Over the past decade, the Seattle area has been adding jobs much faster than housing, resulting in much more demand than supply. The market, as Microsoft President Brad Smith sees it, is broken. Correcting it is the impetus for a new $500 million announced by the company Thursday.
Smith thinks it’s misguided for public officials to try to fund construction of affordable housing. That was the goal of Seattle’s short-lived head tax, which would have collected millions of dollars from the city’s top-grossing businesses to build more affordable housing. The tax was passed, then quickly repealed after Amazon and others in the business community threatened a referendum campaign. Microsoft, which is located outside Seattle proper, did not participate in the opposition effort.
“The United States of America, for about three centuries, has been a land of growing population,” Smith said in an interview with GeekWire. “We’ve always managed to build more housing to accommodate more people and the number one thing that does that is a free economic market that works. What we have right now in Puget Sound is a market that’s not working. So a big part of the question we focused on is how to make the market work, not how to have public authorities build buildings.”
Microsoft spent eight months searching for an answer, partnering with Zillow to crunch the numbers on the region’s housing market and study solutions that have worked in other cities. The plan they came up with is a $500 million fund, $475 million of which will be invested in low- and middle-income housing projects at market rate returns or lower. The remaining $25 million will be donated as philanthropic grants to organizations addressing homelessness in the region.
But money is just one piece of the puzzle, Smith says. The plan also includes a series of policy recommendations that Microsoft wants local officials to champion.
“They are not changes that require larger budgets,” he said. “It’s zoning changes. It’s a lot of other changes in the way that construction and other laws work. There is a really interesting asset that the cities often have. It’s not money, it’s land … what we need is not necessarily cash.”
Smith sat down with GeekWire, following an event announcing the fund, to discuss what Microsoft hopes to accomplish in partnership with the public sector. Continue reading for the edited Q&A.
GeekWire: One thing I was interested in was this idea that Microsoft has the balance sheet to support something like this. What do you think other tech companies, that don’t necessarily have Microsoft’s balance sheet, can do to follow your example?
Brad Smith: I think we all have an important role to play and it’s multifaceted. People can use the power of their data because I think data is one of the keys to unlocking solutions to this problem. Zillow, not surprisingly, has more data than anybody else. It’s helpful and they just did a fabulous job. We really benefited from partnering with them on this work. But other businesses do as well. They know where their employees live and they know what kinds of jobs they’re creating. So you have the power of data. Other companies do have money. Doesn’t mean that they have the ability to make an investment on a par with what we’re doing but it will take, I think, much more money and everybody has the ability to do something. No amount of money is too small in my view.
I think that there are going to be opportunities for businesses to use their voice. Certainly, one conclusion we came to is that the public policy changes that are needed are just as important as money. They may, at the end of the day, be even more important than money. So, having a group like Challenge Seattle working on this — [Former Washington Gov.] Christine Gregoire referred to that this morning — having business stand up for the policy changes that will help. And finally, I think people have time. One of the things we’re interested in is creating volunteer opportunities for our employees in a variety of ways. I think this is the kind of cause that, across our region, people care about. And that means not just the people who lead businesses, but all the people who work at them.
GW: Lots of tech companies in the area have used their voice on this issue, but on some occasions, they’ve used their voice in ways that might seem a little bit incongruous. I’m thinking of the head tax and Amazon really loudly using their voice to say that they didn’t support it. So do you think that there’s dissonance between these things?
BS: I don’t know that there’s dissonance. I think we need to address the right problems, but we need to focus on the right solutions. I think it’s understandable that there were companies last summer in Seattle that thought that the solution that was being offered was going to be a step backwards rather than forwards. At the end of the day though, we all have to decide what we stand for and not just what we stand against, especially when we’re talking about a problem that affects our region as broadly and deeply as this one does. One of the benefits of being proactive is that it’s actually easier to fashion some ideas and hope to build some momentum behind them. That’s part of what we’re doing here. I do think that all of us in the tech sector in Puget Sound have an opportunity to take more steps to show the region what we stand for.
GW: Do you think that the region needs to raise more revenue to deal with this crisis?
BS: Obviously, we have said that the state has more money to put into this. Dow Constantine referred to some changes that would enable the county to make more investments. I think more investment is needed. That’s not always the same thing as saying more revenue is needed. As with all such things, it’s really a combination of how does this get prioritized against other spending and what’s the smartest way to spend money?
What is quite clear to us is the smartest way to spend public money is not to just build buildings. That’s the single most expensive path you could take and it’s not really the core competence of the public sector for that matter. What we’re really focused on is the kinds of public policy changes that will stimulate the market and the kinds of capital investments that will stimulate the market. Just think about it. The United States of America, for about three centuries, has been a land of growing population. We’ve always managed to build more housing to accommodate more people and the number one thing that does that is a free economic market that works. What we have right now in Puget Sound is a market that’s not working. So a big part of the question we focused on is how to make the market work, not how to have public authorities build buildings.
GW: Do you think that local governments at the city, county, state have enough funds, as it is, to deal with this crisis and it’s more a matter of how they’re used?
BS: I think that the biggest thing that the municipal governments can do is address the seven areas of policy change that are being addressed in this statement by the nine mayors today. And if you look at those, they are not changes that require larger budgets. It’s zoning changes. It’s a lot of other changes in the way that construction and other laws work. There is a really interesting asset that the cities often have. It’s not money, it’s land. When you think about it, this is an interesting issue. It’s unlike most other public issues. What we need is not necessarily cash. We need land and we need that land to be used so that it creates more housing for people with lower and middle incomes.
There’s a hugely important discussion about density, about zoning, and about coupling changes in zoning with changes that will lead to the construction of housing that people can afford. That’s really where the public attention should go. I would worry that if everybody just talks about taxes and public spending, we’re not only going to find ourselves back in the center of a disagreement, we’re actually going to distract from the changes that will have a far bigger and more beneficial impact.
GW: How did Microsoft come to the conclusion that those changes will have a bigger impact?
BS: We studied. We went to school is the short story. We worked with Challenge Seattle. We worked with the Boston Consulting Group. We studied different places around the country and really around the world. And we asked what’s working? We didn’t find any single place that had yet developed all the answers, but by looking around the world, we found different pieces of the answers and then that really flowed into … the policy changes that we’re suggesting for the state government. It doesn’t mean that if we do all of these things, this problem will necessarily be eliminated, especially eliminated in a short period of time. It’s too big a problem to solve that quickly. But it did provide real clarity for us. It turns out that if you study, you learn and if you learn, you come up with some better ideas.
GW: Setting aside the public policy changes just for a second, when you think about the $500 million in funding, should we be relying on philanthropy, which doesn’t have any oversight, to be solving these challenges rather than going through governing bodies which do have oversight and more public input?
BS: I think it’s going to require a combination of steps to solve this kind of problem. I sort of feel that any day there are more affordable housing units constructed that people can move into is a good day for the region. So there’s a variety of paths that can get us there. We may well have opportunities to consider new entities or structures in the months or years ahead. We’re not by any stretch of the imagination saying there’s only one way to pursue this kind of problem.
Certainly for us, when we’re the one entity with this kind of investment, it makes sense to get the money flowing as quickly as possible. If there’s multiple entities making investments, that’s usually when you then see some new structure emerge. And if you see a combination of public and private money, then you really have a new question about oversight. I think about the analogy to the Opportunity Scholarship Fund. We have unleashed private money, including money that has been raised by GeekWire. We have public money, so it is a public-private collaboration. It is therefore supervised by a public board that I happen to chair. We’re all appointed by the governor. We’re subject to legislative audits and scrutiny. I think that’s the right step. Whenever you have public money, that’d be a great problem to have when we’re thinking about housing and some other issues.
(Editor’s note: GeekWire’s Geeks Give Back campaign raised funds for the Washington State Opportunity Scholarship in 2016 and 2017.)
GW: Do you see that as the future of this initiative?
BS: I think it’s way too early to know. I actually think that it may be easier to unleash more private capital than public capital in this space, but it’s too early to know that too.
GW: Do you think that other tech companies in the region are doing enough to mitigate this crisis?
BS: I don’t think it’s a question of whether people are doing enough. I think the question is instead whether we all have the opportunity to do more. I think we each do have an opportunity to play an important role. I think the role varies from company to company. You can’t expect companies that have a balance sheet that’s very different from ours to do what we’re doing. Certainly not at the magnitude that we’re doing it but I think we should each ask ourselves, how can we contribute in a constructive way to bend the curve on a problem that is affecting all of us, including our own employees?