Incentive Zoning Is Not the Answer

Cola op/ed contributor Roger Valdez argues that incentive zoning—greater density in exchange for more affordable housing—is not an affordability panacea.

By Roger Valdez March 18, 2013

There is a difference between price and affordability—a difference that has been lost in the recent discussion over the topic of “affordable housing” in South Lake Union. “Affordability” is a person’s or family’s relationship to the price of housing, while price itself is a guess about what people might be willing to pay for that housing.

If the Seattle City Council wants to lower housing prices, they should adopt policies that increase housing supply and lower the costs associated with building new housing. Doing these things in a coordinated and innovative way would have the effect of lowering housing prices, making living in Seattle more affordable.

Affordability, that relationship between a person or family and the price of housing, is complicated and difficult to measure and affect. We’ve come up with a way of measuring affordability that is completely arbitrary—a person should spend 30 percent of their monthly income on housing. This number bears no relationship to the factors that affect housing price.

And no one actually buys housing this way, determining what she’s going to buy based on an arbitrary ratio of her income to monthly housing price. Every renter or housing buyer has a different sense of what is affordable, the price that is just right.

Well-intended policy makers and council members have confounded price and affordability, and this confusion is leading to really bad policy proposals. Council member Tim Burgess’ last-minute proposal to increase the cost of new development to create affordability (by requiring developers to pay more for amenities like affordable housing and child care) is a case study in what happens when we mix up price and affordability.

Here’s how the confusion plays out.

Actual people in the housing market can get frustrated with the price of housing options relative to other important things like location, floor plan, windows, and parking. As people work through their options, they often say, “It’s just too expensive here.” But what policy makers hear is, “new housing development is not affordable.” Since we have only our arbitrary measure of affordability—housing cost to income ratios—that’s what they grab hold of. Their brains put together the solution, “Let’s lower the price of housing for some units in some neighborhoods and we’ll be able to achieve affordability in the city.”

But this is flawed thinking. People in the housing market, including people earning 60 to 80 percent of Area Median Income (AMI), don’t shop for housing based solely on price. Most people are willing to pay more for housing if they get other benefits, like not having to own a car (which, itself, is a huge, often ignored, contributor to the price of housing). In other cases, people may choose to live outside of Seattle and pay less for housing and more for commuting because they get other benefits like a yard.

The council’s response to this perceived “affordability problem” is to impose price controls in South Lake Union. A tax on new development to positively affect price is like trying to unscrew a bolt with a sledgehammer; it might work, but it creates a lot of collateral damage.

What’s the damage? Rather than allowing more housing that would mean more choices for people in the market and an array of competitive prices, the council is micromanaging the operations of a few developers, squeezing money out of them to subsidize a few units of housing. They call this “incentive zoning.” That’s a little like saying, “These vegetables are so good for you we want to incentivize you to eat them. How are we going to do that? Make you pay more for them!”

If council member Burgess’ goal is to make it easier for more people of different incomes to live in the city, we agree. But imposing price controls by taxing new development in two neighborhoods won’t make the city more affordable, and it won’t help housing prices either because price controls and taxes disincentivize new housing construction. That only lowers housing supply, reduces choices, and increases the costs of new housing.

That person that everyone is worried about, the worker earning 70 percent of Area Median Income, may or may not choose to live in one of Burgess’ subsidized units; but even if she does, we’ve done nothing to make the city more affordable for everyone else. The irony is that’s lost on the city council is that their policies to impact housing prices in the name of affordability would actually push prices up making the city, well, less affordable.

It would be a worthy project to try to figure out how we’ve so completely muddled affordability and price, but we don’t have time for that now. What we need is to break ourselves out of the intellectual and ideological trap we’re in today. Increasing housing supply—granting more building permits for denser housing construction—will have a beneficial effect on price. So will lowering the costs associated with new housing construction by reducing regulations. Imposing a tax on new housing will do the opposite of what proponents of the tax want: it will increase housing prices.

If we want to make the city a more affordable place to live, we need an array of ideas for intervention—and non-intervention—to accomplish this goal. We need to sharpen our pencils and find ways to make city dwellers’ bottom lines better, and sometimes that means using the eraser end of the pencil too, erasing rules and regulations that make building and living in our city more expensive.

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