03/19/2006: "A DISCUSSION OF AFFORDABLE HOUSING MYTHS"

A Five Part Discussion By Albert Hall

In May, we will vote to authorize a 0.5% sales tax on every real estate sale to provide funds for a San Juan County Affordable Housing Program.

The following will set forth and discuss a total of 12 myths. In most cases these myths summarize actual talking points of the affordable housing program proponents. -Albert Hall
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PART FIVE

A DISCUSSION OF AFFORDABLE HOUSING MYTHS

This is the last of five articles in opposition to the proposed San Juan County Affordable Housing Program and the 0.5% tax on property sales. It discusses whether norms should be forced by government and the general affects of an affordable housing program.

MYTH 10: When working people are priced out of the housing market, the whole community suffers.

The market has not failed; rather, it has forced hardships on particular individuals. The more interesting consideration is whether the market will insure the provision of the desired services and whether an affordable housing program can provide outcomes superior to what the market would otherwise provide. The proven record is that the market WILL provide, and will do so with greater efficacy. Conversely, the proven record is strewn with the wreckage of failed public housing programs – and with no substantiation that our proposed affordable housing program will accomplish its intended purposes without similarly serious unintended consequences.

We might decide that we want "more" inexpensive houses in our housing stock, and we might decide that this intention is good policy. It is incorrect, though, to base this intention on the belief that some particular services will not be provided unless such housing is provided.

If we accept the socialistic principle that taxes should be committed to help a select few among us, why not support classical musicians, or Olympic athletes, or those with high IQ's? There are surely lots of social or economic qualities whose increase would enhance our community more than the encouragement of people that otherwise cannot afford to live here. The answer to these questions explain why socialism generally fails to deliver – and will certainly fail with this affordable housing tax.

Myth 11: Subsidizing or ameliorating the cost of housing is the best or preferred method to insure that these service providers will be here to provide their needed services.

If the intention is to ameliorate problems associated with whether low wage service providers can afford to live here, then why is it preferable to target housing costs and not wages. If public funds are to be used, perhaps it would be more efficacious to simply subsidize wages (or even to mandate a higher minimum wage).

Where has publicly funded "affordable housing" actually worked over a period of years? At a minimum, our voters need to see what the rest of the nation has experienced; and especially to see actual results after several decades. There is no disputing that particular individuals can benefit from tax-subsidizes; what is needed (and has not been cited) is an example of the overall economic circumstances in a community that has employed them over a long period of time.

Myth 12: Our local community is diminished if we do not attain demographic "norms" of age or income. This is expressed as regret that young families (aged 24-44) are moving away (presumably because housing costs are increasing).

We are essentially a retirement community. To claim that there are fewer young families is to state an obvious and well understood fact. Whether this is a problem – and particularly, whether this requires a tax to support deliberate government action – is another matter.

One obvious consideration is that most of the cited services – and especially teaching, health care, and most public employees (excepting perhaps police and firemen) – can quite competently be performed by the older or retired residents.

A retired general contractor and licensed architect, Albert Hall's political affiliation is a free market capitalist.

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PART FOUR

A DISCUSSION OF AFFORDABLE HOUSING MYTHS This is the forth in a series of five articles in opposition to the proposed San Juan County Affordable Housing Program and the 0.5% tax on property sales. It discusses the role of government in providing or ameliorating the price housing or the cost of mortgages.

MYTH 8: County government has a positive role in ameliorating high housing costs.

The demand to live in our wonderful islands far outstrips the availability of island property. This, more than anything else causes our housing prices to be high. In new construction, we must pay a premium to offset the costs of having to bring most components by ferry. We also occasion higher costs on account of development code compliance, permit fees and property taxes.

As recently as 40 years ago there was widespread acceptance that government should set standards and administer a permit process for the purpose of insuring health and safety. Building codes accomplished this and all accepted that costs associated with inspection and compliance were appropriate and reasonable. These codes have morphed into development codes that seek compliance for goals that extend considerably beyond mere health and safety. Even some long-established (and reasonable) tools such as reserving some land for front and side yard setbacks or for the sake of "preserving the natural environment" are now in San Juan County requiring (without compensation) over 60% of a parcel's land area be left "undeveloped".

In the early 1990's San Juan County was persuaded to be a part of Growth Management Act process and in 1996 adopted a Comprehensive Development Plan. These activities and subsequent normal administration have occasioned numerous decision points for which our county commissioners have cast votes that affected land use and property values. Excepting that they have periodically dismissed or otherwise reduced the number planning or permitting employees, no action taken by our county leaders has served to reduce the cost of housing. Although some actions were "forced" on them by GMA litigants, a great many of their actions occasioned considerable direct costs to taxpayers as well as indirect costs that individual property owners had to absorb.

With their actual track record, the obvious question is why we should expect that the same county government that contributed so much to causing ever higher housing costs should now be asked to fix it. Yet affordable housing proponents propose precisely this! The affordable housing program envisions that certain provisions of the development code be waived or fees lowered to the benefit of low cost housing projects. Voters need to evaluate just how fair or appropriate it is to require the bulk of us to abide by such rules – and to pay a special tax upon sale; while concurrently encouraging a few to benefit by such waivers and taxes. Only within a socialistic world view can this be explained as "beneficial."

MYTH 9: Local government should levee taxes and administer an affordable housing program.

That government should undertake an activity normally arises under the presumption that the activity is not adequately provided by the marketplace. Since there is no evidence that high housing prices cause a diminishment or lack of service; affordable housing proponents are left only with concerns about high prices, criticism and distrust of wealth and "we gotta do something to help the poor." Action directed primarily by class consciousness is socialism – and has no place in a county whose Vision Statement asserts that "independence, privacy and personal freedom are prized values" and that "we foster a sense of neighborliness, of self-sufficiency."

Since WWII, the provision of housing has been undertaken at various levels of government – and most all such efforts have been costly failures. Public housing projects in St Louis, Dallas, and parts of Chicago (just to mention a few) have drawn widespread publicity for their costly failures. While these dramatize the worst examples, the truth is that public housing is universally accompanied by problems and unintended consequences that on balance are more negative and costly than whatever good is obtained.

Tax supported affordable housing programs are in reality little more than a repackaging of the same urges that motivated public housing programs – and over time will likely result is similar failures.

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PART THREE

A DISCUSSION OF AFFORDABLE HOUSING MYTHS
This is the third in a series of five articles in opposition to the proposed San Juan County Affordable Housing Program and the 0.5% tax on property sales.

The affordable housing program rests on claims that younger, "moderate income" families cannot afford to live here, and that this is a problem that needs government intervention.

MYTH 6: Hard working wage-earners can't afford to buy a home here.

The contention is that moderate income families ($48-$57,000 per year for a family of four) do not qualify for a conventional mortgage. What is unstated is that there are many sources of mortgages other than "conventional mortgages". In fact, non-traditional mortgage options are so numerous and so widely utilized that they have been the object of concern in recent Federal Reserve pronouncements.
An anecdote is instructive. The average cost of housing in Santa Barbara is much higher than here. This writer's daughter chose to work in Santa Barbara – and bought a house with a mortgage and resided there quite successfully for several years. Her income (and wealth) was median and certainly did not qualify for a conventional mortgage, and would not otherwise justify a lender to normally grant her a mortgage on the pricy condo she purchased. She was able to afford it via an unconventional mortgage that included some guarantees from her employer.

Mortgage offerings are diverse in a free market, and many have been developed in specific response to disproportionately high priced homes. The claim that taxes need to be levied and a public program needs to be initiated simply because conventional mortgages won't work here is a stretch.

MYTH 7: Prospective home buyers will be the prime beneficiaries of doing something about the "affordability gap" between the mortgage amount that a median income family can afford and the high price of the house.

In the conventional mortgage market barely-qualified borrowers normally must pay an interest rate that is one to two percent higher than "best rate." Additionally these marginal mortgages occasion fess and points that add a further one to three points or closing fees to the purchase price. Just how these normally occurring higher mortgage costs are held down by what voters are asked to approve is not explained.

From a macro-economic view, the affordable housing concept is that we'll impose a 0.5% tax in order to encourage the granting of conventional mortgages whose combined interest-plus-points might range up to 4% or 5% higher than a best rate conventional mortgage. The net effect is to drive up overall housing costs for everybody and to do so on two fronts: first by the imposition of the tax, and secondly by mortgage costs that are higher.

If one "follows the money" some interesting facts emerge. Local bankers participate in the traditional mortgage market. When they do grant a mortgage to those that barely qualify, they usually require the aforementioned higher interest rate and more points to compensate for the increased risk. And this, of course, can be a profitable activity. What is less profitable is to compete with the big national mortgage companies and those that offer non-traditional mortgages at more competitive rates and with considerably less points. It is not surprising to find local bank officials among the boosters of affordable programs that subsidize conventional mortgages.

Even if we agree that a median wage won't qualify for a conventional mortgage, do we really want these tax funds to enrich mortgage lenders? The Housing Bank's web site states that these "public funds will be used to close the affordability gap by providing ‘capstone funding'". In other words, the funds will be "used to inspire other lenders or grantors to provide necessary funds at favorable terms for a project."

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PART TWO

A DISCUSSION OF AFFORDABLE HOUSING MYTHS

This is the second in a series of five articles in opposition to the proposed San Juan County Affordable Housing Program and the 0.5% tax on property sales.

Supporters of the affordable housing tax contend that there is a negative relationship between the price of housing and the relative availability of services, and that if something is not done we'll end up not having or being unable to afford these services.

MYTH 4: High housing costs cause a diminishment in services.

SOME service providers are rendered unable to afford home ownership here. The more important fact is that increasing wealth IS ALWAYS accompanied by increasing availability of services. Rising home prices, increased permit applications and increases in construction costs attest to an increasingly wealthy community; and here in the San Juans we are witnessing an ever increasing variety of services being provided by an increasing number of service providers.

Where these service providers are living, or their respective living circumstance might be of interest. What is demonstrated is that the market is functioning; that demand for services is being amply met by people willing to provide these services. More important, since this is wrought by an agreement between willing buyers and willing sellers, the price is fair.

The difficultly of finding and retaining teachers, firemen and policemen is the strongest argument in favor of affordable housing. However, it is not persuasive. If, for instance, we want to subsidize teachers, then why establish a community-wide program open to everyone? Why not let the school district establish their own affordable housing program? Similarly with fire and police.

While some prospective employees might decide that they are unwilling or unable to afford our high housing costs, this fact does not mean that there are not other prospective employees who can, or that renting or other arrangements can not be made. The truth is that among America's best teachers, there are probably thousands (perhaps tens of thousands) that would welcome the opportunity to work in the San Juans AND are possessed with the wherewithal (whether in cash or living preferences) to not be bothered by the high cost of local housing. (Housing costs in numerous communities – Nantucket and Santa Barbara being two - are so significantly higher that we might expect some of their teachers to welcome the opportunity to sell out and re-establish in a lesser-priced home in the San Juans).

MYTH 5: Service providers will end up having to commute to the San Juan

Affordable housing advocates are quick to point out that service providers must commute daily to the Cape Cod Islands (Nantucket and Martha's Vineyard). The implication is that these service providers cannot afford the high housing prices and therefore have had to move away. This observation and simplistic conclusion do not fairly characterize what is actually happening.

a. There has been no demonstration that the number of locally-residing tradesmen have moved away. What may be happening is that these Cape Cod communities' demand for construction/remodeling has outstripped the capacity of locally-residing providers; and this, coupled with customers' unwillingness to wait for services, leaves a supply-demand gap that is eagerly filled with high-priced off-island providers.

b. Gardeners, maids and grocery sackers might be in short supply here in the San Juans, but no one has observed such service employees commuting by ferry. Nor, especially, has there been a demonstration that the need for such services goes unfulfilled.

c. An anecdote demonstrates how the market actually works to positively include off-island service providers. The Bellingham construction firm that recently built Friday Harbor Center daily transported workers by air. Although the transportation costs added several dollars per hour per employee, this firm found it more efficacious to use long-trusted employees and overall construction costs were considerably less than the bids of other (local) firms.

d. Most construction tradesmen command relatively high wages and their annual earnings would likely be too high for them to qualify for affordable housing subsidies.
We have a relatively small population and the demand for some services is insufficient to offset the costs of living here (as would be the case even if housing costs were not relatively high). Just as we don't see any problem with not having a locally-residing heart surgeon, we need not be concerned that we need to "import" some tradesmen, nor that this is related to the cost of housing.

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PART ONE

MYTH 1: High housing costs are undesirable. As recently as the early 1990's a widely held view was that San Juan County had too many "inexpensive houses". Many were do-it-yourself cabins-in-the-woods; and many were vacation or second homes intended only to provide minimal accommodation. Many of these homes have been remodeled and expanded as their owners retire and choose to reside here full time.

The inconvenient truth is that most islanders are quite pleased with the fact that their property values are increasing. Although they don't like the accompanying increases in property taxes, there is a general consensus that increasing wealth brings much good. For one thing, the cost of moving here is increased and this of itself serves to moderate growth and perhaps cause such growth to be relatively more desirable than otherwise.

Myth 2: Affordable housing programs are an overall good for a community. Two questions poignantly highlight the issue. Readers can answer these questions for themselves; and supporters of the affordable housing program ought to provide their respective answer.

1. Why do we want to encourage the presence of people that cannot afford to live here?
2. What do we say to the vast majority of service providers (not to mention ordinary home owners) that have managed to live and work here all these years without the benefit of an affordable housing program?

Tax-supported affordable housing programs add to overall housing costs, lower the overall valuation of the housing stock, end up putting money into the pockets of mortgage lenders and developers (that could not otherwise be earned in free market transactions), and create yet another burdensome bureaucracy.

Myth 3: We need a county-sponsored Affordable Housing Program and its associated 0.5% property sales tax. There are several ongoing and successful affordable housing programs operating in San Juan County. We need to support and encourage them. At least one is subsidized with federal tax dollars from the Department of Agriculture. We do not need another program, and especially, we don't need to empower county government to collect another tax and administer an even bigger program.

The proposed Real Estate tax will most probably conform to Gresham's Law (debased money drives out good money): not only will it likely cause would-be donors to cease supporting the on-going private programs, but the private programs will likely wither.
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