What do we mean when we say that housing in Seattle is “unaffordable?” That term means different things to different people. For someone making $18,000 a year, lack of affordable housing might mean having to sleep in a car. For wealthier people, lack of affordable housing might mean having to settle for 1.5 bathrooms instead of two. The relative nature of “affordability” makes it a bad way to talk about housing. We need a new way of talking about affordability.
Housing price is an objective, quantitative measure of what a seller thinks their product is worth. Affordability is a relationship that goes beyond mere price. For example, a two-bedroom apartment at Escala in Belltown starts at $549,000; for some, that might be affordable and for others, not so much. If you think for a minute about your own housing situation, you might be paying a lot more than you’d like every month, but you might also really be happy with where you live. Other people might say their housing cost is minimal, but they hate their neighborhood or landlord. Either way, “affordability” is a more subjective and squishy measure that reflects how we feel about a price and whether we are able or willing to pay it.
The Federal Department of Housing and Urban Development has decided that "affordable" means that a person or family pays 30 percent or less of their monthly income for housing costs. The trouble with that measure is that it is completely arbitrary, with roots in 19th century Prussian social reforms that deemed that housing should cost no more than a week’s pay. That 25 percent rule of thumb was boosted to 30 percent and codified in the United States with the passage of the 1937 National Housing Act.
But who buys housing that way? Most of us who are in the housing market consider a wide variety of issues, including location, school quality, the neighborhood, the size of the house, and whether we think we can make the monthly rent or mortgage payments. The current standard is based on an arbitrary 30 percent of income. The truth is that a millionaire could probably afford to pay half his monthly income on housing and still get along just fine, while a person struggling to make ends meet might not be able to spend 15 percent of his income on housing.
A better way to measure housing affordability would be to consider residual income: Does a person have enough money left over after paying for housing to cover other critical expenses like food, health care, day care, and transportation? If the answer to that question is “no,” then the person might need a housing subsidy—or maybe a subsidy for health care.
A recent report from Seattle’s Planning Commission points this out, calling for a broader view and measure of affordability. A great next step for the commission would be a local comparison of the way we measure affordability now with Michael Stone’s Residual Income Model, which considers how much money is left over after paying for housing and considers the costs of other basic necessities when determining whether something is "affordable."
As for price, if we truly want to reduce it, the best thing we could do is allow developers to build more housing and reduce regulations that drive up costs. This is counterintuitive for left leaning Seattle. The tendency of policymakers here is to add more regulation, especially when developers start making extra money by building more, denser, taller housing. That’s the wrong choice. When developers want to build they’re responding to increased demand and that’s exactly the right time to allow lots of upzones, especially where it makes the most sense: near transit.
A broader definition of affordability would allow policymakers to measure affordability and to intervene at points where costs are too high and incomes are too low. Looking at reducing health care and day care costs associated with living in Seattle would make it more attractive to live here. Deregulating and loosening zoning around transit stations to allow the market to drive heights and density would help lower housing prices. And improving our schools might make it worth the extra cost to live here. Put these ideas together and maybe we can put a dent in the housing and affordability issues that will support smart growth in Seattle.
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