By Josh Feit
Last week, I featured Seattle City Councilmember Dionne Foster in an item headlined “Inclusionary Zoning > No Inclusionary Zoning” to reflect her progressive affordable housing stance. However, according to a comprehensive new academic study, she has it backward.
No Inclusionary Zoning > Inclusionary Zoning
So says the study released this summer by an economist at UC Irvine about inclusionary zoning (IZ), a policy that requires builders to couple any market-rate housing they build with affordable housing. Seattle’s version of this—as in Foster’s resolution calling for inclusionary zoning requirements in residential areas where the policy doesn’t currently apply—uses a “fee in lieu” model where developers can pay into an affordable housing fund instead of including the affordable housing in their own projects.
Unlike other (inconclusive) research on IZ, the UC Irvine study had a clean before-and-after look at the policy, thanks to California’s unique history of going through a period when inclusionary zoning (including the fee-in-lieu model) was legal, illegal, and then legal again.
The study indicates inclusionary zoning does the opposite of what it’s intended to do, finding that IZ makes it more expensive to rent. California renters paid approximately $6.97 billion in additional rent in areas with IZ mandates. So, even as IZ funds some affordable units, it comes at a steep cost to renters, including low-income renters, who aren’t “lucky enough to get an IZ unit,” according to the study.
But the real zinger: The study then compared that rent increase to the number of affordable units created and found that it wasn’t worth the tradeoff. As the author bluntly states in the opening summary: “I estimate the cost of generating an affordable unit with inclusionary zoning to be approximately $800,000 in ‘excess rents’ paid by market rate renters as a result of the policy’s constraint on supply. This exceeds the cost of directly incentivizing the creation of low-income housing [~$441,00 per unit] in California through existing programs.”
Seattle’s Budget = Amazon’s Stock Price
Speaking of being blunt, Erica didn’t hold back in her report on Mayor Wilson’s $2.5 billion budget proposal last week. And I quote: “JumpStart is Basically Just a Slush Fund Now.”
JumpStart, of course, is the 2020 tax on high-end salaries proposed and passed by former lefty city councilmember Teresa Mosqueda to pay for affordable housing and other progressive priorities. Now, according to a recent economic study commissioned by Seattle’s own Office of Economic Development, it increasingly covers the city’s regular budget shortfalls. Since 2024, when a newly elected city council majority changed the law to eliminate the original JumpStart spending plan, more than half of JumpStart revenues are used to cover the gap between city budget expenditures and general fund revenue.
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I’m not here to cry about that. True believers like me have lost that fight. But here’s a problem with budgeting-by- JumpStart that everyone should take note of. The report found that “Seventy-five percent of JumpStart revenue comes from just 10 companies.”
This is emblematic of Seattle’s worrisome status as a one-crop town (big tech). “In summary,” the report states, “the city’s fiscal health now depends on the marginal location and compensation decisions of a handful of employers. It also depends, indirectly, on the stock prices of those employers.”
Zeroing in on the city’s largest company, the report continues: “When Amazon’s stock rises, Seattle’s tax base rises with it; when it falls, the base contracts. (Amazon’s stock price alone has ranged from roughly $85 to $245 over the past three years.) But it means that a fiscal base already concentrated in a few firms is further exposed to the single most volatile attribute of these firms—one the city has no ability to forecast or influence.”
Existing Third Places > New Startups
Wilson explicitly acknowledges the challenge by incorporating her recent “Resilient Economy” executive order into her budget proposal. Seattle has “become increasingly concentrated on the tech sector,” the EO states. It commits the city to convene a task force “to develop and implement strategies for diversifying and growing Seattle’s economy.”
And while the specifics of the order focus on making it easier to establish and maintain businesses in fields that are growing, that strikes me as being more top-down than middle-out. As I noted a few weeks ago, the thing that makes Seattle attractive to the talent needed for new startups are third spaces—i.e., existing businesses.
I wish Wilson’s proposal did more for the bars and restaurants and coffeeshops that are already permitted, but increasingly struggling: 67 percent of brick-and-mortar, small, independent businesses told OED they are under more financial stress than during the pandemic. “[Seventy-one] percent reported lower foot traffic than a year earlier, and only 12 percent said customer demand was sufficient to cover their cost structure.”
Josh@Publicola.com