Power Lines

Who Pays For A City?

A new tax would require developers to pay up to $22 per square foot on new construction to help fund affordable housing.

By Josh Feit October 21, 2014 Published in the November 2014 issue of Seattle Met

Image: Chris Gash

“We all know more and more people who are struggling to live in this city,” says Seattle City Council member Mike O’Brien, who has morphed this year from an eco-urbanist who once passed a plastic bag ban to now stirring up class war at council hearings. From his position as chair of the council’s Planning, Land Use, and Sustainability committee, O’Brien is pushing fees on developers to deal with the city’s housing crisis.

“Here’s a little bit of the evolution of Mike O’Brien,” Mike O’Brien says. “I really want that dense, transit, urban vision. That’s in my roots. But…if all that new construction is only affordable for people working on higher floors at Amazon, the people in that neighborhood that made it unique and interesting can no longer afford to stay there.”

Whether it’s just politically easy to tax developers or whether it’s truly sound policy is unclear. But it does raise a fundamental question: How do we pay for a city? Or, more accurately, who pays for a city? 

This fall, in a flurry of council hearings—arriving on the heels of another city council proposal requiring developers to pay impact fees for infrastructure upgrades—O’Brien unveiled his dramatic plan: Money for affordable housing would come from a new fee on developers called a linkage fee, a square-footage premium on new development in hubs citywide. It would raise five to 10 times as much money from developers in the next decade as the city would have otherwise. 

The proposal included color-coded graphs to explain what people feel intuitively: The development boom is causing the affordable housing crisis. 

But developers say that picture is bogus and the public’s intuition is simplistic. “Everybody likes to talk about developers paying,” says Vulcan consultant Ryan Bayne, “because it’s fun to put developers in the dunk tank.” Bayne argues that charging developers defies Econ 101. “To say that by building
housing you’re creating a demand for housing? It’s ridiculous. By the same logic, the best way to address affordable housing is to not build housing.” 

The numbers are hard for either side to ignore. In the last 10 years, average rent in Seattle has gone from $886 to $1,408. The effect: Forty-three percent of renters are paying more than 30 percent of their income for rent, and 21 percent of renters pay at least half their income for rent. There are also those who can’t afford to live in the city, period: The council is focused on “workforce housing” for those earning between 60 and 80 percent of the median income (between $42,360 and $51,150 for a two-person household).

The linkage fee study identified the cause, laying out a Sesame Street–like flow chart diagramming a straight line from Amazonians buying schmancy new housing to low-income people getting priced out. Rick Jacobus, the consultant behind the study (which proposed a fee as high as $22 per square foot) says developers’ economic theory doesn’t work. Seattle’s housing market exists in a regional context; rather than lowering prices in Seattle, as the developers claim, adding to high-end supply simply makes Seattle a tony market overall, pushing the only affordable options into the suburbs. “You can talk about supply and demand all day long,” says Jacobus, “but it doesn’t change the experience we all see on the ground. They build new housing and prices go up, not down.”

O’Brien says charging the developer is the logical step in the gentrification equation. “When Amazon builds a tower that’s going to employ 3,000 employees, a bunch of those employees can afford rent in town, but some of them—the janitors, the receptionists, security—can’t. We’re saying, ‘When you create an office building, you bring these types of jobs in, and those costs should be borne somewhere in that process.’ ”

Logical. But developers’ objections aren’t easy to dismiss. They stand by their contention that increasing supply lowers prices. Further, Downtown Seattle Association VP Jon Scholes says, “When construction costs go up, costs get passed on to rent. We have a hard time understanding how that translates into affordability across the city.” 

Additionally, developers argue that if, as the linkage fee study states, new development creates service economy employees, aren’t developers creating jobs? Why should they be taxed for doing a good thing?

Developers certainly aren’t the only ones subsidizing affordable housing, though. Of the $27 million the Seattle Office of Housing spent on production and preservation in 2013, the biggest contribution, 52 percent, comes from the $145 million, seven-year housing levy, a tax on all property owners. But developers say the housing levy merely highlights that they’re being singled out to pay extra now. A commercial developer pays $350,000 per acre in taxes versus $20,000 a year for the average single family, according to a Downtown Seattle Association study. 

Affordable housing advocates say it makes sense for developers to pay extra because their profits are derived from public investments. As Lauren Craig from social justice group Puget Sound Sage explains: “It’s fairly basic. In order for a development to be successful, in order for people to want to live in a particular area, there have to be amenities like transit. This is incentivized by city investments in infrastructure like light rail. So, we believe [developers] are profiting from being here.” 

O’Brien agrees that public investment has turned Seattle into a lucrative real estate market, especially the “[roughly] $1 billion investment in one neighborhood alone,” Amazon’s home turf in South Lake Union. “Let’s be clear who’s benefitting. In the African American community, unemployment is unacceptably high. If it were happening in the white community, we’d be freaking out.”

But in a city where 65 percent of the developable land is zoned for single-family dwellings, homeowners are benefitting from ascendant property values too. Which brings us back to the question of who pays for a city. Don’t Ravenna homeowners exacerbate the housing crisis by locking up land? Don’t car dependent communities add infrastructure costs and defy the city’s green goals?

Downtown developer Greg Smith argues that a connection exists between single-family homes and the housing crisis. “There’s only so much land. If you want to live in a single-family neighborhood, part of that choice is you should be part of the solution, not isolated from it.” 

Pointing to a home in the Montlake neighborhood, the Downtown Seattle Association’s Scholes adds, “How strange a proposal where you could knock down a $300,000 single-family house, build a $1,000,000 house in its place, and not pay a fee. But if you take a parking lot, put 300 units of housing on it that didn’t exist before, you have to pay.”

“It’s true single-family homeowners are benefitting,” O’Brien says, but he doesn’t know how to capture that money. The linkage study didn’t look at single-family zones. O’Brien had already determined who should pay extra.


This article appeared in the November 2014 issue of Seattle Met magazine.

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