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 [per the 8,990 units created] 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 note: 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 permit and establish startups in tech-adjacent fields, 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
I have been arguing against MHA / IZ ever since our PDF Mayor Murray signed it into law. It was stupid then (boom times) and it’s even stupider now (slow motion bust in progress). It’s nice to see the progressives starting to adopt the conservative position though.
The JumpStart tax basically guaranteed we’d become a one crop town because only the tech companies could afford to pay such a ridiculous tax (and even they are protesting). Starbucks is now set to shift 2000 highly paid employees to Tennessee and WaFed is moving their highly paid HQ employees to Bellevue (where they will join at least 12,000 highly paid employees from Amazon who have already been relocated).
The emptying out of our office buildings is resulting in a massive downturn in commercial property taxes collected. Every homeowner and every renter is stuck holding the bag.
Progressive Logic At Work
Want fewer smokers, raise the cigarette tax.
Want fewer cars, raise the gasoline tax.
Want fewer jobs, implement a tax on jobs.
Holy cow, a post from you that I actually mostly agree with.
On the other hand, the reason I thought MHA wouldn’t work when Murray was crowing about it (and I was homeless at the time) is that the problem with affordable housing in Seattle isn’t money, it’s land. Which is why developers should never have been allowed to pay a fee instead of building servant apartments.
“JumpStart is Basically Just a Slush Fund Now.”
Yup…They made it that way on purpose.
Just who are the “they” you write about?
I don’t think the general public really has any idea how the JumpStart tax works or how corporate America works either. So Katie Wilson & Co. get the JumpStart taxed pushed though but there’s nothing in writing about what the money is for… it’s just a bunch of gibberish about “housing” and “green jobs” or whatever, because it doesn’t matter. All taxes go into the general fund with no “set asides”.
So now a big chunk of the general fund money is paid by 10 large companies via the JumpStart tax. Amazon pays the most and you’d think Jeff Bezos would have moved heaven and earth not to pay up, but so far he hasn’t done that for the most part. Remember that Amazon holds a lot of expensive property in South Lake Union and Bezos has a vested interest in Seattle doing well. So Amazon just pays the taxes.
Why? What does Amazon get out of paying the JumpStart tax? The company certainly doesn’t miss the money, but Seattle’s public blows up without it. Bezos and his CEO buddies *could* toggle high paying jobs to Bellevue or beyond at any time and screw the City budget over. The reason Bezos goes along with JumpStart is now he has leverage, a whole lot of leverage, with the City Government. If Mayor Katie comes up with some sort of progressive tax plan Bezos doesn’t like, Amazon shifts jobs to Bellevue and City budget blows up. Bezos paid for a seat at the table. You and I? We’ll never have a seat at the table.