Senseless in Seattle

The Seattle City Council today is voting on a proposal to grant property tax exemptions to developers who create "affordable housing" in certain neighborhoods.

Sadly, this particular proposal would merely shift the property tax burden from a handful of politically favored builders onto the rest of us -- and it doesn't even advance the stated goal of making more housing available to lower-income people. The rent cap on the so-called "affordable housing" requirement is $950 a month for a studio apartment.

As the Seattle Times new columnist, Danny Westneat, wrote Friday:

Before they vote, council members should check out the real-estate ads themselves. This week there were 101 studios listed for rent in Seattle. Only two were priced more than $900, with most falling in the $500 to $700 range.

Westneat seems to accept the general concept of subsidizing affordable housing:

Using tax incentives to help keep down rents is a great idea. It's supported in principle by virtually everyone, from advocates for the needy to business lobbyists.

I agree with tax incentives, but only if we lower taxes for all property owners equally. Targeted tax incentives only create opportunities for political patronage and real estate arbitrage that favor only a few. As Armen Yousoufian e-mailed:

I agree completely with [Westneat], especially now that he has added some facts drawn from some easily enough done checking on prevailing rents. The one nuance he has missed ... that the existing property owner of a parcel that could be developed and is eligible for the tax subsidy is the one who will make the money from the resulting increase in the land's value by the present value of the future taxes that will be forgiven - not necessarily the "developer". The existing landowner may sell to a developer at a higher price than they could otherwise have obtained

As I've written before, the high price of housing is a simple matter of high demand for scarce supply. The only ways to lower the price are to increase supply or lower demand. We can increase supply by scrapping height and density restrictions and other counter-productive regulations and by lowering taxes for everybody. Or we can decrease demand by maintaining burdensome regulations and raising taxes to the point of driving people out of town. Sadly, the mayor and city council seem to favor the latter approach.

Posted by Stefan Sharkansky at March 15, 2004 10:22 AM