By Erica C. Barnett
A group of apartment builders is asking Mayor Katie Wilson and the City Council to consider rolling back the fees they pay every time they build new housing. The developers, calling themselves the Seattle Housing Roundtable, are asking the city to reduce Mandatory Housing Affordability fees by 90 percent this year, followed by an 80 percent reduction next year and a 75 percent reduction in 2028, with a goal of permanent MHA reforms by the following year.
According to Ian Morrison, an attorney with the land use firm McCullough Hill, MHA “was a good idea when it was originally envisioned, at a time when interest rates were much lower and the economic climate was a lot more positive and predictable.” But, he added, “What we’re seeing now, using the city’s own data, is MHA as a part of a project that was viable in the late 2010s no longer work. That means housing will not be built in Seattle today.”
The Seattle City Council approved MHA in 2019 as the final component of former mayor Ed Murray’s Housing Affordability and Livability Agenda (HALA). The program made developers build affordable housing or pay a fee every time they built new apartments in Seattle’s multifamily areas (at the time, Seattle still had single-family zoning). In exchange, they were allowed to build more densely. The framework took for granted that new market-rate apartments have a negative impact on neighborhoods that developers must mitigate by funding affordable housing.
This consensus has shifted just in the seven years MHA has been in effect, as scarcity has made apartments increasingly unaffordable and more people understand that density is an environmental necessity and an answer to growing demand for housing. At the same time, the funding MHA produces for affordable housing has plunged from a high of $74 million in 2021 to just $22 million last year as development has slowed. Last year, developers filed applications to build fewer than 2,000 new apartment buildings, a drop of almost 90 percent from a peak of 17,400 units in 2020.
Developers and land use attorneys we spoke to seemed reluctant to say outright that the city should get rid of MHA altogether, although it negatively impacts their bottom line. Holly Golden, a land use attorney at HCMP Law Offices, said that with lower fees, “you’d still see millions of dollars of MHA fees, plus new construction jobs and permit fees to keep [the Seattle Department of Construction and Inspections running during the building downturn. … Getting projects started provides a huge financial benefit to the city budget at a time when they really need it.”
Taxes on construction are inherently volatile, and there’s a real question about whether MHA aligns with the reality of Seattle as a majority-renter city with an acute housing shortage. If the city agrees to an MHA “holiday” and development rebounds, a surge in other funding sources like the Real Estate Excise Tax could help offset the loss of MHA dollars.
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Not every jurisdiction funds affordable housing by charging a fee on development. PubliCola has reported on a concept called funded inclusionary zoning, in which developers get tax breaks for including affordable housing in their projects. The concept flips the script on development, treating density (i.e. apartments, i.e. renters) as a good thing while also ensuring that affordable housing gets built. Developers aren’t charitable organizations—if a project doesn’t make sense to them, they won’t build it—so instead of penalizing new housing with fees, cities like Portland are trying incentives to build new housing at all income levels.
“There are ways to ensure that inclusionary zoning programs work for the long term and are well calibrated to ensure they don’t impede housing,” Morrison said. “But getting those details right takes time.”
Eddie Lin, the head of the city council’s land use committee, told us on a recent episode of Seattle Nice that he’s “open to a temporary reduction in MHA fees. It needs to be tailored to the right size to get construction going, but not more than we need.”
Eliminating MHA completely, Lin continued, is a nonstarter; the fee, he said, remains “incredibly important for developing additional affordable housing. … We want to be mindful of not giving away too much more than we need to.” MHA reform, he said, might include addressing the fact that developers currently have to pay a fee for building in low-rise zones but not in neighborhood residential—the former single-family zones that now allow essentially the same density as low-rise areas.
Ray Connell, managing director at the developer Holland Partner Group, said it’s possible the impact of MHA and other taxes and regulations in real time by looking east across Lake Washington. “All the cranes are in Redmond,” where fees are lower, “so projects get started,” Connell said. “It’s amazing to go over there and see a bunch of new projects and cranes in the sky. Why is it happening over there? It’s not a hard cost issue, and it’s not an interest rate issue. Yes, it’s the jobs… but it’s also the additional fees that we have to face on this side of the lake.”
Redmond recently adopted an aggressive inclusionary zoning package that says 10 percent of all new units in housing with 10 or more units must be affordable. In four years, Connell said, “there won’t be cranes in certain areas of Redmond. … We can’t get those areas of Redmond to work anymore.”
Developers in Seattle already get huge tax breaks to build housing, It’s called MFTE – the multifamily tax exemption that eliminates 100% of property taxes on all residential units for up to 24 years! For that, apartment owners get to charge near market rate rent for the 20% designated “affordable” units in the building. The rest of the property tax payers get to pay what the developers/investors don’t. That includes the much maligned owners of homes in “neighborhood residential” zones. Ask developers what ROI they promise their investors and themselves and see how that affects affordability.
True, and the REAL driver of less applications is rising interest rates, NOT the MHA. Once rates decline again, which may happen as soon as next year, then you you will see a sharp spike in new applications regardless of the current MHA. The land use lawyer is trying to ‘play’ the Council by making them think that high interest rates are going to continue for the foreseeable future. Indexing the MHA to interest rates will solve the issue, although the developers will probably not be happy with that either since they are looking for ANY excuse to lower their costs and increase their profits – they have NEVER been interested in affordable housing unless properly incentivized. Maximizing profits is the goal of developers, not building affordable housing.
I hear what you are saying but respectfully, no one is saying MHA fees are the cause of fewer applications. It’s the interest rates, the increased cost of construction and operating costs over the last five years, and the lack of rent growth. It’s not one thing, and it’s not MHA. But does it really matter what the cause is? Right now renters in cities like Seattle, Denver and Austin are witnessing flat or falling rents over the last 3-4 years because so much housing was produced. As an affordable housing developer, I’d say that is a huge win for housing affordability! But there are no longer cranes in the sky in Seattle, so to speak.
All the developers are saying is that they can’t control for the other inputs, until as you point out, interest rates go down or something else gives but that the city does control MHA. So if the city wants to see production to continue right now – which directly affects housing affordability – they can implement a short term pause MHA fees (up to 5% of the total project cost) to keep apartment production moving for the next year or two. The city doesn’t have to do it, but then apartments in large quantities may not get built for the foreseeable future and in the absence of new supply, rents will start to go up again.
To me the argument shouldn’t about the profit that developers make, it’s the benefit to the city when we continue to produce new housing and this proposal seems worth serious consideration.
Ironically, slowing development of market rate homes will give renters living in naturally occurring (aging, dated) affordable housing a few more years before the homes are bulldozed and the renters are displaced.
Pausing or even eliminating MHA makes sense. Some people think that developers pay these fees but actually developers just pass the cost on to renters. Everyone should pay for affordable housing, not just renters.
The goal of city policy is NOT to maximize the profits of real estate developers. Anyone following the markets and Trump’s machinations knows that the new Fed Chair taking over next month has promised to aggressively lower interest rates regardless of the impact on inflation. This means working families will have higher costs of living, and developers will be filing lots of permits again with lower interest rates. If Seattle eliminated the MHA right at the apex of interest rates, they would take a tremendous loss in MHA revenue for affordable housing. The real estate lobby in Seattle is counting on the Council not being that sophisticated in understanding current market conditions and what Trump’s Fed has planned for aggressively lowering interest rates starting in June.
Looking at the entire Left Coast of the USA, Seattle is just the last place to encounter a region wide economic slowdown. Seattle is still a couple of years ahead of the downward curve Portland is currently on, but the Emerald City will eventually get there.
I’m guessing changing government fees or taxes aren’t going to impact construction in Seattle. The Mandatory Affordable Housing fees didn’t really help build much affordable housing because the more money the builders paid into the system, the more expensive affordable housing became to build. This certainly just made housing, all housing, from low income to high end, more expensive.
Historically, economic recessions help out renters, so a downturn of the Seattle economy may be good thing for a lot of people.
Hi! Affordable housing developer here. The truth is that we need all kinds of housing in Seattle, including affordable and market rate. MHA is a tax on market rate housing, which makes that harder to build. It does provide some modest income into affordable, but it’s probably the worst funding source imaginable. We should be taxing land owners that DONT build housing – not the ones who do!
Well, Hello yourself! Seattle can “need” housing, but building it depends on private investment. Let’s just agree that housing goals of Mayor Katie, many Publicola readers and Socialists in Seattle are not the goals of the “moneyed class” who build and own apartments. Who has the money here? And who’s going to end up calling the shots?
America has a foundation built on home ownership. I’m afraid a lifetime of renting will just morph into senior citizen poverty in Seattle. The business model for running apartments (something I have experience with) has the renter as the product. The only reason to build rental property is to get the renters to provide cash flow into the business. Every upward tick of inflation, every yearly raise workers get… it all goes to feeding the rent monster. How can a renter ever think about getting ahead financially?
And before we get all hot and bothered about sticking to the “moneyed class”, let’s look at low income housing built for people on a fixed income. This sort of housing is a blessing for the disabled and seniors…. but much of it is broken down, worn out and the fixed 30% rent the tenants pay isn’t enough to fix it up into reasonable standards. There are many empty units of low income housing all over Puget Sound that fixed income people can’t afford or the units are so broken down nobody wants to live there.