Don’t Overburden Development In The South Lake Union Rezone

NOTE:  The following is a letter I sent to the Seattle City Council in support of the South Lake Union rezone. This is an important real world example of the debate over taxing density, which I have previously posted on here, here, here, and here.

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March 2, 2013

Seattle City Councilmembers:

I am writing to urge you to approve the South Lake Union rezone as originally proposed, without adding additional developer incentive fees or inclusionary affordable housing requirements. The fact that the rezone proposal was developed over a six year process that included extensive public engagement and neighborhood input along with exhaustive analysis and refinement would be reason enough to oppose 11th-hour changes that have not been properly vetted. But I also ask Council to consider that excessive fees or requirements on development are likely to be counterproductive to achieving the City’s equity and sustainability goals.

Over recent decades it has become increasingly recognized that dense urban areas induce enormous social, economic, and environmental benefits. This reality is reflected in a plethora of public policy at the Federal, State, regional, County, and City levels intended to promote the accommodation of population and employment growth in urban centers such as South Lake Union. It follows that intense development in the South Lake Union neighborhood will inherently deliver a wide range of public benefits both at the local and regional scales. Removing regulations that impede the beneficial outcome of development is the appropriate response, and that, of course, is why the rezone was proposed in the first place. However, incentive fees or inclusionary requirements have the exact opposite effect because they are actually a financial disincentive to the production of higher density buildings. As recent testimony to Council has demonstrated, there is wide disagreement over the cost of production and the amount of fee that would still allow developers to make what is deemed a reasonable profit. But the fact is, any incentive fee will tend to either increase the cost of producing a building, or result in less intense development to avoid the fees. Either of these outcomes runs counter to the widely agreed-upon goal of increasing density in urban centers.

Affordable housing has been a key issue in the debate, and is a salient case in point for how developer fees can be counterproductive. The biggest factor responsible for escalating housing prices in Seattle is that demand is outpacing supply. Employers like Amazon are attracting highly paid workers who want to live in Seattle and can afford to pay a lot for housing. And when housing supply is limited, wealthier people will always be able to outbid those with lower-incomes. The most effective way to mitigate this escalation is to increase housing supply, which puts downward pressure on the prices of both new and existing housing throughout the City. Incentive fees may result in the production of a relatively small amount of subsidized affordable housing, but some of the cost of that subsidy can be expected to be absorbed in the new market rate housing, driving up prices. Even worse, if developers take a pass on the incentive fees and produce less housing as a result, again, housing prices will be driven up due to lower supply. Developer fees will benefit the few who are lucky enough to get to the front of the line for a subsidized unit, but ultimately, their benefit will come at the expense of far greater numbers of people throughout the neighborhood and City who end up paying more for market rate housing.

Much has been said about the fairness of development in South Lake Union. Based on the reasons given above, I believe Council should acknowledge that one of the most effective ways to maximize fairness and equity is to ensure that regulations do not create barriers to the production housing supply, or cause an increase in the cost of producing buildings. Because in the end, restricting housing supply and increasing its cost will disproportionately punish those on the lower end of the income spectrum. (Not to mention that property taxes from new development help fund services for the less fortunate.) And every time restricted supply and the resultant high prices in urban centers causes more development to occur on the urban fringe instead, everybody loses for decades to come. Furthermore, Council should also recognize that not only is it counterproductive to overly burden new private development with the provision of public benefits such as affordable housing, it is also unfair. The burden of providing public benefits should fall on the City as a whole, including current property owners. It makes no sense at all to concentrate the burden on productive pursuits such as high density development that is a major public benefit in itself. Lastly, proponents argue that developer fees are fair because the financial hit gets passed on to a decrease in land price and therefore doesn’t impact the cost of building production. This may be true under ideal conditions, but in the real world it is exceedingly difficult to impose an incentive program that doesn’t encumber development. Given all that is to be gained from high density development in South Lake Union, it would be prudent for Council to err on the conservative side with developer fees so as to avoid the risk of compromising critical local and regional sustainable development goals.

The proposed rezone includes developer incentive fees based on thorough due diligence and City precedents. Increasing fees and requirements runs the risk of doing more harm than good. Additional encumbrances and delays on development in South Lake Union will only lead to aggravated affordability problems in Seattle, and yet more 100-year decisions that yield unsustainable development on the low-density, urban fringe. The provision of public benefits is a important issue, but it deserves a much broader policy approach that the City should address independent of the South Lake Union rezone. For the good of the City, the region, and the planet, Council should approve the South Lake Union rezone as proposed, without further amendments and without further delay.

Sincerely,

Dan Bertolet

Seattle resident