February 26, 2014
Vol: 51 No: 9

News

The Price Isn’t Right

By Aaron Burkhalter , Staff Reporter

Seattle’s affordable housing incentives fail to tempt developers. The hard part is figuring out why

Incentives set by the city of Seattle for developers to build low-income housing in places such as South Lake Union are not working.

Photo by: Ted Mase , Contributing Photographer

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A city of Seattle program meant to create affordable housing is barely meeting its goal, and will soon fall behind, consultants told the Seattle City Council.

Cornerstone Partnership, a California consultant on affordable housing, examined the city’s Incentive Zoning Program, which allows developers to build taller buildings in exchange for making affordable housing units on-site or paying a fee for the city to build affordable housing elsewhere.

The voluntary program is designed to induce developers to build affordable housing by offering the option to build taller buildings.

The trouble is, few developers have chosen either option, and as a result, the program failed on two fronts. Developers have not included affordable housing in the projects, nor have they paid the fee. The program has generated just 11 percent of the city’s funding for affordable housing from 2000 to 2012.

Up until now, the city has stretched that money by combining it with federal and state dollars, money that will eventually dry up, according to Cornerstone consultant Rick Jacobus.

“The state and federal resources for affordable housing are declining,” Jacobus said.

Councilmembers and business advocates have wildly different interpretations of what Cornerstone’s findings mean for Seattle.

Councilmember Nick Licata said the study shows the city’s Incentive Zoning Program is lax, and that Seattle must demand more from developers. He proposed making participation mandatory, as some other cities have done.

Licata said Seattle can’t rely on government and nonprofits to create affordable housing: “The private sector also has an obligation to accomplish that goal.”

Jon Scholes, policy and advocacy vice president of the Downtown Seattle Association, said the study shows that Seattle’s Incentive Zoning Program is discouraging developers, who forgo the extra height to avoid additional expense.

“The programs end up creating a very limited number of units,” Scholes said. “It’s a narrow strategy to deal with a citywide problem of housing affordability.”


Already behind

According to Seattle’s nonbinding comprehensive plan, the city is already lagging behind on affordable housing. Affordability is defined as rents that are no greater than one-third of the income of people making less than 80 percent of the area median income.

More than a third of the housing in Seattle is supposed to be affordable by 2031, according to the plan. Right now, only a quarter of housing in Seattle is affordable.

Creating affordable housing has long been a challenge for Seattle. In spring 2013, when private developers had an eye on the burgeoning South Lake Union neighborhood, the Seattle City Council anguished over how much to charge them to build taller buildings there.

The city council decided to allow buildings taller than 100 feet, but only if developers created affordable housing on-site or paid to build it elsewhere. Licata wanted to require developers to set aside 10 percent of the additional square footage for affordable housing or pay a fee of $96 per square foot. Instead, the council voted to require developers to set aside 5 percent of the additional square footage or pay $21.68 per square foot.

Cornerstone’s report reveals that, historically, incentive zoning has not generated much affordable housing. Only 38 percent of new developments from 2000 to 2012 took advantage of the additional height, and all but one of the developers that had the option chose to pay a fee instead of building housing on-site. The two options are designed to generate roughly the same amount of housing.

Cornerstone estimates that by providing housing on-site, developers forgo $100,000 to $200,000 per unit that they would have made by renting or selling those units on the open market. The fee, at about $56,000 per unit, is a bargain by comparison, so almost every developer chose to pay.

With these fees, the city was able to build as many units as would have been required if the developers chose to build the units on-site.

But this has been possible only because the city also used state and federal affordable housing dollars, Jacobus said. Until recently, the city paid 22 percent of the cost, or $57,431, for each new affordable housing unit and relied on federal and state dollars for the rest.

That pool of money is drying up. As federal and state dollars shrink, Seattle would need to pay 36 percent of the cost, or $95,000, Jacobus said.

For his part, Licata believes the study validates his original plan to charge $96 per square foot.

“You can only go so far with voluntary incentives,” Licata said. “At some point you have to start looking at what they call inclusionary zoning or mandatory zoning.”

Scholes said Cornerstone’s report shows that the lack of affordable housing won’t be solved by charging developers, whatever the rate.

“It’s analogous to plowing your driveway full of snow with a teaspoon and arguing about how big the teaspoon should be,” he said. “We’ve been arguing over the size of the teaspoon for the last 10 years.”

Councilmember Mike O’Brien, who helped bring Cornerstone to Seattle for this work, said the report alone is not enough for the council to draw conclusions.

Another study, of Seattle’s economic environment, will help determine what developers can afford to pay, and Jacobus is surveying developers to ask why they chose to forgo additional height.

“We need to do some more homework to understand what is really happening,” O’Brien said.

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