Incentives More Effective At Creating Housing Than Mandates

Policy Incentives More Effective At Creating Housing Than Mandates Roger Valdez Contributor Opinions expressed by Forbes Contributors are their own. Roger Valdez is Director of the Center for Housing Economics. New! Follow this author to stay notified about their latest stories.

Got it! Sep 1, 2022, 09:30am EDT | Share to Facebook Share to Twitter Share to Linkedin Seattle Community Living Moment Editorial/Getty Images If Seattle’s experience over the last decade is any indication, incentive programs to create affordable housing work better than mandates when measured by units created and the cost of those units. A voluntary tax exemption program instituted by the City of Seattle far outpaces the inflationary Mandatory Inclusionary Zoning (MIZ) scheme it imposed four years ago. It’s worth looking at the numbers.

First, housing policy in this country has tended to be the bastion of Democrats and the left, is usually seen as a social program. And when people hear the word “housing” in a discussion about housing, most think of subsidized housing either provided directly by the government or through indirect means. However, when considered as a product or service, like cars or food for example, housing covers everything from Trump Tower to improvised housing in a park or median strip.

The real “crisis” in housing is the way we talk about it; if we looked at housing as a consumer product, our policies would be much more effective and compassionate. As it is, we live in a world where government sees housing as more of an entitlement or charity, particularly for people with less money. Therefore, policy tends not to focus on lowering the price of housing through more production, but figuring out how to subsidize people who earn less money – or issue mandates to force for-profit housing developers and providers to turn their private property into state funded housing.

In this last case, forcing lowered rents through fiat, the result is a cost shift from those lucky enough to get a subsidy to others who don’t, pushing up overall housing inflation. Looking at it that way, it’s easy to see that if we want an abundance of housing we would just allow as much of it as possible, ending all rules, fees, taxes, and exactions on housing production that don’t result in a direct benefit to the health and safety of people who live in housing – think of fire sprinklers, for example. But government doesn’t want to do that, so instead they invent programs that pay for housing directly (vouchers), price controls (rent control), or spend billions of dollars to pay non-profits to build housing (Low Income Housing Tax Credits).

The other options they have tried are using incentives to for-profit developers to build rent restricted housing. In Seattle, as in many jurisdictions, the City government has tried to incentivize housing and had some success. One program, the Multifamily Tax Exemption Program (MFTE) is a real incentive program, eliminating property taxes in exchange for including rent restricted housing in apartment developments.

The other, what the City calls Mandatory Housing Affordability (MHA), isn’t really an incentive program at all, but rather a fixed exchange of permitting some additional square footage in exchange for forced inclusion or a fee. The MHA program has become vogue because it appears to punish the profits of market rate developers while at the same time generating cash for non-profits. Which program produces more housing.

MORE FOR YOU Biden’s Proposed IRS Bank Account Snooping Authority Runs Into State Resistance 2021 Diversity Green Card Lottery Winners To Be Shut Out Because Of Visa Deadline The Swamp Grew – Even Under President Donald Trump The MFTE program is more effective using incentives than the MHA mandate. Chart by author. The numbers I cite here are from the most recent annual reports on MFTE and MHA generated by the City of Seattle.

The MFTE program currently as in service over 8,000 apartments with people living in them paying less rent than their neighbors. The program is wildly successful by any production measure. And what’s even more important is that the public benefits from housing people who earn less money without have to spend its resources on buying land, financing, construction, and annual operating costs.

True, the $66,600,000 million is an annual loss of tax revenue, but it amounts to about $72 in extra taxes paid on a house worth more than $500,000. That is a really, dare I say it, moral tax shift : working people who earn half the city’s median income are being subsidized by a tax paid with people with big, fancy, houses. But somehow the fact that the MFTE program doesn’t gore the private sector galls too many Democratic and Socialist politicians.

One of these, State Representative Frank Chopp, has a long history of opposing the MFTE because it steals tax money and gives it to the private sector. Even with the most elementary understanding of MFTE, it is clear that indeed tax payers are spending more money, but they are getting affordable units and at a good price. But still, many Seattle Councilmembers shared Chopp’s sense that developers were just “laughing all the way to the bank.

” So, they created the Mandatory Housing Affordability program or MHA. I’ve written about the brutal politics of MHA before , but the idea was to give developers something, specifically more rentable inventory in the form of bigger buildings. This was supposed to be an incentive, and it could be.

However, if it were an incentive, why is it mandatory? Because the “give away” of more density or square footage wouldn’t offset the risks and costs of the modest 3% to 5% inclusion requirement; so, the City mandates participation in the MHA program, essentially a forced sale of additional square footage. How has that worked out? After almost 5 years in operation, only 104 units have been “included” in market rate projects out of 1,260, an inclusion rate of about 8%. And the fees? In a few years according to the City, the fees squeezed from housing production will have produced just 712 units at a cost of City dollars in excess of $80,000.

That’s just City money, those projects have federal tax credits, state and local money, and likely a mix of other cash as well. Worse, operating costs for those projects are endless, and upwards of $6,000 per unit going forward. There simply isn’t any question: the MFTE program is better than the forced and extortionary sale of a few square feet.

The MFTE program is fair, too. When the MHA program squeezes a project for fees, the developer doesn’t pay them, the residents pay in the form of higher rents. With the MFTE program wealthy homeowners pay $72 a year, probably less money than they spend on food for their pets.

Yet Seattle and other big, Democratically controlled cities want mandates, something to make profits hurt. But really, they’re only hurting poor people and it’s wealthy homeowners who laugh all the way to the bank when they see their property values rise. Follow me on Twitter or LinkedIn .

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