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The Road To San Francisco Is Paved With Housing Supply Suppression

2013 October 15
by dan bertolet


If we want to actually make the city affordable for most people—a place where a young person or an immigrant can move to pursue their dreams, a place a parent can raise kids and not have to spend every minute at work—we have to fix the supply problem.

The city in question is San Francisco, but the same holds true for Seattle, except that it hasn’t played out to the same extreme—yet. The quote comes from a must-read piece by SPUR’s Gabriel Metcalf on San Francisco’s atronomical housing prices. It’s simple:

As long as this remains a desirable place to live in a region that is producing a lot of jobs—while at the same time we fail to produce enough housing to accommodate the demand—then housing prices will continue to rise.

And why has this been happening in San Francisco?

But the city did not allow its housing supply to keep up with demand. San Francisco was down-zoned (that is, the density of housing or permitted expansion of construction was reduced) to protect the “character” that people loved. It created the most byzantine planning process of any major city in the country. Many outspoken citizens did—and continue to do—everything possible to fight new high-density development or, as they saw it, protecting the city from undesirable change. Unfortunately, it worked: the city was largely “protected” from change. But in so doing, we put out fire with gasoline.

Here in Seattle the same forces have been at play suppressing the production of housing supply, albeit not to the crazy levels found in San Francisco—but all indications are we’re intent on getting there.

Seattle is a city in which it took eight years of process to implement a rezone in South Lake Union, a place where the City wants to focus growth, and where developers want to build. That kind of uncertainty and delay is the perfect recipe for suppressing supply.

When private developers figured out a way to produce relatively affordable high-density housing in the form of microhousing, Seattle’s kneejerk reaction was a cry for new regulations, nary a second thought given to the fact that regulations would make that housing both more expensive, and less likely to be produced.

In ongoing debates over fees on new development in exchange for increased capacity, Seattle’s electeds sometimes give the impression of being in a competition for who can be the hardest on “fat cat” developers by raising fees the highest. Is it possible that such fees actually do more harm than good because they suppress supply and increase the cost of market-rate housing? Never mind. The fact that some other cities might charge bigger fees is apparently all anyone needs to know.

And that brings us to another reason why we will never win the affordability battle without addressing supply: The cost of subsidized housing:

The problem is, subsidized, below-market-rate units are too expensive to build to help very many people. It costs around $250,000 in government subsidy per unit. You can get a sense of the scale of the cost based on how many people you want to help. Subsidizing affordable homes for 10,000 families comes at a price of tag of $2.5 billion.

Yep, that’s the magnitude of a financial burden we’d be placing on private developers if we enacted inclusionary zoning that requires affordable units in every market-rate housing project. Think that might have bit of an impact on the production and prices of new housing, perhaps?

For another point of reference, Seattle’s 2009 Housing Levy will bring in $145 million over seven years—enough to pay for just 580 housing units, equivalent to about 0.2% of Seattle’s 280,000 total housing units.

That doesn’t mean we shouldn’t try to subsidize what we can. But the huge expense of subsidy does make it all the more clear that increasing supply is an imperative—that is, if we want to have any hope at all of not ending up with a city in which housing is out of reach to a large swath of the populace.

The good news is that increasing housing supply is relatively easy: We mainly just have to get out of the way and let the private market respond to demand. Though some types of “getting out of the way” will take a little effort, as with upzones or streamlined permitting. And when it comes to the inevitable objections from those who oppose change, increasing supply should be given all the weight and priority of a vital social justice strategy, because that’s exactly what it is.

P.S. The other good news is that when we increase supply we’ll also get a more sustainable city, region, and planet… but you already knew that.