The Three Tenets of Housing Reform

The Foundation for Restoring Affordability in Washington State

TENET 1: THE REGULATORY TAX IS REAL, MEASURABLE, AND MASSIVE

The Empirical Evidence

Not theory. Not opinion. Proven fact.

Multiple peer-reviewed studies confirm that Washington's land-use restrictions artificially inflate housing costs by amounts comparable to or exceeding typical household incomes:

National Studies:

• Across 250 U.S. cities, restrictive regulations raise housing prices substantially; Washington cities rank among the most restrictive and most expensive due to regulation
• Statewide land-use rules in Washington add over $200,000 to home prices in cities like Seattle
• The "zoning tax" in Seattle—the amount land is bid up by supply restrictions—equals approximately one year of typical household income

Washington-Specific Evidence:

• King County's Urban Growth Boundary raises land prices by ~230% inside vs. outside the boundary
• In five western states including Washington, strict land-use regulations increased housing prices by 1.3-4.7% and reduced developed area by ~12%
• About one-third of housing cost is land, and restrictive state-level rules significantly increase prices relative to input costs

Bellingham Case Study:

• Current lot price: $260,000
• Estimated price without regulatory restrictions: $100,000-$120,000
• Regulatory markup: $140,000-$160,000 per lot (54-62%)
• This matches the national research showing 40-50% regulatory inflation in highly restricted markets

What Creates This "Tax"

It's not imposed by the market—it's imposed by government policy:

State Level (Growth Management Act):

• Urban Growth Areas that won't expand (2.7-6.5% growth while population grew 15-34%)
• 20-year Comprehensive Plans that lock in bad assumptions
• Mandatory coordination that gives counties veto power over cities

County Level:

• Denial of UGA expansion requests (Whatcom County: 4 denials over 20 years)
• Environmental overlays that remove thousands of acres
• Comprehensive Plan requirements that inflate capacity projections

City Level:

• Zoning that locks 70-85% of land into lowest density
• "Buildable lands" analysis that removes 92% of UGA from supply
• Permitting delays (18-24 months average)
• Impact fees ($50,000-$172,000 per unit)

The Compound Effect:

Each restriction adds cost. Together, they multiply:

This isn't market forces. This is policy choices compounding into crisis.

Why This Matters

You cannot solve a crisis caused by artificial scarcity with subsidies alone.

If the regulatory tax adds $140,000-$160,000 to every lot, then:

• Every home built costs $140K-$160K more than necessary
• Subsidies must overcome this markup to create "affordability"
• Taxpayers pay to offset government-created costs
• The root cause remains untouched
• The crisis perpetuates

This leads directly to Tenet 2.

TENET 2: AS LONG AS ARTIFICIAL COSTS REMAIN, AFFORDABILITY IS IMPOSSIBLE

The Permanent Headwind

Imagine trying to sail a boat with the anchor still down.

You can:

• Add more sails (build more housing)
• Get a bigger motor (more subsidies)
• Push harder (developer incentives)
• Bail water faster (rental assistance)

But as long as the anchor stays down, you're fighting the drag with every effort.

That anchor is the $140,000-$160,000 regulatory markup on every lot.

The Math That Never Works

Starting point: Land costs $260,000 (with regulatory markup)

Option A: Build "market-rate" housing

• Land: $260,000
• Construction: $400,000
• Fees/permits: $87,000
• Profit/contingency: $53,000
• Total: $800,000
• Income needed: $240,000
• Affordable to: <5% of households

Option B: Build "affordable" housing with subsidies

• Same costs: $800,000
• Subsidy needed to reach 80% AMI household: ~$300,000
• Cost to taxpayers: $300,000 per unit
• Plus: Ongoing operating subsidies if rental
• Result: Helps one family, costs fortune, doesn't scale

Option C: Use density/middle housing

• Land: $260,000 (same expensive lot)
• Build duplex instead of single-family
• Construction: $500,000 (two units)
• Fees/permits: $174,000 (2× $87K)
• Profit/contingency: $66,000
• Total: $940,000 ÷ 2 units = $470,000 each
• Still requires $141,000 household income
• Affordable to: 15-20% of households
• Density helped, but didn't solve problem—land is still too expensive

All three options fail because they START with artificially expensive land.

The Perpetual Treadmill

As long as the regulatory tax remains in the system:

Year 1:

• Build 1,000 units (heroic effort)
• Each costs $140K more than necessary due to regulatory markup
• Community "investment": $140 million in unnecessary costs
• Homes still unaffordable to most working families

Year 5:

• Population grows, demand increases
• Supply still restricted by same policies
• Prices rise another 20%
• Now need even more subsidies to bridge gap
• Original "affordable" housing no longer affordable

Year 10:

• Exhausted from building expensive housing
• Subsidies can't keep pace with rising costs
• More families locked out than when you started
• Officials commission another study

This is why Seattle, despite building more than most cities, still has severe affordability crisis. This is why Portland, with permissive zoning, still has high prices. This is why every "solution" that ignores the regulatory tax ultimately fails.

The Headwind Calculation

In Bellingham's case:

If you build 500 units per year for 10 years:

• 5,000 new homes
• Each with $140K regulatory markup
• Total waste: $700 million in artificial costs

That's $700 million that could have:

• Built 1,750 additional homes (at $400K each)
• OR made all 5,000 homes affordable to median-income families
• OR been left in families' pockets to spend on other needs

Instead, it's captured by the regulatory tax—dead weight loss that benefits no one.

Why This Matters

You cannot layer solutions on top of artificial scarcity and expect affordability.

Every approach fails if it starts with expensive land:

• ❌ More supply? Still expensive
• ❌ Subsidies? Can't scale, never end
• ❌ Density? Helps marginally, doesn't solve
• ❌ Rent control? Reduces supply further
• ❌ Zoning reform? Helps at margins, core problem remains

The only solution that works: Remove the artificial costs FIRST.

This leads directly to Tenet 3.

TENET 3: WE'RE OFFERING THE SAME HELP AS RENTAL SUBSIDIES—BUT IT COSTS TAXPAYERS NOTHING

The Parallel Structure

What we do for renters now:

At certain income levels (typically <80% AMI), government provides subsidy:

• Rent is $2,200/month
• Renter can afford $1,400/month
• Subsidy: $800/month ($9,600/year)
• Cost to taxpayers: $9,600/year, forever
• Wealth built by renter: $0

What we propose for homebuyers:

At certain income levels (80-120% AMI), government provides different "subsidy":

• Remove regulatory restrictions on designated lots
• Land drops from $260K to $120K ($140K "subsidy")
• Home costs $380K instead of $700K ($320K total "subsidy")
• Buyer purchases with conventional mortgage
• Cost to taxpayers: $0
• Wealth built by owner: Full equity, ongoing appreciation

The Critical Difference

Both approaches help people at specific income levels. Only one approach costs taxpayers money. Only one approach builds wealth.

Rental Subsidy Model:

• Government cuts check every month
• Money transfers from taxpayers to landlords (via renter)
• Renter remains renter, builds no equity
• Subsidy must continue forever
• Taxpayer cost: Perpetual

Income Covenant Model:

• Government removes restrictions on specific lots (costs $0)
• Restricts buyers to 80-120% AMI (like 55+ communities restrict to seniors)
• Buyer purchases at true market price (within that income pool)
• Owner builds equity, graduates from need
• Taxpayer cost: $0

The "Subsidy" That Isn't

Here's the genius of this approach:

What looks like a subsidy:

• Home costs $380K instead of $700K
• Difference: $320K
• Family "saves" $320K

What's actually happening:

• We removed $140K in regulatory markup from land
• We removed $180K in regulatory markup from total home cost
• We restricted buyer pool so market clears at lower price
• No taxpayer money involved—we just stopped imposing artificial costs

It's not a subsidy—it's the absence of a tax.

The Bellingham Comparison

Current Approach (Home Fund):

Annual budget: $10 million

• $9.75M to rental subsidies (97.5%)
• $0.25M to homeownership (2.5%)

Over 10 years: $100 million collected from property owners

Rental subsidy results:

• ~10,000 household-years of assistance
• Average subsidy: ~$9,750/year per household
• Wealth built by recipients: $0
• Recipients still need subsidy (no exit path)
• Taxpayer cost: $97.5 million over 10 years, ongoing forever

Homeownership assistance results:

• ~270 families helped
• Average subsidy: ~$9,250 per family (one-time)
• But they still bought $700K homes on expensive land
• Still struggling with payments
• Taxpayer cost: $2.5 million over 10 years

Total taxpayer cost: $100 million over 10 years Permanent homeowners created: 270 Families building wealth: 270 Problem solved: No

Alternative Approach (Income Covenant Model):

One-time policy change: Remove regulatory restrictions, add AMI covenant

Capital required: $0

Results over 10 years:

• 5,000+ lots developed at true market cost ($120K)
• Homes cost $380K instead of $700K
• All go to 80-120% AMI families
• All buyers use conventional mortgages (no subsidy)
• Each builds $50K-$150K equity over 10 years
• Taxpayer cost: $0

That $100 million that would have been collected?

• Never needs to be collected
• Property owners keep their money
• OR it can be redirected to actual infrastructure needs

Permanent homeowners created: 5,000+ Families building wealth: 5,000+ Problem solved: Yes—structural fix creates self-sustaining affordability

The Math That Changes Everything

Per-family comparison:

Multiply by 5,000 families:

Why This Works When Subsidies Don't

Subsidies fail because they fight the regulatory tax head-on:

• Land costs $260K (regulatory tax included)
• Subsidy tries to make it "affordable"
• But you're subsidizing the government-imposed markup
• Taxpayers pay to offset government policy
• Never ends, can't scale

Income Covenant works because it eliminates the tax first:

• Remove restrictions → land costs $120K (true market value)
• Add AMI covenant → buyer pool restricted
• Market operates within that pool
• Government creates affordability through policy, not checks
• No ongoing cost, scales naturally

The Question Officials Can't Answer

"You spend $10 million per year subsidizing renters—building them zero wealth, creating permanent dependence.

We're proposing you remove regulations that cost $0 to remove but add $140,000 to every lot—allowing working families to buy homes and build wealth, with zero taxpayer subsidy.

Both approaches help people in the same income range (80-120% AMI). One costs $10 million per year forever. One costs $0.

Why would you choose the expensive approach that doesn't build wealth over the free approach that does?"

There is no good answer to this question