During a mayoral debate last night, candidate Jenny Durkan revealed that she has either a very poor idea of finance or has a plan that will deliberately add fuel to Seattle's growing housing crisis.
What happened is this: Heidi Groover asked Durkan how, along with developer fees, she would pay for new affordable housing.
Durkan then said the most amazing thing. She pointed to a development in Pioneer Square described as "workforce housing." This is housing not even for poor people but for middle-class professionals (teachers, legal assistants, firefighters, civil servants) who can no longer afford to live in the city. These people earn between $50,000 and $70,000 a year. But as everyone in this city now well knows, an individual needs an income in the range between $90,000 and $100,000 to make rent without being burdened. Durkan said that the Pioneer Square workforce project will involve an old wealth fund (money that makes money while its owners do next to nothing) and Spectrum Development. Right after this point, we heard either Durkan's ignorance of or collusion with the financial factors that are inflating the values of homes and apartments: She said that the return on this investment for the wealth fund will be 5 to 7 percent, and that this would be better than investing in bonds.
So, put simply, Durkan sees financial investors (and she purposely made them look local—like their wealth is old lumber money or something) as a major source for funding affordable housing. (If that does not make you laugh, nothing will.) And the incentive in her scheme is a humble-sounding 5 to 7 percent return on an investment. Yes, Durkan thinks 5 to 7 percent is so modest that it can transform an investor with a huge wealth fund into a public-spirited citizen. (If that does not make you laugh, nothing will.)
Those who focused on her bogus claim that taxing cash flows from global surplus capital—which tend to be found in countries with current account surpluses (they are net exporters like Germany, Saudi Arabia, and China)—will have racist consequences, and completely missed the fact that she thought a 5 to 7 percent return on an investment to be so mundane that it can be considered a kind civic gift to the city from the princes and princesses of the investor class, are playing with fire. To begin with, a 7 percent return on anything is, to use the words of Thomas Piketty, the famous French economist who examined the portfolios of the super-rich by comparing them with huge university endowments, "extremely high." If an investor hears they can earn as much as that (or even as low as 5 percent) on an apartment building for firefighters, they will certainly wonder what the returns are on the luxury apartments that Seattle can't stop building. Durkan either knows or doesn't know (and both cases are equally bad) that there is, in the world that Seattle is connected to, a dearth of yields (returns) as high as 7 percent. Indeed, it is this scarcity that caused Wall Street to produce fake investment-grade securities (AAA all the way) in the years before the crash of 2008.
But if you think that Wall Street and the global investment class are abstractions from another planet, and so unrelated to the practical problems of Seattle's economy, please go to the corner of Second Avenue and Union Street and look up at the NBBJ-designed tower. It's now called Russell Investment Center. But not too long ago, it was called the WaMu Center. That massive bank, Washington Mutual, imploded in the crisis of 2008, and its assets, valued at $310 billion, were transferred to NYC's Chase Bank. Because WaMu was at the time the nation’s largest savings and loan company, its collapse was "the biggest failure in US banking history." As a consequence, thousands of jobs were lost in the Seattle area, and the downtown economy took a huge hit. Wall Street was no longer abstract for many wallets and tables in King County. And why exactly did WaMu implode? It was a major supplier of over-valued mortgaged-backed securities that were in great demand all over the world (Germany, Canada, Norway, China). And what caused this demand? It's very hard to find investments with returns above 3 percent. (Indeed, you would be lucky to get that—3 percent—from one of the bonds Durkan's mentioned.)
Durkan clearly doesn't appreciate the dangers of modern finance. As Seattle has grown, its local and regional economy has become more and more connected to Manhattan, to The City, to Shanghai, and to other exporters and importers of surplus cash. A person who expects to make 7 percent a year on a Pioneer Square workforce apartment is not what most people in the financial world would call a philanthropist.