Last week, news broke that a King County payroll tax is in the works. Seventeen Democratic state representatives have signed on a bill (House Bill 2907) that would give King County the authority to institute a payroll tax of up to 0.2% on firms employing workers making $150,000 or more annually–with some exemptions. King County Executive Dow Constantine and Mayor Jenny Durkan hailed the effort, and backers hinted of major business support.

It turns out business leaders are conditioning their support on a litany of demands–the biggest being that the State Legislature would block Seattle from adding more business taxes. The Downtown Seattle Association released a letter listing more than a dozen demands. They also insist that payroll tax revenues are spent via the recently launched Regional Homelessness Authority rather than by the City of Seattle. That would require a revision since the current language grants the City of Seattle 43% of proceeds given the geographic incidence of the tax being similar.

Mayor Durkan declined to take a position on Seattle tax preemption. Preemption would seem to go against local leaders’ pledges to end homelessness and addressing the housing affordability crisis since it would block one of the clearest paths to raising enough money to do so. Katie Wilson, General Secretary of Seattle Transit Riders Union, laid out the case against preempting Seattle’s tax authority better than I could in her Crosscut op-ed.

“This is a textbook case of the powers that be making a small concession to avoid a larger one,” Wilson wrote. “Anyone who cares about truly righting our upside-down tax system and building affordable housing at scale should vigorously oppose preemption. Seattle has precious little progressive tax authority as it is. It’s irresponsible to bargain what we do have away–especially when the grand prize is a county payroll tax that tops out at 0.2%. (Move that decimal point over to 2% and then let’s talk!)”

Solving homelessness

High-powered business consultants McKinsey & Company estimated the need as much greater than the $120 million per year the county payroll tax is designed to raise. In a recent McKinsesy report, consultants Benjamin Maritz and Dilip Wagle estimated the cost would run into the billions just to solve King County’s housing gap for extremely low-income households–defined as those making 30% of area median income.

“Using a conservative set of assumptions, ending the homelessness crisis in King County would therefore cost between $4.5 billion and $11 billion over ten years, or between $450 million and $1.1 billion each year for the next ten years,” they wrote. Again that’s the estimate just to house the population segment making less than 30% of area median income.

The broader affordable housing crisis

Solving the housing crisis up to 80% of area median income would take even more investment, as would the middle-income segment from 80% to 120% of area median income, where household budgets are still stretched and housing options limited. Mayor Durkan recently released a report from her Affordable Middle-Income Housing Advisory Committee with recommendations for that income bracket.

In the last decade, the affordable housing crisis has worsen for those below 80% of area median income in King County. Rising rents have taken 112,000 homes out of reach for this segment based on McKinsey's analysis. (Credit: McKinsey)
In the last decade, the affordable housing crisis has worsened for those below 80% of area median income in King County. Rising rents have taken 112,000 homes out of reach for this segment based on McKinsey’s analysis. (Credit: McKinsey)

McKinsey arrived at the $4.5 billion to $11 billion figure by estimating between 15,700 and 37,000 new homes are needed for extremely low-income households at an average cost per home at $325,000. Meanwhile, King County’s Affordable Housing Task Force has estimated 156,000 new homes are needed currently with another 88,000 by 2040 to solve the affordable housing shortage up to 80% of area median income. Building 244,000 homes would take a $79 billion investment assuming each home costs $325,000. King County wouldn’t need to single-handedly take on this investment, but federal housing investment hasn’t been at that scale in recent memory, and the philantropic community has never attempted building on such a massive scale. Thus, King County might not want to count on huge amounts of outside assistance.

King County has ample resources for the taxing

King County is an economic powerhouse. With a population of 2.25 million, King County has a gross domestic product (GDP) of nearly $300 billion and is among the fastest growing in America. In fact, King County’s GDP is greater than Oregon’s or South Carolina’s. Employees making more than $150,000 account for $61 billion in annual compensation and those 185,000 high-salaried employees make about 44% of all compensation in King County, according to the Mayor’s office.

Though commonly called a payroll tax, the proposed tax technically is as an excise tax on companies paying those $61 billion in top salaries. Given those incredible resources, 0.2% isn’t a big tax hit, especially with the exemptions included for more vulnerable businesses. Wilson’s call to increase the allowed tax rate rings true. And 2019 election results–in which business-backed candidates mostly got shellacked–suggest voters agree and that raising progressive revenue for affordable housing is popular.

Capping King County’s additional investment in housing at $121 million per year might make sense to the corporate bottomline, but it makes very little sense from a policy perspective, especially applying an equity lens. As Xochitl Maykovich, political director of Washington Community Action Network, put it in a tweet: “How can the @downtownseattle claim to prioritize lived experience and anti-racism if they–largely white men who are rich–are dictating the spending?”

We hope you loved this article. If so, please consider subscribing or donating. The Urbanist is a non-profit that depends on donations from readers like you.

6 COMMENTS

  1. The dream of everyone living in apartments and riding a bus is not shared by many. Light rail at the same scale as Chicago or NY is 50-100 years away at the earliest, and would cost billions or trillions of dollars with very limited land resources to implement a region wide light rail plan. More government involvement and guidance has led to higher taxes, more fees, longer permitting process, and limited new housing which is affordable. The idea of the government subsidizing the cost of thousands and thousands of housing units at far below market rates is not sustainable, affordable, or smart. All the new taxes to create “affordable housing” is paid for either directly or indirectly by residents of this city. The cost to live in this city has increase dramatically in the last 5-10 years, cost outside of housing costs. All the new taxes, fees, and increased costs have made Seattle more expensive to live in. Residents have gotten very little in return for the millions and millions of tax dollars collected and spent by the City. And now people think we need to increase taxes more to create “affordable housing”? King County and the City of Seattle are not qualified to plan and spend tax money on affordable housing, their track record has proven wasteful spending with very little results. This needs to change.

    • 1. Your first comment is a personal opinion, especially looking internationally (your community isn’t in a vacuum).
      2. Chicago does not have a light rail system (the L is heavy rail).
      3. Please provide specific examples of the higher taxes, the increased fees, and the lengthened permitting processes and their relationships to affordable housing (genuinely curious).
      4. Please provide specific examples of the “millions and millions” of tax increases over the last 5-10 years that lack a return to residents.
      5. If you are not in favor of the King County 0.2% payroll tax on the highest earners in the region or higher payroll taxes at the City level (or any tax increases at all), how would you propose the housing affordability crisis be solved?

  2. Where would these “affordable units” be built? How will you build housing and maintain a $325,000 cost when typical construction costs are $300-$450/sf? Wouldn’t it be a better solution to up-zone virtually every neighborhood to at least 5-6 stories and then spend the tax money on more rapidly expanding light rail and improving public transit?

    I know developers get a lot of flack but I’d much rather create the conditions where developers have to scramble to compete with each other to lower costs than expect King County or the City of Seattle to magically reduce construction costs (unions are not going away or working for charity and most construction companies are union in the Seattle region. Union employees get compensated very well.)

    I generally don’t agree with supply-side economics but when you are trying to provide housing for a growing region – boosting housing supply as rapidly as possible really is the only way to go.

    • At the 30% AMI and below income level, the market structurally cannot provide housing because it is not profitable. The McKinsey report cited in this article says as much. https://www.mckinsey.com/industries/public-sector/our-insights/why-does-prosperous-king-county-have-a-homelessness-crisis

      More generally, developers don’t scramble to build against each other in upzones, because they just don’t build if the profit margins are too low. This article from Curbed lays out the dynamic really well. https://www.curbed.com/2020/1/30/21115351/upzoning-definition-affordable-housing-gentrification

      Furthermore the primary cost of housing is far and away in the land, which can be attacked through policies like rent control and right of first refusal. On the labor side, we should view a social home building program as a job program, where union members don’t have to rely on the whims of a corporation.

      • Good points, Preston, and thanks for the links. I would add that studies have shown social housing also has market effects, because housing can certainly trickle up if it can trickle down. One Berkeley study found that per unit subsidized housing is twice as effective as market-rate housing at reducing displacement pressure in strong markets. https://shelterforce.org/2017/11/02/time-for-trickle-up-housing/

        Like Preston said, market-rate developers produce housing only when it’s sufficiently profitable (occasionally they might miscalculate, but that has to be the exception or they fold). Zoning can help on the margins, but there’s isn’t a silver bullet to produce enough homes affordable below 80% area median income because there just isn’t much profit to be found in that range. At least until the underlying conditions change (e.g. cost of construction, land costs, financing costs, etc).

      • Thank you so much for the links! Although your curbed link seems to indicate that the cost of construction is also dictated by regulatory costs; not so much that upzoning has any inherent flaws (data seems to be too limited to make a definitive conclusion.) The link also says that the cost of land is inherently reduced by upzoning (i.e. 3D increase of available space.) I do understand as well though that increased engineering and concrete costs as you increase height are not to be ignored.

        I also don’t see a world where rent control somehow decreases construction costs I don’t see how those things are correlated in any way. Rent control seems like a bad idea. I support housing affordability but also see the need for dynamism and flexibility of movement which rent control prohibits.

        I’d also cite the current construction along Denny way that developers DO directly compete with each other to be first to market and offer the most luxurious amenities. 1200 Stewart, 1120 Denny, Nexus, Kinects, The Spire, BB6, on and on all competing with each other to be first to market and provide the maximum possible luxury units as soon as possible. Without that supply and market pressure sprawl and pricing-out of residents in neighborhoods nearby (Capitol Hill, Queen Anne) would be inevitable.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.