewood chapter meets on Wednesday. On Thursday, the Tacoma chapter meets. And next Monday, the Aberdeen and Yakima chapters meet.

There are 191 chapters of Living Liberally, including eighteen in Washington state, four in Oregon and two in Idaho. Chances are excellent there’s a chapter meeting somewhere near you.

How Seattle Can Build Thousands of Affordable, Rent-Stabilized Housing Units at No Cost to Taxpayers!

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.

Open Thread 4/13

- Generally my questions with any bridge are first if it’s walkable/bikable, and second if it makes sense. My question with this bridge is why isn’t it up and running right now now now? PS, I am 12 years old.

– Our initiative system is sooooo broken in Washington.

Nice little civil rights you have there. Be a shame if anything happened to them.

– Hillary Clinton is running for president. I supported her last time and almost certainly will again this time, but I wish we had more of a primary. Also, I assume her website will get more fleshed out, but I would kind of like an issues page.

– Congrats to the Seattle Reign FC on a hell of a victory to start the season.

Friday Night Multimedia Extravaganza!

Jon: Kansas is America’s welfare queen.

Slate: The tide of every 18 years.

Thom: The Good, the Bad, and the Very Very Foveately Ugly.

White and Black and Red All Over:

Roy Zimmerman: What I Mean:

Slate: A year in space.

Mental Floss: What is the origin of the high-five.

Sam Seder: Louie Gohmert unhinged, “You’re playing God with the internet!!!”

Mark Fiore: Three-eyed Billy embraces the apocalypse.

Sen. Elizabeth Warren: How she learned to ‘stand up’ and ‘speak out’.

Matt Binder: Draft dodger Ted Nuget claims to know why vets are committing suicide (hint: Obama).

The 2016 Clown Parade:

Mental Floss: 21 Fandom Facts.

Jonathan Mann: Hey, hey, NSA, stop looking at my penis.

Maddow: TN tweaks gun laws ahead of NRA convention

Ask a homo: Gays and political groups.

Congressional hits and misses: Best of Dan Coats.

Pap: How Jon Stewart and Stephen Colbert held the corporate media accountable.

Bill-O the Sociopath:

Garfunkel and Oats: Rainbow Connections:

Liberal Viewer: FAUX News lies about “ban the box” law.

White House: West Wing Week.

Jon on the Rolling Stone scandal.

Mental Floss: Misconceptions about dinosaurs.

Maddow: NC Lawmakers push sweeping anti-abortion bill.

The Bloody Neocons Are At It Again:

David Pakman: Republican to Gays, at least we aren’t hanging you.

Thom: The Good, the Bad, and the Very Very Foudroyantly Ugly!

Last week’s Friday Night Multimedia Extravaganza can be found here.

Ted Cruz Accuses Gay Marriage Supporters of “Jihad”

Ted Cruz, an actual senator who is actually running for president, says gay people are launching a “jihad” by “going after people of faith who respect the Biblical teaching that marriage is between one man and one woman.”

I try to keep an eye on what the conservative fringe is doing, and I’ve been noticing a certain troubling escalation in the Republican vocabulary lately. They are now openly and repeatedly using terms of war, of terrorism, to describe gay marriage. Right Wing Watch, who posted the above video, also posted audio from a radio show hosted by Family Research Council’s Craig James. In the recording, a caller asks James if it’s possible that the Pentagon fired a “gay bomb” on America to make us more gay. “Just a thought,” the caller said. I guess you can’t argue with that!

You  might want to dismiss this as laughing at a few stupid Teabaggers, but it’s not that simple. Language matters. Words leave impressions. And if a bunch of people who the media tells us to take seriously start saying that Adam and Steve are terrorists who want to blow up innocent Americans, it’s well within the realm of possibility that some heavily armed loner somewhere might decide to bring the fight to the “terrorists.” The drums of war are not a toy.

Cruz’s platform as senator legitimizes him, endowing upon him a certain responsibility. The fact that he’s shirking his responsibility in such a flagrant way ought to be an actionable offense. You can have your petty little arguments about what your God does and does not believe. That’s your right as an American. But when you’re a public figure and you start accusing innocent Americans of terrorist actions, I believe you’re shouting “Fire!” in a crowded theater. This video very could well come back to haunt Ted Cruz one day.

UPDATE 12:40 PM: And just a few minutes ago, Bobby Jindal called the backlash against Indiana and Arkansas an “attack on our Constitution.” Tell me this kind of language isn’t spinning out of control.

oPeN tHrEaD.

- It looks like the Law Enforcement Assisted Diversion program in Seattle has been pretty successful and could use some expansion.

– Just because you can still check Facebook while driving, doesn’t mean you should. In fact, please don’t.

Maybe when Feidin Santana says of Dominicans (like the citizens of so many nations), that “we look for the alternative of the United States, we follow you,” it might motivate better American behavior, if we were afraid other nations had somewhere else to look for moral leadership. As it is, it’s a sad indictment that makes a terrible story even worse.

– More and more abortion restrictions are coming from the states. This time Kansas.

– I don’t have a TV, so my TV news comes via the Internet, so grain of salt. Still, I haven’t noticed KING 5 being worse than other local media outlets on being super car-centric, but Erica C. Barnett makes the case that they’re pretty bad while noting their latest problematic piece.

Smaller and Better Things

In yesterday’s Open Thread, I noted that it looked like Jeanne Kohl-Welles was going to run for the King County Council seat that Larry Phillips has decided not to run for. Later in the day, she made it official.

State Senator Jeanne Kohl-Welles, D-Seattle, announced today that she is entering the race to succeed King County Councilmember Larry Phillips who informed the public that he is not running for re-election for King County Council District 4.

She seems to have most of the important endorsements lined up, and as such is probably the frontrunner. (or maybe the causation runs the other way).

Kohl-Welles has been endorsed by King County Councilmember Larry Phillips, who currently represents the 4th Council District, as well as Councilmembers Rod Dembowski, Joe McDermott, and Dave Upthegrove. She also has been endorsed by her 36th Leg. District seatmates, Reps. Reuven Carlyle and Gael Tarleton, as well as all of the Democratic state Senators from King County.

I can’t imagine voting for anyone else, but I still would like a primary. Maybe a neighborhood activist or something like that. I suppose the people most likely to run in one of those races are being sucked up into city council races what with all of them up this year. Or maybe not, since district 7, that has quite a bit of overlap with that County Council seat the only one that isn’t an open seat without a challenger to the incumbent. But maybe someone will move over from one of the other districts or at large now that the County seat is up for grabs.

In any event, and while I don’t want to get too far ahead of things, presuming that she gets elected in November, it would mean an appointment to her seat. The most obvious choice is Reuven Carlyle: He clearly (although inexplicably to me) wants the job, and having won a primary and several general elections in the district, he would probably have the best case. He seems pretty conservative compared to the district, but that hasn’t hurt him yet.

Is there anyone you’d like to see either run against her or to fill her seat if she moves on?

OpEn ThReAd?

- I can’t even imagine what you’d do for an oil train explosion in the Downtown train tunnel.

– I don’t know Oregon enough to know about if running a primary against Schrader would be worth while, but in general I’m pro-primary elections.

Liberals Aren’t Hypocrites for Opposing Indiana’s Religious Freedom Law

– It’ll be tough to lose Jeanne Kohl-Welles from the legislature if she runs for Phillips’ seat, but I can’t blame her for not wanting to deal with that garbage when King County can actually get shit done.

He’s well enough to rot in our prisons.

Attempting to Make Seattle More Affordable by Adding Housing Is Like Attempting to Ease Traffic by Adding More Freeways

Alibaba

Yet another tech giant moving to Seattle?

In the wake of the news that Expedia will be moving its offices to Seattle’s waterfront, there’s been a lot of chatter lately that Chinese online retail giant Alibaba may be looking for up to 80,000 square feet of Seattle office space in which to set up its US headquarters. But why would Alibaba pick pricey Seattle? At least partially, because we’re cheaper than San Francisco!

In addition to much lower rents than the San Francisco Bay area and cheaper housing for workers, the region is filled with e-commerce and cloud computing talent thanks to Amazon and other growing Seattle tech companies, and Sea-Tac has recently increased the number of flights between Seattle and China. Alibaba could benefit from the four daily nonstop flights to China from Seattle-Tacoma International Airport.

Hear that? “Much lower rents!” I guess it’s all relative.

I’ve had this running argument with some in the urbanist crowd over Seattle’s growing affordable housing crisis. Free up developers to build more housing faster, I’ve been lectured, and the market will do its magic—you know, supply and demand, and all that. But I just don’t believe that the market can address this problem on its own.

Freed from neighborhood NIMBYism and municipal interference, no doubt developers would build more housing faster, substantially bringing down the price of luxury housing. But since developers will almost always target the top of the market first (in order to squeeze as much profit as possible out of any piece of buildable land), we won’t get many new units aimed at median income or below households. In fact, we may see a loss of affordable units as older buildings are torn down or converted to meet demand from more affluent renters and buyers.

But as Alibaba’s decision-making process demonstrates, our residential and commercial real estate markets don’t exist in a vacuum. Global financial capital is pouring into Seattle’s real estate market seeking a higher rate of return, pushing up real estate prices and rents with them. And when it comes to attracting high tech companies like Alibaba, Facebook, and HBO, Seattle is competing with cities like San Francisco and New York where office and housing costs are much higher. Ironically, the more supply we build, the more competitive we become, increasing demand, and pushing prices back up. And as more high tech companies locate here, attracting more talented high tech workers, Seattle becomes even more attractive, especially to companies doing business with Asia. Even our growing traffic congestion bumps up in-city demand by incentivizing the choice to live closer to work.

In this scenario, it’s not clear that the market alone can ever build itself out of our affordability crisis as long as there is such a huge cost disparity between Seattle and San Francisco. It’s kinda like attempting to build our way out of traffic congestion by just adding more freeway lanes: build it, and people will come.

So, yeah, I’m all for lifting height limits and other NIMBYist restrictions, particularly around transit centers. And of course we should be smart about streamlining the permitting and approval process. But I’m convinced that 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.

Drinking Liberally — Seattle

DLBottle

Tuesday has arrived, so please join us tonight for an evening of politics and conversation over a pint at the Seattle Chapter of Drinking liberally.

We meet every Tuesday evening at the Roanoke Park Place Tavern, 2409 10th Ave E, Seattle. Our starting time is 8:00 pm, but some folks stop by earlier for dinner.

Can’t make it to Seattle tonight? Check out one of the other DL meetings this week. The Long Beach, Tri-Cities and West Seattle chapters also meet tonight. On Wednesday, the Bellingham and Spokane chapters meet. And the Bremerton and Kent chapters meet on Thursday.

There are 191 chapters of Living Liberally, including eighteen in Washington state, four in Oregon and two in Idaho. Chances are excellent there’s a chapter meeting somewhere near you.

Are You Going to the Rand Paul Karaoke Party in Seattle Tomorrow Night?

[sic]

Tomorrow, as the Washington Post‘s Colby Itkowitz reports, Rand Paul fans will celebrate their dear leader’s presidential announcement by hosting karaoke fundraiser parties in almost every state in the union. You can find a list of every Stand with Rand #LibertyKaraoke event on this Eventbrite page. The Seattle Stand with Rand #LibertyKaraoke will take place at Capitol Hill’s wondrous Rock Box karaoke bar tomorrow night at 6 pm. As someone on the event’s Facebook page writes, “JUST OVER 24 HOURS UNTIL LIBERTY BOOMS!!!”

What should you sing at #LibertyKaraoke parties? Organizer Matt Hurtt explained to Itkowitz:

There’s no official liberty song list, though Hurtt’s personal favorite is Bob Dylan’s “Subterranean Homesick Blues.” He often changes the lyrics in one stanza to: “The phone’s wiretapped anyway, Maggie says that many say/ They must bust in early May, orders from the NSA.”

The parties are intended to dispel the stereotype that political fundraisers are for “stuffy old people” at hundreds of dollars a pop, he said.

Uh. Okay. But what songs should organizers sing to identify Rand Paul’s anti-choice beliefs? Maybe “The Lady Is a Tramp?” Which song would best exemplify Paul’s anti-gay-marriage stance? Probably “Going to the Chapel,” only with the whole room joyfully shouting “NOT” before every line of the chorus. Obviously, someone should sing that old John McCain classic “Bomb Bomb Bomb, Bomb Bomb Iran” to symbolize Paul’s belief that we need to increase military spending and go to war all over the Middle East. What a fun time #LibertyKaraoke will be for the handful of delusional white men who show up! I bet a stirring conversation about 9/11 Truth will break out at the Rock Box tomorrow night, too. They’ll for sure get to the bottom of the mysteries of Building 7 with all that brain power in one room!

See, the problem is that Rand Paul is trying to run his campaign as though he’s got a shot with the cool libertarian-leaning tech-minded youth vote, but that train left the station a long time ago. Paul has cozied up to the neocon right over the last few months, and in so doing, he’s distanced himself from the libertarian civil liberty platform that won him youthful attention in the first place. These karaoke parties are about as fanciful (and effectual) as the Ron Paul blimp.