Affected areas in color, fee per sq. ft. Red = $16-22, yellow = $10-12, green = $5-7.

This Monday, the Seattle City Council is set to vote on a housing “linkage fee” — a tax on development to fund low-income housing. Given that it got all five votes out of committee, passage seems reasonably certain. As a member of team density, I’m supposed to hate this proposal. It does have its problems, but I think there are strong arguments ($) on both sides.

Only government subsidies can provide low-income housing. Even if we had a perfectly efficient housing market — and we’re not even close to that — anyone who can’t afford to pay the cost of capital of constructing a new housing unit is going to be out of luck. This is one of the few problems Seattle can’t solve by simply lifting caps on development. If we’re going to have a city open to all, there is an unavoidable role for government subsidy of housing costs, either through cutting checks for housing assistance or actually building social housing. This subsidy has to be funded somehow! However,

A tax on development is just about the worst possible revenue source. If the goal is to create the conditions for housing for all income levels, and it should be, then taxing new units is counterproductive. It’s true that landlords of new developments are unlikely to simply “pass fees on to renters,” as they’re already charging what the market will bear. But future supply is important for affordability too, and it’s not enough to simply allow developers to eke out a small profit.

At the very least, projects have to cover the cost of capital. The Council’s consultant report says that “all projects that DRA concluded would be financially feasible with no fee or performance requirement would still be economically feasible after paying the proposed fee.” (p. 4) But this assumes a threshold for “feasibility” of 6% return for residential projects and 10% for commercial ones (p.7).

The problem is that Seattle projects are competing for financing with ones in Bellevue, in Portland, and even in Jakarta, to say nothing of non-development investment opportunities around the world. Anything that impairs profitability deters construction of economically marginal projects, which are the ones Seattle most desperately needs to encourage. Indeed, the report (p. 11) later admits that

DRA only studied a small number of prototypes and surely there will be some projects somewhere that would be feasible with no fee but cross the threshold into infeasibility with the addition of these fees… it is possible that a new fee could impact feasibility in the short term. Over the somewhat longer term, we would expect that these fees would lead developers to negotiate lower prices for land (or prevent land prices from rising as quickly as they otherwise would).

While the last bit, whenever it comes, might repair developer profitability, it merely shifts the supply constraint. If developers lower their bids, it is likely to reduce the amount of land available for development, choking supply in a different way.

I have to say, though, that I don’t have a lot of excellent alternative revenue sources to suggest in the current legal framework. Transportation taxes are pretty much used up, the Mayor’s office just got through explaining how property tax is basically spoken for, and the legality of truly progressive taxes is very much in dispute. Nothing has quite the net positives of just allowing more units to be built, but for low-income people that at best prevents the displacement of existing residents and nothing more. The best would probably be a land value tax, but for now perhaps that’s too far outside the box.

The Council’s website on the subject has an enormous amount of background and information. Read it over and let me know what you think in the comments.

44 Replies to “Seattle’s Proposed Linkage Fee”

  1. If I understand you correctly, Martin, I agree with you about one thing: it’s bad policy to rely on profit-making businesses, whose main responsibility to their shareholders, to go against their own financial interests for anything important.

    But I wonder to what extent you’ll go along with my own core belief that nothing that people really require for civilized life itself- like homes, medical care, education, and transportation, should be run according to the mandates of the business world as really practiced.

    To “run something like a business” is to accept the failure of most of its participants after a couple of years’ operation, and accept hat its rules demand swiftly switching its focus as shareholder return demands.

    And for its right to expect that as much as its leaders vilify “government interference,” to be entitled to governmental rescue at taxpayers’ expense from its own worst mistakes. A right that “Business” itself fights savagely against being accorded to individual taxpayers- and small businesses.

    But as I’ve said before, my preferred way to handle “affordability” is to pay the vast majority of the populace enough money to be able to finance their lives by their own work.

    And if doing so requires that little or no private profit be part of the equation, both privately and publicly employ these people in entities that require only that their operating expenses pay for themselves.

    Mark Dublin

    1. Mark, private businesses do an exceptional job of filling many roles in society. The record of alternatives is atrocious.

      Paying people more accomplishes exactly zero if they’re still competing for the same fixed pool of housing.

      1. C.mon, Martin.Granted the Interstate Highway System could’ve been improved with some tracks, at least through cities, and the Second World War killed ‘way too many innocent people and nowhere near enough guilty ones, but Milo Minder came in last behind Yossarian and GI Joe.

        And events of 2008 sort of indicate that our banking system would be a lot better off if the whole thing had been member-operated credit unions from the get-go.

        Or better yet, become public property after private enterprise crashed it. And now that public rescue, it’d gone back to puffing on its next methane bubble. Word should have been: “You broke it, we bought it, we own it, so give a profit-making pop stand your best shot!”

        Wouldn’t mind a little contest with Veolia to prove that despite King County’s worst handling, Local 587and the can out-drive both the DSTT as long as buses keep it in need of special handling,and the Route 7 ‘long as it’s trolley wired.

        Assuming anybody with shareholders would touch either operation with one of those long sticks for getting shoes back on the wire after the rewiring mechanism fails. Anybody who’d finish a paragraph with your last sentence hasn’t been in the same city with Metro Transit and Washington Mutual at the same time.

        And a city-full or well-paid workers would create as much new housing as an equal, or since the country has fewer of them more of, housing more trillionaires. Leave me my parking space at Kakao ’til LINK goes to Olympia, SLU connects with First Hill, and Metro runs the DSTT as we publicly designed it.

        You’re a good man anyhow, Martin. Just please don’t sell the blog on Amazon.


      2. I think housing is one of those areas where the government generally can provide services better than the market. Sweden before 2000, Singapore and Hong Kong are all notable public housing success stories.

        There has to be some kind of floor on the quality of housing we force people into and away to more quickly serve low income people who are being pushed out of the city.

        Wither the market or state does a better job of something has to be looked at on a case by case basis. Both tools are valuable so it is an overstatement to say the record of alternatives to private businesses is atrocious.

      3. “Paying people more accomplishes exactly zero if they’re still competing for the same fixed pool of housing.”

        That’s why it was such a joke that opponents of the $15 minimum wage were saying landlords would jack up the rents to absorb the increase. But there aren’t enough units anyway at that level, so there were never going to be enough vacancies for the anyway. The wage increase will help them in their other expenses but not so much in housing.

        Both Martin and Mark are right in a way, because inequality causes large-scale social problems and affordability problems beyond this housing issue. But just raising wages does not automatically solve the housing problem, as the example of the $15 minimum wage shows. You need to have enough housing to match the population too.

  2. I’m also conflicted on this. We need a lot more affordable housing but we don’t want to disincentivize building in Seattle.

    I think the city council should tread lightly on this. If something is implemented keep it small and test the results rather than jump in with both feet.

    I generally think a straight propery tax that has provisions to disincentivizes empty lots is a better way to go… But it sounds like that isnt an option.

  3. I agree with your assessment. The market alone can’t provide low income housing unless there is more income equality for the renters and buyers. A land value tax would be the best thing, as it both taxes wealth and encourages more development.

    Since that won’t happen, and we are perhaps stuck with this tax, I have a suggestion. Link the tax to the number of units added and the cost of development. The more you spend, the more you are taxed. The less units you develop, the less you are taxed. If tear down a 12 unit low income apartment to put up a high end, 12 unit apartment, you will be taxed heavily. But if you tear down a single family house and put up a 24 unit apartment (or Apodment) then you will be taxed a lot less. You could set a minimum threshold to minimize extra paperwork for a simple remodel (e. g. a kitchen remodel in a house wouldn’t have to pay this tax).

    The only drawback I see to this idea is how it effects business development. We really don’t want to discourage new business construction (whether for office or retail).

  4. Why do single-family houses get a pass on this tax? When someone does a major remodel or builds a new house it’s almost certainly going to increase the value, and therefore decrease the affordability of that house. In Seattle single family houses are by definition exclusionary due to their high prices, and excusing them makes not policy sense to me.

    1. I agree. I see nothing in here that incentives builders to build more units, which in turn would lower prices. Tear down a little single family home and put up a huge house (a so called monster house) and that is just fine. But tear down a single family house and put up an apartment (where it is allowed) and you pay a tax.

  5. IF the fee were only on commercial buildings and not housing, it would actually be a very wise proposal.

    1. I would say that it would actually make sense, but I wouldn’t call it wise. It would basically squeeze every retail and office worker in the city. Want to open a little bistro in Ballard? Forget about it. No one is building ground floor retail anymore. Want to move your little company out of the basement and into offices downtown? Sorry, rental prices are just too expensive. Try Bellevue.

      Taxing commercial real estate would send plenty of businesses to the suburbs, and that is not a good thing for the city. It would be better than this, but it would still be crap. Taxing isn’t that complicated, really. You have several often conflicting criteria though. Here are a few:

      1) Discourage bad behavior. Taxes like this include the gas tax, tobacco tax, alcohol and now marijuana tax.
      2) Tax people based on their ability to pay. A progressive income tax does this. A property tax does as well.
      3) Usage fee. This includes things like a bus fare or a fishing license.
      4) Keep it simple.

      This tax fails on just about all fronts, except for being fairly simple (although I have no idea how much paperwork it will eventually entail for those involved). A tax only on commercial development does a little better on item number two (since it is less regressive) but it isn’t especially good. Sit on a parking lot and rake in the dough and you don’t pay a dime of this tax. Build an office and you pay a tax, even if it takes you ten years to actually make a profit.

      1. Ground floor retail is required by law in many zones, but those are housing buildings and would be exempt.

        Your example of moving a company out of a basement is not correct, taxing commercial real estate is something every where does already. The question is at the margin, who is renting space? Which ends up being who needs a bigger office or a bigger lobby, not whether a business will exist or not.

      2. I’m not sure if I even understand your comment, Andrew, But if I do, you are suggesting that taxing commercial real estate in this manner will have no effect whatsoever. If that is the case, then it is simply not true. If Seattle taxes the hell out of new commercial development, and Bellevue doesn’t, then building in Bellevue becomes a lot cheaper than building in Seattle. You can bet your ass that this will influence the market, and there will be more office buildings in the suburbs as a result. Over time, this lowers the cost of leasing Bellevue office space, relative to Seattle. You have simply created a skewed market, much as you do when you apply tariffs on goods. The end result is that a small business would have to pay more to rent an office in Seattle than it would otherwise have to (if the market let it decide). But if Bellevue doesn’t apply the same taxes, then it doesn’t have that problem, and businesses will find it a better value.

        What is true of office buildings is true of retail. After all, there are plenty of ground floor retail in office buildings.

      3. You are making a ceteris paribus argument, and I think that part of the argument is correct. In a vacuum, in a text book, you are right. But this isn’t that situation.

        1) Rents are being driven up by increases in jobs. If you want to have rents increase more slowly, or use the economic growth from the jobs to get growth in affordable housing, taxing commercial real estate is a good way to do it.
        2) In many cases (esp. downtown) zoning allows for housing or office, and it’s up to the developer. In those cases, taxing commercial will lead to more housing.

        You should spend some time thinking about second and third order effects and not just the most basic theories.

      4. And you, Mr. Smith, should spend more time reading what I wrote, and less time insulting me by suggesting I don’t know about second and third order effects.

        Look, I get it. I understand your argument. It is fairly simple. Tax the sources of demand for housing, and use it pay for housing. Quite elegant, really. If our only concern is housing prices, then it might work out just fine (especially if that is the only source of our demand).

        But that shouldn’t be our only concern. That is my point, and this has always been my point. I have never — never — suggested that your scheme wouldn’t work. Far from it. I think it could work quite well. There is the very real possibility that it will either provide plenty of money for those in need of housing, or drive out Seattle businesses (which in turn would lower demand for housing).

        But I really don’t want to see businesses locate in the suburbs instead of Seattle. I don’t want to try and put a damper on the Seattle boom. I certainly don’t want us to try and discourage economic growth in this city — and only this city. That could easily create two detrimental scenarios. The first is the Bay Area, where people spend hours of the day commuting to the suburbs. To be fair, that had little to do with tax policy. But encouraging businesses to move to the suburbs (because it is cheaper) is not a good idea in my opinion (and I can explain why if you want). The second scenario is even worse — and that is something like Detroit, which lost its central economic engine a long time ago. Unlike San Francisco (or Berkeley, or even Oakland) housing prices aren’t expensive there. I assume you don’t want that.

        I’m not suggesting that either scenario is likely, but only that, all other things being equal (or ceteris paribus if you prefer) it will drive us towards that. Also keep in mind that there would be very little we could do if we created a scenario much like the first one. What if Amazon (or the next big company to come along) said “To hell with it, I’m not building in Seattle — it is way too expensive, I’m building in Bellevue. I”ll just ask my employees to take the private bus or maybe ride that new subway. Hell, Bellevue is willing to subsidize me, while Seattle wants to tax the hell out of me”.

        What then? If that business happens to be really big, and employ a lot of people, then of course that will drive up the cost of living in Seattle. But Seattle couldn’t do a damn thing about it. They can’t tax the Bellevue skyscraper (or the Lynnwood skyscraper, or the Tukwila skyscraper, etc.).

        That is why your idea is flawed for two reasons. One, it discourages economic development in Seattle. Two, it would only be effective in lowering housing prices if applied in a very large region — and Seattle isn’t it. This is why Martin mentioned, at the outset, why two alternatives — either a general property tax or a land value tax (a property tax weighted towards the value of land) makes more sense. In the first case, the cost of providing for those that the market won’t provide for is shared amongst the general population — thus lowering the cost for everyone. The second would actually encourage development, thus increasing the value of property (and business in general) which would provide more general revenue.

      5. And you, Mr. Smith, should spend more time reading what I wrote, and less time insulting me by suggesting I don’t know about second and third order effects.

        Yikes! If you were feel insulted, it’s not because I insulted you. Maybe I would have read the rest of your comment if you didn’t start out so offended.

  6. The problem with focusing on “affordable housing” is there’s a huge gap between those who qualify for it and those who can easily afford $1200 rent. They keep talking about baristas, but baristas and Home Depot workers and secretaries won’t qualify for it because they’re not poor enough, and even if they get on they’ll find a several-year waiting list which these units won’t be enough to eliminate. We need to approach it as a citywide issue, with a citywide tax, and built a lot of public housing or public/private partnerships or whatever, so that near-minimum-wage workers can find enough housing at a rate they can afford.

    1. I agree. I can’t help but think that this will either squeeze the middle class or do very little for the poor. If it only raises a little bit of money, then it will do little for the poor. They will continue to have long waiting lists for vouchers and the like. But if you actually raise enough money to supply housing for every minimum wage worker, then the tax will have to be very high. A tax that high will pretty much kill the market for those in the middle (those making $20 an hour). At that rate, it will only make sense for developers to build housing if they can get sky high rents. A handful of luxury apartments would still be built, but the middle class in this city would get nothing.

    2. $15/hour x 8 x 22 = $2640/month before taxes. An increasing number of landlords are requiring an income 3 x the rental rate. $2640 / 3 = $880. That’s just enough for an older studio on Summit. But there are probably less than 40 of those available now. The only other neighborhood with many low-end studios is the U-District, and those are mostly filled by students. Everywhere else the older buildings are mostly 1 and 2 BRs at over $1000, with only a few studios. A 1 BR at $880 would not be in Seattle but in Kent or Federal Way. So our newly-richer barista is supposed to commute from there, or find a roommate they’re close enough to to share a 1 BR with? Well, Laverne and Shireley did, and some people sleep in living rooms, but most people now would not be comfortable with it uniless they have an SO or a longtime friend, and that’s precisely what people in this moving-often society don’t have.

      1. This also shows why killing microhousing is an insane policy. The rents were well within affordability for someone making $15/hr.

        Sure you can’t really raise a family in one, but a lot of minimum wage workers are single with no kids.

        Besides one affordable option beats no affordable options.

  7. Reading the actual proposal shows how ridiculous some of the thinking is behind this. As you stated, Martin, the market can’t provide for everyone (which is why we have food stamps). But no one suggests that creating more food causes food shortages. But that is exactly what this bill does:

    The City intends to implement an Affordable Housing Linkage Fee Program (Program) to mitigate the demand for low and moderate income housing caused by new commercial and new market rate multifamily residential development.

    Since when does “new market rate multifamily residential development” cause demand for low and moderate income housing? This only occurs if the new market rate multifamily residential development is, by definition, geared towards the high income renters. But most of the new multi-family housing in this city is geared towards the low and middle income renters, since that is where most of the market is.

    It reminds me of the people who believe that our big deficit was responsible for our economic downturn. Lower the deficit and we will have more jobs. Absolutely wrong. Every economist with any sense will tell you otherwise. An overly large deficit can cause inflation, but not high unemployment. People simply have it backwards. The deficit got worse because of the unemployment, not the other way around.

    The same is true for rental costs and development. This bill perpetuates the ridiculous idea that adding more development causes high rents. I’ve read such misguided ideas before, but it is frustrating that this bill states it as fact, when it is exactly the opposite. We have so much development in this city because rent is high, not the other way around. To suggest — no, not suggest, but actually state — that development causes high rent is asinine, and counter productive to the conversation we need to have in this city.

    1. “Since when does “new market rate multifamily residential development” cause demand for low and moderate income housing?”

      Only to the extent that new apartments replace old apartments. That’s what the John Foxes of the world complain about. Never mind that the new buildings often have twice as many units or more than the old buildings did. That doesn’t make the new units affordable, but it does justify the new building somewhat. But if a new building replaces a retail/commercial building, there’s no loss of cheap apartments.

      “This only occurs if the new market rate multifamily residential development is, by definition, geared towards the high income renters. But most of the new multi-family housing in this city is geared towards the low and middle income renters, since that is where most of the market is.”

      What are you smoking? It’s geared toward high-income renters. The new building across the street from mine charges $1600 – $2200. There’s no way you can call that low or middle income. They’re catering to tech workers with above-median income. If they were catering to low and middle income, the housing problem wouldn’t exist. But there’s a lack of development below $1600, or maybe $1200 in the furthest neighborhoods.

      1. One word — Apodments.

        OK, that is snarky. I knew my comment could easily be misconstrued. Put it this way, in almost all cases, the developer is interested in adding units, not decreasing them. That should tell you something right there. Now consider that the city encourages the creation of high end units, while it puts numerous hurdles towards the construction of low end units. Want an example? Sure:

        Imagine I just bought a property and it is legal to build a six story apartment there. If I have one apartment per floor (i. e. a luxury apartment) then I don’t need to go through a review (saving me around 20 grand). If I build one apartment per floor, I only need to provide six parking spaces. But if I want to build four apartments per floor, then I need a review, and I need to provide 24 parking spaces. It is obvious that if the market really wanted luxury apartments, then there would be a lot more really big apartments, since the zoning encourages them.

        But developers don’t want to build them! They want to build the opposite. They want to skirt the rules and build Apodments, knowing full well that they would do better if they could only add a bathroom and kitchen (even a tiny one) to each unit. But allowing the maximum number of studio apartments has been illegal for a long time. Now the city has banned even the loophole (Apondments).

        Those expensive apartments you mentioned are simply being rented by the same folks that used to rent cheaper apartments. The developer who built the maximum number of units (and most of the time, that is what they build) simply charges market rate. Of course they charge two grand a month — people will pay it, because they have to! The alternative is a nasty commute. Instead of paying one quarter of their money on rent, they pay a third, or half or three quarters. Very rarely do you have wealthy people driving out the poor when it comes to rent. You simply have people (of all sorts) bidding up the prices of what is available. In Seattle, right now, we simply have way too much demand and way too much supply; a supply that is artificially constrained by the city.

        To be fair, what you are suggesting (wealthy people driving up the costs of housing) does occur, but it occurs in very small doses. You can see it in single family houses, when someone bulldozes a house, and puts up a newer, better house. But that really doesn’t happen that often (even though it is perfectly legal). On the other hand, consider that simply allowing a handful of houses to be build on a very small number of odd shaped lots created an uproar. The demand for housing is so huge that people jumped on it, and built housing (housing that in general is much smaller than the main house). Likewise with skinny houses (back in the day). Simply put, the market wants more housing, but the neighbors don’t.

        Now imagine if you simply allowed everyone in Seattle to subdivide their housing lot. Go ahead and build to your heart’s content (as long as it isn’t too tall). While you are at it, allow houses to be converted to duplexes and allow those duplexes to be owned by landlords (unlike ADUs and DADUs, which have to be owned by the residents). Do you really think we would see way more tear downs, and way less of these types of developments? Really?

  8. I have a question: Does “”net square foot of new building area” apply only to new development? What if I have a two thousand foot building and replace it with another two thousand foot building — do I pay a tax? What i replace it with a four thousand foot building — do I pay a tax on only the two thousand additional feet? What if I just make an addition? In other words, rather than tear down the existing building, I simply add new construction — do I only pay for that additional square footage?

  9. OK, here is a fun part:

    For the purposes of this Resolution “net square foot of new building area” means rentable area in a building available to a tenant and does not include areas occupied by mechanical equipment, accessory parking, electric closets, walls, or similar structures and spaces

    Did you get that? Builders have to pay a tax on new apartments, but not on parking. Not only does the city require parking (in many cases) via zoning rules, but now the city gives your new parking tax free status. The more I read this, the more I hate this. This is addressing a real need (low income housing) and piling on reactionary anti-growth policy.

    I would propose the opposite. Every square foot of parking you build (beyond what the city requires — which should be zero) will be taxed. There is still plenty of excess parking being added in this city, so this could raise a decent amount of money.

  10. Martin,
    Strongly agree – thank you. And I agree that land-value tax is a better source of funds.
    Just want to polish one rough spot: on the assumption that the supply of housing is least somewhat price-sensitive, any tax or fee levied on supply actually WILL increase the price and reduce the supply, though not by the full amount of the fee. Here’s a link to the “textbook” picture:
    If the supply is fixed (vertical line), then the fee will NOT affect prices, just transfer some $ from builders to the city.

    Many economists would argue even against low-income housing subsidies. They’d prefer to (re)distribute income directly to reduce inequality, and let individuals sort out how they want to spend on housing and competing goods.
    But – Piketty or not, this seems politically unlikely anytime soon – and no doubt you’d argue that the external costs of non-dense housing are high enough that they need to be addressed somehow. Fair enough. But the principle is worth keeping in mind.

    1. Jim, that’s all fine and good, but I don’t expect Mike O’Brien to wait around for economically optimal taxing authority before doing anything about real problems.

  11. There’s something else that should be pointed out: This proposal wouldn’t actually add a single home to Seattle. You’re simply taking money that would be spent on market-rate homes and using that money for subsidized homes. Ask SHA about what subsidized homes have been costing them – it’s slightly more than the private market spends on fairly high-end homes. If you take into account the inefficiency that this tax collecting and spending introduces, there certainly will be fewer homes built.

    Why does that matter? Because fundamentally Displacement = Added Jobs – Added Homes. We’re adding jobs at a very high rate here (this is a good thing), and it’s a rate that far exceeds the rate we’re adding homes (this is a bad thing). This is the core reason that rents have been skyrocketing. Putting a damper on home building increases displacement.

    Now the question is who is being displaced – is it the fixed income grandmother that’s been in the neighborhood for decades or the new high-income worker? Ok, that was a bit of a setup, but let’s look at a nice ideal model of housing. If you have 400k households that want to live in the city and only 300k homes, it’s likely the richest 300k of this group that can afford to live here – the rest head outward. Fail to build one home, and you lose the bottom of that 300k of households, not the top. That’s true whether you’re providing a “luxury” high-end home or a workforce home.

    So let’s finish where we started and talk about shifting luxury home money to subsidized home money. We still end up with the same number of homes (fewer, due to the inefficiencies of the transfer), and all of the top end still get to live here, now with a few more at the bottom. Who gets displaced? It’s those bottom of the 300k. That’s who this plan taxes, not the rich.

    1. I agree. That is why I think this is a really bad idea. We really have two problems in this city:

      1) Too much general demand for housing and not enough supply. The market is artificially constrained (n various ways) and can’t meet the demand. This pushes up the prices for everyone.

      2) If the market was allowed to operate freely, it still might not meet the needs of the poor.

      As I see it, the first is the main problem, and contributes mightily to the second. We really will have a hard time doing anything about the second problem unless we address the first (and we are doing a very poor job addressing it at this point).

    2. I think that depends on what Seattle uses the money for. If it’s to write checks to poor people, it at the margins should increase the demand for lower-income but financially feasible construction. If SHA uses it to build new housing projects (or contract with nonprofits to do the same) then it absolutely increases the housing stock.

      1. Do you mean overall or just subsidized housing stock? I don’t know you can claim this will increase housing stock overall – remember you’re taking some number of dollars from the private building world, and spending it in the inefficient public building world. Fewer private projects pencil out, and I would think we’d end up with fewer new homes overall.

        I’m open to the opposite argument, but I haven’t heard it fleshed out beyond hoping this won’t affect the number of homes built in the private market (it will).

      2. Let me jump into my used car analogy:

        Raise fees on car manufacturers by 5%. Their profit structure doesn’t change, so they pass this on to consumers. New car prices increase roughly 5%. At this new price point the marginal new car buyers switch to used cars. As the number of used cars are fixed, the price for used cars goes up and the same number of marginal used-car buyers end up buying a bike or walking.

        Overall, you’ve increased the price for everyone (that in total roughly equals the tax you placed on the manufacturers), decreased new car sales and therefore reduced the number of new cars produced (manufactures want to meet demand), and decreased the number of total cars in the system. Even if you turn around and spend this 5% on subsidized cars, unless you can produce them at a cheaper cost than the private market you probably end up with fewer cars overall.

      3. Although it’s worthwhile to distinguish the nonprofit and public-entity cases, an important consideration is that low-income housing is likely to have fewer amenities. Whatever inefficiencies there are may be canceled out by the lack of granite countertops, gyms, etc.

        There are a ton of problems with a car-industry analogy, beginning with the fact that there is enormous excess capacity in the industry. Suffice it to say that I don’t think anywhere like 100% of the revenue comes out of capital spending on new units. There is a deterrent effect, but profits are high enough that many projects will continue regardless.

      4. Profits in the construction industry are self-leveling. There’s no patents in the way and at most every level there’s a low barrier to entry*. This means that if there’s a highly profitable style of building or location to build, everyone else will copy you until you’ve reached the average level of profit. Adding a percentage fee to an area of building will immediately factor into every developer’s plans, and they’ll shift to the other interesting areas until rents raise high enough to give them the level of profitability they’re used to.

        *high pay in the framing sector? pick up a hammer. high profits to be an aPodment developer? hire an architect, buy some land, and you’re now an aPodment developer. There’s a little more to it than this, but not much.

  12. The cost of construction is not the problem. New buildings are going up in Tukwila and Kent at the rent level we want Seattle’s to be. So it’s not the cost of construction because it’s practically the same building. It’s land prices and the influx of affluent renters. Also, you have to look at when rents started rising rapidly. That was 2011, and it’s not like construction labor and materials suddenly became more expensive then.

    1. Right. This begs the question, why must Seattle start a new subsidy program? Just miles away, the market is providing relatively affordable housing without a direct subsidy. Tukwila and Renton are hardly more inconvenient to the CBD than Lake City or Northgate.

      I also find it odd that new office buildings don’t generate even 1/10th of the angst that new residential construction does, even though all these new offices are the prime reason so many new housing units are needed.

      Thus we’ve ended up with a bizarre situation where a young teacher born and raised in Seattle can’t afford to live in the city because the Council fears allowing “too much” residential development. At the same time, the Council barely hesitates to approve new office developments that attract high income tech workers largely recruited from outside the city. These new workers didn’t vote here (and many still can’t), yet city policies benefit them greatly while those living here and voting all along are struggling to compete in the rental market.

      1. Because you can’t walk to anything in Tukwila and downtown Renton is a highway hellhole. So you have to take a half-hourly bus to practically everything, whereas in Seattle you can walk to some things. Combine a 30-minute headway with 30-minute travel time (and it’s often 40 or 45 minutes) means everywhere you go is an hour or more away from your house. That’s the serious degradation in quality of life that practically forces suburbanites to get cars and drive everywhere. I don’t think that should be the only choice for people without high-level jobs. I do support building large urban villages in Tukwila, Renton, Burien, Kent, etc, and connecting them with fast/frequent transit, so that it’s not so hard to live in them and they could become a more viable alternative. But one or two isolated buildings do not a village make.

  13. I have a question about the taxing authority issue. Why can’t we just increase our taxing authority? We’ve asked the state to allow us to tax ourselves in the past, and we’re taxing ourselves to provide housing for the poor. Who would be against that? Certainly not a majority of our state legislature (as long as it’s Seattle residents and businesses footing the bill).

    I think our housing levy is the most progressive tax we have available. It’s the right solution for building subsidized housing, and unlike linkage fees it actually works.

  14. We’re pretty new to Seattle, in the process of buying a house in the sub $200k range at the moment because we’re on one income for the next few years.

    I work downtown so a good location for commuting on transit was a requirement, that plus sub $200k price range limits choices somewhat.. many hours spent researching transit routes and times to find areas that are in our price range.

    A couple things stood out, if there was a ferry from downtown to Southworth that would open up cheaper houses (thou they wouldnt stay cheap for long I guess). ST running an express train that stops at Sumner stations and further south only to cut down transit times to places with cheaper houses. Bus routes around these stations timed with the train – not all of them are.

    We’re in the process buying a house in Puyallup about 2 miles from the sounder station, my total commute time is going to be about an hour. That’s how far away you have to go to get a decent house that isnt a cr@pshack in a less desirable street, or isn’t on a section the size of a postage stamp.

  15. What’s actually mind boggling about this proposed fee (and no one has yet seemed to bring up) is that the linkage fee is absolutely dwarfed over time by the amount of property tax that the city would collect after the new development is constructed. So, this is a perfect example of the city effectively “cutting off its nose to spite its face” (to use an old expression).

    For example, suppose a new residential skyscraper is built in belltown and includes a 1k sq. ft. one bedroom unit. The proposed linkage fee would collect $22k. Based on recent sale of the recently built Martin apartments, that unit might be valued at over $600k. Property tax on 1 bedroom units in Belltown seems to be around $5k annually. In less than 5 years time, the city would collect more in property tax than the linkage fee.

    Each unit that the linkage fee causes not to be built will cost Seattle a loss in future property tax revenue.

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