Seattle Could Do It Right

A recent Seattle Times story, With 5,900 tech jobs already gone, a Seattle correction looks real, is a warning for the Seattle City Council. Over the last several years, the Council has been on a regulatory spree on new housing, negatively affecting production. Now is the time for the City to pull back on regulation on housing and dial up incentives to avoid a slowdown in housing production likely in 2023, a slowdown that will mean less housing and skyrocketing rents when the economy recovers.

Back in 2015 and 2016, tech company growth was driving population growth, and Seattle’s housing market struggled to meet the demand. Rent for an average one-bedroom apartment rose to $2072 in 2016 according to Zumper, a rent tracking website. When demand outpaces supply, rents go up for new housing and on existing housing too. When there’s not enough new housing, newcomers bid up the price of existing housing. Older buildings get sold and overhauled with higher rents.

What did the City Council do? It introduced a scheme called Mandatory Housing Affordability (MHA), a program that exchanged a small increase in allowable square footage in new housing in exchange for a fee. The fee could be avoided by including rent restricted units. The City knew that very few developers would take this risk and would instead pay the fee which would fund non-profit built housing. But the fee would be paid with higher rents and prices for housing. And if higher prices couldn’t rationalize the fee, housing wouldn’t get built at all.

An analysis completed by the Master Builders Association of King and Snohomish Counties found that, “MHA fees are severely limiting new townhomes—a lower-cost, family-sized homeownership option. Post-MHA, townhome permit intake has dropped by nearly 70%.” Today, with interest rates on the rise, realtors and builders here and across the country have told me that buyers can’t afford a mortgage. Sellers are finding prices falling below what they paid in last year’s hot market. The risky market will mean even fewer houses in 2023, just like the crisis of 2008.

On the rental side, Zumper has already shown a downtick in rents for a one bedroom, falling this year from $2025 for a one-bedroom in September to $1893 in November. Falling rents is great news for consumers, but signals falling demand, something that, along with rising interest rates and economic uncertainty, will mean less apartment building. Demand will fall further if other sectors besides tech in Seattle begin laying people off or slowing hiring in 2023.

As for MHA, it has failed to deliver. According to the City’s own report, MHA has only produced a paltry 104 units at a cost of $57 million in fees, hardly the thousands the City said would be produced. It’s time to abolish the program and other overreaches that add time and cost to new housing production like design review. Even people who are not developers or builders are beginning to challenge design review as a way for neighbors to slow new housing adding costs.

Along with getting rid of fees and process that add to cost and risk for new housing, the City should expand Multifamily Housing Tax Exemption (MFTE), a program that provides a tax break for builders of new rental housing if they set aside affordable units. Over its lifetime, MFTE has produced over 8000 affordable units. Together, reducing regulations and increasing tax incentives today could keep building in the city going next year and avoid a housing scarcity and inflation in years beyond that when demand returns.