Situation in Seattle Shows Why America Has an Unsolvable Housing Crisis and a Real Estate Bubble

If you want to see why America has a housing crisis and lots of regional real estate bubbles, just go to Seattle. A recent political battle in the Emerald City exposed both the real cause of high prices and the reason why politicians do not want to deal with the housing crisis.

To their credit, Seattle mayor Ed Murray and the city council appointed a citizen’s advisory committee to look into high housing costs and propose a solution. Over the summer the committee, which had the awkward title Housing Affordability and Livability Agenda Advisory Committee, or HALA, came back with its findings and recommendations.

HALA’s report triggered a political firestorm when it was leaked to Seattle Times columnist Danny Westneat on July 7, 2015. The report and the response to it show why many American cities have an unsolvable housing crisis.

Zoning Is the Real Cause of America’s Housing Crisis

Here is what the controversial report said:

• The major cause of Seattle’s high housing costs is the city’s zoning regime. Around 65% of Seattle’s land is zoned only for single-family homes. That means it is illegal to build apartment houses, duplexes, or townhomes in most of the city. There simply is no place to build multifamily housing in Seattle even if somebody wanted to.

 

• Abolishing single family zoning would solve the city’s housing crisis.

 

• “In fact, (the committee) recommends we abandon the term ‘single family zone,’” the HALA draft report stated.

 

• “We can still be a city for everyone, but only if we give up our outdated ideal of every family living in their own home on a 5,000 square foot lot” a letter from HALA’s co-chairs, Faith Pettis and David Wertheimer, obtained by Westneat, states.

 

 

• Raising the height of buildings allowed in many neighborhoods would alleviate the housing crisis by allowing the construction of more apartment houses. In some neighborhoods, it is illegal to build a structure over 30 feet high in the heart of the city.

 

• Eliminating a requirement that landlords provide off-street parking for all tenants would lower costs by making constructing housing cheaper.

 

• Allowing property owners to subdivide existing structures into multiple apartments would ease the housing crisis.

 

• Allowing property owners to build additional housing on lots in residential neighborhoods would help; for example, building a small cottage behind an existing house and renting it out.

 

• Ending restrictions that keep people from renting out rooms or apartments in their own homes.

 

• Making zoning more flexible; in other words, making it easier to rezone property could also ease the housing crisis.

 

• “Seattle (single-family) zoning has roots in racial and class exclusion and remains among the largest obstacles to realizing the city’s goals for equity and affordability,” the report noted.

Anybody that is familiar with land-use policy in the United States today knows this is a fairly accurate assessment, and the solution is a workable one. In many American cities, it is now practically impossible for a private individual to build any sort of affordable working class housing whether it is a basic duplex, an old fashioned apartment house, or a mobile home park, largely because of zoning.

The situation is made worse in cities like Denver, where large amounts of existing working class housing, such as small apartment houses, is being torn down and replaced with more upscale dwellings. The working people lose the few places they can afford to live and have nowhere else to go.

Property Values More Important Than People

What is truly disgusting and disturbing is the response to the HALA proposal. After Westneat exposed the report, which was disturbingly created in secret, Mayor Murray quickly backed away from the recommendations of his own committee.

“To advance the broader conversation about affordable housing and equity, I will no longer pursue changes that could allow more types of housing in 94 percent of single-family zones,” Murray said in a press release. “Instead, we will refocus the discussion on designing denser Urban Centers, Urban Villages and along transit corridors that include more affordable housing.”

What that really means is that the property values of mostly white, upper middle class people are more important than meeting a basic need of working families. It is perfectly okay for waiters to sleep in their cars and the poor to live under bridges as long as the high values of Amazon.com and Microsoft executives’ homes are maintained. Jeff Bezos does not have to worry about anybody constructing an apartment house on his block.

The median price for a single-family home in King County, where Seattle is located, reached $500,000 in June 2015, a 10.3% increase over June 2014, The Seattle Times reported. This is good news for the Amazon executive but bad news for the guy who sweeps the floors at Amazon’s HQ in Seattle. The average one-bedroom apartment in Seattle now rents for around $1,501 a month, The Stranger reported.

Housing Costs Are Reverse Class Warfare

This situation amounts to a sort of reverse class warfare in which the poor are dispossessed to make communities more hospitable for the upper class. It brings to mind a disturbing 2006 quote from our friend Warren Buffett.

“There’s been class warfare for the last twenty years, and my class has won,” Buffett said.

What’s even more bothersome is the housing crisis “solution” proposed by California Assemblyman Kansen Chu (D-San Jose). CBS Sacramento reported that Chu sponsored a bill that would make it illegal for cities to ban sleeping in cars.

Such callousness is made worse by the economic effects of such high housing costs. Vast amounts of capital that could be invested in productive activities such as research and development or manufacturing that might create jobs gets tied up in questionable assets. Large amounts of housing stock that might be unsellable gets built. Bubbles like the one that led to the great economic meltdown of 2007–2008 are created.

There is also the social cost in the form of antagonism and frustration. American cities have not seen the kind of violence promoted by Britain’s Class Warfare Party, but it is coming. It is no coincidence that the Class Warfare Party is based in London, a city where there is a serious shortage of affordable housing.

Housing Policy Hypocrisy on Both Sides of the Aisle

Perhaps the worst aspect of this situation is the hypocritical silence from both sides of the political spectrum. Nobody on the right is bemoaning the lack of a free market in housing, which is the real cause of the housing crisis. Few on the left are even discussing housing even though homelessness is one of their pet causes.

 

Nor is the situation likely to change anytime soon. The response to the HALA proposals in a very liberal city like Seattle, which even has a socialist on the city council, shows why no politician will touch this issue. Even though the suggestions are hardly radical, libertarians on the right and New Urbanists on the left have been making some of them for years.

These proposals are also more in keeping with modern American society. The number of people living alone is increasing, and the rate of car ownership is decreasing. Yet Seattle’s zoning code, which promotes split ranch level houses for Ward and June Cleaver and guarantees a parking spot for every citizen, is apparently sacrosanct.

Possible Solutions to the Housing Crisis

The situation in Seattle shows us that political solutions to the housing crisis are close to impossible on the local level. Therefore it will be up to the state and federal governments to act. Banning or reforming zoning would be a logical solution, but that will be hard because of opposition from politically powerful real estate interests.

Two more politically viable solutions that could be implanted on the national level are:

• Repeal or limit the mortgage-interest tax exemption. Germany, which has no such exemption, has no housing crisis. One of the main reasons people buy overpriced houses is that they can get a large income tax write off on the mortgage payment. Either get rid of the write off or cap it at a set amount, say $100,000. If the tax write off disappeared, a lot of the incentive to own overpriced homes would go away. Property values might come down, and builders would have a strong incentive to start marketing affordable housing.

• Invest in next generation transportation infrastructure such as the Hyperloop and high speed rail. This could alleviate the situation by enabling working people to live in farther out areas, where housing is still affordable, and commute to jobs in overpriced areas. For example, Seattle workers could live in Bellingham or Yakima.

 

The situation in Seattle shows us that leadership on the issue of housing is desperately needed. Unfortunately, HALA’s failure also shows us why nobody wants to provide that leadership.