Landmark Links May 18th – Playing with Fire

Lead Story… Generally speaking, cities tend to want to attract large employers as it’s beneficial to both the local economy and the tax base.  Employees spend money at local retail establishments, eat at local restaurants, rent apartments, buy homes and send their children to local schools.  This is why it’s not uncommon to see cities offering all sorts of perks to entice a desirable company to relocate or expand.  Ideally, the relationship between employers and business should be a symbiotic one where the businesses attracts employees and generates tax revenue and the municipality provides the infrastructure, services and housing necessary to sustain growth.

Unfortunately, this relationship has fallen apart in recent years in cities that have a large technology presence.  The companies have generally held up their end of the bargain, growing rapidly and providing tens of thousands of generally high-paying jobs which generate wages that are often re-invested in the local economy in one way or another.  However, the tech-centric cities – many of which are on the west coast – have not held up their end of the bargain as they have not provided the housing necessary to absorb all of the new affluent residents attracted by new opportunities from tech employers while maintaining a reasonable level of affordability.  The result has been nothing short of catastrophic.  People at the lower end of the middle class have been pushed to the margin and those already at the margin have been pushed onto the streets.  Homelessness has surged in these regions and tent city encampments have become the norm.  Yet, in nearly all cases the cities have accepted very little of the blame for their shortcomings and instead have passed blame off on greedy developers and in some cases, even the job creating businesses themselves.  The latest example a city attempting to deflect responsibility for its housing shortcomings took place this past week when Seattle took the bizarre step of approving a “head tax” which effectively penalizes businesses above a certain size for hiring employees.  Via ABC News (emphasis mine):

The new tax will apply to all major companies in Seattle grossing more than $20 million including Amazon and Starbucks, and will charge each business $275 per full-time employee each year. The tax will affect about 3 percent of the city’s business community, according to figures released by the city council.

Beginning January 1, 2019 and expiring five years later, the new tax is expected to collect about $48 million a year, significantly less than the initially- proposed goal of $500 per employee, which could have gathered about $75 million per year. For her part, Mayor Durkan had originally proposed a goal of collecting $40 million annually.

Not surprisingly, big employers like Amazon are less than thrilled and the e-commerce behemoth even stopped construction plans on a new office building as a result.  The irony here is that the growth from large employers like Amazon and Starbucks has resulted in a windfall for Seattle in recent years but a combination of not getting aggressive enough about construction of new housing and poor fiscal management have led them to cast blame elsewhere and bite the hand that feeds.  I think that this sums things up nicely (emphasis mine):

Officials at Amazon are “disappointed by today’s City Council decision to introduce a tax on jobs,” Drew Herdener, an Amazon vice president, said in a statement released to ABC News.

“City of Seattle revenues have grown dramatically from $2.8 billion in 2010 to $4.2 billion in 2017, and they will be even higher in 2018. This revenue increase far outpaces the Seattle population increase over the same time period,” Herdener said in the statement.

“The city does not have a revenue problem – it has a spending efficiency problem. We are highly uncertain whether the city council’s anti-business positions or its spending inefficiency will change for the better.”

Seattle’s revenues are up a whopping 50% since 2010.  Over the same time frame, the city’s population has increased from 608k to an estimated 704k for an increase of 15.7%.  Want to know why city revenue has outpaced population growth by so much?  Because large employers there are attracting high-wage employees who broaden the tax base substantially.  It really is that simple.

There is another issue at play here that makes the head tax even more absurd: scale.  Cities have allowed the cost of housing to get so out of hand that producing affordable units to get people off of the street has become incredibly expensive.  Though it may sound like a lot, $48MM is really not that much money when you consider that it costs approximately $300,000 PER UNIT to develop subsidized affordable housing in Seattle today.  In fact, it’s enough to develop one relatively small (160 unit) subsidized housing project a year.  As a result, the scale of the so-called solution is dwarfed by the problem itself.  By way of example, 95 affordable subsidized units were recently completed in San Francisco and 6,580 people applied via lottery to live there.  Put simply, those odds suck.  Want to know what would go a long way towards providing affordable housing?  How about using a substantial portion of the $1.4 billion in new revenue that has come into Seattle’s coffers since this cycle began to help build it while easing back on restrictions that make it more expensive and challenging to build market rate units at the same time.  Then again, that would require both fiscal responsibility and the courage to roll back restrictive zoning against the wishes of some residents…..and we are talking about city government here.  It seems absolutely absurd that a city would alienate it’s tax base and discourage companies from relocating there to provide a “solution” that barely amounts to a drop in the bucket to a problem that is 100% of their own doing, but that is where we are.  I guess you can’t fix stupid.


Past Due: US borrowers are now defaulting on subprime auto loans at a higher rate than they were during the Great Recession.

Cash is King: 3-month Treasury Bills now offer a higher yield than the S&P 500.

Different Standards: Part of the problem with fighting inflation is that central banks can’t even agree on how to properly measure it.

Fake It Until You Make It: Satellite data strongly suggests that China, Russia and other authoritarian countries are fudging their GDP reports in en effort to make their economies look better than they actually are.


Playing Both Sides: WeWork has set up a new entity to buy buildings where it is a tenant that will be capitalized by outside investors, creating a massive conflict of interest.

Sea Change: How the legalization of sports betting could have a substantial impact on commercial real estate in the United States and could help provide a lifeline to under-performing retail centers.


Free Falling: Apartment rents in New York are falling and landlord concessions are up as a wave of new units hits the market.  It’s good to know that the law of supply and demand is still alive and well.

Waiting it Out: New research from John Burns Real Estate Consulting suggests that Millennials typically wait an additional 5 years to buy homes than the previous generation did.

Holding Back: Economic conditions should be perfect for public home builders but their stock prices are subdued thanks to interest rate fears.


Open for Business: The Supreme Court invalidated a federal law that prohibited sports gambling in states other than Nevada earlier this week which means that major sports leagues are about to become a lot more wager-friendly.

Crypto State: Wyoming politicians are trying to turn their state into America’s cryptocurrency capital by crafting laws to lure crypto-backed companies there.

Smoke and Mirrors: A big NYC crypto conference featured lots of rented Lamborghinis and fake protests from “bankers” coordinated to generate attention.

Charts of the Day


Horton, Here’s a Poo: In possibly the least Canadian act ever, a woman got in a fight with a couple of Tim Horton’s employees dropped her pants, took a dump on the floor, threw it, grabbed some napkins to wipe her ass, threw those too, and left – you need to watch the surveillance video to fully appreciate this one. (h/t Trevor Albrecht)

Polly Want a Police Record: Police were called to investigate a domestic disturbance at a home an instead found a loud argument between a man and his girlfriend’s parrot because Germany.

Who Amongst Us…: A drunk man stripped naked and punched a police officer outside of a Burger King because the terrible fast food restaurant was closed.

Keeper: A Hitler-loving stalker sent a guy 65,000 texts after one date then threatened to kill him and broke into his house after he denied her advances.  By the way, she is now single if you’re into that sort of thing. (h/t Dave Brooks)

Fatal Attraction: An endangered marsupial found only in Australia is killing itself off by having too much sex.

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