Bad Housing Policy In Seattle Should Be A Warning To Other Cities

A recent Seattle Times article (Renting in Seattle area to get harder as supply of new apartments drops) covers troubling signals in the local housing economy for developers and renters. The story moves through a number of emerging data points indicating what might be the future of rental housing prices into the next 18 months. Opponents of inclusionary mandates for affordability can take some vindication from the story because one of the factors impacting apartment supply and construction is the Seattle’s Mandatory Housing Affordability (MHA) program which forces the inclusion of lower rent units in all new multifamily housing or the payment of fee in lieu of inclusion. Given the politics in Seattle, it’s doubtful, but a great place for Seattle to begin addressing the changes in the market is to repeal fully the MHA program.

Seattle’s housing economy is being buffeted by the trends present across the country, interest rates stuck at over 6%, construction costs going up, and uncertainty from President Trump’s herky-jerky implementation of tariff policies. According to the Seattle Times article, applications for permits to build apartments are down 66% from a year ago. When the pandemic hit in 2020, lending and building of all kinds mostly stopped, but as interest rates dropped to almost zero, and the pandemic eased, building picked up. According to the Seattle Times, there were double the apartments built in 2023 in 2024, more than 10,000. But this year, permits appear to be trending toward their lowest level since 2018.

And according to Mortenson’s construction index costs in Seattle are up 46% this year. Inflation unleashed by low interest rates and massive spending to accelerate the economy during the pandemic has been stubborn. While it is unclear exactly what impact tariff policies have had on prices, the uncertainty has forced earlier purchases and preemptive price increases to compensate. All of this adds fuel to rising costs for the materials and labor essential for construction. Add to this rising vacancy rates, falling rents, and a complex regulatory environment for housing providers as I wrote about yesterday and rental housing is entering choppy waters.

But along with regulations making it difficult to evict non-paying residents is the Mandatory Housing Affordability program created and codified in 2019. Mandatory inclusionary zoning is a policy that forces new development to pay, through fees, for subsidized, mostly Low Income Housing Tax Credit (LIHTC) housing. The idea is that as developers build new housing, it is expensive, and those higher prices mean the local government is forced to subsidize housing to offset rising prices because of new construction. The scheme simply adds costs, a penalty really, for people trying to build new housing to fund very expensive, slow to produce, subsidized units.

I was a critic of the program from the beginning, eventually calling it what it is, extortion (see Esta Es La Mordida;” Mandatory Inclusionary Zoning Is Bribery). It is also inflationary. Pushing up the costs of producing housing which get passed on to consumers in the form of higher rents. The notion that new housing is somehow an impact that must be offset with fines to create more housing is absurd on its face, countering the basics of economics; more supply of new housing, even if its more expensive than older housing, means lower prices overall.

Most importantly, it doesn’t work. As is usually the case, the program cited ridiculous cost burden figures suggesting tens of thousands of households were paying too much for housing then suggesting that the city needed 25 thousand new units by 2025. The program has only produced hundreds of units far outpaced by the performance of inventive programs like the City’s Multifamily Housing Tax Exemption (MFTE) program that grants a tax exemption in exchange for inclusion. Incentive programs produce far more housing than extortionary mandates.

The worst effect of mandates for inclusion is that is suppresses production of the vary thing that programs like MHA were supposed to create more of, housing. The Seattle Times article points out that there has been a big fall off in fees.

“Still, the city brought in the lowest amount of dollars for its affordable housing fund in 2024 since its full implementation in 2019. Last year, developers paid $24.4 million into the fund — less than half of what they paid in 2023 and less than a third of 2022’s payments.”

A review of the program by consultants hired by the City found that MHA definitely has a negative effect on new production, adding costs and creating uncertainty. The report was rather conservative, leaving room for doubt about just how significant the negative impacts are. Unfortunately, the politics around the MHA program are so toxic, nobody in elected office or even within the private sector dares call it out. Seattle has other taxes – on Uber and Lyft rides and on hiring new employees, the “head tax” – that were all instituted to solve the housing “crisis” in Seattle. Yet the City is still in the throes of housing problems and there is no end in sight.

When I challenged one of the developers on LinkedIn about whether his favorite Seattle City Council candidate would call for the repeal of MHA, suggesting that she would not, he blocked me. Neither he nor the candidate would dare speak out against the failing program for fear of being pilloried by the progressive powers that be in the city; and they have a point since both the candidate in question and the Mayor are apparently on their way to defeat in the upcoming election. Had there been any courage in the first place in Seattle, people there would have recognized that the answer to housing scarcity is not taxing new production with fees, but incentivizing it. Yet the city’s voters seem to have a bottomless appetite for expensive and ineffective measures, approving tax after tax to fuel ineffective interventions. Still, to avoid any coming turbulence in the housing market, the best thing to do is repeal Mandatory Housing Affordability.