UPDATE to the post below: On Wednesday, the Council's Budget Committee voted 7-2 (Juarez and myself opposed) to use debt financing of $29 million dollars to build affordable housing in the city. As I argue below, this is a very bad decision. The Council will take a final vote on this matter on Monday, November 21 at 2 p.m.
Seattle city government is on a path to create 20,000 affordable housing units over the next 10 years, the biggest surge in the supply of affordable housing we’ve ever seen in Seattle.
To accomplish this ambitious goal, we placed a measure on the August 2016 ballot that renewed and doubled the city’s affordable housing tax levy. Seattle voters approved this tax increase by 71 percent, a strong affirmation of Seattle’s commitment to caring for our most vulnerable neighbors. This tax will raise $290,000,000 for rental housing development and preservation, home-ownership assistance, homelessness prevention, and housing stability services.
We adopted new laws that require every builder of commercial office space and multi-family housing (e.g. apartments, condominiums) to directly contribute funds to building affordable housing or to build units on their own. This mandatory affordable housing requirement is unprecedented for Seattle.
We have expanded multi-family property tax waivers citywide in exchange for reduced rents and long-term affordability for new residential construction and we are seeking approval from the state legislature to grant similar waivers for preservation of existing affordable housing. These property tax waivers reflect an exchange-of-values that truly does serve the public interest; government waives a portion of the property tax in exchange for reduced rents for our lower-income residents.
These and other steps put Seattle in front nationally in the amount of affordable housing we are creating. We have been innovative and bold. And we have done it while carefully protecting the city government’s finances. We’ve done it the right way.
However, some, including some of my colleagues on the City Council, are suggesting we haven’t been bold enough, that we should do more. They want us to use the city government’s borrowing power to build even more affordable housing. In other words, create more cash to produce more housing by borrowing money. That’s a very bad idea and here’s why.
Spending the borrowed money effectively will be very difficult because of the complexities surrounding affordable housing—limited availability of land, the two- to three-year planning timeline for such projects, the already packed full affordable housing production pipeline, and the limited availability of matching funds or leverage opportunities to increase the buying power of the funds.
But even if we had the capacity for more development, borrowing money to build affordable housing in this way will cost significantly more, will be less efficient, and, importantly, will reduce funds available for other important city services, such as transportation and public safety.
To illustrate the imprudence of borrowing more money to build affordable housing, Table 1 compares the 2016 Affordable Housing Levy approach with two “borrow money” approaches. The differences are striking.
Table 1: Units and Average Cost per Unit
Borrowing money as is being proposed to build affordable housing would cost substantially more on a per unit basis compared to the 2016 Housing Levy, when you include the cost of debt financing. Clearly, that’s not a wise use of the public’s money. The idea we would borrow money for these purposes in this way reflects a reckless disregard for the fiscal stewardship the City Council is charged with upholding.
The particulars of the “borrow money” scheme at the $160,000,000 level would put the city into a difficult situation. This proposal would reduce city general fund dollars allocated to transportation below the minimum threshold set by the Move Seattle transportation levy passed by voters in November 2015. Starting in 2018, and every year thereafter through 2024, the City Council would be required to either approve the reduced transportation funding level by a three-fourths super-majority vote, or else forgo $95 million in levy funding the following year. That’s a calculated risk not worth taking and would directly violate the voters’ direction.
If we want to accelerate affordable housing production even faster, we have two already approved options waiting to be utilized. One is the Acquisition and Opportunity Fund with up to $30 million that is designed to provide quick access to funds for acquisition of land or buildings. The other is the Regional Equitable Development Initiative that is supported by Seattle, King County, the state of Washington and Eastside cities. This REDI fund currently has $8 million, is growing, and is designed to help acquire land near light rail and high use transit hubs for affordable housing. Let’s use these already available funds to get more affordable housing started in the development pipeline.
For all these reasons, city government should remain focused on the existing plan to create 20,000 affordable housing units in the next 10 years. We should not allow ourselves to be distracted by financially unsound ideas that will yield fewer units at a greater cost and create funding problems with other city programs.
A version of this post first appeared in The Seattle Times on November 14, 2016.