Linkage Fee Evolves, Debate Continues
"Seattle - Mirabella pano 01"^3 by Joe Mabel. Licensed under CC BY-SA 3.0 via Wikimedia Commons
Since Frank last summarized the arguments, Owen Pickford has fired a couple of more shots in the linkage fee debate. It's very interesting:
Both Bertolet and Roger Valdez (the director of Smart Growth Seattle) seem to agree with me that the cost of linkage fees would be passed to landowners. But we clearly disagree about whether reduced land values affect the supply of land. Cutting to the heart of the matter, Bertolet is making a claim about the economic nature of land. Do high prices mean there's more land for sale? Do low prices mean there's less?
Unlike the principals, I have no literature survey to bring to this debate. But I did wonder about the theoretical limits of a linkage fee policy. Intuitively, an arbitrarily large linkage fee would affect development. Indeed, if the fee is large enough to capture or exceed all potential profits from development, and Pickford's model is correct, then the value of land should approach the value implied by the existing use. So it's clear that in principle linkage fees can deter development. I also suspect that the real estate market isn't quite so frictionless that all the impact will pass on to land values, although I can accept it as the primary result.
Mike O'Brien's original legislation, of course, tries to allow profit on construction. So the argument for that linkage fee (as opposed to linkage fees in general) amounts to the assertion that, in areas where it is proposed, landowners are receiving a large windfall relative to the size of the fee. That ought to be answerable with local data.
Bertolet and Pickford also scuffle over whether bureaucrats can be trusted to properly set rates to mitigate disincentives to development. I'm not nearly as worried about the bureaucrats as the politicians. If market conditions demand a cut in the fee, voting against existing funds for affordable housing is tough. More importantly, last month's events show that several Councilmembers aren't particularly interested in making sure we maximize unit construction. Linkage fees could be another weapon to slow growth while wrapped in the flag of affordable housing.
On the other hand, even if Bertolet is right that the fee will reduce market-rate construction, the fee exists to construct low-income housing! Since we ought to be most concerned with the raw number of units rather than the details of those units, I'd like to see his accounting as to whether the low-income units built exceeds the numbers lost to the fee's deterrent effect.
Today, a linkage fee seems more likely than ever, though its scope is very much in doubt. The Mayor's Housing Affordability and Livability Agenda (HALA) committee proposed a linkage fee only on commercial projects, which in theory should discourage space for jobs and encourage space for housing. In the aftermath, Mike O'Brien withdrew his legislation, keeping it in reserve should developers renege on the compromise. Market-rate-development skeptics Kshama Sawant, Nick Licata, and Council candidate Jon Grant proposed a HALA alternative with, among other things, a more "robust" linkage fee at a higher rate even than O'Brien's bill.
So where does all this leave us? I'm now inclined to believe that even the O'Brien linkage fee isn't a big deal: the net impact on overall housing supply is likely to be small, although there is the potential for trouble down the road. As before, I wish we had a broader revenue source for affordable housing than one that potentially worsened the other end of the problem. But if the HALA compromise essentially puts a little drag on market-rate development to fund low-income housing, and enables a sweeping upzone that makes a real step towards addressing the housing shortage, that's a deal worth making.