HORSESASS: Creating Homes in Seattle

HorsesAssHow Seattle Can Build Thousands of Affordable, Rent-Stabilized Housing Units at No Cost to Taxpayers!

Last week I upset some of my urbanist friends by once again suggesting that the market alone could not build its way out of Seattle’s growing affordable housing crisis. Yes, our current NIMBYist regulations have helped create the current crisis, so of course we need to free private developers to build more density. “But…” I insisted, “if we want to substantially add and retain middle and low income housing in Seattle than we’re going to have to build and retain tens of thousands of units outside of the market.”

So what exactly do I mean “outside of the market?” I mean the city is going to need to build and own these units itself. And if done right, we can do this at no cost to taxpayers.

Specifically, the city and county have hundreds of millions of dollars of untapped bonding capacity that we can use to build middle-income and workforce housing at below-market rents. And we can do this because municipal governments have three huge advantages over private developers: we can borrow money more cheaply, we don’t have to produce a return on investment, and have we no incentive toward extractive “rent seeking.”

Here’s how it works: The city sells bonds to purchase and develop a piece of property, pledging revenue from that development (not taxes!) to pay off the bonds. You know, just like private developers borrow money. But cheaper. We then hire the same private architects and private contractors that private developers hire, because that’s how you build stuff. No need to reinvent the wheel.

In fact, the whole process works pretty much like a typical private development, using the same standard math that private developers use to determine if a project pencils out (banks won’t lend to them if it doesn’t). The only difference is that absent a profit motive, the goal of our bond-backed public development will be to charge as little rent as possible, not as much. We want to build as affordably as we can on any particular piece of land while charging rents sufficient to service the bonds, pay for management, maintenance, and improvements, and keep sufficient financial reserves. The larger rental market will necessarily influence our design decisions, but not define it. As a result, we will make different design choices than the typical private developer.

For example, in order to keep costs down, we might opt for smaller bedrooms and communal laundry rooms rather than washers and dryers in every unit. And rather than providing an off-street parking spot for every unit, we might build only a limited number of spots, made available to tenants at an additional cost. On the other hand, we might provide onsite dedicated parking spots for car-sharing services like Car2Go and Zipcar, or in a family-oriented development, we might include space for onsite preschool and childcare, thus reducing the need for young families to own a car.

It’s not about building cheap. It’s about building smart. We want to provide those amenities that best serve the needs of median-and-below-income tenants, rather than those amenities that might fetch the highest rent from a crowded market of well-paid tech workers.

And finally, even if we initially fail to offer these units at substantially below market rates, public ownership will allow us to impose our own voluntary form of rent control, only raising rents to meet our actual costs or necessary improvements, rather than hiking rents to take advantage of whatever the market will bear. If managed properly, over time these public developments would grow increasingly affordable relative to the larger profit-driven market. In fact, if we meet or exceed our goals, we may even be able to collateralize these developments in order to free up bonding capacity for additional projects.

To be clear, this is not subsidized housing—although additional subsidies could be leveraged to further reduce rents for low-income households. It is more like a public utility: like Seattle City Light pledges revenue from ratepayers to bond the investments necessary to build and maintain a system that delivers some of the cheapest and greenest power in the nation. The goal is to provide affordable rent-stabilized housing to as many customers as possible.

Also, this is not an entirely radical idea. Many state and local governments already offer low-interest municipal bonds to finance projects from both for-profit and not-for-profit developers in exchange for setting aside a number of low-income units for a specified number of years. I propose departing from this model in two ways: 1) We build for median income households as well as low income, and 2) We maintain public ownership and operation, keeping these units outside the market in perpetuity. I don’t have all the details worked out, but the research I’ve done convinces me that the basic premise is sound.

As for the risk to taxpayers, of course, nothing is risk free. Gross incompetence, corruption, a natural disaster, or an economic collapse could leave taxpayers holding the bill. But that’s true of anything we bond. The upside is that we could leverage our AAA credit rating to add hundreds or even thousands of affordable housing units to the region every year… units that would stay affordable regardless of market forces.

Is that enough to address our affordable housing crisis on its own? Of course not. Above all, we need more density, and that’s mostly going to come from the private market. In addition to publicly built and managed housing, I believe we must broadly lift height restrictions throughout much of the city, particularly near transit hubs, while freeing up homeowners to build “accessory dwelling units” (ADUs), both mother-in-laws and backyard bungalows. Additionally, we should liberally waive the requirement to provide off-street parking for new construction, and do the best we can to streamline the review and permitting process while maintaining reasonable standards of safety and aesthetics. NIMBYism is the enemy of density; while neighbors certainly should have input into local development, they should not have veto power. I’m not anti-zoning or anti-regulatory—I also support workforce housing set-asides and fees—but I do believe we have to be a lot smarter about the regulations we have now, and a lot more resolute in resisting our “Lesser Seattle” instincts. We need to build more housing.

So I really wish density advocates would stop viewing me as the enemy. I’m with you on almost everything.

But that said, and for the reasons stated in my earlier post, the private market is not going to solve Seattle’s growing affordability crisis on its own. As long as Seattle remains affordable compared to competing high-tech centers like San Francisco and New York, added housing supply will only increase demand. And with the possible exception of some ADUs, private developers simply aren’t going to voluntarily build many units aimed at median-or-below-income households: Buildable land is scarce and high-end housing has higher margins, so developers are going to try to squeeze as much profit as possible out of every square inch by aiming as upscale as the parcel will support.

So if we want middle-class and workforce housing in Seattle, the city is going to have to build and manage it itself, outside of the larger housing market.

Your Comment