Updated 3 months ago on . Most recent reply
Real Estate Critical: Seattle: Ideology vs Incentives
Listen up--investors and economies don't care about your speeches; they care about the math. That's a simple idea we always try to keep in mind, and it's a big part of why so many well-intended policies in cities like Seattle keep backfiring.
Right now, there are new proposals that seem to want to 'punish' commercial property owners for having empty spaces. It sounds nice, doesn't it? 'Tax the empty buildings until they get filled!'
But on the ground, we see the real incentives that make or break a small business. If you ignore those, you get less investment, not more.
Seattle’s Empty-Building Tax: Good Intentions, Backfiring Results
The thinking behind this new tax proposal in Seattle seems simple:
We've got empty offices and storefronts.
Let's charge the owners a penalty if they stay empty for too long.
That will force them to drop the rent, fill the space, or turn it into housing!
It sounds like a nudge. But in practice, here are the real problems:
You can’t tax a tenant into existence.
A landlord MAY be able to drop the rent, but a small business still needs a solid customer base. They can't just conjure up foot traffic if people are working from home, or if crime and disorder are driving customers away.
You raise the risk for everyone.
This tax makes the entire city a riskier place to invest. Now, an owner or a lender doesn't just have to worry about the market going soft; they have to worry about being punished for something they can't control.
You might actually encourage neglect.
If carrying a vacant building is more expensive and the future is uncertain, owners may just stop taking care of them. You get deferred maintenance, less cleaning, and potentially more blight, not the vibrant streets everyone wants.
You discourage the hard-but-valuable big projects.
Turning an empty office into new housing is incredibly valuable, but it takes time, money, and a mountain of permits. If you're under the gun of a vacancy tax, aren't you less likely to gamble on a complex project?
My Mom & Pop View on Incentive-Based Policy
Real estate markets across the country are in a tough spot right now. Layering on an ideologically satisfying but incentive-blind measure like an empty-building tax doesn't create prosperity; it just amplifies the distress.
A real incentive-based policy would make productive use of a property easier, not harder:
Make it simpler to reuse or convert a space. Streamlined permitting for small businesses or housing conversions.
Reward performance, don't punish vacancy. Temporary tax breaks for converting offices to units or for signing long-term leases with local businesses.
Create predictable, stable rules. Investors can plan for tough rules, but they can't price for 'ideological whiplash.'
A relentless focus on street-level safety and order. Nothing brings back organic retail and office demand more predictably than a safe, clean, and stable environment. Remember NYC Mayor Guillain's 'broken window' 1 plan?
Economies don't respond to speeches or moral framing. They respond to whether a rational person, facing real risk, can expect a fair return for their hard work and money. We need policies designed backward from those incentives, not forward from an ideology. 2
for your reference:
1 https://www.nber.org/digest/jan03/what-reduced-crime-new-yor...