This document discusses different perspectives on housing policy and affordable housing. It examines the view that housing prices are determined by supply and demand versus the view that prices are determined by profits. It also discusses debates around whether more housing subsidies or more overall housing production is needed to address affordability. Non-profit housing models are described as well as challenges around development costs and unit sizes. The document questions whether current policies aimed at "investing" in affordable housing through subsidies and taxes are actually driving up overall housing prices. It argues for a more market-based approach focused on deregulation and streamlining to increase overall housing supply.

1. +
How do we change
housing policy?
Toward fairness, efficiency, and abundance

2. +
What do we believe is true?
 Price is a quantitative measure of supply and demand
 When prices go up, that means demand is exceeding supply
 What relieves the disutility of higher prices is more production
 Affordability is a subjective measure of relationship to price
 What might feel affordable to one person may not feel that way
to someone else
 Price is the best measure to use when making housing policy
decisions

3. +

4. +
Some people disagree and they
believe something different
 Price is a quantitative measure of profit
 Profit is determined by individuals and groups, especially banks
and lending institutions
 Profit is variable and its rate is chosen by the need for
individuals and groups to earn more money for themselves and
their investors
 When prices go up, it means more profits
 When something is scarce, profits can go up because
producers are able to demand higher prices for it.

5. +

6. +

7. +
Do we need more subsidies or do
we need more housing?
Do we need more subsidies?
Or do we need more housing?

8. +
“We have to demand massive investment in
democratically planned and maintained social
housing. Capitalist housing developers will
never do it.
We’ll have to take
their ill-gotten
gains — through
taxing them and
all the other
obscenely
wealthy people in
our society — and
do it ourselves.”
Robbie Nelson
Jacobin Magazine

9. +
How does non-profit subsidized
housing work?
 Form a non-profit entity dedicated to housing production
 Seek political support
 Propose projects to state and local government
 Assemble capital commitments and achieve site control
 Fund pre-development
 Leverage state and local funding to get Low Income Housing Tax
Credits (LIHTC)
 Project timeline 3 to 5 years, development cost $400K per unit
 Wait lists for residents is about 5 years

10. +
What makes non-profit development
so expensive?
 Land costs
 Design review
 Utility issues
 Permitting
 Transaction costs
 Holding costs
 Unit size

11. +
What are for-profit housing
development costs?
 Land costs
 Design review
 Utility issues
 Permitting
 Transaction costs
 Holding costs
 Unit size

12. +
How do the sectors solve for these
problems?

13. +
You don’t have to be a socialist to
build non-profit housing.
 Mandatory Housing Affordability (MHA) generates fees for more
investment in your product
 Real Estate Excise Taxes (REET) repurposed for investment in your
product
 Republicans and Democrats support more tax credits (investment) in
your product
 You get exemptions and faster permitting for your product
 Seattle’s tax on jobs will result in more investment in your product
 So will the tax on ride share services
 You have a fiduciary responsibility to get more investment for your
product

14. +
You have political support for your
product, “affordable housing”

15. +
Unit Size: Subsidies Versus the
Market
 Data indicate that apartment unit size is falling*
 Studies show that people in the housing market are willing to
live in a smaller unit for less monthly rent; square footage is low
on the list of needs for renters
 Proximity to transit, work, entertainment, and comparative price
are driving interest in smaller floor plans
 While price per square foot for rent goes up, monthly price
goes down with density (more people splitting the “check”
 At the same time yields per square foot go up for investors
*As Apartments Are Shrinking, Seattle Tops New York with the Smallest
Rentals in the U.S

16. +
Seattle and the Puget Sound region were leading the trend
toward smaller unit size

17. +
What about non-profit, subsidized,
housing products?
 Question: Why are non-profit development costs so much higher when
measured in Total Development Cost (TDC) per unit?
 As a non-profit developer myself, the one project I did was 43 units in
Des Moines built at a TDC of about $255,000 per unit, around
$11,000,000
 I know that when we tried to reduce costs, we could not find large
enough cuts to make to have a significant impact on our costs and
keep the project feasible and funded
 As our costs went up, so did our income requirements in our units,
from 30 percent of Area Median Income (AMI) to 50 percent AMI.
 Had I thought to reduce the square footage enough to get 50 units, our
TDC would have gone down, but our rent income would have
increased.

18. +
Nobody is suggesting waste + fraud
+ abuse
 The reason I didn’t think about unit size was that there was no
incentive
 What I could do is raise income requirements to generate more
rent revenue to keep our Net Operating Income (NOI) high
enough to maintain our required Debt to Credit Ratio (DCR) at
1.20
 I could reduce our operating costs on our pro-forma
 And I could go to state and local government asking for more
investment in our project.
 The idea of reducing the size – not room count – never even
occurred to me

19. +

20. +
The market incentivizes efficiency . .
.
 We pushed for and got a Joint Legislative Audit and Review
Committee (JLARC) study that although gamed by the non-
profits, still found unit size to be the most significant factor in
TDC
 Our own backup study done by Heartland (previous slide)
confirmed this:
 For-profit projects had an average size of about 600sf while non-
profit projects were 100sf larger
 Total number of units was higher in for-profit projects
 Could the smoking gun be unit size? It would be worth more study
 Unfortunately there is no interest in pursuing this question, only
an interest in more “investment”

21. +
And what did local government do
to smaller apartments?
It regulated them out
of existence. In a
wave of pointless
legislation beginning
in 2014, the Seattle
City Council
squashed small
(150sf) congregate
units in favor of
larger Small
Efficiency Dwelling
Units (SEDUs), now
approaching 400sf
per unit.

22. +
What was local governments
solution to housing price?
 In 2015, the City of Seattle introduced a mandate to essentially
fine every square foot of new housing development and use the
money to make an “investment” in affordable housing.
 The economic assumption for the policy was that when new
housing gets built it increases the price of housing generally,
thus requiring the City to create subsidies. More growth means
more housing and higher prices.
 The solution then is to tax the “ill gotten gains” of developers and
use them to subsidize housing.
 There was no consideration of the fact that the fines would be
absorbed by housing consumers in the form of higher prices.

23. +
Or did the City know what it was
doing?
How would [paying fees] not increase the rate of the, increase the
price of the market rate units on that development? And that’s a
great question. And it is, um, a trade off and I think part of the
policy and it may be the case that the market rate units have
to, to some extent subsidize the inclusion of the affordable
units and that it is a valid way to view the program. But uh,
the proposal and the fees that are being proposed and set are
such that we feel pretty confident that development will still be
feasible and we would work with the development community that
we wouldn’t be over impacting feasibility
City staff, Geoff Wendtland

24. +
A skeptic turns supporter
The problem with Mandatory Housing Affordability was best
summed up by Dan Bertolet who went from skeptic to supporter of
the idea after joining the Sightline Institute.
“The problem is that because the bargain sanctions a
trade-off between upzones and affordability, it
perpetuates the widely held misconception that allowing
increased housing density is a necessary evil at best.
But the truth couldn’t be any more opposite—the positive
effect on affordability in particular, not to mention
reduced sprawl and greenhouse gas emissions, along
with improved human health and productivity.”

25. +
The fierce politics of “investing” in
“affordable” housing
The desire to get a deal and more money for non-profits meant basic
economics didn’t matter. One time the Mayor slipped and expressed the
motivation.
“The heart of HALA is you don’t get to develop housing in this city,
multifamily housing, unless you build affordable housing as part of it .
. . We have grown as a city, but we have not grown affordably. What
we are saying is, if you are going to build a multifamily unit in
an urban village, you are going to build affordable housing, or
you are going to pay penalties that will go into a fund for
building affordable housing.”
Mayor Ed Murray

26. +
Quick review of where we are
 The dominant view and political momentum across the
dialogue and policy is that we need “more affordable
housing”
 That means more “investment” in capital construction of new
and very expensive non-profit housing
 Non-profits have a motive and fiduciary obligation to build
more of this housing, and they’re getting lots of money
 However, in it current form, the nature of the system set up
to get them money drives housing inflation across the market
 This means higher prices and the need for more
“investment”

27. +
What do we believe is true?
 Price is a quantitative measure of supply and demand
 When prices go up, that means demand is exceeding supply
 What relieves the disutility of higher prices is more production
 Affordability is a subjective measure of relationship to price
 What might feel affordable to one person may not feel that way
to someone else
 Price is the best measure to use when making housing policy
decisions

28. +

29. +

30. + Non-profits have the power . . .
. . . but building subsidized housing is
not the same as solving the problem
of rising housing prices.

31. +
Fairness, Efficiency, and Supply
 The current system is unfair: the process of financing
and building non-profit housing takes too long. People
end up getting subsidized housing rationed to them
someday, not when they need it.
 The current system in inefficient: If we’re worried about
cost burden, why do we take dollars from one part of
the economy, route them through government
bureaucracy, then flush them out for capital
construction? This takes years and costs money and
time.
 We know that if we unfetter the market, we’ll get more
building, competition and innovation, and more choice
and lower prices for consumers.

32. +
Better information, solutions, and
deeper research
We have to deliver solid and compelling
information to the public dialogue on a
regular basis
We need to offer compelling and practical
solutions to the problems of people with less
money in the economy
We have to understand why people think
what they do about housing, growth, and
development.

33. +
Start talking and listening
 For-profit developers need to think beyond the four
corners of a pro forma and about the bigger picture.
 We have to take on the non-profits directly and indirectly
to persuade them to “disarm” local government’s
regulatory apparatus but for all housing products, not just
theirs.
 The benefit to non-profits of broadly lower prices that will
result, is less demand and ability to focus on lower
income people with greater needs; people with more
income will find housing in the market.
 Greater production and services at lower levels of income
and higher need mean appreciably impacting
homelessness

34. +
Start talking and listening
 Why does the general public have such an aversion to the
supply side argument?
 If we had a food shortage and the decision was made to allow
increases in production, few people would worry about “profit”
or how much money the farmers were making.
 The average person, if they understood the basic economics,
would find the current system cruel and unfair.
 “Why have we made this system of subsidizing people in
need so complicated?”
 “What are you willing to give up to solve housing price
pressures and homelessness? What are you most afraid of?
What things shouldn’t change?”

35. +
A solution scenario: Smaller units,
more cash benefits, less regulation
Non-profits use their political power to advocate for a comprehensive
set of reforms:
 Treat non-profit funding more like an investment and incentivize smaller
units; create a quantitative formula that connects people who need
housing with those that produce it.
 Repurpose a significant portion of subsidies to “buy down” cost
burden; if someone is renting an apartment but paying $1000 per
month, half their gross income, just give them $400.
 Eliminate design review and transfer all utility costs to tax and rate
payers; if we truly see housing as a crisis, lets transfer wealth and
privilege efficiently to reduce housing burdens on the poor.
 Financially incentivize departments and individuals who permit housing;
more housing permits means more resources for you.

36. +