The growth game is back: How many construction cranes are visible from Lake Union? Sixteen? Twenty? New ones seem to sprout weekly, signaling a remarkable rate and concentration of growth. Although Emmett Watson turns in his grave at all this change, growth does provide jobs, tax revenues and a promising future for those emerging from school. And it is far easier to engage in progressive public policy when the private sector is booming. But enthusiasm for growth comes with one big caveat: housing prices.
When population and incomes grow in a region, the marketplace can easily provide a steady stream of just about everything that folks need. Products rush in from manufacturers around the world, while local and national service businesses pop up like mushrooms. Housing, however, cannot be moved and traded in the same way as toasters or haircuts, and an inadequate supply in a growing region leads to high prices.
High housing prices can seem like the inevitable result of growth, but this is simply not true. There are regions that have experienced very strong economic and population growth and yet have experienced modest increases in housing prices.
In the bubble years from 2000 to 2006, the Puget Sound area grew by 8 percent and housing prices increased 67 percent. In contrast, the Atlanta metro area grew 20 percent during those years and housing prices increased only 28 percent.
The degree to which housing is affordable to middle- and lower-income residents is, in many ways, a choice, and if affordability is a high enough priority, it can be managed. The trade-offs made in Atlanta — sprawl, auto dependency — seem contrary to our Northwest sensibilities, but the fact is that those trade-offs are available. We have chosen to restrict the amount of land available for housing, and to reserve the vast majority of that land for low-density single-family zoning. There is no question that those choices have had consequences.
Another persistent myth about housing affordability involves construction costs. It is a cliché to talk about the rising cost of construction, but the cost of building houses themselves has actually been flat for some time. Homebuilding is a mature, highly competitive and cost-conscious industry. Somewhat higher labor rates are offset by productivity improvements while new materials are substituted for ones becoming scarce. It’s not about the sticks and bricks.
In the end, housing prices reflect the price of land, or, to be more accurate, the price of the amount of land needed to accommodate a unit of housing under current zoning, plus various fees associated with land development. The region has physical restrictions on the availability of land (waterways, mountains, wetlands) and when public policy restrictions are added, in the form of urban growth boundaries and low-density zoning, the market reacts by bidding up the price. When buildable land is perceived as a finite resource, speculation becomes a very profitable investment.
Once homebuilders have acquired completed building lots (legal parcels with roads and utilities and any impact fees paid), they use a standard rule of thumb to determine the target price for the homes they will build, usually between three and four times the cost of the lot. This rule not only follows basic business logic (don’t build inexpensive products that have to compete with the resale market), but also is required by the bankers who finance construction. So without inexpensive lots, builders will not produce affordable new homes.
But land costs do not just drive the price of new homes. The lot underneath a resale home has the same value as an unbuilt lot, which explains the high price of dumpy homes in attractive neighborhoods. The value of a building lot becomes like the ante in a poker game: the price that must be paid before the game even starts.
The price of land is, of course, not uniform across the region. Generally, the farther one gets from job centers, the lower the price of land and homes. In recent years this pattern has been reinforced by gentrification. Not too long ago, large pockets of close-in urban areas were considered undesirable, and, consequently, had low land values. This gave lower income people the option of finding affordable homes within an easy transit commute of job centers. But with high prices spreading through all of Seattle and the Eastside, lower income households are heading to South King County. They will find newer housing stock and good schools there, but will also face longer commutes.
High housing demand and high incomes in the Seattle-Redmond axis has created a smooth price gradient to the north and south, with prices easing the farther one gets from that axis. This pattern exacerbates the income segregation of the region, described by Peter Harris, and imposes commute cost burdens on those least able to shoulder them.
The picture in multi-family housing is similar, but has a different wrinkle: parking. When land is cheap, apartment and condo builders provide surface parking lots. But when land becomes expensive, developers cannot afford parking lots and must build costly garages. And expensive land must be developed more intensely, which requires elevators, fire exits and other features. Seattle has relaxed its parking requirements in some areas, but investors often takes a dim view of residential buildings with little or no parking, making developers reluctant to take that risk.
The next step up the density ladder — high-rise — gets even more expensive. High rises will always have parking, and the taller the building, the deeper the garage. Each level down is more costly to build than the previous level, making high-rise garages especially costly. In addition, construction over six stories shifts to concrete, which is considerably more expensive than wood-frame. To justify all these added costs, developers have no choice but to add luxury features and finishes — and charge very high prices.
This leads to a third mistaken notion about housing costs: Density leads to affordability. It can, but only to a point: Affordability and density follow a U-shaped curve. Lower-density housing comes with high land and infrastructure costs, and high-density housing comes with high construction costs. The most affordable housing, at the low point in the U-curve, consists of walk-up multi-family complexes in peripheral locations with surface parking, no corridors, no elevators and external egress. But it is exactly this style of housing that is most reviled, being thought of as the multi-family equivalent of sprawl.
How, then, do we bring back some semblance of affordability to the region? The obvious answer is to become more like Atlanta, with limitless land for building and ample zoning for multi-family construction. Politically, however, such an approach would be somewhere between extremely difficult and impossible. We are simply not willing to trade aesthetics and environmental values for affordability.
The Ravenna Cottages on Fifth Avenue NE in the Green Lake area of Seattle went on the market in 2001. Michael Luis
A more promising approach would be to embrace a wider variety of infill strategies. A whole menu of options — row houses, cottage clusters, duplex/triplex, detached accessory — was gaining some traction before the market crashed and affordability became less of an issue. Innovative housing at the middle level of density — between 15 and 30 units per acre — gets to the same economics as those suburban walk-ups, but in a more appealing way. A few jurisdictions have adopted innovative housing models, but most have not. The potential is large, but since most of the action will need to take place within single-family zones, the politics are challenging.
This is where the Millennials come in. This enormous cohort is now just entering into its prime childbearing years and if the conventional wisdom is correct, its members will prefer more dense urban living and eschew the distant suburbs where they grew up and where their parents, the Boomers, still live. Contrary to media reports, the Boomers are not leaving those outlying burbs in great numbers, so Millennials will need to look elsewhere for affordable options. Perhaps the best opportunities will be found in close-in suburban neighborhoods (including those that are within the Seattle city limits but are suburban in character) that were settled in the 1950s and 1960s and are ripe for rethinking.
Gen-Y activists can turn the energy now going into fights for expanded transit and pedestrian and bicycle facilities toward the more complex, but more rewarding area of housing innovation. This generation will have the political clout, if it chooses to use it, to finally tackle the density-vs.-sprawl conundrum and break out of the binary pattern — low-density single family, high-density multi-family — we have been trapped in for so long.
Boomers abandoned their counterculture roots and left their mark most prominently on the outer suburbs. Their kids have the chance to leave their own mark on their grandparents’ neighborhoods.