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Seattle Times business reporter Elizabeth Rhodes posts the answers to your real estate questions as they pop up during the week. Join this ongoing discussion, which also features reader reaction to real-estate articles appearing throughout The Times.

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February 14, 2008 11:04 AM

Readers comment on story about regulation's impact on housing costs

Posted by Elizabeth Rhodes

The Feb. 14 story, "Rules add $200,000 to Seattle house price," that appeared on Page 1, has generated considerable reader comment.
Here's what some are saying. Additionally, University of Washington economics professor Theo Eicher, whose research formed the basis of the story, has a Web site with more information on the topic.
If you have questions about his study, you may find them there.

From a reader named Gayle:

Thank you for this lucid and well-researched column. The exaggerated costs of Seattle's building requirements came home to us when we wanted to replace our 1910 vacation shack in southern Seattle. Because we were on a slope, we were required to retain all the run-off water on the site. The cost to build concrete underground structures to retain the rain water came in at well over $100,000 - and that was before any building was done! We had a very modest 1,400-square-foot house planned, and the total costs were over $500,000, about twice what we wanted to spend.
Thanks again; both your reporting and your writing are a delight; what I think of as true journalism.

Clay, a Seattle reader, says:

Thank you for writing the article.
As a developer of in-city multi-family housing, I face the costs and barriers referenced in your article on a day-to-day basis. Consumers (both renters and buyers) often complain about the cost of housing, but, as your article illustrates, this cost is not due to the "greedy" developer, but rather the prolific regulation and onerous review cycles imposed by the state and local government.
Providing housing in this city is a noble and challenging endeavor. It is about time someone pointed out the government's culpability in the gap in affordability and overall historical housing price increases.

A reader named George comments:

The basic assumption, that high prices are necessarily bad, and low prices are good, comes from lobbyists with a special agenda, not from thoughtful people trying to create more beautiful, safe and comfortable communities.

Scott in Ballard says:

"Good intentions" huh Elizabeth? These warm and fuzzy feelings brought to me/you be whom? Just who runs this state? Just who really lives here these days? Didn't "good intentions" bring us busing, too? Didn't "good intentions" bring us "the great society" Elizabeth? These "good intentions" are going to be the ruintation of our country as we knew it. So now we'll get these same limo-liberals bitching for controls. The same idiots that a mere 20 years ago has thos "die yuppy scum" bumper stickers on THEIR VW vans etc!! Yup, now they have nannies, 3-4-5 vehicles per household, kiddies in private schools, and they still feel guilty about something. Guilty white folks, next on Oprah. I can see that. Born/raised here, I have witnessed this area go from Hooterville (with some skyscrapers) to Berkley North, with a few more skyscrapers, and a whole lot more lear-jet liberals, and their little dogs. Perhaps most can't see the forest, due to all the trees Elizabeth? Or tree huggers?

Burt, a builder, wrote:

Thanks for your article. I am building a 40-unit apartment in Seattle and I figure the design review and related approval delays have added $500,000-600,000. to the cost to build. It took me 18 months for the design review and 11 months for the permit. The cost estimate I received at the start of the process and the actual contract increased by $1 million. The building is economically inferior to what I proposed because they forced me to change the driveway access to a steep side street, which took away from the commercial space. Every idea anyone at the meeting proposed they included in the requirements.
I could go on and on but your time is valuable. It might be interesting to look at Greg Hill and what he has cost Seattle or what he has added to the cost of housing. He is a housing activist that sits on one of the design review committees. He sat on mine and told the committee that developers just site the building to suit them and it is no problem to move it to suit the committee. We will just move it back 5 feet, no problem. His vision of Seattle is no building over two stories.
Thanks again for shining a light on a very significant problem and its relation to the high cost of housing and apartments.

Antony writes:

How strange that geography was not mentioned in your article on the cost of housing regulations in Seattle, especially since comparisons to other cities are included. Houston and Atlanta have plenty of room to grow outward into the surrounding countryside. San Francisco, Boston and Seattle do not, as these cities have significant restrictions to growth that are apparent by looking on a map -- from mountains to large bodies of water.
Was geography not a factor in Eicher's study? If not, it's a confounding variable that brings his findings into question. Thanks!

John writes:

Thank you for your article. As a developer, I would overwhelmingly agree with his analysis. In fact, I believe it underestimates the costs.

The biggest factor not mentioned in his analysis is that most small builders have been knocked out of the marketplace. They can not compete, mainly because of the carrying costs of the construction process - often without any assurance that when you are done with a 12 to 18 month time line to get permits that you will be able to build. That is due to the fact that either changes required by the review process make the project undo-able or because the economic environment has changed. For example, if you started permitting a project 18 months ago as a small builder, and now are trying to get financing, it is impossible.
The net effect on the builder side of the market place, is that only the large builders - the Conner's, Burnstead's, DR Horton's, Centex's, Polygon's, Quadrant's, etc...- are the only ones that can play and build. They can set their prices higher because they have no competition from the hundreds of small builders who used to be able to compete in this marketplace. This has probably as much impact on the final cost of a house as the regulations that the UW study points out.

Finally, I differ with your conclusion where you state that the "regulatory climate exists because its residents want it." You link this conclusion to Eicher, by quoting him as saying, "My sense is land-use restrictions are imposed to generate socially desirable outcomes. We all love parks and green spaces. But we must also be informed about the costs. It's very easy to vote for a park if you think the cost is free."
However, your own words do not logically connect to his, as the whole point of your article was to point out that Seattle residents never knew the costs associated with their land-use restrictions. As all of Tim Eyman's passed propositions restricting taxation and limiting government regulations have proven, that given the choice, the public would kill over regulation, especially if they are cognizant of the true costs. But they haven't been. According to your article no one has been.

If you truly are concerned about affordable housing, you will write more on this issue. And if you really care about affordable housing, you will champion changes. First and foremost would be to create a streamlined and fast tracked with lower permitting fees for homes that are priced at the low end of the marketplace. Give small builders the ability to compete at building affordable housing stock. Between lower impact fees, shorter permitting time line and the smaller over head the small builders have, housing would be built that is affordable.
P.S. I am not a home builder, so I have no vested interest in my point of view.

A reader named Terry says:

Couldn't that headline just as easily read: "Regulation adds $200,000 to value of Seattle homes"?
I'm not particularly impressed by the research cited, but got a laugh from the fact that it's hard to get voters worked up about the regulations, because 68 percent of them are homeowners. I'm so old I can remember when that was a good thing.

I think you did about as well as we can expect a business writer to do in covering this story -- and that caveat is a strong hint about the distance left to go in the Business section of the press.

Another reader, Connie, says:

And just how do the THOUSANDS of condominiums and hundreds of townhouses being built ALL OVER this city impact your article? Belltown, Allentown, Downtown, Ballard, Queen Anne, Capital Hill, Eastlake, Freemont, Greenwood, etc. Just drive around. And look around. I say it's not regulated enough!
The whole look and feel of our beautiful city is changing, and not for the better.
Oh, and I didn't even mention the Rainier Avenue district, Beacon Hill or West Seattle. How can you possible say that Seattle isn't adding housing?

Paul writes:

Come on now. This doesn't meet the smell test. Over 17 years house prices increase by $226,800 and $200,000 of this is purely regulatory? That leaves $26,800 for inflation, increasing median house size, feature creep such as more elaborate bathrooms and kitchens. So without regulatory costs the average house cost increase over the last 17 years in King County is 0.65 percent, less than 1 percent per year. Average yearly inflation from 1989 - 2006 is 3% so local housing costs underperformed inflation by 2.35 percent?
Come on, put some critical thinking behind what you choose to report. Just because some academian gets a grant to do a study doesn't mean the numbers he comes up with have any basis in reality other than the flawed assumptions he based the study on. You do Seattle a disservice by publishing such shoddy work.

From Florida, James writes:

I now live in Florida where I was forced to move. As a 20-year Snohomish County resident, I undertook the process of subdividing the family farm in Monroe. The minimum lot size (rural) was 2.3 acres per home site. Our 40-acre farm we proposed to be 5-acre lots in density. Although the request was finally approved, the process took 7 years,3 public hearings,2 lawyers and the associated costs by the county grew to over $200,000 in fees for this low-density proposal. I paid much of this and passed on the rest of the costs to the eventual home builders (consumers) -- this was just after Growth Management Act was passed. There was a lot of delays, lost paperwork and other devious means used by planners to slow this project down. Snohomish County even wanted me to dedicate 18 acres to them to allow me to proceed. hence the Lawers.Summer Hills is now a very nice place to live in the woods creek area of Monroe, but I will keep my Florida sunshine.

Gordon writes:

Very interesting article. I haven’t read the study but suspect he is correct. One factor that is overlooked, however, when the statement is made that there is a price to regulation, there is also a price to lack of regulation. I'm sure you can think of lots of examples. Economists are right, there is no free lunch. You pay regardless of the decision made. The real question is how much.
FYI-I've attached a copy of the Ecological Economics study we had prepared in support of the WRIA 9 Salmon Habitat Plan in 2006. It's revealing in many ways, particularly in its valuation of ecosystem goods and services. The firm that prepared the report (Earth Economics) is doing a more detailed analysis of the same using WRIA 9 as a case study (we are not funding this work).
Thanks again for the interesting piece. I hope to read the Eicher study myself sometime.

From a Michigan reader named Noah:

I am graduate student at the University of Michigan, I am originally from Seattle, but moved out here to enroll in the Masters of Urban Planning program. We have a Professor, Christopher Leinberger, who works for the Brookings Institute, and he has an article coming out next week in the Atlantic which you might find interesting. While I do not question the validity of the study done by Theo Eicher on the theories behind the Growth Management Act -- which has features similar to Oregon's Urban Growth Boundary -- it is thought to be working if housing densities and prices rise in the city.

Anyway, the reason I direct you to the Article, Which I believe is titled "The Next Ghetto?" or "The Next Slum?" is that it does a nice job summarizing his argument that housing demands are changing and more people want to live in Walkable Urban Areas. He goes on to explain that in areas where mass sprawl has taken place the housing prices will drop considerable, and we will see a reverse effect of what happened between the 50's-70's instead of people moving to the suburbs they will move back into the cities. With the Growth Management Act in place, the state is already encouraging these higher densities and has created walkable urban areas outside of Seattle; Kirkland, Juanita, Woodenville, to name a few.

I think it might be an interesting series of articles to look at what effects GMA is truly having, and who is being negatively effected.
With all of the redevelopment happening in places like South Lake Union, who is being displaced? New expensive apartments go in, how many of those units are affordable? As housing prices rise, there needs to be alternatives; while Seattle heavily regulates development, it might be argued that those regulations only affect physical and environmental aspects and lack the social considerations. This is not to say Seattle doesn't consider lower income residents, but those regulations are sometimes soft and lack teeth, allowing some projects to pay a fee and have those those social considerations removed.

Chris, in Covington, comments:

Good article. We truly need more coverage on this. I specialize in allocating land for developers and have seen the results first hand. You don't need a PHD to understand the ramifications of the GMA. It is my opinion that this is not driven by the populace, but rather an agenda of the county council. How else do you explain the VAST amount of land owned by King County? Over One Hundred Thousand Acres at my last count. What land the county doesn’t own, it restricts with zoning changes. When you compound this with local incorporated areas not increasing density within the city limits, we have a problem. And we haven't seen the fall out from this yet. The county has put the squeeze on all available ground. It in turn puts the squeeze on everyone including local developers. Raises taxes and paves the way for big out of state developers that have the coffers to afford the long process and land expense, with no ties to the local community.

From a reader named Fred:

To the casual reader, the study and the article might seem to indicate that, yet again, government regulation places unfair and needless burdens on businesses and residents. In my mind, the study raises the following questions:

How do you measure quality of life in economic terms? For example, extensive planning and regulation have led to many families enjoying the Kirkland waterfront. With far fewer regulations, views and public access could be blocked, pedestrian traffic and other recreational uses could be hazardous, the lake could be full of toxic waste and Lake Washington Boulevard could look similar to Aurora Avenue.
In a region and a world with a burgeoning population, can each of us all expect to have the same “carbon footprint” or greater than our parents and grandparents at no cost? If coastlines, forests and species are destroyed by global warming as well as by unclean water, soil and air, what will happen to our quality of life then?
What is the cost of the destruction of critical areas, wetlands and forests in 5 years? 10 years? 100 years? What percentage of our resources will need to go into seawalls, relocation and other remediation efforts?
How do we move past the "pay-later" mentality that the title of the article seems to invoke? This applies not only to land-use regulations but to energy consumption and to health-care costs:
For example, does the cost of a gallon of gasoline cover the costs that we are placing on future generations (both economic costs and loss of quality of life)?
People are indignant (and perhaps with good reason) when insurance companies do not cover certain conditions and diseases . On the other hand, the same people complain that employers do not provide adequate insurance coverage (or that the employee's share of the premium is too high). Well, which is it: contain costs or contain premiums? The balance is hard to strike and bound to be unpopular. We try to avoid the hard questions by blaming government corruption as well as inflated energy company and insurance company profits (all of which surely exist to one degree or another). At some point, we have to face the harder issues of sustainability and quality of life.

Jim, in Fremont, writes:

I have been a fan of your articles over the past years and I want to let you know that this is your best article ever!

I have been building in Seattle since 1996 and I specialize in infill housing.

One thing to comment about is missing in your article is that at the end of 2005 the Seattle Department of Planning & Development (DPD) changed out their permit tracking software. This change resulted in horrific delays of plans being approved for permits for all builders in Seattle. It caused an artificial shortage of housing. Then all of the Builder's plans were approved at the same time which is why we could be seeing an oversupply. We are beginning to recover from this drastic delay. I am guessing that the change impacted my pricing & costs of about $1,000,000.

Further, DPD's Land Use Code is massively difficult and highly interpretable by DPD's Plan Reviewers. DPD is in the process of changing the Multifamily Land Use Code which will result in longer permit approval causing home prices to escalate.

One final item is that we are starting to hear about multiple offers on homes being sold. Our weekly traffic through our Model Units exceeded 150 units last week! I have never seen activity at this level.

Rick writes:

Baloney. Professor Eicher would have us believe that virtually *the entire increase* in housing prices is due to land use regulation. In 17 years, he thinks that houses have appreciated 10% due to "all other factors" and 100% due to "land use"? How does he explain the fact that cities all over the country, where land use regulation hasn't changed a whit (like where I live in Tennessee) have similar increases in housing costs?

17 years later our housing prices have doubled - and there's virtually no difference in regulation, at least around here. I'll wager I could find a hundred other places where that's also true. There certainly are costs attached to "land use regulation", but I have very high doubt on the professor's math.

From a reader named Mick:

Great article Elizabeth. As the financial analyst in the family business of supplying affordable apartment communities, I can attest to the validity of the findings in this study. My brother and I fought attorney general Gregoire all the way to the US Supreme Court over her socialist developer fees she imposed retroactively on us. The Supreme Court wouldn't even hear her arguments as we got all of our money back plus 12 percent interest for 4 years. The Supreme Court called her developer fees too costly and unfair.

We developers are always perceived as villains by the liberals, and they love to impose ever increasing costs and roadblocks. Well fellow Washingtonians, guess who is trying to be the biggest developer in the State with all of the transportation projects that are backing up. It is the none other than than the State Government and it is going to cost us all dearly. Congratulations go to the liberal Democrats! Argh.

Another government cost that goes into my feasibility study for new projects is the federal estate tax (going back up to 55 percent) and the Washington state estate tax (19 percent for me). Guess what we quit building new projects in 1991 due to these taxes. Gates Sr. is oh so wrong on this issue! And I had the same math teacher at Lakeside as Bill Jr.

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Posted by Ron

4:20 PM, Feb 15, 2008

If one goes back and reads the underlying work by the Warton School cited by the study author, more facts emerge that should lead us to consider another impact on Seattle.

The following is paraphrased from the study:

 Highly regulated places tend to be highly regulated on virtually all the dimensions of regulatory stringency measured. Thus, there is no evidence that communities target specific items or issues to regulate.

 The stringency of regulation also is strongly positively correlated with measures of community wealth and education.
 More highly regulated places have more intense community and political involvement in the land use control process and have more complex review times.

 More highly regulated places have more intense community and political involvement in the land use control process.
Based on those facts, one could also conclude that where there is higher involvement by wealthier and more educated citizens, the more their efforts result in pressures that raise the price of housing thereby pushing the poorer and less educated persons (usually over-represented by minorities) out of the housing market and, therefore, out of the community. Now that should be the subject of another article.

As a homebuilder, I have often said that higher home prices do not benefit the housing industry. Simply put, the less expensive homes are, the more homes you can sell and the more money you can make. There is a corollary that benefits everyone: the lower home prices are, the more people there are that can own one.

Posted by Barrett

10:20 PM, Feb 15, 2008

It always strikes me as unbelievable when I see this kind of tripe from academics. I�ll tell you what. How about a study that counts up the gargantuan direct and indirect subsidies that the real estate industry reaps from the taxpayer every year? You will find that the real estate industry in America floats on a sea of welfare. Fannie Mae, Freddie Mac, capital gains tax treatment of housing, FEMA subsidized insurance, FHA, and on an on. All of these programs prop up the real estate industry by socializing the risks to builders, real estate agents, brokers, and borrowers. And ironically, you won�t find a more ardent group of free market enthusiasts than people in the real estate business. Let�s be fair. How about we strip away all of the subsidies that go to the real estate industry and then we can talk about the kind of deregulation they so desperately desire.

Want to know why homes cost so much? It�s called inflation. You know how you get inflation? One easy way is to put together a bunch of government subsidy programs that encourage people to over invest in housing. All this balderdash about government regulation adding to the price of housing is, at its root, a big lie. Where else can you put your money and pay almost no capital gains taxes? Answer: no place but housing. This, and other gems in the tax code, has caused people to dump everything they have into housing instead of other investments. �A home is a good investment,� the Master Builders say. Well, yes it is. But only because the federal government has distorted the market place to make it so. Here�s a little lesson in economics. Housing isn�t an investment in the technical sense of the word. An investment is putting money into a capital facility that produces something of value. A house doesn�t produce anything. It simply rots. While we are bug eyed in front of the television watching the 24-hour home improvement channel, the Chinese are investing in factories. For all their flag waving, the real estate industry and their lobbyists will probably be responsible for single handedly lowering America�s standard of living relative to the rest of the world.

And by the way, God help us when we start comparing Seattle to Atlanta and Houston. Atlanta has sprawled their way into the most awful mess imaginable. Atlantans will soon run out of water to feed the beast the real estate community has created. And Houston? Have you every been to Houston? It�s the closest thing America has to a third world toilet.

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