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December 7, 2015
Seattle is growing and often registers among the fastest growing metropolitan areas in the country. Yet, while this is hailed as a desirable trend in many quarters, it appears that this growth benefits a small segment of our economy and is a burden on the rest.
We base this conclusion on our analysis of what we have termed the Net Benefits of Growth or NBG. This is a measure of what a new resident contributes to an economy against what we, the rest of society, have to subsidize to maintain our and their quality of life.
In a slow economy, any new job is welcome as it increases the utilization of existing underused infrastructure. In a growth economy, if we are planning well, NBG is at least zero or perhaps a little positive, such that the cost of having a person join this economy is recovered through associated taxes and other revenue sources. This includes not only sales tax, since Washington state residents do not pay an income tax, but also an employer’s contribution through their B&O taxes, among other revenue sources.
A measure of the Seattle region’s NBG indicates that despite the increasing number of wellpaying IT jobs, they are greatly outnumbered by the number of new jobs in the lower end of the pay scale and by stagnant wages in other sectors. The Seattle region is struggling with a negative NBG.
One of the ways that a negative NBG manifests is when the income afforded by new (or existing) jobs does not find a corresponding cost of living solution within the city. Other signs are a growing deferred maintenance list of infrastructure projects, underfunded schools, out of reach higher education, and an increasing number of underemployed residents. Lets not forget the new young wage earners who return home to reside with their parents after getting their higher education, since they cannot find affordable apartments.
The most concerning sign, however, is the implosion of small businesses. While some blame the recent $15 an-hour wage hike, other factors, such as reduced purchasing power among the city’s residents, also affect a retailer’s customer base and sales.
The City Council has been looking to offset this growing differential, but this planner questions their reliance on development impact fees. Development fees should be the last resort, since developers do not absorb that cost, as one might desire. Rather, the fees are are passed on to new homeowners and are therefore ultimately antithetical to the council’s affordable housing goals.
While this author is an avid pro-growther, one has to question the region’s approach to planning under the banner of Smart Growth. The practice of tearing down affordable units and replacing them with denser development has not proven to yield the results that we sought, and it never will. Yet, focusing the blame and responsibility for fixing the affordability issue on the development community will not yield the necessary results either. Developers are but one player in this sector. There are also Realtors, appraisers, financiers, city permit staff and contractors, among others who contribute to the sale or rental price of a unit. The per-unit cost of a new building that exceeds that of the units they replace can be attributed to any of the players mentioned above.
Costlier buildings raise the cost of living and affect existing buildings around them through higher mortgage or rents, and property taxes. For commercial buildings, these are recovered through increased cost of commercial goods and services. These increased costs accumulate to diminish purchasing power, particularly for the large section of less affluent residents the retired, those on fixed-incomes and the underemployed. Many are able to withstand this trend.
Others, who are able, move to communities much beyond Seattle. When the displaced are young workers entering the workforce, the resulting commutes overload roads and transit. This is a downward cycle and counter productive to a stable local economy.
Therefore as we support the growth of businesses, we need to better understand which income level this growth is occurring in. Of late, it appears that more jobs are in the lower end of our economic spectrum, while more housing is geared towards the upper and middle-income population. Though the present development fees will raise $190 million for affordable housing over the next 10 years, it is a far cry from what is really needed. This equation also does not factor in the affordable units that are replaced with more expensive development. So lets pause before we rezone Seattle’s corridors of affordability for denser development.
We need our elected officials to take a bigger and broader look at the issues of affordability and entrepreneurship. This needs to be a multi-pronged effort. For entrepreneurship, we need to continue to devise ways to support new or emerging businesses to maintain a healthy small business sector. This includes providing safety nets for mom-and-pop businesses as well as those entering the retail and office sectors.
While Starbucks might be an international behemoth today, it had a humble start in an affordable space in Pike Place Market.
We need to be more rigorous in collecting fair compensation from mega businesses that our infrastructure and people have helped to grow by closing loopholes in B&O and other taxes. We cannot give into to protests about free-market intervention, and our leaders have to engage large employers (public and private) in the housing conversation.
We must ensure that they have a clear plan for housing those earning less than median wage. This can be through developing housing themselves or leasing housing that is rented out to their employees. The housing can be built onsite, as mixed-use buildings in downtown and South Lake Union, or remotely, but must be connected through well-planned transit.
The most sustainable solution to the housing and employment problem is training locally unemployed residents to fill job vacancies as they arise. Presently, the insufficient public investment in our schools and colleges is encouraging local companies to look beyond Seattle to hire. This creates an underclass that remains unemployed, perhaps homeless, and what we would consider non-contributing members of society.
While companies may chose to turn a blind eye to this population, our society cannot. Our tax dollars are redirected to cover this population’s health care (most often, expensive emergency care), food, housing, policing and, in the worst cases, incarceration. An underclass is also created through business bust cycles that we witnessed not so long ago, and that large businesses and banks take no responsibility for.
Therefore, before we beguilingly embrace a growth mindset, we must make sure that the burden of our current “flourishing” economy is also borne by the companies that fuel it.
Otherwise the City Council should corroborate with current residents to make sure they are willing to shoulder the responsibility for subsidizing each new job. In one scenario, we could be celebrating each job’s positive contribution to Seattle’s economy; in the other scenario Seattleites revert to the familiar anti-growth stance.
Anindita Mitra, AICP is the founder of CREA Affiliates, a practice dedicated to sustainable planning, design and landscapes. She is the author of “Painting the Town Green.” This is based on her research for her upcoming publication “Planning for the 99%.”
The Daily Journal of Commerce welcomes your comments.