Talking Points for Low-Rise Legislation

There have been lots of great communications to the Seattle City Council about low-rise legislation. Please take a minute and email the Council (here’s our petition page: http://www.seattleforgrowth.org/lowrise/) and let them know your thoughts. Our petition page is already filled out. 

You can change that text. Not sure what to say? Here’s some ideas from someone who sent out some talking points for testimony at Planning Land Use and Sustsinabilty (PLUS) Committee meeting next week.

I am a renter. Public Policies that restrict growth hurt me by constraining housing supply, which drives up the market price of my rent. I need Seattle to build more housing, not less.

I am trying to buy my first home. I am frustrated with so many people trying to buy and so few properties available. This scarcity causes bidding wars and price escalation that makes it very hard for me to own my own home. I need Seattle to build more housing, not less.

I am an existing homeowner. I feel lucky that i was able to buy in Seattle in an era when housing was more affordable. I want to extend the opportunity to live in Seattle to others as well. I am oppose housing policy that is designed for my benefit that comes the expense of others. I want Seattle to building the housing that people need. Apartments, condos, rowhouses, townhouses, fancy houses, small houses, micro-housing…if there is a need, we should build it.

People are moving to Seattle faster than we are building new places for them to live. When there is a shortfall of housing supply, prices escalate, and the people that get hurt are the folks at the bottom of the economic ladder who get outbid by people on the rungs above them.

Every person who lives in Seattle was a newcomer at some point. No one gets no walk through the open door, and then close it behind them. Incumbency does not entitle residents with a right to exclude others.

For more background, see this blog post for some background on why people concerned with affordability and design quality have opposed this legislation: http://www.seattleforgrowth.org/appealed-low-rise-downzone/

To see the proposed legislation and supporting docs, see June 2 Plus Agenda (Page 7): 
http://seattle.legistar.com/View.ashx?M=A&ID=384446&GUID=E57CC333-B996-4F16-B6F0-8DA73A363C17

Take 5 Minutes to Save Thousands of Housing Units

It’s been a long a winding road for low-rise legislation being considered by Council. You can read all about it in my post about why we appealed the original efforts to clamp down on housing supply in the low-rise zones. But it is coming down to the final weeks before Council acts on a new version of the legislation. This version is far better, but it still isn’t very good. You can read more about why in my post that includes the letter we sent to Council regarding the legislation. If that wasn’t worrisome enough, angry neighbors are wanting to put all the bad stuff back that was in the original legislation.

But you can help in 5 minutes or less: please sign onto the letter linked below. Click on the link that will take you to our petition page. You can adjust the text or just sign it. It will automatically go to all 9 Councilmembers. I know many of you can’t make a day time meeting on Tuesday, June 16th at 2:00PM at City Hall when this legislation will be considered. But I know you can send an e-mail. This is the time to jump in.

http://www.seattleforgrowth.org/lowrise/

Facebook: Toward an Honest Understanding Real Estate Financing, Linkage, and Land Value

Unfortunately there has been a campaign by people calling themselves “urbanists” who are trying to both be in favor of density, not supportive of NIMBYs, and advocates of linkage tax, a scheme that won’t help density and truly is about squashing growth. Dan Bertolet has essentially demolished the foundation of their argument (undertaken more for providing intellectual validation of the linkage tax to politicians who have already decided to support it. Owen Pickford and his land value case is to linkage taxes what Colin Powell’s weapons of mass destruction speech at the UN was to the Iraq invasion).

Along with Bertolet’s good work to put this specious argument down, a great set of comments on a Facebook thread about linkage taxes came together over the weekend. The exchange was between two really smart guys who actually know something about real estate, David Neiman an architect and builder and Ben Broesamle who is studying real estate and has worked in the field. Check out the math.

The point of posting this exchange in the raw is to show that people who do the work get how the linkage will screw up the financing of actual projects and add to rent prices. Compare this to the what I call the Pickford Papers, which are an amalgam of facile arguments about land value and citations of studies (that Bertolet shows actually are full of evidence to support counterarguments about their view).

  • David Neiman Ben, I came up with the same numbers, that the linkage fee adds about 5% to the costs of a housing project. since higher costs translates to more debt which requires a debt coverage ratio in order to sustain it, that translates into a need for the market rents to move up 6.5% to absorb the fee.
  • David Neiman Once the market moves up, the costs have been transferred over to renters, Sawant holds a rally to declare that she really stuck it the fat cats this time, and we get ready to crank up the fee rates for the next election cycle.
  • David Neiman But here’s the worst part: housing market is huge and includes every renter. When market forces cause rent escalation, everybody pays it, not just folks living in new development. 125,000 apartments times $1600 average rent equals $2.4 billion of rent every year. 6.5% of that is $150 million of rent increases in order to collect $40 million of linkage fee.
    23 hrs · Unlike · 1

Broesamle then runs through some of the issues with financing created by linkage.

  • Ben Broesamle David, I think that’s definitely pretty close. It might not be the exact same cost increase rate to rental increase rate, you’d have to do a DCF calculation and keep the IRR constant with the new, increased construction cost to test the sensitivity of the rental rate to the increase in cost. But given time value of money weighting expenditures in the present higher than incomes in the future, it could just as easily be a higher rental rate increase. (…Not sure. I could be over thinking that. I’d need to create a DCF to figure it out for sure and I’m not on vacation for a while).

And Broesamle doesn’t just spout jargon, here’s the math.

  • Ben Broesamle Numbers:
    Scenario 1 ($350 psf base cost, $22 tax):
    -$350 Total Development Cost per SF
    750 Gross SF per Unit
    100 units
    $3.00 psf / per month gross income
    5% vacancy
    $6,841 opex per unit
    6% exit cap, 6% exit closing costs
    2 year construction period
    IRR: 11.09%
    80% Loan-To-Cost (constraining)
    Leveraged IRR: 23.82%

    Increase development costs by $22 (6.29%)
    Required gross rental income increase to achieve same IRR: 

    ******5.43%******

    There’s your answer.
    22 hrs · Like · 1
  • Ben Broesamle There are a lot of assumptions in there that might be a little off. But it was quick math, and it illustrates the point.
  • Ben Broesamle Given that land is only about 12-18% of project costs to begin with, land owners would have to cut their price by between one half and one third before they sell to achieve the same result. This bring me back to my jumping up and down about “sticky” markets: land prices going down due to a tax on development anytime soon is less likely than developers waiting for rents to go up before they begin construction. Therefore, if any of you rent like I do, we are the ones who are all S.O.L..
  • David Neiman Ben, I think you’ve hit on the essence of the problem. There aren’t that many landowners willing to take a 33% haircut.
    21 hrs · Unlike · 3

Don’t get the numbers or what the hell all that stuff means. Join the club. The point is that real estate investment and development is a complicated business, too complicated to be left to be managed from the armchairs of the City Council, and certainly not by guys in their pajamas writing a blog. Peoples livelihoods, both builders and renters, are at stake. It’s too important to be left to the amateurs at City Hall and some “urbanists.”

I’ll leave the last work to Rob Harrison, of the Harrison Plan for Roosevelt.

Rob Harrison So…no land sale, no development. No development, no linkage fee.
21 hrs · Unlike · 2

How High Is It? Housing Affordability Measures are Way Off

Every year much is made by non-profit affordable housing advocates of the Out of Reach report, a study produced by the National Low Income Housing Coalition (NLIHC). Every year the study puts out a number of what a person would have to earn to afford an apartment. The standard always used is the typical one, 30 percent of monthly income means a person’s housing is affordable. Add a discount for income using Area Median Income (AMI), take gross wages and average rents and do some quick math and just like that anyone will know just how “out of reach” housing in Seattle, for example, is for people at a certain income level.

The study uses this data point:

A renter earning the federal minimum wage of $7.25 per hour would need to work … 102 hours per week to afford a two-bedroom Fair Market Rent.

But is this way of measuring housing really accurate? Does it even make common sense? And wait, why does this single worker need a two-bedroom apartment?

Jason Rantz from KIRO Radio points out the obvious in his blog.

But did you notice a data point that I quoted above? It’s a key data point they use. In fact, it’s the default data point.

They’re talking about a single person making minimum wage and what it would take to live in a two-bedroom apartment.

They say the two-bedroom housing wage in Washington state is $21.69. No, it’s not. It’s $10.85. Why? Because two bedrooms are generally for two people (at a minimum).

So it doesn’t make sense. But all over the place, like The Stranger, the study is cited and the point repeated over and over, that we’re in a housing crisis — I guess that’s true, if you’re a single individual trying to put together enough money to rent a two-bedroom apartment.

Why misrepresent or twist data like this? There’s only one reason: Money.

NLIHC continues to work to ensure that the [National Housing Trust Fund] receives enough funding through dedicated revenue sources to address the urgent housing needs of millions of Americans

Non-profit agencies that crank out housing units that are subsidized want to build more. There’s nothing wrong with that. But the issue quickly goes from one of measuring a problem, thinking hard about solutions, and then applying money and efficiencies to implement a solution to politics pure and simple. Someone has to pay for all these affordable housing units, and that someone is increasingly developers and builders through terrible interventions like Councilmember O’Brien’s linkage tax.

But I pointed out already, that even if we thought turning the unit crank was the best way to solve our problems the current system for financing and building housing is very inefficient. But here’s the real frustration I have: the methodology used to define the problem is flawed. Even the 30 percent standard is suspect as I’ve written before.

Real people make choices based a wide array of factors, one of which, of course, is price. But that’s not the only thing. Some people want to pay 35 percent of their income for housing, and some, paying less than 30 percent just got a good deal. Reading this study doesn’t help us understand why that is a problem — or not. Like most of the needs assessments of housing affordability (especially the City of Seattle’s), the NLIHC study is arbitrary. Basing big housing policy decisions on numbers grabbed out of the air, or worse, simply made up, is going to lead us to making some very poor choices.

Low-Rise Battle: Filling the Missing Middle

I’ve written before about the importance of figuring out how to build more density into and around single-family and low-rise neighborhoods. For example, we talked about courtyard housing as a way to create more density and affordability. There’s a great term for this need: the missing middle. And there is a great website called the Missing Middle exploring all the types of housing we could be building between larger apartments and single family home. 

What is the missing middle? 

“Missing Middle” was coined by Daniel Parolek of Opticos Design, Inc. in 2010 to define a range of multi-unit or clustered housing types compatible in scale with single-family homes that help meet the growing demand for walkable urban living.

The problem for Seattle though is the efforts by some on the City Council to stomp out density created in low-rise zones because of fear of change from neighbors. 

The website is a great resource with great ideas about policy, design, and how to fill in the missing middle. We’re doing every thing we can to keep this potential on the table in years ahead by resisting changes to the low-rise zone that would make filling the missing middle harder to do.