Housing

A recent report by the Harvard University and the University of California, “The Economic Impacts of Tax Expenditures: Evidence from Spatial Variation Across the U.S.” has been getting a lot of attention in the press (check out Paul Krugman’s take on the study) lately for a report with such a wonky title.

For those of us in the various theaters of the land use war in Seattle there is one paragraph in the summary of the study that should get special attention:

In particular, areas with a smaller middle class had lower rates of upward mobility. In contrast, a high concentration of income in the top 1% was not highly correlated with mobility patterns. Areas in which low income individuals were residentially segregated from middle income individuals were also particularly likely to have low rates of upward mobility.

At first reading, this might seem to bolster the argument that some make for something called “inclusionary zoning,” a requirement that private developers should build price controlled units into their market rate projects. The basis of that argument is that greater mixing of income levels should be required and achieved through setting and controlling housing prices of a set aside number of housing units.

Notwithstanding the questionable nature of this strategy—that controlling the prices of a few hundred units of housing is the way to achieve economic diversity and upward mobility for the poor in a neighborhood or city—the study should be carefully considered for its implications on this discussion of normative housing price in Seattle.

Some might argue that this is “proof positive” that lowering housing prices in new development will result in greater economic integration and thus result in greater upward mobility for people with lower incomes. But let’s reverse the logic of that argument; gentrification (a term that stubbornly resists a quantitative definition) itself is a kind of inclusionary strategy. Why not move people with higher incomes into lower income neighborhoods? Wouldn’t that also be a salve for economic pain in low income neighborhoods? And gentrification or displacement is a watchword in any discussion of the so called impacts of light rail in the Rainier Valley.

However, the argument cuts two ways: if we demand that developers build price controlled units into their housing in rapidly growing neighborhoods because it supports upward mobility of people with lower incomes, then we must also consider the reverse—putting more people with higher incomes into neighborhoods with lower incomes— might have the same effect.

It does make sense to push all income levels together. The study validates the idea that when low and middle income people are desegregated everyone benefits. But what’s the best way to do this? Obviously it would be to support land use policies and zoning that would allow lots of different kinds of housing to be built in close proximity. It’s called density. To use exaggeration to make a point, it means condos in the Rainier Valley and microhousing in Laurelhurst.

But this is the very thing that Seattle struggles with. When developers find a new market for their product, like smaller houses or apartments, it is these innovations are resisted by neighbors as out of scale or inappropriate. These innovations block views, make noise, add more people, and, neighbors fear, ruin the neighborhood, and threaten the financial investment of the people that “got there first.” When neighbors in Seattle fight new approaches to housing, they are fighting diversity of incomes, whether they are opposing cheaper units in upwardly mobile neighborhoods or upwardly mobile people moving into lower income neighborhoods.

I’m not suggesting that a deregulated market will build housing for everyone everywhere. Let me be clear: almost every other product in the United States receives some kind of subsidy. Through our tax codes and outright grants we generously subsidize all sorts of enterprise we believe will result in public benefit. Housing is no different and it should continue to receive taxpayer support. However, we need to be smart and less sentimental in how we tip the economic scales of housing.We need to get our definitions, social engineering and subsidies right. A good place to start would be public funding focused on housing for people who can pay little or no rent for their housing.

If the study reveals anything, it is that we should be encouraging economic desegregation with fewer rules and regulations, supplying the demand for housing with innovative development models, and supporting, when necessary, the effective use of subsidies for people with the smallest amount of purchasing power for housing. If we are truly determined to lower housing price in Seattle we will build more housing. If we really are concerned about supporting upward mobility for people who struggle to make ends meet, we’ll welcome them into our city by giving them more choices and helping them pay their rent, in whatever type of housing they choose to live.

30 Replies to “New Report: Seattle Needs More Housing Choices”

  1. The only thing that will really bring down rents is to remove restrictions that prevent new housing units from being built, whether that be height limits or neighborhood backlash against new development.

    I am not in favor of removing safety or environmental regulations here, but unless the housing volume in Seattle increases significantly, the rents will continue to soar and price working people out of the city.

    1. I agree. There are tradeoffs with all of this, of course. When it comes to new buildings, there are several negatives:

      1) Increased traffic
      2) It is harder to find parking
      3) The building might be ugly
      4) The building might overwhelm the neighbor (a house surrounded on all sides by skyscrapers)

      I have sympathy for all of these issues, but I think the first two should simply be ignored, especially since they are at odds with each other (if you provide parking then you will probably increase traffic). I drive, I hate to pay for parking, but my concerns in this regard are trivial compared to someone who has to pay more for rent. Housing is a right (life, liberty, property) but parking isn’t.

      The third is very hard to legislate. I’m most sympathetic to the fourth, and believe that reasonable compromises can and should be met. But those compromises should ignore the number of units in a place, and focus on the external dimensions. In other words, I could care less if my neighbor builds a monster house or an apartment building. But the house is allowed, while the apartment isn’t. This is bad policy and should change. The Apodment folks are using a so called “loophole” to build apartments with lots of units. They shouldn’t have to. They should be able to add as many units to a building as they want. The only restrictions should be on the size and shape of the building (as long as the safety and environmental regulations are met, of course).

  2. Historically, Seattle has done fairly well when it comes to housing diversity. There are a couple of reasons for this. First, our red-lined area, or ghetto, was never that bad (there are complicated reasons for this that I won’t get into). Second, the really nice places in the city are spread out all over the place. Basically, wherever there is a great view, there was an expensive house. Just down the street, though, there was a very affordable house. As the city has prospered, the housing has gotten a lot more expensive. Now, small houses in mediocre neighborhoods are expensive. This makes it tougher on people who rent, people who are trying to buy their first house and for people who own a house in another (cheaper) part of the country. All of this adds up to an increasingly expensive city, which leads to very little income diversity.

    One small step in the right direction is to liberalize mother-in-law housing. This helps everyone. Folks who can barely afford the high mortgage can afford to rent out part of their house. Renters obviously benefit. Those that are wealthy won’t bother.

    The only downside is parking. It is a bit overstated to say this, but parking requirements are the enemy of the poor. I can’t think of a simpler, easier way to help the poor in this city than to simply ignore parking when it comes to housing or zoning policy.

  3. This is the classic macro argument for and against housing price controls: what happens when you fix housing prices so that a given residence is not available is not available to the open market?

    There is also a well-established psychological and economically-measurable event at play here: people of one income level will tend to live among other people of that income level. Even if a low-income option existed in a higher-income neighborhood across town, you can’t depend on the otherwise economically-rational behavior that says that people will simply uproot and move to the other side of the city.

    If the rising tide lifts all boats, what happens to those who are already sinking?

  4. Washington State could do any number of things to create a broadbased middle class and move many of its working poor into those ranks.

    Since the cost of housing here is twice the national average, all discussions can begin here.

    1) Property tax. By restricting property tax increases, people who are long timers get artificially low prices for benefits. This prevents working people from being able to acquire land and homes (which might be sold, especially secondary homes used as rentals).

    2) GMA. Far too restrictive and bottling up an expanding population. Do we have to cover Mount Rainier with condos? Nope. Can we add buildable land across Washington and link it with High Speed Rail? Yessir.

    3) Transit and transportation. Failing to build out LINK to the extent of the suburbs (which would be cheaper per mile than Seattle) and getting hung up in moving inch by inch in downtown when they could have built out to the 3 corners of the region already is a crime. Light rail is called “light” because its fast, cheap and easy to implement. LINK fails on all three metrics.

    3a) Highways. A 40 percent population increase and not one single new highway route has been added. East-West travel remains abysmal. Interchanges are the worst in the nation.

    1-3 three are the result of a social agenda that favors densification and urbanization over sprawl and single family homes. The latter is what builds a strong and diverse middle class. We need to change course 180 degrees to get this state back from a master-serf, billionaire feudalism to a strong wide middle and working class economy.

  5. I doubt that hectoring people is going get them to give up their street parking. Just buying off people is a lot faster.

    The problem is that you have the high-carbon status quo, where every adult is expected to own a car and drive everywhere, and you’d like to get a low-carbon transit-based situation. But like getting everybody to switch from driving on the left side to right side, it doesn’t work well in increments. Having apodments built on either side of your single-family home (that you’ve invested 300% of your net worth in) doesn’t make it easier for you to get from Queen Anne to Ravenna, or prevent half your friends from getting priced out of your city, it just makes it really hard to park. So every individual single-family homeowner is going to fight like hell.

    I’d rather just have the city use eminent domain (with generous valuations) to replace every low-rise building within a five minute walk of a transit stop with high density. You could bundle that with improved transit and call it a climate change levy, then dare Seattle liberals to vote against it.

    1. A solution I’ve seen around the web recently goes like this: Limit the number of parking passes issued in an RPZ (residential parking zone) to roughly the number of on-street parking spaces. Developers are allowed to build new apartments without off-street parking, but once the cap on parking passes is reached, no more will be issued. Existing street-parkers are guaranteed that they will continue to be able to find a spot on their street.

  6. When looking at gentrification, there’s little question (in my mind) that interrupting a condition of uniform poverty is a good thing… for a while. But there’s a big question of how to prevent the new rich arrivals from eventually pushing established poorer residents out of the neighborhood completely. It’s really easy for rich people to push poor people out, and astonishingly quickly, because many poor residents depend on affordable rent and don’t benefit from a rise in property values. At best they’ll benefit from increased economic opportunity but, if most of the local jobs created are in retail, maybe not!

    There’s some awkward phrase Jane Jacobs uses for the post-gentrification phase where a neighborhood becomes utterly taken over by richer residents, something like the “self destruction of diversity”. If a neighborhood was poor and is diverse, how can we help it remain diverse instead of completely displacing its poorer residents? Historically American cities haven’t had a lot of success at this. The answer may well be liberalization of zoning and encouraging a robust housing supply. But when that’s the long-term outlook on gentrification and it’s been seen in various parts of New York, Chicago, SF, etc., there’s a reason people stand up against it.

    1. JJ writes of the “Great Blight of Dullness”–is that the concept you’re trying to remember?

      1. Nah, the concept specifically referred to diversity — socioeconomic diversity of residents and diversity of neighborhood institutions and businesses. When the first storefront bank moves in, or the first boutique shop, or the first fancy restaurant, that increases what you can do in the neighborhood, might represent more interest and diversity. When the second moves in, this is probably true, but to a lesser degree. But there comes a point after which more of these things represent diminishing interest and diversity.

        The crux of the concept is that for some time the neighborhood is interesting and desirable because of the diverse group of people that live there and the diverse activities that take place there. But because the neighborhood is desirable prices rise as richer people and higher-margin businesses move in, and an important part of the neighborhood is priced out.

    2. As an area becomes a more attractive place to live, we really only have a few choices:
      1. Try to keep the area the way it is. Demand will quickly outstrip supply, and drive up prices.
      2. Allow enough housing to be built to accommodate the new people that want to live there. This creates displacement, but drives down the cost of housing compared to option 1.
      3. Make the area less desirable.

      The piece that’s often ignored in the gentrification debate is that our primary goal should be building a better city, which is the opposite of #3. We want people to have better lives, and anything we do to make that happen makes an area more desirable. Adding jobs, transit, improving streets, parks, schools, etc. all drive up housing prices if we don’t increase supply.

      1. Of course, there are challenges all around. There are certain things about an area that you want to keep the way they are, and which of these they are depends on who you are. New housing tends to be initially expensive. Often large buildings require particularly expensive construction techniques and sometimes code requires pedestrian-hostile parking entrances for them.

        New housing in some parts of a neighborhood might prevent displacement elsewhere in the neighborhood and in the city. Looking at the big picture you’ve got to find ways to build where and when the market is hot. At ground level it isn’t all roses. That doesn’t mean we shouldn’t do it… just that we should remember the reality that in any change someone will probably be affected negatively, and their voices deserve to be heard.

  7. The answer is simple, you have a two pronged attack.

    1) Work with the county on a new affordable housing levy that focus solely on rent subsidies. Every household making below X gets a $100 rent check, Y $200, Z $300. (Very rough example obviously). Direct subsidies have the least amount of distortion on the market. No hidden costs or passing costs on to future inhabitants.

    2) Increase supply. This has been discussed ad nasuem here. We all know what needs to be done.

  8. The problem is that increasing supply helps in the aggregate but doesn’t solve the economic segregation problem. Bringing in high-income residents raises rents, and forces long-time renters out. That would be OK if the lower-income residents moved to a neighborhood that was richer than they are on average, but of course market pricing ensures that the opposite happens. Low-income people all move together to places in comparative decline, and net housing segregation by income doesn’t improve (and often gets worse.)

    Any comprehensive solution has to encourage a balanced shift in upper and lower-income housing across neighborhoods to achieve a better overall balance in as many places as possible. So new development has to be paired with subsidies for lower-income residents (preferentially those who are already in the neighborhood). The key thing is that the subsidies need to be targeted to encourage low-income residents in neighborhoods with less than a proportional number of low-income residents, and rise or fall over time to get the right mix.

    Doing that is both technically and politically difficult. How do you target subsidies to maintain just the right number of people at each economic level to provide a diverse mix? How do you raise revenue for the subsidies without taxing development? How do you get buy-off from affluent residents who no matter how you do it, will bear the brunt of the cost? There are no simple answers.

    I do think it’s critical to figure this out to maintain (and expand) support for transit, though. Transit does better when it’s seen as valuable for everyone, and not something for poor people only.

    1. “Low-income people all move together to places in comparative decline” I’m not sure I buy that. I’ll explain both on the city and neighborhood level.

      On the city level: every new unit you build in Seattle allows one more household to live here. If we build units in the city faster than we create well-paying jobs (something hard to do at the moment), there are more homes for those with not-well-paying jobs. If we build fewer homes than we add well-paying jobs, there are fewer units for the poor.

      On the neighborhood level: neighborhoods seem to be pretty fixed in comparative wealth. Areas near the water and on top of hills with views will always be the rich areas. Areas in valleys will not. Yes, there are temporary exceptions, but over time we’re talking about minor changes in how gentrified an area is, not a complete switch from poor to rich.

      1. Matt, I address some of your points further below in this thread. Elaborating on that: Geography is not destiny. If it was, then every city would be deeply divided between poor people in bad geography, with no hope of improvement, and rich people on the tops of hills near water, with no desire to leave their enclaves. Many cities end up this way (or become wholly places of the affluent, with everyone else shipped off to the suburbs), but it’s the result of policy, not geographic destiny.

        Public transit is a social good, of theoretical utility across classes. But it becomes less useful when our lives are lived in isolated economic enclaves, with those of many resources capable of buying personalized, privatized solutions to their own mobility, even if they kill themselves on freeway commutes in the process, while they shun the very idea of getting places alongside other people. Sprawl is what happens when people try to live apart from people not like them, and take as much as their money out of public services (like transit) as they can on the way out the door. Building more housing of all kinds for as many people as possible is a necessary step to reversing this process. Changing regulations to encourage density and walkability is necessary. But without efforts to ensure that low-income people have a place in a neighborhood, it’s hard to meet even those supply-oriented goals. What happens is that developers focus on one part of the market that is most profitable in the short term, and you get way too much of that and not enough of everything else. Jane Jacobs wrote about this, as Seattleite alluded to this morning. A thriving neighborhood has a diversity of uses, for a diverse population of residents and visitors. You don’t get that by only adding to aggregate housing units. It’s more complex than that.

    2. “Bringing in high-income residents raises rents”

      Whoa, no.

      High income people come on their own, for a handful of reasons, most of them economic activity – they come for great jobs.

      Then you have a choice between letting them live in new construction, and forcing them to compete with lower income people for older buildings.

      That’s the supply problem. When we say “oh, this shadow is bad” and limit the number of units in a building via height, a few of those higher income people now compete for older units, raising their price.

      1. As a neighborhood gets more upscale, rents go up. That’s the demand side of the equation. Building high-priced units increases supply, but past a certain point also increases demand by making a neighborhood more desirable for that demographic. My point isn’t that there isn’t a supply problem in the city overall, but that particular neighborhoods also have high demand, and the people who lose out are often long-time residents who are not as affluent. I’m a big proponent of increasing housing supply and density, but that isn’t the whole story. There are distributional effects between neighborhoods and between the city proper and the suburbs.

        And to respond to Matt’s claims about geography: of course it matters, and some neighborhoods are more likely to be desirable because of location, but I’d argue it’s at the margins. There’s quite a difference between Laurelhurst and Beacon Hill, or Madison Valley and Rainier Valley. Water plus a hill with a view is a combination more associated with affluence, but it’s not determinative. There’s a large range of economic diversity in areas that have geographic similarities. Good neighborhoods do not stay that way forever. Neighborhood development comes in cycles and places wax and wane over time.

        People who are serious about improving the city and its neighborhoods, and improving transit both as a tool for that end and as a goal in itself need to understand that there is no single easy solution.

      2. “Building high-priced units increases supply, but past a certain point also increases demand by making a neighborhood more desirable for that demographic.”

        I think this is confusing correlation with causation. High-priced units are built because the neighborhood is desirable for that demographic, not the other way around. You’re not going to make money building luxury condos in Renton with the hope of changing the neighborhood. Those condos will sit empty until they drop in price.

      3. It works on both ends. You need some demand for housing before you can supply it, but development to meet supply often attracts more development, because part of what is desirable is living in a place that has existing development (shops, restaurants, and people living in and visiting the area and making it a worthwhile place to be). And when the desirability of a place rises faster than supply, so do rents. And that can lead to an exodus of people who can’t afford those rents. And then the neighborhood over-specializes in the new development and the old, more diverse activities in the neighborhood die out. So you have a narrow remaining population of comparative affluence, but only until the aging of the neighborhood and the next wave of development in a different neighborhood attracts those people away, leaving very little behind.

        This happens again and again in cities. It’s somewhat inevitable. But an investment in a neighborhood of diverse interests and uses can prolong the length of time when a neighborhood is a good place to be, and enable more neighborhoods to simultaneously enjoy that status. Transit is a key part of that. But you can’t do it just by building, because it can easily promote this destructive boom/bust cycle. That doesn’t mean either that you do it by not building. You have to constantly be creating neighborhoods anew. But you can’t leave large parts of the population out of that process, and part of successful change is having a more slowly changing identity around which the more profound changes occur. You need long-term residents, of all economic backgrounds, side-by-side with newer residents and always lots of visitors.

        It’s like surfing a wave: it’s easy to fall to either side and eventually every wave must crash. But you should at least try to make it last, whenever possible.

      4. “And when the desirability of a place rises faster than supply, so do rents.” Again, I think this is your interpretation of what you’ve seen. But it’s really easy to mistake correlation for causation. It’s more likely that construction started because there was already desirability, and for many reasons (height limits, regulation, nimbys, or simply the cost of construction) wasn’t able to keep up with demand. I’d guess if these new buildings hadn’t built, that desirability that caused the construction would have still been there and rents would have been even higher.

        For one example, look at Silicon Valley. They did the opposite of what you described – there isn’t a building in Palo Alto above three stories, and most residential is single story homes. The cheapest home you’ll find there is a small ranch style home in the millions of dollars. Surely if Palo Alto had allowed towers this would not be the case – those that don’t care about single family homes would have lived in the towers, freeing up real estate for those with less money.

      5. If $600/mo one room apartments are possible in a place as densely populated and pricey as Tokyo, surely they are possible here. Its merely an issue of supply and demand.

        Single family homes are great for individuals, but we are passing the point as a city where one of those is affordable to someone who is not commanding a very generous salary. Unless we want to doom all of our working and middle class residents (including quite a number of us on this blog no doubt) to ever longer commutes on ever crowded freeways, we are going to have to give up more single family homes and protected 180 degree views for the wealthy.

        On the plus side, bringing people back into the city of all income levels will bring more opportunity for a more vibrant street life, with bigger block parties, bigger festivals to attend and a much more diverse restaurant and shopping scene.

        I would much rather live in a city like that than someplace that is trying very hard to become the next Palo Alto.

  9. Just because economically integrated housing increases upward mobility, doesn’t mean we should do it. We need more information. What other things increase the upward mobility of the poor? How effective is integrated housing in increasing upward mobility compared to those other things? Where does it rank? What negative impacts do poor people have on a middle class neighborhood? Do housing values decrease? Does crime increase?

  10. Supply is key. But the reversal-of-fortune strategy of:

    Why not move people with higher incomes into lower income neighborhoods? Wouldn’t that also be a salve for economic pain in low income neighborhoods? … putting more people with higher incomes into neighborhoods with lower incomes— might have the same effect.

    has been proved to be of limited use. See a recent explication on the hypergentrification in London. The problem being, the mix doesn’t stay a mix for long.

      1. Yes, but there is only so much upward economic mobility those service and cupcake jobs can provide.

      2. That’s a backwards way of looking at it. City jobs pay better and have more room for promotion.

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