It’s a repeated movie scene: soccer player dribbles down the field, overcoming all opposition and ignoring the shouting onlookers….and scores in the wrong goal.
City Council members say they want Seattle to be affordable, but the Land Use Committee is blindly heading the wrong way. They’re going to increase residential and commercial rents via massive development fees and new restrictions on the best way the market can provide cheap housing.
“Massive” is the right term. Basically, all multifamily and commercial developments would be subject to fees ranging from $7 to $22 per square foot (or alternatively $5 to $16), depending on neighborhood. Averaging out the higher version, that might be a 5% increase in development cost. Or development onsite, which tends to be much more expensive. The fees would apply to the whole building, vs. the current method of fees only above the old height limits. Houses would have no fees of course.
The result is obvious. Higher rents won’t apply to just new buildings, but to every person or company that rents in Seattle. In a growing city, rents tend to follow replacement cost, plus a premium if vacancies get too tight. Replacement cost for all types of space would go much higher, even with a likely dampening of land prices. The fees would reduce construction until demand pushed rents up enough, then we’d start building again. It would be another “great reset” to higher rents. Some people counter that incomes are flat, but that’s not very relevant; in high-demand cities, people tend to pay a larger percentage of their income. The question of “what will the market bear” for a necessary product is based on customers’ pain thresholds, and prices rise until enough people let go.
Fee proponents seem to think the projects will keep flowing and costs don’t translate to prices. This is pure ignorance. Even without fees, the average project is on the edge of happening or not happening even in the weeks before it breaks ground. What will interest rates be? Will the market soften in the next two years? Is someone at DPD going to require an expensive change? Will the equity partner take the leap necessary to build offices on spec? We contractors hear about many projects that never even make the DJC because the pro forma doesn’t work. Once projects are public, or even permitted, a great many still never happen. There’s good reason behind that, and not just that returns might be disappointing – sometimes developers and financiers lose their shirts, as many did a few years ago.
Owners of existing buildings and homes would celebrate the fees of course (seriously, does the Land Use Committee know this?). Less competition means higher rents and higher building values. My condo would be worth more too. Commercial building investors love to buy buildings in areas with “high barriers to entry” for this reason.
So, rents would go up substantially for 130,000 renting households in Seattle (my guesstimate) and any business that rents space. That’s quite a price for a relatively small number of subsidized units.
We can do much better. There are methods that don’t restrict housing supply or punish companies for locating in Seattle. The existing housing levy is part of that; can it be expanded? How about making it easier for homeowners to build accessory units? How about micros? Or expanding the zones where townhouses can be built, even a little? Each can help fill part of the affordability gap for different types of people.
But most of those things are too scary for the Land Use Committee. The loudest voters want free, empty parking in front of their houses, and no “renters” (sometimes a euphemism) living nearby. Now micros, despite their popularity, have been slapped down already, and the Committee (motto: “You’re out of LUC”) wants to all but destroy the model entirely, with added parking, sinks, square footage, and entitlement process.
Some of that is understandable in the context of negotiating tradeoffs, like parking in certain zones, or even the design review process that adds costs, duration, and uncertainty to every project in Seattle. Other parts make no sense at all. Who does it help to outlaw the smallest micros, which are basically the size of a dorm room, minus the snoring roommate? If someone can afford 150 square feet but not 220, it’s off to the friend’s couch? (PS, as a donor to some of our outstanding nonprofits, I’d like to see money spread further with smaller units, like micro sizes for single people and micro+bedroom for families, with a focus on temporary rather than lifetime housing.)
About micro prices: Some say $700 isn’t really affordable (I’ve heard numbers from $600 to $1,000 for bigger units). It’s not low enough for everyone, and many people aren’t suited for micros. But it’s definitely a gap in our housing supply, and these units are popular. It’s notable that rents often include utilities, internet, and significant shared space. And don’t forget that the market is otherwise averaging over $1,400 for apartments. All things considered, $700 is a great price to live in a core Seattle neighborhood.
Hopefully the LUC and full council will listen to people beyond its own echo chamber and the consultants who want us to emulate the nation’s most expensive cities. The Mayor has shown signs of being reasonable. Let’s not look back on 2014 as the year we flubbed ourselves into higher rents for all.