Controversy over Seattle bid to tax nonresident homebuyers; improve housing affordability with regulatory reform

The metropolitan Puget Sound region has some of the most expensive housing in the nation. High rents and home prices create a barrier for first-time buyers and new residents to the region. In our 2017 foundation report update, we wrote that the lack of affordable housing also threatens economic growth.

Excessive regulation also restricts the supply of housing and raises its cost. For example, in the San Francisco Bay area, growth has slowed due to high housing costs and lack of housing supply. We can avoid the outrageous housing prices of the Bay area by paying close attention to the impact of our state’s land use regulation. Another WRC report examined the state’s Growth Management Act (GMA), adopted 25 years ago, and concludes that the “GMA’s rigid . . . boundaries are heading for a collision with other policy goals that are rising in priority, including housing affordability, economic disparities, and the need for new schools. GMA planning mandates ‘concurrency,’ which means that infrastructure, including roads and bridges, must keep up with growth. But congested roads, principally in western Washington, threaten to cripple the mobility which is vital to economic progress.”

In Seattle, a proposed new tax on nonresident homebuyers has sparked controversy. The Seattle Times reports,

As Seattle leaders debate whether to tax overseas buyers or vacant homes to cool a hot housing market, the City Attorney’s Office has declared both proposals illegal.

And the King County assessor has denounced the entire approach, saying such taxes are unneeded and could stoke anti-Asian sentiments.

British Columbia began taxing foreign buyers and empty investment properties in pricey Vancouver last year, and Seattle leaders have quietly been considering similar plans. Mayoral finalist Cary Moon has made them a signature issue.

Concerned about home prices here, City Councilmember Lisa Herbold recently asked City Attorney Pete Holmes if taxes on foreign investors and vacant properties would be possible under local laws. The answer was no.

Read the article and an accompanying story on how the issue might play in the city’s mayoral election for insight to the political give and take. What struck us, though, was the notion that such investment might play any kind of significant role in the city’s housing problems. The Times reports the assessor thinks it does not.

The assessor added: “The luxury-home market is not driving our affordability crisis. It is simple supply and demand of housing priced for working people.”

…The assessor called worries about foreign buyers a distraction, saying he hasn’t seen evidence that sales to nonresidents are having a significant impact on prices.

For instance, his office has seen no dramatic increase in cash sales, he said.

Further, the story adds, the policy apparently hasn’t done much to improve conditions in B.C.

We wrote earlier about the influence of regulatory policy on housing affordability in Canada and Washington state.

Canada faces a major housing affordability problem, with many elements common to what we see in Washington. Wendell Cox at New Geography writes,

The Canadian Mortgage and Housing Corporation (CMHC) has issued a “red warning” for the entire housing market in Canada.” According to CMHC the red warnings are due to “strong evidence of problematic conditions for Canada overall. Home prices have risen ahead of economic fundamentals such as personal disposable income and population growth. This has resulted in overvaluation in many Canadian housing markets.”

We cited additional research by Cox that  reported,

Restrictive land-use policy is associated with housing affordability losses. International economic literature associates more-restrictive land-use regulation with diminished housing affordability. The largest housing affordability losses have occurred in metropolitan areas (markets) that have adopted urban containment land-use strategies, which severely limit the land that can be used for building houses on and beyond the urban fringe. Consistent with basic economics, this reduction of land supply is associated with rising land prices, which lead to higher house prices. Without the substantial reform of restrictive land-use policies, housing affordability is likely to continue deteriorating…

The findings mirror conclusions reached by the Washington Research Council in its report on the state Growth Management Act.

If we continue on the current path, the ability to purchase a single-family detached home may be greatly reduced for all but the wealthy. Additionally, the market evolution into a more beneficial pattern of agriculture may be thwarted. Enhancing the GMA will require protecting growth boundaries from continual assault while increasing their flexi- bility and utility for all of our citizens, particularly those hardest hit by rising prices.

An op-ed in the Seattle Times last year highlighted concerns about the impact of the GMA in the metro area. 

We also looked last year at research on housing challenges in California that again pointed out the role played by regulatory policy.

Housing affordability poses a major policy problem in our state, particularly in the fast-growing metro areas. We’ve written about it here and here. Now comes a new report, The Cost of Not Housing, by Joel Kotkin, whose work we often cite here.

The report considers the consequences of failing to assure the market provides an adequate supply of affordable housing.

The analysis again appears timely. It strongly suggests that regulatory reform will provide a better path to housing affordability than efforts to impose a controversial and possibly illegal tax on certain groups of homebuyers.