Could Preserving Affordable Rental Housing Stop Displacement in Seattle?

As Seattle City Council debates legislation that would require additional housing affordability contributions from developers, big questions have emerged about whether efforts to preserve affordable housing would hurt or help.

“Naturally occurring affordable housing” has become a buzz word in urban planning and policy circles in recent years. It refers to older housing, both for rental and sale, which is affordable to lower-income earners without public subsidies.

Most affordable housing in the US falls into this category. According to the Urban Institute, a whopping 5.6 million naturally occurring affordable units in the US provide the bulk of housing for lower-income households that do not receive federal assistance.

My first Seattle apartment was a perfect example of naturally occurring affordable housing. After living in a succession of house-shares, I found an apartment on the outskirts of the University District that appeared too good to be true. Six hundred and seventy five dollars a month covered the entire lease and utility costs. I knew there had to be a catch. Of course, at that price there were many catches, but I was willing to overlook the apartments’ peculiarities and lived happily there for over two years.

I could easily write an entire article about everything that was wrong with that apartment, but the fact of the matter was that I loved that apartment because it was convenient and cheap. Throughout periods of financial uncertainty, I never feared being unable to pay my rent.

My apartment was cheap because it was undesirable. This is the dirty secret of naturally occurring affordable housing. Yes, some of it is rented out by sweet grannies who paid off their mortgage fifty years earlier and don’t give a hoot about current rental market rates. However, a lot of naturally occurring affordable housing is the property of slum lords who keep costs low by deferring maintenance.

This is a problem for Giulia Pasciuto, Policy and Research Analyst at Puget Sound Sage. “We don’t want lower-income tenants living in worse quality housing,” she said.

Naturally affordable housing also does not offer the same level of security as subsidized affordable housing and can quickly disappear with market changes. When a region’s housing supply fails to meet demand, previously undesirable properties can take on a glossy new shine. Under the influence of new market forces, some landlords start undertaking the maintenance they had deferred and then jacking up rental prices accordingly. In other instances, they elect to sell the building to developers, who construct new buildings onsite.

Both situations lead to an improvement in housing quality – but unless incentives or subsidies are thrown into the mix–they also result in higher rental prices, which causes tenant displacement.

These trends are alarming not only because so many Americans rely on naturally occurring affordable housing, but also because research suggests that preserving affordable housing is more cost-friendly than building new affordable housing.

An often cited example of the savings offered by affordable housing preservation is the MacArthur Foundation’s Window of Opportunity initiative, which has rehabilitated affordable rental properties in 37 states, making it the largest philanthropic effort to preserve affordable rentals in the US. Analysis of the initiative found that the cost of redeveloping existing affordable rentals was roughly half the cost of building comparable new units, even when accounting for the full life cycle of property and associated maintenance costs.

How Is Seattle Seeking to Preserve Affordable Housing?

The question of what the City of Seattle can do to preserve affordable housing has come up as an offshoot of the Mandatory Housing Affordability (MHA) conversation. Councilmember Lisa Herbold has raised concerns that upzoning implemented under citywide MHA could result in the destruction of existing affordable housing.

To make her case, Councilmember Herbold has pointed to an analysis by council staff, which has found that during the first two years of MHA implementation in the University District, 96 units of affordable housing have been slated for demolition.

Since the City had estimated that 40 to 275 units would be demolished over a 20 period, Herbold believes that the evidence from the University District suggests that the citywide upzoning of urban villages will result in more demolition of affordable housing than anticipated.

As a solution, Councilmember Herbold has proposed Council Bill 119469 — Displacement Mitigation, which was the topic of discussion at the Seattle City Council’s most recent Planning, Land Use and Zoning Committee meeting.

The bill has already earned its fair share of supporters and skeptics. Puget Sound Sage, a supporter both of Herbold’s bill and citywide MHA implementation, wrote a letter to the Council, requesting the Council enact “a companion resolution [to MHA] that sets an anti-displacement agenda.”

In a nutshell, the displacement mitigation bill aims to curb displacement by requiring that developers comply with additional mitigation measures if they seek to demolish a property that is affordable at or below eighty-percent of area median income (AMI). Affected properties also must be located in an urban village that has been identified by the City’s 2017 Growth and Equity Report as having a high risk of displacement and low access to opportunity. Current urban villages with this designation include Bitter Lake Village, South Park, Rainier Beach, Othello, and Westwood-Highland Park.

The fact that legislation does not apply to all urban villages that have been identified as ‘at risk of displacement’ has been criticized by some of the bill’s supporters, including Puget Sound Sage, which would like to see the legislation extended to all high risk of displacement urban villages.

In terms of additional mitigation, the bill requires developers to either:

• Replace the units affordable to households with incomes at or below 80% of the area median income (AMI)
• Comply with the Mandatory Housing Affordability – Residential (MHA-R) program at higher payment or performance amounts equal to the requirements for zones within the area with an M2 suffix (M2 is the highest required payment level)

In additional to expanding the amount of neighborhoods the would be subject to the legislation, Puget Sound Sage has also requested that the replacement units be targeted at 60% or less of AMI in order to make the new units more deeply affordable. In 2018, 60% of AMI was defined as $42,150 for a household of one or $48,150 for a household of two.

Big Questions Exist

For all of the conversation around displacement, it is difficult to prove whether or not the demolition of naturally occurring affordable housing is statistically significant as a factor in the displacement of lower-income tenants in Seattle. Councilmember Teresa Mosqueda has raised this concern, stating that while statistically evidence exists supporting the fact that high rent burdens have led to displacement, data on how much displacement has been caused by demolition of existing affordable housing is much murkier.

Council staff have promised to provide regression models in the next meeting that will provide further information on the connection between demolition and displacement, clarifying if a statistically significant correlation exists.

As whole, in addition to Mosqueda, Councilmembers Mike O’Brien and Rob Johnson have questioned whether or not the displacement mitigation bill would make a net positive contribution to housing affordability. While acknowledging that he “appreciated the conversation,” Councilmember O’Brien said that it would be “tricky, but critical to do more than we are doing.” In O’Brien’s estimation, income inequality is serving as the driving force behind displacement in Seattle.

“We cannot address the root of the problem,” Councilmember O’Brien said. “So we have to work around the edges. We are going to have to dig into the messiness.” One attempt to get at the root income inequity issue, the City’s income tax, is tied up in court and may ultimately require the State Supreme Court striking down a state prohibition on state and local income taxes.

Another issue to consider is future legal challenges to the legislation.

During the meeting Councilmember Rob Johnson referenced the fact that the City used to have a similar housing preservation ordinance that required replacement of demolished units and had an in-lieu fee, but that the ordinance was struck down by the courts. Questioning how this legislation would be different, Councilmember Johnson said “I just want to be sure we are not walking down the same path.”

In response, city staff explained that the new legislation was different because it used the authority of the State Environmental Protection Act or SEPA. Councilemember Herbold said that under SEPA authority “actions may be commissioned to mitigate certain environmental impacts” and “mitigation measures must be reasonable and capable of being accomplished.”

If you are wondering how SEPA pertains to housing, you are not alone. According to Herbold’s analysis, the Washington State Environmental Policy Act states that “housing is an element of the environment” and thus can be subject to SEPA authority. Whether or not the courts will agree with her remains unclear.

Why Is Preserving Affordable Housing So “Messy”?

Unfortunately, even at the surface level Herbold’s displacement mitigation bill has a major weakness. While it may preserve housing that is currently affordable, it does nothing to ensure that the preserved housing will remain affordable in the future. Because rent control is illegal in Washington State, landlords have the right to increase rents whenever they wish to. In fact, the displacement mitigation bill might encourage landlords to raise rents more steeply; if they raise rents above the 80% area median income threshold, landlords could put their properties on the market for redevelopment knowing the bill wouldn’t apply.

So even if the additional mitigation measures serve to steer some landlords from redeveloping their properties, renters could still be displaced.

In fact, the proposal could lead to an all around lose-lose scenario. Tenants could see rents spike, with or without renovation of the property, while opportunities for increasing housing capacity could also be lost, fueling the current cycle of housing scarcity and correlating price increases.

In her remarks at the final MHA special committee meeting, Councilmember Herbold defended her proposal, stating that preserving affordable housing would be worth a “slight loss in density.” However, if the numbers from the University District are taken into consideration, the potential loss of density, and thus much needed new housing capacity, is anything but slight. Councilmember Herbold often cites the 96 affordable units that are under threat the University District, but she fails to mention that 1,984 units are planned to be built on these sites.

The Chateau Apartments: A Test Case in the Central District

Recently the Chateau apartments in the Central District have emerged as a symbol of naturally occurring affordable housing threatened by new development. Currently the Chateau has 21 housing units, 14 of which are held by section-8 voucher holders. The building was constructed in 1963, and according to new owners Cadence Real Estate, is “nearing the end of its life.”

Cadence Real Estate has a particularly cringe-worthy description of their work on their company website.

Founded in 2008, Cadence Real Estate is committed to acquiring under-utilized, multifamily assets and development sites with the mission of generating above market returns for our investors…

we have completed over thirty multi-family projects with a current aggregate portfolio value in excess of One Hundred Eighty Five Million dollars.

From Cadence Real Estate’s website.

No wonder Councilmember Sawant, who represents District 3 where the Chateau is located, has been putting pressure on Cadence to find homes in the same neighborhood for any tenants who are displaced. However, while developers are obligated to provide relocation assistance to low-income renters and help section-8 voucher holding tenants locate new section-8 housing, no requirement exists for the new housing to be in the same neighborhood.

Cadence has stated that they intend to take advantage of the Multi Family Tax Exemption (MFTE) program in their new development. While the amount of units has yet to be finalized, currently Cadence plans to build 72-80 units, which will include MFTE units.

Both the amount of housing units and contribution to affordability will be affected by implementation of citywide MHA. If citywide MHA is implemented, Cadence will be required to either offer affordable housing onsite or contribute to fund to affordable housing.

But the planned MFTE units are not equal replacements for the lost section-8 voucher units. MFTE only requires that units be affordable to 80% or less of AMI, while section-8 vouchers are awarded to households who earn 50% or less of AMI, with a preference toward those who earn 30% or less. As a result, the two programs serve very different segments of the population.

“We have generally been skeptical about MFTE,” said Pasciuto of Puget Sound Sage. “The term is short and AMI is too high.” Under current state law, MFTE applies for 12 years.

A browse through Cadence’s portfolio shows they are not newcomers to the neighborhood. Just around the block lays the Clairemont, a 54-unit apartment building that was acquired and renovated by Cadence a couple of years ago. Close by is the Clairemont Development, a new 29-unit pair of apartment buildings currently under construction.

The range of these projects show the future possibilities that lay in wait for the Chateau. If additional mitigation requirements are placed on redevelopment of the Chateau, it seems likely that a company like Cadence will choose to the renovate the property instead of replace it. A renovated Chateau would still lead to the removal of section-8 tenants, whose leases expire in late December 2019.

It would also result in a lack of new housing capacity for the neighborhood. The majority of the current Chateau site is devoted to surface parking. Say what you want about Cadence’s practices, they do have a record of constructing minimal parking in their developments.

What Strategies Have A Proven Track Record of Stopping Displacement?

Preserving affordable housing has been proven to be cheaper than building new affordable housing. At the same, preservation, at least in Seattle, seems to be messy at best in many instances. So what kinds of tactics can actually be undertaken to slow down displacement of lower-income renters?

According to Pasciuto the key is to remove land from the speculative market, about 30% of land to be exact. “We’ve gone through research and general best practices and 30% is the threshold necessary to stop displacement,” said Pasciuto.

Ideally, the land would be held by a combination of public and nonprofit entities, both in the form of rental and ownership housing. Community land trusts offer an intriguing model for both expanding and affordability, Pasciuto said.

However, Seattle is nowhere near the 30% target and attaining it would require an unprecedented level of public and philanthropic investment.

Another tactic Puget Sound Sage advocates for is community benefits packages on larger land deals. Community benefits packages can also be used to ensure that the entire community benefits from the new development by including assurances that new development will include affordable housing, require developers to negotiate with unions workers, and offer new public amenities.

All in all displacement is a complex problem that requires a multifaceted solutions.

“We know that there is not a silver bullet,” said Pasciuto. “We need a whole slew of different strategies because the housing market is diverse.”

For readers who are interested in learning more about ideas for how Seattle can stop displacement of lower-income households, come out to Lunch and Learn: Anti-Displacment Strategies, hosted by Puget Sound Sage on Thursday, March 21, 2019 at 12pm – 1pm at Seattle City Hall.