SPEAKER_01 0:00

Today we'll be talking about how Seattle's housing permits are down 94% from the peak, and how that could be a huge problem. So the news is saying that Seattle is planning to slash what's called a mandatory housing affordability fee proposal to help developers pay less money to actually develop new housing units. And this can be a big problem because it can severely affect the outcome financially for a builder. And there are thousands of housing units which we desperately need to keep affordable housing affordable and more units so people have less competition and more fairness in purchasing. That's a big problem because these fees being uh the the proposal to waive these fees being cut means that developers will have to actually eat more costs. Thousands of units that were supposed to be in the pipeline to be built are now going to be uh potentially canceled. So, Peter, uh, what do you know about this situation and what are your thoughts?

SPEAKER_00 1:15

So, I mean, okay, so that we'll just call it MHA. Um, basically trying to make housing affordable. This is something that obviously, I mean, it's a good thing, right? It's like we're trying to make housing affordable for people. We do need affordable housing. Uh, it's been extremely difficult uh for people to uh live because living costs are so high, mainly because of your home costs are so high. And I'm not just talking about people who are looking to buy a home, right? We're also talking about renters because this affects renters because the more housing availability, the more rentals that are, then um, you know, you know how supply and demand go, the more supply, then the uh the the pricing for rentals also goes down. So this really affects everyone, like building also affects everyone. So they're trying to make homes more affordable. Um yet we're struggling because they're trying to get the money from the builders, right? And charging them uh various fees and um or making, you know, forcing them, like making a mandate to have to build affordable housing uh within their development. It all seems good. The issue comes to, you know, they're obviously, you know, housing is down, uh housing starts are down 94%. The permitting process or uh permits are uh down 94%. And that is actually going to create a worse housing crisis because we have less homes that are being built, less homes to buy, less homes for rentals, which the less rentals there are, obviously the the people who own the rentals are going to raise the prices because of the high demand and the low inventory. So just uh just to kind of break it down in simple terms, that's kind of what's going on, and it's uh it's an interesting debate, and that's kind of what we want to get into right now.

SPEAKER_01 3:19

So historically, these fees like the MHA or these proposals have come about because cities wanted to, especially you know, cities like in Seattle, uh like Seattle, wanted to promote equality, wanted to make sure that the ethnic neighborhoods or low-income neighborhoods, even from a hundred plus years ago, uh, didn't get wiped out by these new developments with you know richer, more affluent people coming in that were Caucasian. So, fast forward to a hundred plus years to today, you know, MHA is one of those things that are trying to keep that alive, which is a noble cause, in my opinion. However, there are cases against the MHA or fees like the MHA. Uh, like you mentioned, MHA actually adds costs to new construction. Those costs are ultimately passed to buyers or absorbed by developers. So if you take away the assistance that builders have from the city, which incentivize them to make more units, and you take that away, logically that incentive to build goes away too, right? Um even if MHA is not the only reason housing is slowing, there are other projects that it can hurt at the margins where these fees can again, it's not just about these fees, it's also about construction costs, interest rates, borrowing costs are super high. Um and I mean this is kind of a um an obvious point, but as soon as MHA was adopted, apparently uh townhome permit applications fell sharply because the suggesting that the policy may be reducing the very middle housing Seattle says it wants to protect. Um so what do you think the cases are for MHA? Are we supposed to um you know use taxpayer money to eventually try to help the taxpayers, or how do you how do you see the case for MHA?

SPEAKER_00 5:32

Yeah, let's talk about it. So um obviously you're trying to make you know rent restricted, income restricted, meaning that there's a cat, like a certain cap to how much uh you you can make to be able to get into these homes because you're not just getting, I mean, if you're making a million dollars a year, you shouldn't be able to get into affordable housing. Um so and again, just to be clear, like they're uh they're forcing these builders to create affordable housing within their development. So if uh I've had situations where uh you can, you know, you build 10 units and then two of them need to be affordable housing. So that's kind of what it is, plus they have the fees, right? Um, and then you know they say that uh um well some people say that the the housing slowdown isn't necessarily the fees alone. Um, you know, they say it's it could be interest rates, labor shortages, materials, and tariffs. Um other another argument is fairness. If new development benefits from upzoning and rising land values, it should contribute something back to the community that make it possible. So when I think about MHA, it's like, okay, I can kind of understand why they want to do that. I mean, it is ugly. It's a it's a situation where, you know, as a particular area becomes more affluent, you know, because we're in a capitalistic society, there's gonna be rich and there's gonna be poor. And the sad part about that is you're gonna see a lot of people uh who are poor who are gonna be pushed out eventually. And this is an effort to kind of you know even the playing field uh rather than having like sections of just a bunch of rich people and then just a bunch of poor people. Uh and so in that sense, like, okay, it's understandable, right? That whole the whole thing is understandable. Does it work? That's a different question, right? Like, that's it's obviously affecting, you know, because interest rates are high, like you said, it's obviously affecting people the uh affordability even more because people aren't building 94% reduction. Um, so does it work practically? No, but is the thought behind MHA, you know, legit? I would say so.

SPEAKER_01 7:42

Yeah, we're actually gonna have a special guest come onto the podcast um in a in a in a few seconds here and talk up talk to us about where he sees things are going. He's a planner that I've been working with for a long time. Uh he consults with developers, uh, big developers. Uh, he also consults for cities as well. So he is literally on the inside of how these things can affect the bottom line for builders and um investors, also, which really represent the money coming in to build more units. And as maybe a closing thought, you know, it's like on one hand, you want to have as many units so that the cost goes down, supply and demand. But on the other hand, you're restricting that by attacking the fees that are going to help that. Yeah, so I don't know where the balance really is, uh, but it's something that I know will maybe move um money out of Seattle, which it already has, unfortunately. Unfortunately. Um, I mean, let alone the landlord, you know, tenant laws and the eviction overlays that are just a pain to deal with. Um, I think it's gonna move money elsewhere. I don't think the money is going away. I think it's probably just gonna move. But do you think that taking these fees away will actually help costs or will it actually add to it because of we're losing potentially thousands of startups? Like, where are you on this issue?

SPEAKER_00 9:21

Again, practically it's not working because right now, with the high interest rates, labor costs, and whatnot, builders already are running on thin margins. The MHA fees right now are uh taking those that's their margins for some people, right? For like maybe a very large at scale projects, it's a different story. But for some of these smaller projects, like you said, it's uh you know, it just doesn't make sense. It doesn't, as we call as investors ourselves, it doesn't pencil out. So it's actually worsening the problem. It's worsening our our inventory. And um, you know, if we and then not only that, it's like it's so hard to build in Seattle. It's it's been one of the most everyone knows Seattle is notorious for making the the permitting process so ridiculously difficult of how you know the long the delays are, their lack of communication, et cetera, et cetera. So um, like I understand it conceptually, and so I I think we need affordable housing. Uh, I think we can get there by uh different means. Like I think we need more smaller housing, right? Like like tiny home communities or just like you know, thousand just 1,500 square foot little like homes that we can uh create, and they need to approve some of those things. Um, but so yeah, I mean just to get to the point, it's like we need affordable housing, but practically this MHA thing, forcing people to pay into these fees is not working. It's the same thing with the millionaire sacks. I get it. Conceptually, listen, the millionaires can afford it. The problem is they are going to leave. And the problem when they leave is that's gonna create an even worse deficit because they actually do contribute because they spend money here, right? Through sales tax, they buy big homes, property tax, et cetera, et cetera. So practically it doesn't make sense.

SPEAKER_01 11:10

Okay. Well, we will have the interview coming up shortly uh with our uh contact, the the planner contact. And did you have anything else to say to wrap it up?

SPEAKER_00 11:21

No, let's let's let's get um the planner on and let's get some real insight.