Seattle's affordable housing explained

The things you need to know next time you
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A condo under construction on Denny and Dexter. Will it be affordable?

The things you need to know next time you

Seattle is the fastest-growing city in America, with over 1,000 new residents joining us each month. These days, the city skyline is defined as much by construction cranes as it is by the Space Needle. The population boom has brought with it a surge in housing costs; Seattle is now the #1 city for rising median rent.

Rarely a week goes by that another small bar or restaurant or shop doesn’t get priced out of business on Capitol Hill. It is likely that you or your friends have complained about skyrocketing rents or gentrification or Seattle’s increasing unaffordability. The rapid growth and rising cost of living are a signal of the city’s success and a symptom of its widening inequality.

In response, Mayor Ed Murray launched the Housing Affordability and Livability Agenda (HALA) this fall, a committee working on a new affordable housing agenda for the city. Seattle City Council member Mike O’Brien is also tackling the issue with his proposed “linkage fees” on new development. You’ve probably read one of the dozens of articles and editorials decrying or celebrating this new housing tool.

Linkage fees are an important part of the affordable housing conversation. But that conversation goes far beyond debates about the latest tools or the loss of your favorite bar or the proliferation of newcomers to the city (many of them high-paid tech workers). The availability (or scarcity) of affordable housing is literally shaping this city’s future, and to better understand this complex issue and its impact, you need to know how affordable housing is defined, why its shortage is being called a crisis and what city officials are doing to try to keep Seattle livable for everyone.

What is affordable housing?

Affordability is, of course, relative. The $1,800/month one-bedroom affordable for the middle manager at JP Morgan Chase is completely out of reach for the Caffé Ladro barista. But there is a rule of thumb: Housing costs should take up no more than 30 percent of your income. Seattle provides a limited supply of subsidized housing to help its residents stay within that 30 percent limit.

Access to this subsidized housing is also tied to the amount of money you or your family earns relative to what is known as the Area Median Income, or AMI.

In 2012, Seattle’s AMI was $65,677. People earning less than 30 percent AMI are considered Extremely Low Income; those earning from 30-50 percent AMI are Very Low Income; and those earning 50 to 80 percent are just regular old Low Income. Anyone who falls into one of these three Low Income categories qualifies for public housing through the Seattle Housing Authority, or for other nonprofit housing programs such as Capitol Hill Housing.

Not everyone buys into the 30-percent-of-income rule for housing affordability. Roger Valdez, director of Smart Growth Seattle, a density advocacy group backed by big-name developers such as Vulcan and Touchstone, says the 30 percent metric is arbitrary and outdated. He credits the metric to Prussian statesmen Otto von Bismarck’s 19th Century empire where conventional wisdom held that one should pay a week’s wages for housing. That concept was widely adopted in 20th Century America, and standardized at 30 percent. The problem, argues Valdez, is that “it doesn't relate to the way people buy or rent housing today. You may want to pay 40 percent of your income because you're living in an awesome place and you want to stay there and because of your residual income you can offset all your other costs.”

Does Seattle have an affordable housing crisis?

Once again, it depends. People in the housing developer world say no — for most income brackets.

“When it comes to the guy earning 50,000 bucks a year, he’s going to be fine provided that we allow the market to build more housing,” says Valdez. “At 60-80 AMI, those people are finding stuff. People earning negative AMI all the way up to 50 percent, that's where the crisis is.”

For their part, Seattle City Council members, housing advocates and bureaucrats generally agree on three things: The rising cost of housing is outpacing wage growth in Seattle; supply isn’t keeping pace with the demand driven by the city’s booming population; and the housing shortage is creating real problems for low- and middle-income earners.

“The city's becoming too expensive for nearly half the population,” says Lauren Craig, policy counsel at Puget Sound Sage, a Seattle nonprofit that advocates for affordable housing, workers’ rights and environmental sustainability. “An influx of new workers in high paying tech jobs, combined with development of new high end, expensive housing has caused housing prices to skyrocket. These pressures are displacing low-income people — who are often refugees, immigrants and people of color — out of Seattle and into the suburbs.”

About 26,250 very low-income households (that’s 62 percent of households in the 0-30 AMI income bracket) spend more than half their income on housing. According to U.S. Census Bureau data, rent and utilities (aka, gross median rent) in Seattle rose 11 percent from 2010 to 2013, the largest rent jump of any large U.S. city. Median monthly rent in Seattle is now up to $1,172, affordable to someone making around 70 percent AMI.

According to the city’s comprehensive plan, in order to accommodate its growing population, Seattle needs to produce 70,000 units of new housing in the next 20 years; 28,000 of those need to be affordable to people making 80 percent AMI or less. If the city keeps pace with its 2000-2010 home-building rate (about 3,700 new units each year) then meeting the 70,000-unit goal should be no problem. But the city isn’t producing affordable units fast enough to meet the 28,000-unit demand its planners predict will come with a growing population. (In 2013, levies, taxes and incentives combined to produce about 1,000 units.) In fact, the city isn’t even producing enough affordable units to meet current demand.

Right now, Seattle comes up about 23,500 units short for those earning 0-30 percent AMI; and 25,000 units short for those in the 0-50 percent AMI bracket. And 31 of every 100 units available in the 0-50 percent AMI price range is taken by a “down renter”; that is, someone paying less than 30 percent of his or her income.

In short, says Todd Burley, Seattle Office of Housing (SOH) Public Disclosure Officer: “There is a greater need than there is supply.”

What is Seattle doing to provide affordable housing?

The city is trying a variety of methods (subsidies, taxes, levies, etc.) to ease the housing crunch. Let’s start with subsidies.

Seattle Housing Authority (SHA), the city’s subsidized housing provider, manages more than 5,300 low-income public housing units in communities such as Yesler Terrace and Rainier Vista. SHA also manages other apartment buildings, single-family homes and townhomes around town. In addition, it distributes federal Section 8 housing vouchers that help offset rental costs for low-income earners in the private rental market. Between the housing units and the voucher program, SHA serves more than 28,000 city residents.

The bulk of SHA funding (between 70 and 75 percent) comes from the federal department of Housing and Urban Development (HUD). The rest comes from a mix of rent payments, grant awards and capital funds. Like just about every agency and group that relies on federal dollars, SHA is feeling the squeeze from years of budget cuts. “We were significantly impacted by sequestration that began for us in 2011,” explains Anne Fiske Zuniga, SHA’s deputy executive director. “Since that time, we’ve experienced a $16.3 million loss in our operating budget and reduced our staff by 18 percent between 2012 and 2014. With sequestration slated to go back into effect in 2016, the financial picture is not a rosy one for us.”

SHA hasn’t cut back on housing subsidies yet, but Zuniga worries that reductions could be on the horizon.

Housing levies have been a tried and true tool for the city, because if there’s one social services funding source Seattleites seem to love, it’s levies. Seattle voters have approved four housing levies since 1981. The most recent was a seven-year, $145 million measure passed in 2009. (It comes up for renewal in 2016.)

Seattle’s Office of Housing (not to be confused with Seattle Housing Authority) uses levy dollars in combination with federal, state, private and other city funding to provide various affordable housing loans and home improvement programs. SOH’s biggest affordability contribution is its role as a lender for primarily nonprofit subsidized-housing providers in the city.

Here’s how it works: Housing providers around the city apply to SOH for low- to no-interest loans to build, maintain or manage affordable housing units. Loan recipients agree that their units will remain affordable at certain levels for at least 50 years. To date, SOH loans have underwritten 11,383 units in 294 buildings around Seattle. The housing providers handle renting and managing the units; SOH monitors properties to make sure they’re in good condition and that residents are actually qualified to live there based on their income levels.

(In addition to its lending role, SOH also manages several programs that help low-income residents weatherize their homes for free and fix them up using low-interest loans.)

Taxes are another arrow in the city’s housing quiver. The Multifamily Tax Exemption (MFTE), for example, is a voluntary low-income housing incentive. It gives new residential property owners a property tax break if they make 20 percent of the units in their buildings affordable at certain rates. The tax break is available for up to 12 years. SOH manages the program and according to Todd Burley, SOH’s public disclosure officer, the majority of property managers take advantage of the tax break for the full 12-year period.

Units created by MFTE are meant to primarily serve renters earning 60-90 percent AMI or buyers (in the case of condos) earning 100-120 percent AMI. The program has created 3,133 units in 87 projects since Seattle adopted it in 1998. Burley says the city expects an additional 1,686 units in 83 projects by 2017.

The program came under fire in 2012 after an audit found that some property owners weren’t setting aside enough affordable units, some rents were too high and some tenants were earning more than they should in order to qualify.  But overall, MFTE has proven successful. “In areas without much development [MFTE] spurs growth,” says Burley. ”In areas where there might not be much affordability it can provide affordability.”

Incentive Zoning

Incentive zoning, as the name indicates, is another way to encourage property owners in certain parts of the city to build affordable housing into their plans. In this case, it allows developers to boost the size of any new commercial or residential building in exchange for adding affordable units or paying into SOH’s affordable housing funding pool. For example, if a developer is building in a zone that caps building height at 10 stories, providing a certain number of rent-controlled units or paying in-lieu fees to SOH buys the developer more height (which theoretically increases the value of the property). Incentive zoning has created about 700 affordable units in the last 10 years and added $48.5 million to SOH's coffers.

Linkage Fees

Linkage fees are the hottest topic in Seattle housing circles right now. Proponents say they’re a way to use the city’s booming growth to help ensure Seattle remains affordable to everyone. Detractors call the fees an unnecessary burden on development, one that will ultimately slow down growth and exacerbate the very problem it’s intended to relieve: rising housing costs.

They’re called linkage fees because city officials want to link construction with affordable housing solutions. The fees will require developers to pay the city a certain per-square-foot amount on any new commercial or residential buildings. The amount — proposed at a range of $5-$22 per square foot— is based on the average housing price in the neighborhood in question. The pricier the neighborhood, the higher the per-square-foot fee.

The money raised by the linkage fee would help house people earning 0-80 percent AMI. Like the existing incentive zoning program, residential developers can also choose to set aside units at an affordable rate (in this case, 3-5 percent of the units in the building) for 99 years. It’s likely SOH will manage the linkage fee program, but specifics are still to be determined.

Seattle City Council member Mike O'Brien, who chairs the council's Land Use Committee, championed the linkage fee proposal this fall. In October, the Council voted 7-2 in favor of a resolution to plan a linkage fee program. The Council will vote on a finalized version of the program next year. O’Brien hopes linkage fees will serve Seattle’s low-income residents better than the existing Incentive Zoning program.

For one thing, says O'Brien, it will create on-site affordable housing in a way that incentive zoning never has. “The private development community providing pockets of affordability will help spread out where the housing is,” he explains, and that should “produce it in a timelier fashion and help get a diversity of housing types.”

Smart Growth Seattle’s Roger Valdez is not a fan of linkage fees. Because 18 percent of a project’s cost already goes into permitting, fees and taxes, argues Valdez, linkage fees will cut too deeply into profitability. “We're talking about imposing a tax on market rate housing to subsidize people at 60-80 AMI who no one has shown are experiencing a crisis in housing,” says Valdez.

While Valdez concedes that linkage fees won’t stymie new development right away, he believes they will inevitably either drive up rents or delay some new projects. Puget Sound Sage’s Lauren Craig finds this an overly simplistic view of how housing markets work. “Fees and regulations have a marginal effect on housing markets,” she says.

The city hired consultant David Paul Rosen and Associates to analyze current market conditions and determine the potential impact of linkage fees. The results seem to support Craig's view. The consultant's study found that the different project types being built in Seattle today would still make financial sense with a fully implemented linkage fee. Developers could either pay the linkage fee or set aside discounted units.

Either way, says Mike O’Brien, developers would “still have enough profit left that it meets the criteria for investments going forward.”

What kind of city do we want?

For Roger Valdez and others in the developer world, Seattle’s boom is exciting. “We are at a crossroads….[D]iversity and all the things that come with new jobs and new people is going to make us a better city,” says Valdez. “We have a big opportunity to show we're a progressive, open-minded group of people who can say, ‘come on in, welcome to our city, we'll make room for you at the table.’”

For Councilmember O’Brien, the scarcity of affordable housing that is emerging in the wake of the boom is symptomatic of a much larger issue at play in Seattle. “We have a system that doesn't pay people enough to live and raise a family in our city and that’s wrong," he says. "We're trying to address that by imposing regulations and mitigations and linkage fees to subsidize housing, but ultimately what we need to do is create a system where all the folks get paid enough so that they can live where they want.”

A strong economy, the proliferation of successful companies and a predicted influx of climate refugees all point to continued growth in our region. It’s impossible to predict whether and how Seattle's leaders will steer a course that embraces both growth and affordability. But however we deal with affordable housing today will determine what the city looks like tomorrow; whether Seattle will be a place for everyone or whether it will become a hub for the wealthy surrounded by suburban outposts where the working and middle class commuters can afford to live.


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