Housing: Can Seattle get supply and demand right?

Four of these houses in Laurelhurst were all for sale in 2009 but property costs and rents are rising in Seattle now. Credit: A McLin/Flickr

Seattle has an affordable housing problem, and the city’s attempts to fix it aren’t working. On this point, everyone from housing activists to real-estate developers can agree.

With the minimum wage fight behind it (for now), the Seattle City Council is turning to an equally complicated issue: how to prevent Seattle from achieving full-on economic segregation. The city hosts some of the fastest rising rents in America, and unlike New York City and San Francisco, there’s no rent control to keep things slightly in check. Individuals and families are being priced out of their longtime neighborhoods, often into the city’s outskirts.

To address this, the council is aiming to enact new housing legislation by the end of summer. A 2013 ordinance, which vowed to update Seattle’s affordable housing program and policies, paved the way for an epic, eight-hour public forum this past February. More than 200 people attended, weighing in with their opinions and listening to presentations from national housing experts, Silicon Valley developers, D.C. think tankers, gentrification opponents and others.

Since that meeting, the council has awaited the results of three commissioned studies, which will guide their next steps. Those studies began arriving Friday, when their authors met with council members in an all-day workshop to start hammering out formal policy recommendations. These are due to be unveiled in a July 14 public meeting.   

The Seattle process has a way of taking its time, with a seemingly bottomless appetite for information gathering over move making. But it has also produced some of America’s most forward-thinking civic policies. As new residents flood into the city, there’s real urgency to transform Seattle’s approach to housing creation.And elected officials express a degree of confidence that the city can get it right, where cities like San Francisco have not.

Anytime affordable housing is re-examined, the term “incentive zoning” must rear its dull-sounding head.Meant to be a central tool in creating new affordable units, the city's program hasn’t yielded many dividends in the city, and will inevitably be a focus of the upcoming reforms.

The term is fairly descriptive. Housing developers can often expect to make more money on taller buildings, given the added amount of units. The city therefore offers the possibility of zoning modifications to incentivize developers into making some units “affordable” — currently targeted at those making 80 percent or less of the area’s median income (AMI). In lieu of actually building units priced within the AMI guidelines, developers can pay into a fund that helps build that housing elsewhere in the city.

The last time Seattle tinkered with this mechanism was early 2013, when developers sought to build taller buildings around South Lake Union to accommodate the tech sector’s rapid growth there. Before that point, property owners opting not to create affordable housing on-site paid a fee of about $19 per square foot for units above the site’s applicable height limits.The council ended up increasing the fee to $21.68 per square foot, in an attempt to extract more public benefit from South Lake Union's increasing density.

Councilmember Nick Licata called this a “step in the right direction,” though he had sought an escalation of the fee to $96 per square foot. In reality, it seems to have been less a step than a kick — of the can down the road.   

The SLU debate pitted affordability advocates against property owners like Vulcan, and neither side was happy with the outcome. Simply put, incentive zoning is meant to create neighborhoods where Amazon managers live on the same block as the people serving them happy hour. No one believes the current approach is achieving that goal.

As it stands, the burden of creating affordable housing in Seattle falls mainly to the public, in the form of the housing levy, repeatedly approved by voters. Using city data, the Downtown Seattle Association points out that levy funding has created more than 3,700 units in the last 12 years, while incentive zoning has only created 616.

The DSA, Vulcan, and many others in the business community see incentive zoning as a tax on growth, paradoxically aimed at increasing the housing supply by making it more expensive to build. Their position is the city should maximize its housing supply and density, perhaps up-zoning around transit areas and encouraging more micro-housing units, otherwise known as apodments —essentially apartments the size of large closets.

Hal Ferris of Spectrum Development Solutions represents the other side of the debate. A developer with over 30 years of experience in the business, Ferris was the city’s main consultant during the incentive zoning debate of 2013. Similar to Licata's eventual position, his report recommended a severe hike in the “opt-out” fees charged in lieu of actually building affordable units.

Currently the city’s developers almost universally pay these fees in lieu of building on-site affordable units, Ferris says. He calls this evidence that the fees are too low.

“Everyone’s just writing a check, and why wouldn’t they?” Ferris says. “It costs so much less than building the unit itself, developers have no reason not to… That’s leading to situation where we just put all the low-income units in Southeast Seattle, or wherever the land is cheapest, and the city becomes more and more segregated by income.”

If current incentives are such a sweetheart deal, however, then why aren’t more developers taking them? According to a recent city-commissioned study from Cornerstone Partnership, 62 percent of developers are opting out of participation in the incentive zoning program, building within current height requirements instead of pushing for more density. That means less housing is built, and it may serve to make housing even less affordable over time.

“Over the next few months, we need to get some better detail on why people aren’t accessing (the incentives),” said Councilman Mike O’Brien earlier this year. “Is the program broken, or are there a whole host of other reasons for it not working?”

Incentive zoning policies are in place across the nation, but the jury is still out on exactly what works. A study by the National Association of Homebuilders, while biased in favor of property owners, lays out a detailed case for their general ineffectiveness. Meanwhile, a federal study found incentives were increasing the affordable housing supply around the D.C. metro area, but added caveats against applying that finding to other markets.

As chair of the council’s planning and land use committee, O’Brien is heading up the current reform efforts, and has said everything is on the table. Incentives could become much more stringent and mandatory, or they could be softened in favor of making them more attractive to developers. There will be vocal advocates for both approaches, but all acknowledge that the time for half-measures is past. 

“We’re actually creating an amazing amount of housing in Seattle,” said O’Brien after February's housing forum. “But when people see some of these jaw-dropping rents… the question becomes, ‘How consistent it this with our vision of the city?’ We’re in a race to catch up with the times right now.”

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