"What price growth...?" |
The affordable housing debate
The affordable housing debate by Brian Derdowski, Special to the Times
There has been a lot of talk about affordable housing lately - and for good reason. Our region has experienced more growth during the past 10 years than at any time since World War II. One of the side effects of such growth is higher housing costs. Stable housing, for all economic segments of the population, is a necessity for King County's residents and an issue of countywide concern.
Yet, the affordable housing debate has all too often focused on a narrow and tiresome lament over the cost of land and government regulation. Government and private sector studies, like the Benson Glen Report and the more recent Consolidated Housing and Community Development Plan, have simply publicized development industry propaganda that alarms the public into falsely believing that government regulation alone, particularly the state's Growth Management Act, increases housing prices and reduces economic growth.
In fact, two of the most exhaustive iindependent land-regulation studies - by John Landis of UC Berkeley and Harvey Molotoch of UC Santa Barbara - have found no statistical basis for these arguments.
In our region, for example, the housing affordability gap - the difference between the median single-family sale price and the affordable price - has actually narrowed since the implemeentation of the Growth Management Act.
As long as the affordable-housing debate centers on developers' interests, the issue will not be appropriately addressed. I propose a more complete analysis of affordable housing, one that truly considers all the variables that have led to our present market conditions.
Cost of money
When we talk about affordable housing, the cost of money is rarely considered because it is something that is not controlled at the local level. But anyone who has ever tried to buy a home knows that the cost of money is the 900-pound gorilla when it comes to affordable housing.
In 1990, the interest rate on a 30-year fixed-rate mortgage averaged 9.74 percent nationally, with an average monthly house payment of $1,200. By comparison, the average interest in 1995 was more than two points lower (7.69 percent), with an average monthly payment of $990. Lower interest rates are in part responsible for a narrowing of the affordability gap since 1991.
The lesson: interest rates set by the Federal Reserve dwarf local efforts in affecting the affordability of housing. Therefore, a prudent affordable-housing policy would be informed by, rather than oblivious to, fluctuations in federal money policy.
Personal income, spending habits
Affordable housing may occur by lowering the cost of housing or by raising people's incomes. Real wages (wages adjusted for inflation) in King County have stagnated since 1980 and have actually declined since 1992. From 1991 to 1995, median household income fell 5 percent in real terms. A shift in the local economy away from high paying manufacturing jobs toward lower paying retail and service-sector jobs is certainly one factor responsible for keeping real wages low. Only recently have we started to see a slight increase in real wages.
A rational affordable housing policy would be sensitive to other policy decisions that have led to a decline in high paying manufacturing jobs in our region.
Consumer spending habits are out of control. About 17 percent of all the disposable income in America is being spent to make payments on installment credit debt.
Even though our economy is expanding, credit card delinquencies are at a 15-year high. Personal bankruptcies are at the highest levels in history. Education loans, car payments and credit card debt all affect a buyer's ability to buy a house.
Affordable-housing advocates should recognize that the government cannot necessarily "make" housing affordable for all buyers. Some aspects of affordable housing are contingent upon a buyer's ability to control personal spending habits.
Structure design, monopolies
Over the years, consumers' "trophy house" mentality, coupled with the desire of developers to increase profits have made such extras as complicated roof lines, large multicar garages, "decorator touches," expensive fixtures and appliances and expansive square footage commonplace in new housing. Such extravagances negatively impact housing affordability.
Unrealistic consumer expectations, together with high regional growth, also result in construction cost inflation as contractors react to a seller's market.
Our current land-use policies have created a disturbing monopolistic trend. Fewer and larger development companies are beginning to control the market for housing while small builders and land owners are increasingly confronted with regulatory and financial roadblocks. Large and monopolistic development companies don't build small apartment buildings that are well integrated into existing single family neighborhoods. Their penchant for massive 200- to 300- multifamily future slums have hardened neighborhood opposition to all forms of apartment zoning. Monopolies have always stifled consumer choices and raised prices.
Demand for housing
Rarely is the rate of population growth cited as a factor that leads to costly housing. When cities like Monroe and Redmond double their population in a 10-year period, the demand for housing, and the cost of housing, necessarily increase. Much of this demand is created by new residents from out of state.
Newcomers to King County come for the same reaons that we came and stay for the same reasons that we stay. However, they don't bring with them the roads, schools, police and fire protection, sewers, hospitals, libraries and other community services necessary to mitigate their impact. The underlying policy question here is: Should current King County taxpayers subsidize new housing to accommodate population growth from immigration? An affordable housing policy that puts all the burden of new growth on existing taxpayers raises serious issues of equity and invites taxpayer revolts.
There is much erroneous information about the nature and effect of impact fees. Impact fees are simply an effort to reduce hidden subsidies, provide relief for taxpayers and support adequate public facilities to serve new development. Nobody wants their police and fire protection, or schools, or parks to diminish as a result of a new housing development.
Numerous studies show that the cost of providing public infrastructure--roads, water, sewer, police, fire, schools, parks and other community facilities--to a new dwelling averages more than $22,000 per household. Developers pay only a fraction of that cost. In a recent study on growth subsidies, Eben Fodor argues that because of new residential development, Oregon's statewide public cost annually is about $300 million to $600 million.
Developers exaggerate the price inflation caused by impact fees through simplistic "analyses" which multiply fees by artificially high mark-ups. They push their agenda in spite of the fact that study after study has proven that impact fees have little long-term effect on housing prices. These studies show that over time land costs become discounted to reflect the fees.
Permitting development without adequate financing for public facilities is negligent and contrary to the mission of local government to protect public safety, health and welfare. Any affordable housing policy that diminishes impact fees is unfair to existing taxpayers and violates the free market principle that the price of a product should always reflect its cost.
Developers argue that all development fees drive up the cost of housing. Lumping impact fees, "hook-up" fees, and permit fees together, developers mislead the public as they attempt to make their case agaiinst all government imposed costs. But each of these fee categories accomplish different public policy objectives. "Hook-up" fees for sewer and water are actually a reimbursement for previous public investments and are necessary to provide financial equity. Permit and inspection fees have been charged for generations and are clearly appropriate. Impact fees, as we saw earlier, reduce taxpayers' subsidies and impose free market discipline. Any fair analysis of fees must separate fees that are clearly a reasonable cost of doing business from those which raise controversial public policy questions.
Cost of land
As a public official, I frequently hear lobbyists who represent development interests complain that government land regulation, particularly environmental regulation, is driving up the cost of land. They argue that we must expand the urban growth boundary or face escalating home prices.
If sprawl and environmental degradation were the answer to housing affordability, Southern Californians would be awash in affordable housing. Smaller lots do not translate into smaller home prices either. Builders build to the top of the market because that is where the profit is, and they do it on 10,000-square-foot lots as often as they do it on one-acre lots. The greatest increase in housing costs in this region occurred before the Growth Management Act, before the Sensitive Areas Ordinance, and at a time when impact fees weerenot allowed by state law!
If we paved over every rural area in King County, the effect on home prices would be slight and temporary. In the end we would have expensive housing, a degraded environment and bankrupt local governments. Rather than sacrificing our long-term environmental standards for short-term special interest returns, we should moderate demand, pursue reponsible development pracitces and promote redevelopment of existing urban land.
Lowering our standards, eliminating impact fees and reducing government regulation simply increases subsidies for developers, lowers service levels, and alienates the public. We should not cut corners and compromise our long-term quality of life in order to accommodate narrow special interest groups.
By insisting on quality design, reasonable scale and environmental safeguards, we can ensure a consistent supply of durable and affordable housing for years as it gracefully ages.
Brian Derdowski/King County
Brian Derdowski, a member of the Metropolitan King County Council, is an advocate for environmental issues.