by Josh Feit
I have repeatedly argued in this column—and long before— that liberalizing our land use code is the best way to address Seattle’s housing affordability crisis. Summary: We need to allow apartments in the vast majority of the city where they’re currently banned. Thankfully, there’s a recent glimmer of hope. The state passed a new law last year, HB 1110, that will upzone Seattle’s neighborhoods. Thank you state Rep. Jessica Bateman (D-22, Olympia); her legislation requires cities with populations of 75,000 or more to allow four-unit buildings wherever single-family homes are allowed, and up to six units if two of the units are affordable.
This encouraging uzpone goes into effect statewide after the cities update their local comprehensive plans, as Washington cities are required to do every 10 years; Seattle’s Comprehensive Plan update is on the docket for 2024.
Here’s what I wrote on January 1 (italics added this time around): Undermining the new state mandate for increasing density in traditionally single family zones, Seattle “will come up with lot coverage minimums, setback requirements, and height limits along with hefty affordable housing fees that will keep housing developers from building any apartments in Seattle’s touchy neighborhood residential zones.”
As our comp plan update gets underway behind the scenes, I’m hearing affordable housing fees are already in play at City Hall. It’s hardly surprising. One thing that unites all political stripes in Seattle—lefties and NIMBYs alike—is a call to tax developers, everyone’s favorite scapegoat. Why has pickleball colonized traditional tennis courts? Evil developers!!
Call it Funded Inclusionary Zoning, or FIZ. How would we pay for it? Portland has a smart model. Under their IZ program they give developers a property tax break.
Seattle’s gut instinct to tax housing production to pay for housing production is a political pathology. And it stalls development, leading, ironically, to less affordable housing. It’d be like targeting Swedish, Virginia Mason, UW Medical Center, and Seattle Children’s with a special tax to pay for local health clinics even though these institutions help reduce greater health care costs down the line.
Let me be clear, I’m all for government intervention to create affordable housing. It’s precisely what governments are supposed to do: Regulate essential marketplaces. Like all good governance, ensuring universal access to life’s fundamentals—such as housing and health care—not only promotes equity, it also benefits society as whole by preventing things such as spiking health care costs en masse through widespread upstream care. Or, per UW real estate prof Greg Colburn’s 2022 book Homelessness is a Housing Problem, here’s a more germane example: Building more affordable housing helps address homelessness.
Unfortunately, when it comes to the swath of land that HB 1110 opens up to new housing development, Seattle is likely to tax it. Watch for the comp plan update to expand Seattle’s Mandatory Housing Affordability program, a quasi-inclusionary zoning program the city created in 2019. Inclusionary zoning, or IZ, is housing policy that requires developers to include affordable units in their projects. MHA isn’t classic IZ because there’s also an option to pay into an affordable housing fund rather than building on-site. But either way, MHA puts the cost of building affordable housing on developers.
Certainly, requiring developers to contribute to affordable housing stock in the city is an important step, but mandates aren’t going to create affordable housing on their own. Progressive governments also need to help pay for that housing. Otherwise, as projects become financially untenable, developers are going to build less. The best affordable housing policy would require developers to include affordable housing in projects (or an in lieu program) while also providing government subsidies to help the program pencil. Additionally, as I already mentioned, we need to upzone to allow dense housing citywide, ending our restrictive zoning policies that perpetuate classist and racist policies of the past.
MHA, which also came with an upzone, including peripherally around the edges of single-family zones, was an earnest attempt to address the ugly legacy of Seattle’s restrictive zoning, and it got off to a good start, raising tens of millions for affordable housing (about $68 million in 2020). However, we may have already hit peak MHA; while MHA payments raised more than $70 million annually in both 2021 and 2022, the 2022 number represented a slight drop—a 1.5 percent decline in cash along with a drop in the number of affordable units developers committed to include in new buildings, from 107 to 66.
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Showing the same downward trend, and perhaps even more worrisome, as Erica reported, production of in-fill housing like townhomes has dropped in the MHA era with permits shrinking from more than 1,800 permits filed in 2018 to just 165 in the first nine months of 2023. And the Seattle Times reported that overall apartment and townhouse construction permits dropped 42 percent and 27 percent, respectively, between 2021 and 2022.
We need more evidence to see if MHA requirements are squelching development, but these are not good signs. The drag on development (and the related drop in affordable housing dollars) makes sense in an Econ 101 way—and highlights the irony I called out above: We’re taxing, thus discouraging, something we want.
Rather than discouraging affordable housing production, let’s make it easier for developers to meet the inclusionary zoning mandate by funding it. Call it Funded IZ, or FIZ. How would we pay for it? Portland has a smart model. Under their IZ program, which requires developers to include affordable housing in projects that include 20 or more units (or pay a steeper version of an MHA-style fee), they give developers a property tax break on all the units in a building. The program was initially limited to Portland’s downtown core, but the data showed it was working so well at creating affordable housing that their city council voted unanimously to expand it citywide last month.
Coupling IZ with property tax breaks is a logical next step here. Seattle already has an optional incentive zoning program, known as the Multi-Family Tax Exemption credit, that rewards property owners with a 12-year tax break if they choose to make units affordable. There are currently 6,300 affordable MFTE subsidized units citywide, according to the most recent data.
Now that we’ve decided, as demonstrated by our MHA inclusionary zoning program, that affordable housing production is no longer optional, let’s also make sure that funding isn’t optional.
However, now that the city has decided, with MHA, that creating affordable housing should no longer be optional, let’s also make sure funding is no longer optional. A property tax exemption—for all buildings whose developers participate in the expanded program, including those where developers opt to pay a fee—would do just that by making affordable housing pencil out for developers.
There’s one asterisk. Government intervention requires more than just funding. Witness our famed Housing Levy, a property tax that’s been dedicated to affordable housing production for more than 40 years; the latest seven-year iteration will raise $970 million. Clearly, given that the root of our current housing crisis is a scarcity of affordable units, the levy is not delivering enough.
While we’re paying to build where we can, there’s not enough opportunity to build in general. Bateman’s zoning reform legislation could change that, adding substantially to the housing pipeline by allowing apartments in historically off-limits single-family zones. IZ would also help. If it’s funded!
Zoning changes in isolation won’t solve the housing problem; mandating affordable housing production in isolation won’t solve the housing problem; and funding affordable housing in isolation won’t solve the housing problem. Rather than defaulting to MHA’s unfunded mandate in our comp plan update, let’s seize the opportunity to combine all three approaches—housing production mandates, funding, and allowing citywide development—to properly address our affordable housing crisis.
josh@publicola.com