Contributor Post Created with Sketch. Senseless in Seattle

 

On first inspection, Seattle is and ought to be the envy of the rest of the United States. In 2017, its population stood at about 713,000 people and was growing at 3.1 percent per year, the fastest growth rate of any US city. Its economic revival has been driven by an influx of new software, technology, and internet companies. Among the major corporations headquartered there are Amazon, Starbucks, Nordstrom, and Weyerhaeuser.

But all is not well in Seattle, which is now riven by deep political divisions over what to do about the problem of homelessness. Right now, about 8,000 people within the city limits are homeless, and the city saw 169 homeless deaths in 2017. The progressive leadership within the City Council has introduced or adopted a number of measures to address this issue that are sure to backfire. The first is a special head tax on employment; the second is an ordinance that forbids landlords from inquiring into the criminal records of prospective tenants; and the third is a steep increase in the city’s minimum wage. But the real problem is that sixty-nine percent of Seattle is zoned only for single-family homes, which means there is a sharp division between where wealthy elites live and where lower-income and less-educated people are congregated. The progressive city council has maintained these barriers, with profound social consequences.

This past week, the Seattle City Council announced plans for a head tax of $500 per employee, but only on those 500 or 600 businesses in the city that gross over $20 million dollars per year. That money will be used to provide for low-income housing and emergency services for homeless people. That tax works out to over $20 million per year for Amazon, which employs some 45,000 people in Seattle. Amazon did not take kindly to this special tax that could easily rise over time. It thus took the extraordinary step of stopping construction on its new 17-story office tower on Rainier Square that on completion could house an additional 7,000 to 8,000 workers. Its exit threat is credible. Amazon has opened up new office spaces for about 5,000 more workers in Boston and Vancouver—the latter in part because of the difficulty of getting suitable visas into the United States. And it is actively looking for a second headquarters—that it could convert into its new primary hub. Remember Boeing left town in 2001.

Councilmember Mike O’Brien, who sponsored the new head tax, put his case as follows: “We need companies that are profitable and making billions of dollars every year to help with the folks that are being forced out of housing and ending up on the street.” But this heartfelt sentiment should not carry the day. Amazon already pays its fair share of real estate and other taxes to the city. Most of its billions in profits are not generated in Seattle, but by its huge national and global footprint. It would hardly do for every locality to replicate the Seattle tax. Nor should they try. The correct form of redistributive taxes is on general revenues, whether on property or on income. The voters who want to impose the tax on others should be prepared to impose it on themselves. Picking on one group of successful firms will likely reduce their presence or even drive them out of town, as with Amazon. And it will surely deter other successful firms from coming in.

Likewise, O’Brien is cagey about who has “forced” the homeless onto the street. It is hard to pin this on Amazon, which has brought enormous wealth to Seattle; and he overlooks destructive city policies that contribute to the problem of homelessness, most notably those relating to single-family zoning, which crimps the construction of new affordable housing units. No city should cripple or kill its strong horses. Instead it should expand its tax base through private development that could cater these underserviced communities.

The city’s other response exhibits the same short-sightedness. In August 2017, Seattle unanimously passed its Fair Chance Housing ordinance that forbids local landlords from running criminal background checks in all but sex offender cases. The ordinance carries with it fines that run between $11,000 and $55,000. The Ordinance introduces findings that these checks have a disparate impact on minority groups, especially African Americans. Like so many misguided disparate impact claims, this one fails to explain why criminal records are not relevant to landlords, given the greater risk that such tenants could pose to other tenants. Nor is there any allegation that these tests were administered in a way calculated to single out black persons with criminal records, but not white persons. Nonetheless Councilmember Lisa Herbold insisted that “Blocking formerly incarcerated people from accessing stable housing is an extrajudicial punishment not consistent with the rule of law.” But no refusal to deal ever counts as punishment, for if it did, then no one anywhere could ever inquire about criminal records, even, say, at schools or day-care centers. Nor does this age-old practice offend the rule of law, which requires sufficient notice and fair application of known legal rules but in no way mandates antidiscrimination ordinances in competitive markets.

But armed with these flimsy rationales, the Seattle ordinance puts into place an expensive civil rights enforcement mechanism, and it offers, of course, no compensation for landlords whose property values decline because other tenants choose to leave or insist on paying lower rents in light of their perceived higher risk. Likewise, the ordinance offers no defense to a landlord who might be sued by any person on the premises who is assaulted or injured by tenants on whom they are not allowed to do background checks. Indeed, a negative consequence of the ordinance is that it makes it all the harder for blacks without criminal records to obtain rental housing. And through it all, the ordinance does not add one single unit of new housing to the market. Indeed, it is more likely that the change will reduce the available stock of rental housing by increasing the costs of doing business—at least, ironically, if the high rents ($2,000 per month for a one-bedroom apartment) don’t make this entire issue go away.

It is, therefore, of no surprise that landlords are belatedly striking back with their own lawsuit that treats the ordinance as overbroad and insufficiently protective of landlord rights. But they are in hostile judicial terrain. However unwise the ordinance, today’s canonical progressive position holds that ordinances that restrict a landlord’s choice of tenants come with a strong presumption of constitutionality, especially in civil rights cases. Local governments always claim that the costs of their ordinances are low—but they are never prepared to give landlords financial assurances or assistances if they prove wrong.

The last of the Seattle ordinances in the crosshairs is its $15.00/per hour minimum wage law, which was intended to boost the income of the city’s low-income workers. It should come as no surprise that the law has had the opposite effect. All employers adapt to minimum wage laws. They fire workers; they reduce hours; they invest in more capital equipment run by higher wage workers; they even leave town in frustration. A recent study by economists at the University of Washington concludes that these effects more than offset the nominal increase in wages, such that the “average low-wage work in the city lost $125 per month” because of the increase. That works out to a loss of $1,500 per year for the average low-income worker, which could easily reach 10 percent of their previous wages.

No highly technical empirical study is needed, however, to show the foolishness of any minimum wage, which reduces employment opportunities and raises administrative costs. The empirics only establish the magnitude of the loss; they cannot salvage minimum wage laws. Real world complications make it hard to isolate the effect of a change in the minimum wage law from other events that influence wage levels, like a local shift in supply or demand, or new taxes and ordinances that even the most skilled economic investigators could overlook.

Yet the theory speaks volumes. A priori, there is no way to tell what impact any particular minimum wage hike will have on employment. If the equilibrium wage is above the new minimum wage level, there should be little or no immediate response. The possibilities of further hikes, or of an economic slow down, could introduce elements of uncertainty that could push employment down. In all scenarios, the effects are negative. But for policy work, the Seattle City Council cannot banish the laws of supply and demand.

So a common thread links all three of these misadventures. Preexisting regulation creates all sorts of market distortions for housing and labor. A sensible City Council removes the imperfections. A Progressive City Council doubles down on failed policies, and only makes matters worse. Sadly, even Seattle cannot repeal the law of unintended consequences.

© 2018 by the Board of Trustees of Leland Stanford Junior University

There are 13 comments.

  1. TempTime Member

    Excellent article. Thank you.

    • #1
    • May 7, 2018, at 2:55 PM PDT
    • 3 likes
  2. Ralphie Member

    But it works out on paper.

    If only that was the only place it needs to work. 

    As pointed out, an African American without a record might find himself homeless.

    two step math is hard.

    • #2
    • May 7, 2018, at 3:01 PM PDT
    • 3 likes
  3. rico Inactive

    Well researched—Dr. Epstein hit all of the key points; and then he introduced a few less well-known ones, and added his brilliant insight and analysis.

    I’ll stop talking now.

    • #3
    • May 7, 2018, at 3:04 PM PDT
    • 3 likes
  4. KentForrester Moderator

    Mr. Epstein, Portland, which has a hardcore “progressive” mayor and city council, is equally as foolish as Seattle in its restrictive and overbearing housing policies. When will they ever learn? When will they ever learn?

    The Democratic big shots in our large cities are the curse of good government. And the people suffer. 

    • #4
    • May 7, 2018, at 3:11 PM PDT
    • 9 likes
  5. RushBabe49 Thatcher

    Great post, and I have no quibbles. Please also note that Seattle has a dearth of buildable land, it being shaped like an hourglass, and suspended between Lake Washington on the East and Puget Sound on the West. Those who live in North Seattle are not all “wealthy elites”, and many are being literally priced out of the city due to skyrocketing property taxes. People who can hang on while gainfully employed cannot afford the taxes after they retire. I was born and raised in Seattle, and no way would I ever want to live there now. Homeless people are more highly-valued now than the taxpayers who pay, and pay, for services to them.

    • #5
    • May 7, 2018, at 5:09 PM PDT
    • 9 likes
  6. Hustler46060 Member

    To follow on Mr. Forrester’s point. Recently in the retail establishment that I work in central Indiana, not far from Mike Pence’s stomping grounds, I became acquainted with a gay couple that appeared in their mid to late 50’s. They had recently moved to the hoosier state because they could not see themselves being able to afford retirement in Oregon. The tax levels there were consuming so much of their income they wouldn’t have been able to afford retirement on their terms. Now, they have a much more favorable environment to live out their desire to have a comfortable retirement doing the things they can afford to do. Not spend their retirement paying for the dreams of someone else.

    • #6
    • May 7, 2018, at 5:26 PM PDT
    • 9 likes
  7. T-Fiks Member

    There’s one positive trade-off to all these utopian policies in Seattle and King County. The valuations I keep getting from Trulia, Redfin, and Zillow for my home 30 miles south in Tacoma are going through the roof. 

    Lots of people are actually making the commute, although traffic is hideous and the light-rail transit we’re paying for won’t reach us for ten years or more. 

    An interesting side note is that Seattle’s openly-socialist city councilwoman got shouted down recently by a rowdy group of building trade workers. They aren’t happy about Amazon’s suspension of its building project.

    The wheels of God grind slowly, but they grind exceedingly small.

    • #7
    • May 7, 2018, at 11:46 PM PDT
    • 4 likes
  8. Blondie Thatcher

    Hustler46060 (View Comment):

    To follow on Mr. Forrester’s point. Recently in the retail establishment that I work in central Indiana, not far from Mike Pence’s stomping grounds, I became acquainted with a gay couple that appeared in their mid to late 50’s. They had recently moved to the hoosier state because they could not see themselves being able to afford retirement in Oregon. The tax levels there were consuming so much of their income they wouldn’t have been able to afford retirement on their terms. Now, they have a much more favorable environment to live out their desire to have a comfortable retirement doing the things they can afford to do. Not spend their retirement paying for the dreams of someone else.

    To piggyback off this comment, Amazon is looking for a home for its second headquarters and the Raleigh area is on the list. Y’all can come, just leave the crappy politics of the west coast behind. 

    • #8
    • May 8, 2018, at 4:17 AM PDT
    • 2 likes
  9. I Walton Member

    Why do big tech companies move there in the first place, this craziness has been going on for some time. Why aren’t they and their workers moving to more hospital places? What am I not seeing?

    • #9
    • May 8, 2018, at 4:27 AM PDT
    • Like
  10. Larry3435 Member

    I watched these exact same dynamics play out in Los Angeles. I watched it up close, until I decided it was time to flee the city in 2015. Since then, I have watched it continue from my new home in Nevada. Los Angeles now has more than 60,000 homeless (and growing), living in encampments, defecating on the streets, and destroying middle class neighborhoods. The socialist government ensures its continued hold on power by importing as many illegal aliens as possible (and yes, they do vote and they vote for Democrats), and this aggravates the problem. Between the highest taxes in the nation and the worst government services, the pressure on middle class people to leave is enormous. Small businesses have been driven out by the thousands, and many large businesses have left as well. It will only get worse. Too bad that other socialist states and cities are incapable of learning from California’s mistakes.

    • #10
    • May 8, 2018, at 4:52 AM PDT
    • 3 likes
  11. Pony Convertible Member

    Some people never learn from history. Detroit was blessed with big profitable corporations in the 50’s and 60’s. That city also thought it was a good idea to make them pay their fair share. Eventually, the jobs moved to friendlier cities.

    Seattle is in a rapid slide downhill. Part of me feels bad about it, but then it is what the people in that city voted for. Choices have consequences.

    • #11
    • May 8, 2018, at 5:02 AM PDT
    • 4 likes
  12. Postmodern Hoplite Member

    Hustler46060 (View Comment):
    They had recently moved to the hoosier state because they could not see themselves being able to afford retirement in Oregon. The tax levels there were consuming so much of their income they wouldn’t have been able to afford retirement on their terms. Now, they have a much more favorable environment to live out their desire to have a comfortable retirement doing the things they can afford to do. Not spend their retirement paying for the dreams of someone else.

    Betcha it takes them about 18 months before they are voting for the exact same sorts of Democrat politicians they left behind in Oregon. I suspect that they will very shortly be talking down the “Deplorables” they find in Indiana, those needing the enlightened hand of the Progressive state.

    • #12
    • May 8, 2018, at 7:29 AM PDT
    • 4 likes
  13. Tex929rr Coolidge

    Postmodern Hoplite (View Comment):

    Hustler46060 (View Comment):
    They had recently moved to the hoosier state because they could not see themselves being able to afford retirement in Oregon. The tax levels there were consuming so much of their income they wouldn’t have been able to afford retirement on their terms. Now, they have a much more favorable environment to live out their desire to have a comfortable retirement doing the things they can afford to do. Not spend their retirement paying for the dreams of someone else.

    Betcha it takes them about 18 months before they are voting for the exact same sorts of Democrat politicians they left behind in Oregon. I suspect that they will very shortly be talking down the “Deplorables” they find in Indiana, those needing the enlightened hand of the Progressive state.

    Yup. We are having that sort of growth here now. Currently, there aren’t any Democrat politicians for them to vote for in local races, but I’m sure that will change.

    • #13
    • May 8, 2018, at 7:44 AM PDT
    • 3 likes