Workforce Housing Recommendations

Seattle’s council has spent a lot of the last year trying to figure out how to address housing costs. Continuing this conversation, four council members met with consultants hired by the city to examine best practices for providing affordable housing. The consultants presented research and advice from their work over the past few months. Their findings were basically a list of ‘best practices.’ This list included policies pursued in Seattle and other cities that were considered similar to Seattle.

Background

As mentioned by Council Member Mike O’Brien, this process was likely ignited by the South Lake Union rezone. We hope the end result will be a housing strategy that is incorporated into the 2015 updates to the comprehensive plan. In addition to the public interest sparked by the SLU rezone, Seattle housing costs are steadily increasing. The full report indicates that Seattle saw an average 9.2% increase in housing costs between February of 2013 and February of 2014. These two factors are good reason for the council to examine it’s laws and policies around housing.

Comparison To Other Cities

The premise of the research was to benchmark Seattle against national housing trends. For this reason, the council directed the consultants to compare Seattle against similar cities across the country. The report presented begins with these comparisons:

• Development Costs: The consultants indicated that the per square foot development costs in Seattle were in the middle of the group.
• Regulatory Restraints: The Growth Management Act is unique among the cities examined. The consultants point out that there isn’t much regulatory difference between the central city and it’s region. With that said, they indicated that the regulatory burden was higher than other cities studied.
• Vacancy Rates: The consultants mentioned that 5% is considered a good vacancy rate in a growing city. Seattle has struggled to reach that rate over the last two years and this was called out as a big area of concern.
• Median Home Values: I’m not sure what to take away from this but the numbers are kind of depressing. All of the cities looked at had growth of over 5%, Seattle at 10.6%. The Seattle region was the fifth most expensive place to buy house on the list.
• Demographics: Of the demographics that were compared, three findings were most interesting to me. Seattle has the second oldest median age of all the cities studied, following San Francisco. Seattle has the smallest household size. And the median income in the city is very close to the regional median income

Best Practice Policies

While it wasn’t stated explicitly, the findings of the report made it clear that there is no route to affordable housing without a lot more building. Nearly all the policies examined are methods for creating more housing (rather than reducing the cost of existing housing). The following were the primary policies pursued in the cities examined by the consultants:

• Fee Waivers and Expedited Processing: Most cities have adopted an incentive to either waive fees or expedite permitting in exchange for developers including affordable housing. The biggest difference found was in Austin, where the city has both incentives in place. Developers can take advantage of these incentives by including affordable housing in their development. The affordable housing is enforced through a deed restriction that lasts 10 years. It was also noted that land costs where the development took place was very low and Austin produced the most affordable housing of all the cities looked at.
• Reduced Parking Requirements: Most of the cities in the survey have done this. The consultants noted that there was a lot of push back, particularly in Portland, echoing the continuous prioritization of residents of parking over lower housing costs.
• Housing trust funds and Transit Oriented Development loan programs: Both of these use public funds to leverage private funds to build more housing. This leverage allows the public to provide some discretion as to the types of housing that is built while also increasing the overall capital that is used to create housing.
• Land Trusts: These are used in many cities across the country but are used pretty minimally in Seattle (as far as I know this is the only trust). This method essentially puts aside land so that it is no longer subject to market forces. Over the long run, this greatly reduces the cost of the land because it is not part of the purchase price when it exchanges hands. Consequently this reduces the cost of building and renting or buying.
• Government Property Leasehold Excise Tax: This was proposed as an alternative to Tax Increment Financing. The way this might work is that government owned land (or land owned by a government entity) is leased to a private business. The private business takes the lease with the expectation of developing affordable housing but also gets the advantage of not paying property taxes. There would be income from the leasing, excise tax and the city could raise bonds against the property.
• Mult-Family Tax Exemption: The consultants pointed out that this tax-exemption is used widely in Seattle (producing ~2,700 units) and in certain situations the private development would not occur without the program. Council Member Sawant pushed back, indicating that government or non profits may have built the housing instead. The conversation shifted to indicate that the planning department has made a recommendation include family sized housing in the incentive.
• Other Reductions Of Land Use and Regulatory Obstacles: There are a lot of options here. One of the important options called out by the consultants were area based environmental analysis, referred to as a Planned Action in Seattle. The consultants indicated that this sort of action provided clarity to developers and to communities greasing the wheels of building additional housing. Yesler Terrace was the most recent example of this in Seattle.
• Housing Levy: Seattle is unique among the cities examined in that it has voter approved funding to directly build affordable housing. This consultants praised this program and noted that more than 12,000 units have been built or preserved due to the levy.

It should be noted that neither Tax Increment Financing or Impact Fees are allowed under state law but it was acknowledged that a lot of cities use both of those policies.

Major Themes

At the end of the presentation the consultants noted that there were some major themes noticed while examining the success of policies across different cities.

• A market led strategy is important. To be successful it’s necessary to understand how market forces affect prices.
• Public-private partnerships have been key. In many cities this has meant that the private groups, like large employers, have been key for providing community support.
• Trust funds have played a huge role in affordable housing development across many cities.
• Land use and regulatory reforms have been absolutely key. More specifically, reducing barriers to development in areas that the community thinks need development have been critical. Examples include increased heights, reduced parking or reduce unit sizes.

What Council Thought

The first big point that Council Member Clark made was that there is a parallel discussion going on about how to preserve “naturally occurring affordable housing.” This comment is a nod to affordable housing provided by the private market. In fact there is a lot of affordable housing in the city that is completely private. This housing is the result of something called filtering. New housing is generally more expensive but as it gets older, it becomes less desirable and consequently less expensive.

The second comment Council Member Clark made was to call out a specific part of the report, saying, “There’s not going to be one tool” and then quoting:

One reason to recite these accomplishments is to highlight that further change may only result in marginal increase or impact. The “low hanging fruit” of the most impactful policies/programs have already been implemented.

She then went on to indicate that it’s unlikely the council will find something that produces 50% of the needed affordable housing.

Council Member Sawant made a point of trying to change the framework of the discussion. In two situations she pushed back hard on the consultants. First, she voiced a lot of skepticism of the Multi-Family Tax Exemption. While the consultants noted that this program alone created the most housing at 80% AMI or below, she indicated that the tax dollars given up for this could’ve been used by the city (presumably to create affordable). Additionally, Council Member Sawant indicated that impact fees and inclusionary zoning should be considered a best practice and low hanging fruit. The consultants and Council Member Clark indicated that impact fees were not ‘low hanging fruit’ because they are outlawed. Sawant pushed back that impact fees in a state in which they weren’t illegal would be considered low hanging fruit. The consultants did indicate that in many municipalities impact fees (often referred to as linkage fees) were being adopted.

What The Conversation Left Out

The consultants stated that almost every city examined is not producing enough affordable housing. This, coupled with Council Member Clark’s comments, worries me greatly. It seems like a mistake to only look at examples where there isn’t enough affordable housing for best practices. It also seems like it would be a good practice to actually find examples of cities that do provide enough affordable housing and use those cities as models. It would be a shame if so much effort and political will is spent on something that ultimately isn’t really a solution. The end goal should be a city that provides enough affordable housing. In fact, the consultants advice probably puts it best:

The City of Seattle should set a quantitative Workforce Housing Goal in the planned 2015 Major Update of the Comprehensive Plan and periodically measure City progress towards the goal in the context of the Comprehensive Plan.

What’s Next

A specific examination of incentive zoning is also being conducted. Two other consultants were tasked with researching how the incentive zoning had worked in Seattle and in other municipalities.Their specific recommendations will be presented on July 14th and 15th.  In addition to that meeting there are a number of other planned meetings. The council hopes to have legislation drafted with the policy suggestions by September. While this meeting did not discuss incentive zoning (or inclusionary zoning), my prediction is that these programs will be a central part of the overall discussion.