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Why it’s so hard to build truly affordable housing in Seattle

Patrick Place low-income housing replaced the notorious Thunderbird Motel off Aurora Ave. Credit: Seattle Office of Housing

The Thunderbird Motel was a longtime eyesore, even among the notorious stretch of seedy establishments along Aurora Avenue. The gun violence, drug dealing and prostitution were so thick, the building was declared a public nuisance, a title shared by few and coveted by none.

But earlier this summer, on the spot where the Thunderbird once stood, an affordable housing project called Patrick Place opened — a collection of small studio apartments with a garden, a common room, laundry and even a roof planted with grass. Forty of its units will be for people earning less than $750 a month; the other 30 will be for the formerly homeless or shelter-bound.

At a time when Seattle is seeing more and more of its low-income residents driven out, the Thunderbird’s transformation offers a look at how housing can be built for those most in need. But the fact that it took four years to get there hints at a hard truth: Building truly affordable housing in this city is incredibly difficult.

Mayor Ed Murray’s Housing Affordability and Livability Agenda (HALA) taskforce has set out to add 20,000 affordable units over the next ten years, a two-thirds increase from Seattle’s current stock. Just about everyone agrees that even 20,000 units falls short of the city’s true need, particularly for those in the lowest income brackets. Nonetheless, Murray says the goal is a “stretch.”

Why is it so hard to build low-income housing? The easy answer is because of money, or lack thereof. But time, space and bureaucracy loom large as well.

The first challenge to building affordable housing is fundamental to any real estate deal: location. According to Scott Starr, an architect with SMR, a firm that designs low-income apartment complexes, the ideal size for a low-income housing project, from an efficiency standpoint, is between 70 and 80 units (although members of the Low Income Housing Institute pointed out that they build projects with 50 units). The only places you’re allowed to build structures that large are downtown, in urban villages and along transit corridors — at least two of which happen to be where for-profit real estate developers want to put their buildings as well. In other words, during a housing boom, when low-income housing is needed most, it gets even harder to make it happen.

Patrick Place, a project of Catholic Housing Services, benefited from starting during a development bust, when competition for both space and construction firms was mild, Starr says. Had the project begun now, he says, “construction cost would definitely be higher. We’re competing with the market rate, multi-family developers. We have to compete with those guys for everything.”

There’s also the matter of getting approval for these projects, which often prompts resistance from neighbors concerned about low-income tenants. Patrick Place got some pushback because the building was two stories higher than the Thunderbird, but because of the motel’s ugly reputation, neighbors largely cheered the transformation. (One man, though, bought the Thunderbird sign for nostalgia’s sake and is restoring it in his garage.)

The old Thunderbird Motel sign off Aurora Ave.
The old Thunderbird Motel sign off Aurora Ave.

At the same time that developers are trying to pin down a location, they have wrestle with what is perhaps the biggest challenge of all: money.

To understand the difficulties of building low-income housing, you need to know that there is no money to be made on it. “Workforce housing” for lower-middle class families can pencil out for developers if the government provides the right incentives and tax breaks. But building housing for those most in need requires outside funding from the federal government, the state, the city and philanthropic organizations.

Federal low-income housing funding can cover up to half of the cost of construction, but there is a lot of competition, especially for the higher funding levels. And even if you do get federal money, it doesn’t come as a check. Instead, it comes as a tax credit to the owner of the building. Most low-income housing developers operate as non-profits, which are already tax-exempt, so tax credits don’t do much good. To make it work, non-profits form partnerships with banks.

Patrick Place qualified for a full 50 percent federal tax credit. Catholic Housing Services partnered with Bank of America by way of a separate non-profit called the National Equity Fund. The easiest way to explain what happens next is to say that Catholic Housing Services essentially sold the credit to the bank. The bank, a multi-million-dollar business, got the credit; Catholic Housing got a chunk of change, although not a direct one-to-one with the credit.

Every step of this process is subject to intense scrutiny and auditing, all building the pile of paperwork and stretching the timeline. Marty Kooistra, executive director of the Housing Development Consortium, a sort of chamber of commerce for affordable housing projects, calls the roundabout funding mechanism “feeding the horse to feed the sparrow.”

The system is less vulnerable to federal cuts, however, because it is tied in to the success of major banks. “It’s a way to get private interest in affordable housing,” says Susan Boyd, director of real estate development with Bellwether Housing, a low-income housing development non-profit.

Regardless, federal funding is only part of the puzzle. Depending on how much federal funding a project secures, it still needs to cover the other 50 to 70 percent of its costs. Some of that money comes from the state, through programs like the Housing Trust Fund, and from the county. The city provides funding, too, predominantly from the Office of Housing, which receives much of its funding from the housing levy passed by voters in 2009.

Out of a total budget of around $10 million, Patrick Place received $5 million from the feds, $900,000 from the state, $627,000 from the county, and $1.6 million from the city. The rest had to come via charity work – grants, fundraisers, donors, etc. And as anyone who has ever been involved in a non-profit knows, this is a full-time job in and of itself.

“The challenge that we faced,” says Rob Van Tassel, the project manager for Catholic Housing Services, “was to get everyone to buy into the concept.” All told, it took Catholic Housing Services three years just to raise enough money to begin construction on Patrick Place, and another year to build it.

And that was fast for this type of project. Another low-income project under the Housing Development Consortium, which began in 2013, won’t open until 2018. The 12th Avenue Arts project on Capitol Hill, a mixed use space with affordable housing, took nearly 15 years from beginning to end.

And with true low-income housing, the work still isn’t done when the structure is up. Traditional real estate developers have the luxury of getting in and getting out. They build their project and sell or, at least, rent. But for low-income housing, developers not only have to secure funding, usually philanthropic, to keep the lights on, they also have to hire property managers, case managers, and other employees to staff the operation around the clock.

Because of the emphasis on some of the most needy populations, investors want to know there will be service providers on site. But service providers for things like mental health and drug counseling want to know a building is going to be built before they commit.”It’s kind of a chicken and egg thing,” says Van Tassel

The cost of all of this – maintenance, services, utilities — increases with inflation and time, says Van Tassel. But the nature of low-income housing is that the rent stays the same, so the disparity between what the project can bring in from its tenants and what it must spend grows. “We might have to do some fundraising along the way,” says Van Tassel.

It’s a massive commitment, which helps explain why the emphasis of the HALA committee is not as focused on the lowest income units as some advocates might want, and has instead put more emphasis on workforce housing.

To get an idea of how different these two worlds are, look at the workforce housing project slated for 6th and Yesler. There, the City sold a vacant lot earlier this summer to Stream Real Estate, which promised to build units affordable to those earning less than $46,000, and to keep them that way for 50 years.

When I asked Stream Real Estate Manager Marc Angelillo about the process leading up to his company’s decision to purchase the city property, he was confused. “You want to know about the negotiations?” he says. “It wasn’t an unusual negotiation.”

To hear him tell it, Stream, a for-profit real estate development company, decided to buy it, so bought it. “We do it because we believe in it,” he says, but also, “we believe that we can make a profit.”

Combine a profit motive with a bit of do-gooding spirit and, voila, housing for the lower-middle class appears.

That’s not to say that building workforce housing is easy. But getting to the HALA’s goal of 6,000 low-income units in ten years is sure to be nothing less than a herculean effort, a challenge developers say they’re up to.

Correction, Sept. 18: An earlier version of the article called the 12th Avenue Arts building a “mixed income” space. It is more accurate to call it a “mixed use” space because all of the housing units are affordable.

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