Seattle City Council comes up with a hazardous way to price housing

THE "incentive zoning" proposal at the Seattle City Council comes with a vision of housing affordable to workers. But there are hazards in the details, and the proposal on the table is distinctly hazardous.

The proposal is best explained by example. Imagine a commercial lot with old, one-story buildings on it. The lot is zoned for 40-foot heights. In theory, the old buildings could be torn down and replaced by apartments, but with a 40-foot ceiling there are not enough new units and a tear-down doesn't pay.

Suppose the city allows 80 feet. That means more units. Now it pays to tear down and build, which makes the lot worth more to the owner.

The city has given the owner a gift. Under incentive zoning, to get that gift the owner has to give something back. In exchange for the right to build more units, the developer has to promise that some of the extra units be offered at a price-controlled rent that will not contribute to a profit, and maybe subtract from it.

The city's aim is to create subsidized housing without making taxpayers pay. The landowner pays, but only out of the extra value created by lifting the ceiling.

There is equity in that, and social benefit — but also problems. The no-profit units amount to a tax on new housing. Tax a thing and you tend to get less of it. We're for taxing cigarettes and liquor, because less of those is all right. Taxing new housing gives us pause. Even pricey new housing creates slack in the market and tends to benefit all buyers.

The mechanism of incentive zoning tends to work where property is expensive. Since 2006, it has existed downtown, where most new units are in steel-frame towers. In downtown Seattle, the set-aside is 11 percent of extra new units.

Seattle Councilmember Sally Clark is proposing a 20-percent rule for Seattle's other business districts. Judging from testimony, 20 percent might work in pricier districts, but not all of them: Ballard, yes; Columbia City, no.

Mayor Greg Nickels has proposed that the requirement be 11 percent, the same as downtown. That is better than 20 percent.

Better yet would be the proposal of the Master Builders, the Downtown Seattle Association and the Chamber of Commerce to set a different requirement for each business district. Set-asides should be limited to construction above 85 feet, meaning steel-frame buildings. Any ordinance should also be sunsetted, to force a review of actual effects.

The city should be careful about penalizing housing if it truly wants more of it.