Putting Wheels On Bad Policy

Over the last decade working on housing policy issues with elected officials, developers, builders, housing providers, and advocates “What is the answer?” or “What should we do?” This is usually after I paint a somewhat dark picture of the future; state and local governments continue to over-regulate housing production creating scarcity and high prices and then seek to tax and extort the economy to subsidize the victims of higher prices. In the interests of putting the answer all into one place, I am posting it as a series here.

Unfortunately, the answer I give is usually ignored; imagine a patient leaving a doctor’s office and heading straight for the donut shop after being advised that to lose weight, the patient needs to go on a diet. It’s easier to throw beer cans at the television or file legal challenges than do the hard work of understanding public opinion about housing and then developing messages to change it. But here, in five posts, is my best answer to the question, “What do we do to understand why housing policy is being made the way it is, and how do we change it?”

Introduction: Putting Wheels on Bad Housing Policy

Dividimus muros et moenia pandimus urbis accingunt omnes operi pedibusque rotarum subiciunt lapus et stuppea vincula collo intendunt.

And so, we open up the city walls. And expose the battlements, all working together to make this happen, fastening gliding wheels to its giant feet, and ropes around its neck, as halters with which to draw it to the shrine.

Virgil. The Aeneid, Translated by David Ferry, (Book II, 349-353, p. 46). University of Chicago Press, 2017.

We all know the story of the Trojan horse even if we’ve never read the Aeneid. The Greeks were at war with the Trojans and to trick them, they hide in a deceptively harmless looking wooden horse. When the Trojans pull the horse into the city, the Greeks spring out and the rest is history, Troy is destroyed. The story and the image are so well known that few people could tell you where they first heard about it; it is almost as if we were born knowing about the idea to “never trust Greeks bearing gifts” (timeo Danaos et dona ferentis), a warning uttered by the Trojan priest Laocoon and ultimately ignored.[1]

I’ve quoted above an especially poignant aspect of the story essential to understanding it and to appreciating its relevance to the creation of bad public policy. Simply put, in hindsight, we all know it was a bad idea to bring the horse into Troy. But my guess is that most people would say, if asked, would say, “it came with wheels.” That is, it’s likely for those of us standing on the beach shaking our heads saying, “Don’t do it!” we’d be looking at a horse with four perfect wheels and a rope attached. All the Trojans had to do was haul it in, right?

But this was distinctly not the case that day outside the walls of Troy. The Trojans had to work (accingunt omnes operi) to destroy themselves. In almost every case of bad policy I’ve seen, especially in housing, it isn’t as if getting from “we have a housing crisis” to something like rent control as the solution was a simple as opening a wrapped gift. In each case, multiple warnings are ignored and then extraordinary efforts have to be made to create and implement the bad policy.

Perhaps the best example (and the one that features me as the local Laocoon) is Seattle’s policy of Mandatory Housing Affordability. It all began with a “housing crisis” back in 2013 when post-recession recovery brought jobs and increased demand for housing to the city. Housing prices and rents began to rise. A kind of civic panic ensued. Something had to be done. Like Sinon – the young Greek agent sent along with the horse to encourage the Trojans to haul it inside the City – a consultant appeared who advised the City leaders that the reason that housing prices were going up was all that new housing being built! The more jobs and housing created, the consultant argued, the more the City would have to pay to subsidize people who couldn’t pay the rent.

Along comes the horse, Mandatory Inclusionary Zoning (MIZ). The underlying argument of MIZ is that there is some injustice going on; while the city grows, developers make millions while rents go up. Meanwhile, the public through state and local government is stuck with the bill of subsidizing poor people who see rents go up. Therefore, the answer is to tax each square foot of new housing and give the money to non-profits who will, someday, build “affordable units.” Simply put, this makes no sense: adding costs with fees won’t make needed new housing cheaper, it will make it more expensive. What does make sense, though, is that the rising inflation will justify even more fees for non-profits. It is a destructive cycle of making it harder and more expensive to build housing which then justifies, ironically, making it harder to build housing. I explained it back in 2016, and again recently. I wasn’t the only one then or now.

What was the result? As of the last report, Seattle’s MHA program has generated $96 million. When it was proposed back in 2015, it was suggested that tens of thousands of “affordable units” were needed. The City claimed in 2017 that,

“MHA is part of Seattle’s Housing Affordability and Livability Agenda (HALA) that strives to create 50,000 homes by 2025, including 20,000 affordable homes. The development of both affordable housing and market-rate housing is an important strategy for slowing housing cost increases and providing a wider range of housing choices.”

As of the publication of that report I linked to, the City claims 712 subsidized units from MHA funds spent. There has been no independent audit of that claim, but even if we accept it, the program is a shocking failure. We’re halfway through 2022 and even accounting for Covid-19, the rate of production is weak. A more recent Seattle Times report showed more fanciful numbers:

“The 2021 haul [from MHA] could help the city fund more than 900 affordable units, given that Seattle assumes each unit needs about $80,000 from the city. Affordable housing projects usually combine city dollars with financing from other sources, including the federal and state governments.”

Each unit needs $80,000. Right. A project just brought into service recently cost $67 million for 148 units or about $456,000 per unit. Well, who cares? Rents have gone down, right? Well, even accounting for Covid drops, rents are rising again in Seattle, clocking in at a year over year increase of about 18%.

The truth is that MHA added costs and slowed production of new housing, and had more been built before and even during the pandemic without fees and other rules, supply would be keeping up with demand as it increases post pandemic. The MHA scheme made people feel better five years ago, today it is a contributing factor to post-pandemic housing inflation.

Is there a chance that the City of Seattle might back off the program now that demand is surging and rents are up? Of course not. It’s a success. Look at all that money it has raised for housing. Why would we stop now? In fact, it is only a matter of time before, with rents up, that Councilmembers will be calling for increases in MHA fees. As Aeneas laments about the horse, “we have enshrined the monstrous thing in the citadel itself (Ferry 46).”

With almost every housing policy the pattern is the same. Rents go up and so do the calls to more intensely regulate and fee housing. Supply and demand? Shut up Laocoon! There’s only one solution, find more money for more “affordable housing.” And there are plenty of Sinon’s out there, activists with more anecdotes than real data, willing to promise political support for efforts to redistribute wealth to ensure that everyone has a “right to housing.” Instead, what people get is a spot on a waiting list for that affordable housing that might come, someday.

It is frustrating to see so many people in cities working so hard to create policies that bad housing policy. What’s the first step to stopping the horse from coming in the city? The answer is figuring out what we believe.

[1] It’s worth noting that the nuances of Latin allow an array of equally nuanced interpretations of what “et dona ferentis” could have meant in context (see, Murley, Clyde. “Et Dona Ferentis.” The Classical Journal, vol. 22, no. 9, 1927, pp. 658–62).