Redfin did not sign the business community’s petition against Seattle’s head tax, which as of Monday afternoon was headed to the mayor’s desk for a signature. We made this decision even though we oppose the head tax, and even though we support the petition’s call for dialog on the city’s major problems, because we want to be more explicit about the policies we can support: zoning for more affordable housing, and higher taxes on corporate income or high personal income to fund subsidized housing and homeless services.
Now, more than ever, we want the people who hear the business community say “no” on the head tax also to hear, even more loudly and clearly, what we’d say “yes” to. Simply opposing every tax won’t work. The government faced fierce resistance to a state-wide income tax on the wealthy in 2010 and to a legally dubious city-wide income tax in 2016. In our view, the absence of a reasonable statewide income tax has given the city fewer alternatives to the unreasonable head tax now being considered.
Why the Head Tax is Wrong
But the head tax is unreasonable, at the $500 level or even the $275 level. The goal of all government economic policy should be to maximize, not penalize, employment. One of our goals as business leaders has to be different: to generate as much revenue as we can with as few employees as we can. Where those goals align is when Redfin does need to hire someone: the city should encourage us to hire that person as an employee, not a contractor, and to do it here, not in Boise or Bombay.
Entry-Level Jobs Will Be Most Affected
While a $275 head tax is perhaps small relative to the salary of a senior software engineer, it isn’t for the entry-level jobs that an economically diverse city needs most. Those are the jobs that will leave first due to this tax.
One simple way employers will avoid this tax is by using contractors for labor rather than employees. Contractors won’t have the benefits, career opportunities or job security of an employee. Redfin employs thousands of real estate agents when others in both the tech and real estate industries minimize costs by using contractors. We thus feel as strongly as anyone that a tax on employment is the wrong kind of tax. It’s a victory for Uber’s 1099 vision of the economy, and a setback for ours.
A Divide is Forming in Seattle
But there has to be a right kind of tax, on corporate income or high personal incomes, and we support it. Many of us have seen what happens when a divide forms between technology leaders and the rest of society. For years, several of us lived in San Francisco, a place where we began to feel hesitant rather than proud to say we worked in technology.
Government Has to Do Its Part
To avoid this divide, government leaders have to do their part too. We’ve tried contacting our city council members, now and over the past year, to ask what we could do to support an equitable Seattle. No one has returned our calls or emails.
We don’t expect special treatment just because an email or a call came from a CEO or an executive, and understand if councilmembers have chosen to meet with others in the business community. But we hardly know of anyone from one side of this debate who has met the other side. It’s important that folks in government and business make the effort to understand one another.
Zoning Matters More Than Taxes
We also want to be clear that taxes aren’t the only answer, or the main answer. The amount of housing the city can build with a head tax, or any tax, is nominal. The change that can make a major difference is to neighborhood zoning, which will lead to more home-building.
The Problem Is There Aren’t Enough Homes to Buy
Seattle’s home prices have increased 45% over the past three years, but that price increase has somehow only decreased the supply of homes for sale. The number of listings in Seattle has declined for 43 straight months. Since 2010, the number of residents per home for sale has tripled. Redfin alone had almost as many home-buying customers in Seattle for the month of April as there were homes for sale here on any given day that month, and Redfin is one of nearly a thousand brokerages in town.
Zoning Hasn’t Changed Because We Don’t Want It To
Normally, higher prices would induce more construction, but zoning laws prevent that. These laws, supported on the left and right, are fiercely defended by well-intentioned neighborhood associations that limit housing supply and increase property values. Some housing professors have said these associations effectively function as cartels. And it’s these laws, not market forces, that prevent builders from replacing parking lots, strip malls and single-family homes with affordable, high-density condos and townhouses.
It’s hard for homeowners to support zoning changes. It might mean an apartment building puts your house in the shade. But the alternative is worse: a city where people resent the economic success of those who can afford to live here, where police officers and teachers can’t live in the communities they serve, where traffic and long commutes are the norm because people have to move further and further away to afford housing.
Build More Housing of Every Type
The time for this zoning change, and for simplifications to the permitting process, is long overdue. In other towns, Redfin now finds itself in a curious position as the brokerage for people who have left our hometown; few cite taxes as a reason to stay or go, but almost everyone talks about housing costs. We need to stop arguing about whether to build affordable housing or expensive housing, and simply build more housing of every type. At least until we’ve funded a much better mass-transit system, it needs to be as close to the city as possible.
Taxes As a Last Resort
And then there are the taxes. We know better than anyone just how many businesses are already planning to shift hiring outside of cities like Seattle or San Francisco due to high housing costs.
Any new taxes will give them more reason to do so.
And we understand the reluctance of most business leaders to raise taxes. We feel the same way about raising taxes that we do about raising our own prices: you can ask a customer, a company or a citizen to pay more for your services but only as a last resort, when you’re sure that the expense is worthwhile, and only after you’ve tried to fund it by reducing expenses elsewhere. We’ve learned through brutal experience that most ambitious ideas don’t work out as planned, and have to be tested at a small scale, even to address an urgent problem like homelessness. This is the discipline by which we run our business, and it applies to governments too.
But It’s Time to Pay Up, It’s Time to Step Up
Fiscal conservatives point out that the city has increased spending by 17.4% since 2015, when the city’s population has grown by about 10% in that time. And it’s not entirely clear that money will solve the homelessness problem. On one hand, a May 2018 McKinsey report found that Seattle needs to double its spending on homelessness; on the other, a study commissioned by the city in 2016 concluded that the problem can be solved by re-allocating existing funds.
Since the $200 million Seattle has already spent on homelessness has not led to a clear improvement, the city should agree on a new plan to spend the money effectively before we all beat each others’ brains out over where to get more money. But we’ve elected a government to figure out that plan; what the business community owes that government is a promise that if and when such a program requires more money, we’ll fund it.
We don’t want to live in a city of increasing affluence as more people live on the streets. We can only get so high on our horse about the need for government frugality when the city’s facilities are so much dingier than ours, and their pay so much lower.
It’s time to reshape the city with zoning laws, but if we also need to pay up just a little for the humane values that have made Seattle great, we want to be very clear that we’re happy to pay that tax, so long as it’s on income, not employment, and so long as we measure whether the programs we fund actually work. When one program doesn’t work, we’ll try something else until we figure this out, together.
Post script: We understand why most of our friends in the business community signed the petition against the head tax. We nearly did too. In the end, we just wanted to take that petition one step further, laying out the kind of taxes and zoning policies we could support. Not everyone who signed the petition agrees with taking those steps, but many do. We decided to publish our own view to say where we stand but also because, as a Seattle-based tech company focused on housing, we were so often being asked over the last week what our view was.
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