Solar array with crane (See: http://www.flickr.com/photos/bullitt_center/ for usage information)

A few weeks back Owen Pickford made the urbanist case for linkage fees, a controversial proposed tax on new construction that would fund affordable housing:

Seattle urbanists often conflate additional building costs with limits on housing; frequently suggesting that regulatory cost, not housing limits, are the biggest impediment to affordable housing. The result of this mistake has been detrimental to urbanists’ goals, creating an adversarial relationship between urbanists and affordable housing advocates. Furthermore, blurring the lines between housing limits and regulatory costs induces urbanists to overlook the most important factor in housing affordability: land values.

This week Dan Bertolet wrote a rebuttal:

To put a finer point on it:  Pickford’s position contradicts the standard methodology used by the City of Seattle, King County and countless other municipalities to estimate “buildable land,” that is, land that can be redeveloped. This alone should be enough to cast serious doubt.

For bonus credit, here’s Martin’s take from last fall when the fees were first announced.

Bertolet has the stronger argument, but I wish he’d discussed the actual recommendations on the table instead of refuting the concept in the abstract. The linkage fees are designed to be higher in the central city and taper off in the North and South ends, which would seem to mitigate concerns about the development of “marginal” lands.  That said, to the extent that linkage fees keep cheaper market-rate housing from getting built while at the same time pushing up the costs of high-end housing, they are problematic.

46 Replies to “To Linkage Fee or Not?”

  1. It’s possible to create more neighborhoods with more urban benefits, but this takes time and a massive amount of investment

    Does it? Many of the things people associate with good urban living are simply ones that are in every neighborhood, but which have been enhanced (and revalued as the article says) by density.

    Thus a regular park, in a low density neighborhood, suddenly becomes a “famous place” with officials and benefactors constantly “fixing” it, writing poems about it and so on.

    This is where transit should have come in. There are a few features that are not easily replicated. Waterfronts, stadiums, historic monuments. However, good regional transit can make up for this by allowing someone distant to utilize it when needed.

    However, because there is such an incentive to cram more people in and get profit without work, Seattle’s bent over the last 25 years has been to slow the growth of fast regional transit and substitute agonizingly slow tunnel building that drains the coffers of real transit.

    In addition, instead of going from low density to sky scrapers, we could have turned Seattle into Queens, NYC, and build a lot more 5 and 7 story apartment buildings.

    1. Actually, the vast majority of Seattle is considerably less dense than 5-7 story apartment buildings. There are very few buildings in Seattle taller than 5-7 stories outside of downtown.

      1. Yes, but it seems like the focus on new construction has been luxury sky scrapers.

        I am advocating that, especially along corridors, 5 to 7 story apartment buildings, are the type of construction that is both moderate, needed, would not degrade the character or neighborhoods either in Seattle property, King County or even in towns beyond.

        Take Sand Point way (Rte 513) north of the UW.

        https://goo.gl/maps/B9h4a

        This should be lined with 5 to 7 story apartment buildings This could conceivable bring the price of a new two-bedroom down to $1000 — affordable by the common college student.

      2. Sand Point Way *should* be lined with 5-to-7-story buildings, but it’s zoned low-rise instead, so a maximum of 3 stories.

        “New York Alki” isn’t happening anytime soon, if ever.

      3. I agree, John, that would be the ideal scenario. However, draconian zoning laws are preventing 5-7 story buildings from being built along such long corridors. Instead, all new construction is crushed into a few small areas, so values skyrocket there, and everyone builds apartments to give people some place to live even if it isn’t as good.

        I wish zoning laws permitted this part of your vision!

      4. Your idea for lining Sand Point Way is a very good one. I would agree. But given current land prices and construction costs there won’t be any $1,000/month one bedroom apartments rising there. Maybe $1,500 if costs are kept under parsimonious control: e.g. no marble cabinet tops (even faux ones)….

      5. Alki IS five to seven stories. There are a lot of fivers to the west end but the newer development around the ferry landing is noticeably taller.

    2. Yeah, what asdf2 said. There are a handful of towers in Belltown, and that is about it. Meanwhile, Queens is way more dense than Seattle. Belltown is the only part of Seattle that exceeds 100,000 per square mile, whereas Queens has dozens of them.

      That being said, I agree with your sentiment. It isn’t necessary to build towers to increase density. You don’t even need to build new apartment buildings. You could simply infill with ADUs (like Vancouver has) and increase density substantially. One of the reasons that the Central Area, for example, is more dense than most of Seattle is because it was built a long time before the rest of the city. So small houses on small lots are common, as are little apartments, or basement apartments out back. This is not an area dominated by big buildings, but it is still has plenty of people. The same is true for much of Queens.

    3. So theres a concept being promoted at CNU called ‘The Missing Middle’ to revive housing types between the single family house and standard apartment buildings you see going up… rowhouses, courtyard apartments, duplexes, etc. They are typically historic typologies that have largely been forgotten that if revived and incorporated into the comp plan re-write and zoning would allow for “hidden density” that is buildings that have a lot of density but don’t look it from the outside…

      http://missingmiddlehousing.com/

      IMO we ought to look hard at these types to also increase density outside the Urban Villages but in ways that respect their context.

  2. Owen is right that height restrictions have more negative impacts than linkage fees do. But he seems to be talking as if the City is debating the relative merits of the two, rather than trying to slap linkage fees on new development without changing the height limits.

    I can see linkage fees as a useful funding source for infrastructure and affordable housing *if* they replaced height limits. But I fear that most trying to push linkage fees are not interested in lifting height limits. The goal seems to be to further reduce likely growth, rather than to fund infrastructure and affordable housing.

  3. The transit spine we’re building has only marginal benefits for access within most of Seattle, but we’re acting as though we’ve created all the conditions needed to make density work. I don’t get it. There is a lot of ideological denial going around. Yes we need investment to make density work. Take a walk around the urban village on Aurora around the Oak Tree to see how density is turning the area into a walker’s paradise with ped-accessible services. The idea that adding density by itself inherently results in livability is not borne out, and the impacts on existing residents are dismissed as unimportant.

    I’m curious why we care that the prices for high-end housing are rising. The only things getting developed now are the super-high end and the super-marginal low end because that’s where the good margins are for developers. Whatever fee and regulatory structure that’s going to give us more (and more affordable) middle class housing will need to adjust where those margins are to make development of poor and middle class housing more rewarding. That would have to increase the cost to develop high end housing (but the wealthy these days have so much money they have no idea how much they’re spending any more).

    1. High end construction occurs because the city’s regulatory structure encourages it. If I want to build a new six story apartment building in the city, and have one unit on each floor, I can skip the review process as well build a lot less parking. But if I turn around and put a dozen units on each floor, then it becomes a lot more expensive. The same is true for single family zoned areas. I can take an old house, tear it down and put up a huge mansion (it happens all the time). But if I want to convert that old house to a three unit apartment — that is illegal. If I want to just rent it out as a two bedroom apartment (maybe a main house and cottage out back or a basement apartment) then I have to live in one of the places. All of these restrictions simply encourage more expensive housing.

      The severe limits on housing simply push the cost of rent up so high that low end apartments cost the same as high end one. It is basically the opposite of a mobile home. If you look at a brand new mobile home, it is pretty nice. It typically has some very nice appliances, along with nice carpets or flooring. But it isn’t horribly expensive. But a similar apartment built in the city (with similar appliances and construction) would cost a huge amount more. So it might look like people are building luxury apartments, but often they are just building middle class ones and charging luxury prices.

  4. “Seattle urbanists often conflate additional building costs with limits on housing; frequently suggesting that regulatory cost, not housing limits, are the biggest impediment to affordable housing.”

    Strawman arguments don’t win people over, well at least intelligent people. Regulatory costs due impede affordable housing, but that isn’t the primary reason that housing isn’t affordable. In other words leaving developers to create affordable housing is a terrible idea, the free market works on supply and demand which impedes affordable housing, however adding regulations is also not a magic bullet.

  5. I agree with Martin, and I think he brings up a key point. The market itself can’t provide low income housing. Owen’s argument is a lot more interesting and complicated. As I understand it, the idea is that the linkage tax is essentially “skimming off the top” from property owners in such a way as to not discourage any new construction. This reminds me of the argument for a minimum wage. At first glance, raising the minimum wage by any amount would likely increase unemployment. This would certainly be the case if you raised it a thousand dollars an hour. But if you raised it a smaller amount (say 50 cents) then very few employers would reduce their workforce. Meanwhile, workers have more money in their pocket. That is why, at some level, you should be able to raise the minimum wage and increase employment (more money in more hands increases employment).

    Those in charge of the linkage fees believe they have them set them in just such a manner. This is essentially a tax on owners who will profit either way, and build either way. I’m not sure if this is the case — I can think of lots of scenarios where the number (as set now) would fail. For example, a bubble could occur after a sale, but before a development, thus causing the new owner to hold off on building anything (and lease out the land in its current use — such as a parking lot). But in any event, it is an interesting argument, and quite reasonable.

    I object to a few things, though. First, I agree with Martin, it is a bad tax in principle. Why single out one type of owner (someone looking to develop) and not others. Why should someone who looks to build an apartment pay this tax, but someone who owns a 5 million dollar home not pay anything? Wouldn’t it make more sense to just raise property taxes, so we all chip in?

    This also sends a terrible message. It suggests that developers are the problem, not the solution. We live in a city that has a really hard time grasping why rent is too damn high, despite the fact that there is literally a book of the same title and a series of outstanding essays about legalizing inexpensive housing (that focus on this very city). Instead, the city council (and progressive publications like The Stranger) like to lay blame on the feet of greedy developers and landlords.

    Second, I think the argument (repeated above) that we shouldn’t conflate additional building costs with limits on housing is ridiculous. They are two sides of the same coin. It is one thing to say that we can get away with this particular linkage fee because it is set “just right”. It is another thing to suggest that linkage fees, or construction costs in general would never play a part in the decision to build or not. If the cost of building a townhouse jumps to three million a house, then you will never see another town house in this city. If building a three story apartment costs 100 million, then no one will build those either. These are exaggerated examples, but they explain why many parts of the city are seeing no growth, and why some types of development (ADUs, for example) are so rare in this city. When you add up the costs, it is just too expensive (to be fair, there are other restrictions on ADUs that probably have a bigger effect). These types of developments (small and cheap) are exactly the type that are likely to provide more affordable market rate housing. In other words, affordable units for the middle class.

    Which brings me to my last point, which is that at best this proposal is a nice addition to our housing mix — providing a handful of houses for low income renters. But unless we address the lack of affordable middle class housing, we will become a city like San Fransisco, with a handful of lucky low income renters (who enjoy a subsidy), plenty of wealthy home owners, and lots and lots of people who pay huge amounts of money for rather modest apartments. The only way to do that is to change the zoning.

    1. “Second, I think the argument (repeated above) that we shouldn’t conflate additional building costs with limits on housing is ridiculous. They are two sides of the same coin.”

      They absolutely are not at that is pretty much Owen’s whole argument. While it is true that both have the potential to affect prices, in economic terms, they are doing very different things to the supply and demand curve.

      Owen’s whole argument which, reading through this comment thread, seems to be a fairly difficult concept to grasp, is that additional costs are nearly entirely absorbed by a property owner, not a developer, thus for the most part it has no affect on the cost of housing construction.

      In your example, if you jack up townhouse costs, then yes, fewer townhomes will get built. By the important thing to understand here is that it isn’t specifically the additional construction costs that reduce townhome construction, it is the cost of townhomes construction RELATIVE TO OTHER POTENTIAL ECONOMIC OPPORTUNITIES. If townhomes were the only possible option for building on those properties and you jacked up the price of construction, then developers would simply pay less for the land. And since landowners couldn’t do anything else with that land, they would have to accept the lower bids, because that is there only economic opportunity.

      In the case of a linkage fee, sure property owners have other economic opportunity options, but, unless the linkage fee is absurdly high, building a 6-story mixed use property is still going to be economic winner in almost every situation, so again, land owners will have to absorb this cost.

      1. Right. Owen’s argument is that construction costs are meaningless, and that is a ridiculous argument, and you pretty much said so (in a round about way). It is a ridiculous argument that flies in the face of common economic theory, and he offers no evidence to support it. He cites several studies — studies with mixed results by the way — as evidence to support an outlandish claim. But none of those studies ever suggested that linkage fees are meaningless. None of those fees suggested that setting the linkage fees to, as you put it, “absurdly high” levels would be meaningless from a construction standpoint. Yet that is the crux of the argument. He suggests that you can set it to whatever you want and it won’t matter. These studies were of reasonable linkage fees in extremely high, extremely hot markets. They never set out to claim that you could set linkage fees to extremely high rates without reducing new construction, because no economist would ever think such an idea is plausible.

        It is much like someone saying that you can raise the minimum wage to a million dollars an hour, and it will have no effect on employment. The employer will still hire people, and just absorb the cost — after all, you have a study that shows this to be the case. But the study (or studies) never claim that. They basically say the same thing I’ve said — at a certain level, raising the minimum wage results in a minimal amount of reduced hiring, and actually increases overall employment. I don’t think you will ever find a study to support that you could raise the minimum wage to a million dollars, because no one is stupid enough to try it.

        Likewise, no one is stupid enough to raise linkage fees that high. Even these linkage fees acknowledge that there is a limit to how high they can raise them. Otherwise, why taper them off in certain neighborhoods. If it is always better to build the six story building — if “building a 6-story mixed use property is still going to be economic winner in [almost] every situation”, then why would folks set the fees differently in some neighborhoods? The obvious answer is that it does have an effect — the “almost” situation crops up all the time. It crops up in six story buildings, and crops up in town houses and crops in ADUs. It was legal to build six story buildings many years ago, but it was simply too expensive to do so, given the market. What changed? The obvious answer is the market changed — rent got much higher. This obviously runs counter to the ridiculous claim (that a six story building is always more valuable, so people will build six story buildings, regardless of the current value of rent or cost of construction). Otherwise, you might as well raise the linkage fees to ridiculous levels (why not?).

        Owen took a reasonable argument for a reasonable set of linkage fees, and then extended it a ridiculous argument that construction costs are meaningless. Thank God the people setting these linkage fees didn’t believe that, otherwise they would set these to a billion dollars. Unless you believe that this would result in no change to construction, you have to dismiss this part of his argument (that construction costs have no effect on construction) as sophomoric hyperbole.

    2. That’s very similar to my thoughts on the matter: just like how the market can’t provide clean air and rivers (we need the Clean Air/Clean Water Acts for that), so too the market can’t provide.

      I’m agnostic on the funding mechanism in general, and your point about the $5M house owner is well-taken.

  6. I found some parts of Bertolet’s argument outright painful to read, because they simply made so little sense. Here’s one example:

    “The most widely used metric for predicting whether a piece of property can be redeveloped is the ratio of the value of the improvements on the land, to the value of the land itself. The larger the ratio, the less likely a property will redevelop. Right away we can see that because a linkage fee reduces land value but not improvement value, it skews that ratio towards predicting no redevelopment.”

    No, the SMALLER the improvements:land ratio is, the more likely a property will be developed. Just consider two examples: one where the improvements are worth $100K and the land $1M (ratio 0.1), and the converse (ratio 10.0). Which one is ripe for redevelopment? Clearly the 0.1 case. It’s why real estate agents use the stock phrase “value is in the land” when listing such properties.

    Here’s another:

    “The typical owner of a property that is being considered for redevelopment will evaluate an offer from a buyer based on the total value of the property (including existing uses), compared to what the cash from the sale could earn if it was put into other investments.”

    I am not aware of any investor (other than a rank fool) who would apply such a preposterous criteria for evaluating his/her investments. It would make an investment of $1M which is not earning any returns on principal at all evaluate as better than an investment of $100K that’s earning 25% per annum, simply because the amount of principal (i.e. the “total value”) is higher.

    What matters, of course, is not the market value of the property so much as the ratio of the expected yearly income from said property compared to that market value; the expected rate of return, in other words.

    It’s self-evident that higher development costs in the form of impact fees will lower the price developers can offer to sellers, but it’s less self-evident to me that this will have a significant impact on housing production. It depends on whether or not the chief limiting factor for development is the price that developers can offer to existing sellers or potential sellers. If it is, then yes.

    If not (if, for example, it’s primarily a shortage of land which has been upzoned to allow for additional development), then impact fees are likely to have little impact. That’s because the zoning-created land shortage has already raised the market price of the land to a level where redevelopment is extremely lucrative, and the fees will just change how that excess value is allocated (some will go to the city for redistribution instead of being shared between seller and developer).

    Something similar can also be the case in situations where redevelopment is significantly more profitable in some neighborhoods than others; a slightly lower super-profit on a still-lucrative project on Capitol Hill won’t prevent it from being built, and the affordable-housing funds can then be spent on construction in the Rainier Valley that wouldn’t have happened at all.

    Really, it depends on particulars that aren’t addressed at all in Bertolet’s piece.

    1. Gah. You’re saying the same thing as Dan:

      Dan: The larger the ratio, the less likely a property will redevelop.

      David: No, the SMALLER the improvements:land ratio is, the more likely a property will be developed.

      1. It is really easy to get ratios wrong. It is trivial to flip them when writing, then forget to change the “bigger” to “smaller”. I think in general it is best to avoid them or back them up with an example. This typically means more words are spent explaining the concept, but the idea is clear. For example, if you had made a mistake (using “larger” instead of “smaller”) it would have hard to spot, and easily dismissed, given the lengthier explanation. But with the extra explanation and wording, Dan’s essay might be as long as Owen’s ;) (I should talk — I’ve one of the more verbose people out there).

        I agree with the bigger point, though, and think both writers are missing the point you raised. It really depends on the particulars. Owen deserves credit for explaining how the particulars can mean that linkage fees are essentially harmless. However, he extended the argument to suggest — no, clearly state — that fees or other construction costs are meaningless. Thus Dan’s rebuttal is not so much a rebuttal to what is being proposed (linkage fees that are meant to do exactly what you said — apply a reasonable fee on land where redevelopment is extremely lucrative and thus not reduce such redevelopment) but a rebuttal against Owen’s bigger point, which is the idea that linkage fees never matter.

  7. “Affordable housing” traditionally comes in the form of older properties (or smaller, or in a less desirable neighborhood). If a new building goes in next door to a 20-year-old building, the older building can no longer get high rents just from its location, so the older building has to drop rents to compete (or spend money to refurbish, but not all owners have that money).

    Thus if we allow property owners to build new 7-story apartment buildings all over the city, the older apartment buildings will suddenly turn into affordable housing. But, of course, the city won’t do this because Seattle loves the status quo.

    Regulations like the linkage fee do nothing but muck up the market and create winners and losers of the government’s choosing.

    1. Except that the opposite is happening too. A new building goes in on the block, and the owners of the old building raise the rent saying it’s a better neighborhood now so you’re getting more value from the old building.

      1. You’re confusing correlation with causation. Often new buildings AND rent increases are the result of a neighborhood “improving” in some way, not the cause. Think about it this way. Rents/values in the Pike/Pine corridor is increasing because of all the nightlife in the area, not because of the new apartments that are yet to even open…

      2. Some landlords in Summit cite it as the reason when they raise the rent. And not because of new apartments that are yet to open, but new apartments that opened in the past year.

      3. Some landlords in Summit cite it as the reason when they raise the rent.

        Landlords also like to claim increases in property taxes are the cause of rent increases, but in a skyrocketing rents due to scarcity environment, this is obviously false, and it’s false even if they sincerely believe it. They’re raising rents because they can; they can because renters are desperate due to the supply/demand imbalance. The stories they tell themselves after the fact about why they did it aren’t particularly useful evidence of anything.

  8. Linkage fees may be less than ideal, but they’re only a small factor either way. The biggest factor by far is zoning. Loosen the height limits and housing type limits around — and in (!) — urban villages, and allow ADUs everywhere without costly permits and red tape, and the supply of moderately-priced housing would increase dramatically.

    The phenomenon that upzones cause price rises in desirable areas is true, but there’s another factor. If you upzone a few blocks around one station, say Roosevelt, people will be cramming into it. But if you upzone twenty places around the city and make them taller and wider, that will dilute the effect because people have more places to choose from. If you also improve the transit in all those areas — subways in some of them, improve RapidRide in others, bring RapidRide to still others — then people won’t be crowding into Roosevelt but will be willing to live in all those areas. That gives the renters more choices and moderates the prices, and would allow several times more people to also get comparable units at more reasonable prices without sacrificing transit mobility.

    1. I agree completely. This may help us build a handful of low income units. I don’t think it is the best way to pay for them, but it is not a crazy thing to do. I don’t believe the market, left alone, would provide for the very low end. But unless we change our zoning laws, the middle will simply increase in value substantially, and more people will be left scrambling to win the lottery for the subsidized apartments. This is not good at all (for anyone) and doesn’t address the biggest cause and the biggest problem with rents right now, which is that middle class rents have raised substantially over the years because of high demand and a severely constrained market.

  9. There is a trend in property development these days where many companies are specialists in managing the permitting and building process and once the property is built and occupied, they look to sell the property to a property management company which specializes in managing existing properties. For the property builders, I think we should ease as much red-tape as possible so that more commercial and residential property can be created. But for the companies that are managing the properties, we should look for ways to leverage some money being paid to the management companies to fund affordable housing. There is an argument that adding taxes and fees to housing construction costs drives up prices, which may be true. But adding taxes and fees to items like leases may not drive up consumer costs in a supply-limited/demand-heavy market because the supply and demand equation will set the final cost to lease the property to the highest bidder. Then the property managers will have to pay a portion of the lease cost to the city as a use tax dedicated to the affordable housing pool. Will that tax (fee) drive up rental costs? Not if the price is set in a demand constrained market where the prize goes to the highest bidder. The property managers will just have to eat the cost.

    .

  10. I’m not an expert in real estate finance, but it appears that the issue is different between commercial and non-residential development. Commercial developers increase the number of employees, which in turn creates f demand and thus more expensive housing; a fee seems to be reasonable. For multi-fairly developers, merely directing them to design for some affordable units (noting that there are often less viable locations for units within a building so that these could easily be the “affordable” ones) would seem to be enough. There is quite a large body of literature recommending income diversity in neighborhoods and not having most of the low income people pushed to one part of town — so having affordable units in a building seems better than merely pumping money into a fund.

    If we are going to attach fees to developers, shouldn’t we be instead looking at one for new Downtown Seattle commercial development to fund part of a second downtown transit tunnel?

  11. This is such a vexing issue. Just encouraging new development and lowering regulatory burdens doesn’t help as much as it should, because often older housing is removed during redevelopment so that the long-term goal of encouraging affordable housing by shifting the upper end of the market into new development and lowering relative rates on mature housing is unlikely to work very well. The incentives are also wrong (both economically and politically) as owners of apartment buildings and other rentals want to maintain their profitability with rents, so they’re going to oppose anything that makes their property more affordable.

    What we really need is to focus on maintaining the supply of older housing stock and creating incentives to keep rents low on those properties, while providing new development to capture the upper end of the market (and the next generation’s affordable housing). I’m not sure what policies might do that. I can imagine that a narrowly targeted policy that guarantees current rent plus inflation adjustment for displaced tenants for a significant period might be helpful. (So if you replaced a building with 20 units with one with 100, the developer would have to continue the previous rents for 20% of the new building.) This would also tend to encourage residential development in areas that don’t displace existing residents. The key to making things work would be to lower the regulations on new housing that does not displace existing residents, and to allow larger buildings everywhere so that whatever protections for affordable housing you have are more than offset by the incentive to build more new housing (which is good for affordability in the long run). Unlike linkage fees, you wouldn’t charge developers for the privilege of building more–you’d let them build whatever is profitable, after they have taken care of renting to existing residents at stable rent levels.

    That said, it’s so hard to get any of this right. But I don’t see either current option of regulating all new housing to death or opening it up and watching the market displace affordable housing without replacing it for decades if ever as at all workable.

    1. That’s a bit of a red herring. I’ll look for the numbers, but the number of existing units that have been demolished in this building boom have been an order of magnitude smaller than the number of new units. Remember, every additional unit allows one more household to live in Seattle, and changes rents at the lowest level.

      1. It’s still removing affordable housing and replacing it with unaffordable housing, at the rate of hundreds of units per year and thousands during the recent boom. And if the numbers are not that high, it won’t cost so much to mitigate the situation, but it will go a long way toward addressing legitimate concerns that new development drives out existing residents.

        That said, a bigger issue is how to keep rents rising in existing housing stock that exceed increases in income for potential tenants. If the rising population in the city drives up prices even of modest apartments, the end result is still unaffordable housing for long-time residents. I’m not saying that we should create life-long rent controlled apartments that are ridiculously below market. But having a subsidy for displaced residents that fixes rent to status quo ante plus inflation for a couple of years and phases out slowly for a few years after that would mean everyone has time to adapt to the changing housing market, without suppressing new development. And I think people would be more accepting of new development if they had a guarantee that their own rents wouldn’t price them out of the city without notice.

      2. I think we fundamentally disagree about how housing is priced.

        1. There’s no such thing as “affordable housing” or “luxury housing” – there’s just housing. Sure, nicer units are built and sold to people with more money, but these are the same units that will be affordable in 30 years, if crime in the area goes up, if the housing market tanks, if wages go up, etc. Some very rich people in Manhattan live in former warehouses. Some very poor people in Belize live in former high-end hotel rooms. Some people in Seattle paid $1M for a home that was ordered out of a Sears catalog 100 years ago.

        2. If Seattle has ~300k homes, then around 300k households can afford to live here. If you add another 50k homes another 50k households can afford to live here. If you fail to provide those 50k homes, those 50k households need to find somewhere else to live. If you’re thinking these 50k households represent new tech workers, you’re wrong. Those households will out-bid existing residents in rents and mortgage payments. It’s the bottom 50k from our 300k households that will need to find somewhere else to live.

        3. Based on #2, you can’t say that keeping a few thousand run-down units will save households from being evicted. Their rents will increase until they move out and people with more money move in. The only way to avoid this is to either add more supply or remove jobs from Seattle (no thank you).

      3. Most of the new buildings I’ve seen have several times more units than the ones they replaced. The old building was 1-3 stories; the new building is 6-7 stories. The old building had larger units with large balconies; the new building maximizes the number of units. So it’s definitely increasing the housing supply, which is a good thing. At the same time, those old units disappear. In the 90s and 00s you could find a good deal by going to the older units and it was easy to get them. Now they’re packed full, and enough people are being turned away that their rents have been creeping up too. That’s why some of us are getting increasingly concerned. The easy-to-get less expensive apartments are gone; how long until the hard-to-get ones are gone too?

    2. If this is happening, I haven’t seen it. I have yet to see a twenty unit apartment building be replaced by a brand new, nicer ten unit apartment building. Hell, I’ve never seen a one to one swap. Quite the opposite. Just about every apartment building I’ve seen has been built upon a much smaller set of units. Maybe a house, or a very tiny apartment building, but I’ve yet to see a one to one swap, let alone a decrease. The only time I’ve seen that happen is in the single family housing market — and obviously it happens because the area is limited to that. Given the fact that the law actually encourages the development of luxury apartments over cheaper apartments (https://seattletransitblog.com/2015/05/22/to-linkage-fee-or-not/#comment-622068) it suggests that rent increases are being driven not by wealthy people pushing out the poor by taking all the housing, but by too much demand for too few places. The middle class is pushing out the middle class (or at least asking them to pay a lot more) the same way the middle class pushes up the cost of wheat when we have a wheat shortage.

      The last thing a developer (or owner) wants to do is throw away money. A ten unit apartment — even an old ten unit apartment with very affordable units — is still worth more than a parking lot or a house. So if it is torn down, it just shows how much demand there is (demand that, sooner or later) would result in increased rent for those same units. So if cheap apartments are being torn down and replaced by more expensive ones, it is simply a reflection of really high demand — demand that is obviously not being met by the market. This could be caused by really high construction costs (if lumber and metal suddenly tripled in cost then rent would go up) or by limits on developable land. In Seattle it is a combination. We severely limit the ability to build the most affordable places (http://daily.sightline.org/blog_series/legalizing-inexpensive-housing/) while at the same time add really high costs for some development (e. g. parking and reviews) which of course leads to extremely expensive rent, which leads to builders building apartments even when the increase in units is less than ideal (e. g. ten units to sixty).

      Trying to somehow limit such conversions, of course, would backfire if your goal is to reduce the cost of an average apartment. This would simply lead to a handful of lucky apartment owners (those living in existing units) and the vast majority of apartment owners having to pay exorbitant prices for the other units.

      1. No matter which way you slice it, more households can pay more money total than a single household can. Replace a house with a duplex, and you can sell or rent both for more than you could the house. Maybe not twice as much in some places, but at least up there. The alternative is to build a super-luxury McMansion. That may fetch as much in some cases, but the more units you add to the multifamily building, the more the McMansion can’t compete. There’s only so many people willing to buy your $5 or $10 million McMansion, which may not be in the location they prefer (in a city neighborhood rather than on the edge with a water view).

  12. Stepping away from the logical debate (which is excellent and I appreciate the effort put in by both sides), there’s a strong coalition pushing for Linkage taxes right now. I’m convinced that they’d leave us with fewer housing units and higher prices overall, but I’d be willing to compromise if we used this political momentum to upzone at the same time.

    Benefits to the combined solution:

    Any loss in housing units would more than be made up for with a good upzone.
    The anti-developer crowd can take comfort that they’re taxing developers (really taxing land owners or renters, but we’ll leave that open for debate).
    The land value tax people will feel like they’ve taken a step toward their goals (this isn’t really a land value tax, but again – open for debate).
    The affordable housing groups that don’t believe in supply/demand solutions get a new tax source
    We end up with more units, which should combat rising prices (each new housing unit in Seattle = one more household that can afford to live here).

    Tack on an upzone to the linkage fee legislation and you’ll get my vote.

    1. I agree. Since these linkage fees are tied to big developments (six story apartments and up) then it would make sense to change the FAR limits to go along with the upzone. We don’t want to simply change the limits to allow ten stories, only to see six story buildings go in (http://www.theurbanist.org/2014/09/02/85-foot-and-125-foot-height-limits-are-a-missed-opportunity/). This would be a welcome change, both from a density standpoint, and an architectural one. I think a lot of people are tired of the many buildings that are pretty much the same height. I could also see getting rid of parking requirements as well (in some areas) in exchange for linkage fees.

  13. “That said, to the extent that linkage fees keep cheaper market-rate housing from getting built while at the same time pushing up the costs of high-end housing, they are problematic.”

    Owen’s whole argument, which I think is far stronger than Dan’s, is that neither of these things are true. The nature of land economics is such that higher costs here will not be manifested into consumer prices because 1) the additional costs will be primarily absorbed by land owners, not developers, and 2) housing demand is what sets prices, not product costs.

    I’d say the only real point of contention now is over whether a linkage fee could affect supply. I agree with others here that unless the fee is set absurdly high it will have a nearly insignificant effect on seller decisions. If you’re deciding whether to sell a small commercial building to someone that wants to develop a 6-story mixed-use building, a relatively small change is the offer price isn’t going to change your decision. It’s still going to come down to giant lump sum vs. steady income stream and which you prefer at that point in time.

    1. I think you’ve done a nice job summarizing what I’ve said. I plan to address various points in Dan’s arguments but it will take time.

  14. I think linkage fees are poor policy because they will undermine some amount of new development, by reducing value in residual for development, while not affecting the competing value of existing uses. To Dan’s point, how much is uncertain. It’s quite obvious that places like Rainer valley or northgate, where value of land for development is only marginal to begin with, will suffer. Development of townhouse in L zones, where the competing SF house values will not be affected, will suffer. High rises on parking lots downtown – probably unaffected. But those sites constitute a low percentage of land in Seattle.

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