Maybe Metropolis: The Solution Is More Density, Not Just More Taxes

Image of three developments allowed in some former single-family areas, from least to most dense: residential small lot, low-rise 1, and low-rise 2.
MHA’s modest upzones on a sliver of Seattle’s single-family land include (l-r) residential small lot, low-rise 1, and low-rise 2. Images via City of Seattle.

By Josh Feit

The JumpStart tax, city council member Teresa Mosqueda’s payroll tax on big employers like Amazon, is posting standout numbers. This year, JumpStart will fund $97 million in affordable housing investments, including nearly $80 million for 1,769 units of affordable rental housing. Last year, the $71.4 million it provided toward affordable housing amounted to almost half the $153 million total raised by all the city’s affordable housing funding streams.

The Jump Start tax teases out the nexus between surging tech job growth and housing prices by capturing nouveau corporate Seattle’s impact on the market. That is: As the hyper growth of tech companies like Amazon inflate local housing prices, the city is taxing them to help fund affordable housing. It’s a good look, and it seems like a logical offset for the influx of high-earning tech employees. And, let’s be honest: It also feels good.

However, as much as I agree with the logic of an Amazon tax, and as much as it’s bringing in, I think there’s a more germane and effective way to raise affordable housing dollars. Luckily, it’s already part of our affordable housing strategy—sort of.

I’m talking about 2019’s Mandatory Housing Affordability program, a fee on new development in designated parts of the city, which brought in an impressive $50 million in 2021 itself.

Given that Jump Start outpaced MHA by $20 million, why am I focusing on  MHA as the smarter policy? For starters, MHA, which came with a series of targeted upzones that allow more housing in more places, actually attempts to undo the root cause of our housing crisis: prohibitive zoning laws that discriminate against multi-family housing in the vast majority of the city. These historical zoning laws cordon off nearly 75 percent of the city from multifamily housing, pinching supply and thus fueling steep housing prices.

While conventional wisdom holds that upzones and new development inflate housing costs, a 2021 UCLA report found that the latest studies show the opposite: Five out of six studies looking at the impact of market-rate housing determined that new market-rate density “makes nearby housing more affordable across the income distribution of rental units.”

Conversely, those who warn that upzones lead to gentrification, have a hard time explaining why gentrification is alreday happening in Seattle today, under our status-quo zoning that prohibits the very density urbanists are calling for. More logically, the prohibition on new development in so much of the city is spiking prices for the limited housing that is available.

Seattle gained 130,000 people between 2010 and 2020 (13,000 a year) and another 8,400 during the first year of the pandemic, many of them tech transplants. These newcomers didn’t cause the housing shortage, though—they merely brought it into sharper relief. The MHA strategy, which encourages housing development, is actually in the position to do something about it.

MHA, which came with a series of targeted up-zones, actually attempts to undo the root cause of our housing crisis: prohibitive zoning laws that discriminate against multi-family housing in the vast majority of the city.

And MHA might be worth more money than JumpStart. The MHA data point that interests me most is $13.4 million, a subset of MHA dollars raised. This figure represents the amount of money MHA raised specifically from developments built on land where it was previously prohibited: multifamily housing built on land that was upzoned in Seattle’s previously exclusive single-family zones.

Passed in 2019, MHA didn’t merely tack a fee onto new development; it also upzoned tracts along the edges of 27 single-family zones, allowing small-scale density in some previously single-family-only neighborhoods by expanding low-rise and neighborhood commercial zones and creating a new “residential small lot” zoning designation. These modest upzones, which the city adopted on just 6 percent of single-family land, allow new housing that fits in seamlessly with single-family houses.

Interestingly, this modest bit of geography— 6% of the single-family zones, or  4% of the city’s total developable land—accounted for nearly 20 percent of all MHA dollars. This outsized production could represent an upward trend. Last year, the same modestly upzoned fraction of single-family areas brought in 12 percent of the money raised from MHA overall, $8.3 million out of MHA’s $68.3 million.

This disproportionate performance indicates that pent-up demand for development on formerly cordoned-off land could be a spigot of affordable housing cash. Consider: There’s a lot more developable land where that 6 percent came from, and the city could increase the potential density of those areas more dramatically than it has to allow multifamily and commercial development, for example. If the city council and Mayor Bruce Harrell had the courage to stand up to Seattle’s NIMBY class by extending the upzones further into exclusive single-family areas and by opting for denser upzones, Seattle would generate far more cash for affordable housing.

Sure, $80 million from the JumpStart tax  is helping a lot. But the truth is, we need far more money for housing. According to the Office of Housing, MHA helped fund 990 units in 2021. But, according to the Regional Affordable Housing Task Force , we need 12,000 a year. Unfortunately, JumpStart’s impressive figures could dampen any move to expand the more on-point MHA approach, which raises money for affordable housing (and could raise a lot more) while actually addressing the crux of the housing problem by freeing up land for development.

In this way, JumpStart could unwittingly play to the interests of single-family homeowners (and their ever-appreciating property values) by shifting the focus away from the central role these homeowners play in the housing crisis, holding them harmless and avoiding bold policy solutions by taking their communities off the table.

According to the MHA numbers, the 4 percent of Seattle that we timidly opened up to more housing construction is trying to tell us something: The table is bigger than we think.

Josh@PubliCola.com

8 thoughts on “Maybe Metropolis: The Solution Is More Density, Not Just More Taxes”

  1. “the prohibition on new development in so much of the city is spiking prices for the limited housing that is available.”

    Yes, definitely. That is rather obvious. The answer is to allow more widespread development. Basically allow low rise development everywhere.

    But that doesn’t mean we should tax it, anymore than we should tax food production when we are in the middle of a famine. If we allow more development, there comes a time when Seattle operates like most cities, in that the price of construction drives development, as opposed to how much land is available. If construction costs are high (e. g. lumber costs are high) and rent is low, then people don’t build new apartments. A tax on development is like raising the cost of lumber. (For that matter, so is design review, as well as parking requirements, and a host of other regulatory nonsense).

    For example, let’s say you have a car lot on Lake City Way. You can convert it to housing, but that costs money. If you tack on the extra tax, it reaches a point that it only makes sense if rent is really high. This prevents rent from going really low, as the owner is better off with the lot.

    Basically this tax will only work when we have a housing crisis, which means it won’t actually solve the problem (unless it is designed to go away as prices drop). If anything, we should be paying developers to build, not taxing them for actually doing something to address the problem.

  2. Why not mandate any new housing has to have a certain percentage set aside for low and middle income (e.g., Montgomery County, MD)? No buyouts for developers. It won’t solve the lack of affordable housing, but it will make a dent.

  3. Sure, because it’s just obvious that the more land is upzoned, the more buildings developers will build. 10-12K per year a few years ago, years in a row, was just a trickle that would have been a torrent, if it weren’t for single family protectionism. /s

    Here’s a tip for you: think again about the outcome you’re assuming. They were never going to get significantly past 12K/year, and it had nothing to do with zoning. They aren’t going to get back to that level any time in the near future, and that has nothing to do with zoning.

    If the MHA income is important, keep your eyes on city hall, because you never know for sure they aren’t going to significantly reduce the fees, or eliminate them altogether.

    1. Yes, the 12k number of unit is baked in. First the City doesn’t have enough construction workers/contractors to surpass it. Second, the City can’t process more building permits than that. Both the City (high cost permits and fees) and the developers make bank producing less units for more cash.

      The whole MHA deal isn’t what seems at face value either. If you allow development in mainly SFH neighborhoods, the targeted lots will be the worst/cheapest houses and any rentals (old duplexes and the like). These properties are been low income/market rate units for decades and they’re the first to be replaced with higher end housing. And the NIMBY crowd loves it. Getting rid of the sketchy triplex behind the gas and replacing it was condos for a “higher class of people” is really the goal here.

      I think Progressives are stringing people along here. There’s just no way in Hell Seattle could build any sort of rental controlled housing to make a difference in a free market. Seattle is a playground for rich techies, like San Francisco, and if you can’t afford the rent there, the best solution is just move on to someplace else. Seattle owes you absolutely nothing.

  4. From the article above…

    “If the city council and Mayor Bruce Harrell had the courage to stand up to Seattle’s NIMBY class by extending the upzones further into exclusive single-family areas and by opting for denser upzones, Seattle would generate far more cash for affordable housing.”

    The NIMBY class elected Mayor Bruce to protect their interests. He’s not standing up to homeowners anytime soon. Yeah, there will be some upzoning in single family neighborhoods, but it will be targeted to Rainier Valley, Georgetown… ahhh, any ‘hood with non-White folks still living there. Upzone Queen Anne? Not a chance.

    This “small upzoning” will be the classic American struggle of collage educated young folks flying the progressive flag…. as they colonize neighborhoods that were once home to minority or working class folks. And if you’re reading this, please feel free to respond with the name of any “progressive” American city where yuppies haven’t displaced the working poor.

    Right now I’d guess the City of Seattle is funding public housing at about 15% (maybe 25%) of what is needed. After 20 years of funding it at less than 10%. I’m not sure how that makes much of a difference.

    1. Progressives are very impatient – the upzones are not nearly built out yet. It takes time to build housing plus there is decreased demand due to higher interest rates. High construction costs due to supply chain issues also exacerbate problems. As do large corporations that purchase homes like redfin, black rock etc. Reducing supply even further.

  5. 12000 per year of subsidized housing seems like a huge overestimate considering we only had 13000 per year moving here and a majority were tech workers (who don’t need subsidized housing because they can afford market rate). The 13000 number doesn’t consider families who might want single family homes or couples who would live in one unit, this reducing the total amount of housing needed by a further amount. MHA is a boon for developers but drags on the city because it allows developers to have reduced property taxes for 12 years. That adds t o huge amount of tax dollars that we could be collecting. Is the loss of tax dollars less than the increase in MHA funds? I’d like to know.

  6. What Seattle needs is a revenue model, like this: https://www.urbanthree.com/services/revenue-modeling/

    Bothell recently did one and confirmed that investing in its most valuable land, not subsidizing sprawl and flat car-dependent development, was the way forward.

    The revenue Seattle needs to remake itself is within reach but it will take a lot more political will and clear thinking than the Seattle Process will allow. I’m reminded that Senator Magnuson procured the 2022 equivalent of $8b for a transit network that Seattle’s voters declined…they voted for pools and community centers and libraries *in* their neighborhoods but didn’t want anyone coming from *outside* their neighborhood to use them. This “small town w big city problems” as someone described it to me needs to grow up.

    You know that D5 will come up as a net drain on the city budget, with its wasted land on state highways that divide neighborhoods, to say nothing of I-5, as well the big box stores and storage warehouses and car dealers. Can you imagine city council commissioning this kind of research and accepting the findings?

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