Last fall Seattle Mayor Ed Murray’s Housing Affordability and Livability Agenda (HALA) group issued a report with over 60 recommendations of how to solve the city’s housing crisis. Some of those recommendations are being pushed in Olympia this session.
The debate is typically split between the loudest voices in the room: those who want complete deregulation and those who want rent control. Neither of those options were politically feasible, and, knowing that, a set of more pragmatic, “developer-friendly” proposals were introduced at the start of the 2016 Legislative session.
The Debate
Even though the city’s 2016 legislative agenda includes rent control, the push from city lobbyists has been for incentive-based programs that encourage the preservation and expansion of affordable rental units. This strategy is in line with what Seattle Mayor Ed Murray says is the “cornerstone” of the HALA agreement: a trade-off for linkage fees that support affordable housing in return for zoning that allows for more building and higher density.
Developers and free market thinkers see zoning and density as a key to solving the crisis. The combination of zoning that was drawn prior to the Puget Sound’s explosive growth and local resistance to upzoning has made it tough to expand Seattle’s housing stock. Conversely, housing advocates believe that private development will exclusively serve affluent residents.
The Size of the Problem
And according to Census bureau’s most recent American Community Survey (2010-2014) there are 297,920 households in Seattle. 63,805 of these households are cost burdened renters (those who pay more than one third of their income in rent) and approximately 45,000 of those households are severely cost burdened, meaning that more than half their income is eaten up by rent.
Seattle’s affordable housing policies target a range of income levels, going up to 80% of Area Median Income (AMI). The U.S. Department of Housing and Urban Development refers to this group as “lower income.” Data from 2006-2010 shows that approximately 40% of Seattle households fall into the lower income category.
The degree to which these two groups (those that are both cost burdened and make 80% or below of AMI) is shown here:
According to Robin Koskey it’s important to note (and the graph above shows) that not all of the renters considered to be lower income are cost burdened or severely cost burdened. “Some would be living in subsidized units or paying an affordable market rent,” she said.
Using this data, the city says, “Assuming that the household income distribution remains the same, Seattle would need to add approximately 28,000 new affordable units over the next 20 years to meet future demand.” That’s 40% (the proportion of Seattle households making 80% of AMI and below) of the 70,000 new units expected to come online. The Mayor’s plan calls for 20,000 affordable units in the next 10 years.
The Developer-Friendly Approach
At the beginning of the session multiple bills providing incentives for current property owners to reserve a percentage of their units as affordable. Following the floor cutoff (the date by which all bills must pass out of their house of origin), one remains. Senate Bill 6239, sponsored by Senator Joe Fain, R- Kent, would exempt property owners from paying property taxes if they agree to make 25% of their units affordable for people earning 60% of AMI.
During a public hearing on SB 6239 Senator Mark Miloscia, R-Federal Way, asked what the net benefit (or cost) would be to for property owners.
It’s all a little fuzzy. Property taxes and rent depend on the specific area, the value of the property, and the number of units being reserved. The City of Seattle provided an analysis of hypothetical scenarios in Seattle, Kent, and University Place, which showed annual profits between $5,000-$28,000 for owners of buildings with 25-64 units.
The Bill also causes a local tax shift. Robin Koskey, a Strategic Analyst at the City of Seattle’s Office of Housing, said that an owner of a property with a median value of $420,000 would see an increase in $12 per year at a peak of 3000 affordable units.
The program also allows for cities to cap the number of affordable units in order to control the shift in property taxes.
Will it Work?
The incentives in SB 6239 are optional. So, they only work if property owners opt in. If they do, they are locked in for 15 years. Opting out early means paying back taxes plus interest.
Sean Martin, head of External Affairs for the Rental Housing Association of Washington says that 15 years is a big commitment given the uncertainty of the economy. “A 15 year agreement is a long time. Our members expressed concerns about this during a private focus group. A lot can change in 15 years,” he said. Another issue is that opting into the program could make property harder to sell if the owner is not seeing a net benefit from the tax exemption.
But, Martin also pointed to the success of the Multifamily Tax Exemption (MFTE) program. “The city doesn’t want to phrase it this way because MFTE is seen as a handout for developers, but the Preservation Tax Exemption is kind of like an MFTE for existing buildings.” For the record, Koskey also points to the success of MFTE as a valid reason for pursuing incentives for existing properties.
In 2015 it was reported that 3,963 units are participating in the MFTE program. 90 projects are in the pipeline, and another 2,124 units have been approved. The largest share of affordable housing units in the pipeline are studios and one-bedrooms, which make up nearly 80% of the new MFTE units coming online.
Deal Breakers
Todd Burley, Communications Director at Seattle’s Office of Housing, acknowledged the importance of making the incentive worthwhile for developers and property owners: “If you do an incentive, it’s important that people actually find it appealing or else we get no affordable housing.”
Sean Martin echoed his statement, saying that the fate of SB 6239 “comes down to how restrictive and burdensome they make it.” He said that some amendments that have been proposed could cause the RHA to back away from the bill.
For example, at one point there was a push to ensure that building repairs were done “at the prevailing wage.” In this case, said Martin, it would be cheaper for many property owners to liquidate (sell), rather than pay for necessary improvements.
Another thing that Martin found frustrating was the idea that cities should be allowed to enforce a timeline for repairs to be completed using the savings from tax exemptions. He said that this proposed change stemmed from “Off base concerns from tenant advocates” who said that a tenant’s right to complain about conditions would be threatened without a timeline.
Even if a more complicated bill were to pass, developers would likely shirk it, as evidenced by Oregon’s experience with similar a tax-break program. Due to what developers saw as onerous rules, the program resulted in zero new affordable units in 2015 amidst a housing boom
The Big Picture
The PTE program, if it goes into effect, is projected to create and/or preserve about 3,000 affordable units in Seattle. In the face of rising demand, there seems to be consensus that housing policy will only go so far. “One important thing to recognize is that the need is much greater than what we can address, so what we’re trying to do is make the biggest dent possible,” said Burley.
For the developers, density is key. “We are absolutely behind density. We have to increase the housing supply. The problem is we’re not building enough, and if you don’t have enough housing, the highest bidder is always going to win. Two thirds of the city is zoned as single family.” said Martin. He’s hopeful that Seattle’s city council will prioritize rezoning and thinks it’s likely given that many of the city councilmembers who won seats in the most recent election incorporated density and public transit into their platforms.
Lucky for him, several rezoning proposals are on the docket for 2016.
As for SB 6239, it’s out of the woods after passing the Republican-controlled Senate. If the House chooses not to amend it, the bill will likely land on the governor’s desk.
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