Affordable Housing in South Lake Union – Part 2


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sluupzone

INTRODUCTION

I begin this UP with a request. After you read this Urban Politics, consider sending a message to the Councilmembers asking them to dramatically increase the City’s plans for providing for more affordable housing in South Lake Union. My prior UP #322 provided background on how the City is developing SLU into a new and vibrant neighborhood, with expectations that in 18 years it will be the site of over 50,000 jobs and hopefully 15,000 housing units to accommodate those employees. Quite likely it will become one of Seattle’s densest urban centers. The question before the City is what kind of a new neighborhood will this be? Will it become a homogenous residential neighborhood, with employees car dependent on getting to work?

BE BOLD – TAKE THE LEAP

Before you is a strategy for creating an environmentally sustainable and an affordable neighborhood in the heart of our city. If you are in agreement, then email Councilmembers and put in the Subject Line: “BE BOLD – TAKE THE LEAP” In the body of the message use your own words for why you believe there should be more affordable housing in Seattle and South Lake Union in particular. Emails for the Councilmembers are:
Sally.Bagshaw@seattle.gov
Tim.Burgess@seattle.gov
Sally.Clark@seattle.gov
Richard.Conlin@seattle.gov
Jean.Godden@seattle.gov
Bruce.Harrell@seattle.gov
Nick.Licata@seattle.gov
Mike.OBrien@seattle.gov
Tom.Rasmussen@seattle.gov

WHAT DOES “TAKE THE LEAP” MEAN?

In short it asks Councilmembers to dramatically increase the requirements on South Lake Union developers to provide affordable housing units when they build larger and higher buildings due to the upzoning of this area. My proposal, which was kindly referred to as the “Licata Leap” by Councilmember Burgess, would do three things. First, reduce carbon emissions from employees driving to work from long distances by creating a greater incentive to provide affordable housing in SLU and in the city. Second, significantly increase the number of affordable housing units beyond what the other plans are proposing. Third, it will begin to make those changes now, capturing the potential to build hundreds of new housing units that would otherwise be lost if we were to wait another year for more discussions.

COMPARISON OF SLU PROPOSALS FOR FUNDING AFFORDABLE HOUSING

The performance requirement (i.e. the developer builds the affordable housing units on or offsite site) and the in-lieu payment amounts (i.e. the developer pays a fee to the city and the funds are used by someone else to build the units elsewhere) would significantly increase with the Leap Plan. Below is a table showing the differences.

This table applies only to new residential construction, not commercial construction, taking advantage of the SLU upzone. Commercial developments would also pay a fee, but their numbers would vary from those presented below.

Variable Measured Proponent
  Mayor Clark Burgess O’Brien Licata Leap
(Performance Requirement) On-Site Cost per Gross Sq. Ft. in Residential Bldg. $15.15 $15.60/$17.16 (2013/2014) 18.07 18.07 Approx $60
On-Site % of Residential Floor Area to be used for Affordable Housing Less than 5% Less than 5% Less than 5% Less than 5% 10% of total units required
Affordability 80%
of AMI
80%
of AMI
80%
of AMI
80%
of AMI
Half at 60% of AMI* other half at 80%
of AMI
(In-lieu Payment) Off-Site Cost per Gross Sq. Ft. in Residential Bldg. $15.15 $15.60/$17.16 (2013/2014) $21.68 $21.68 $96
Off-Site Cost as measured as % of Residential Floor Area Less than 5% Less than 5% Less than 5% Less than 5% 15% of total units ($96)
Estimated Number of Affordable Housing Units provided by 2031 by each plan
(Calculated assuming in-lieu payments only)
450 464/510 700 700 2,851
Gap from the 5,500***
affordable units needed in 2031, based on current projected job growth in SLU

5500
-1274
4226
-450
3,776

5500
-1274
4226
-510
3,716

5500
-1274
4226
-700
3,526

5500
-1274
4226
-700
3,526

5500
-1274
4226
-2851
1,375

Notes:

  • *AMI is Average Median Income
  • **Office of Housing suggests that non-profit developers may build an additional 300 units by 2031.
  • *** This is the number of affordable housing units that the Office of Housing has determined that we’ll need by 2031 to meet our needs for the growth of jobs in SLU. Our consultants have confirmed this number and believe that it would be higher by 50% if we included the demand for affordable housing coming from the rest of the central business district.

The Council is moving in the right direction by increasing the amount of affordable housing from what the Mayor has proposed. One way that some Councilmembers have proposed is to increase the fees is by capturing inflation costs through applying the CPI index. This increase is one that could have been administratively applied, without legislation, any of the years since the 2007 passage of our first incentive zoning program.

I’m also glad to see that some Councilmembers are proposing a higher fee (referred to as an “in-lieu premium” of 20-25%) on developers who do not provide onsite affordable housing. I appreciate that Councilmember Burgess, who was the first to propose higher fees than what the Mayor proposed, acknowledges that even with this in-lieu premium, “the fee would be well below what is allowed by state law, RCW 36.70A.540 (h)”… well below the total cost to develop the workforce units.”

My objective is to encourage the development of affordable housing within projects and discourage the practice of developers writing a check to fulfill their incentive zoning obligations. Since its inception, San Francisco’s differential performance requirements and pay in-lieu options has succeeded in this objective, resulting in 80% of projects performing on-site units, 4% have performing offsite, and 16% making an in-lieu fee payment. My proposal is much more modest, but it will still increase the amount of on-site development than is currently being considered.

Here are some of the details of my proposal:

  • For developers building affordable housing onsite: 10% of all residential floor area would be set aside as affordable for 60% and 80% average median income workers, which works out to about $60 gross square foot.
  • For developers who don’t build affordable housing onsite, they make a “payment in lieu fee” which is equivalent to the cost of developing more units, instead 15% of units, or about $96 gross square foot.

IS THIS PROPOSAL REASONABLE?

The City Council’s consultant produced The Spectrum Report which concluded that an in lieu fee of even $104/gross square foot (mine is estimated as $96) would result in a 6.8% Return On Equity for developers and investors, the baseline threshold accepted by in the current market is 6%. In other words, developers could still make a healthy return on their projects.

Some have suggested that if we ask developers for too much in exchange for them using the upzones, they will not build in SLU if they can make larger profits elsewhere. While that is a possibility, there are other things to consider.

Although incentive zoning should be applied city wide, SLU is and will continue to be the hottest real estate location in the city for some time. The Mayor created a taskforce for considering how incentive zoning should be applied city-wide. It should move quickly and make a proposal by mid-summer, not at the end of the year as is currently planned. We do need city-wide consistency in applying incentive zoning. With a good portion of the Mayor’s appointees on the taskforce being for-profit developers, I expect that they will voice their hesitations about robust incentive programs. Consequently, I have low expectations that they will endorse anything that is bold enough to meet our city’s needs for more affordable housing. However, while the public deserves to hear their concerns, we should not use this taskforce as a barrier for tackling our affordable housing needs now. Rather, we should move forward before the end of the year to address the need city-wide.

Seattle is currently the sixth most active real estate market in the nation, and the risk factor for investors in this market is the second lowest in the nation as well. Both stats come from a report of Real Capital Analytics, a nationally respected firm, whose report received wide attention. However, San Francisco is even a “hotter” and they have a more aggressive affordable program than what I’m proposing (their “in-lieu” fee is over $300 a gross sq. ft. compared to mine of $96, or the Mayor’s at $15.) The requirements of their program applies even when there is no concurrent upzone and any time a builder is building more than 5 units of housing. And developers there have to provide housing units that are affordable to a lower income worker – 55% of Area Median Income, while all our proposals are at 80% of AMI (mine is half at 80% AMI, and half at 60%). Finally in San Francisco the affordable units are permanently affordable, for the life of the project. Our program guarantees affordability for only 50 years.

We need to build housing for our entire workforce, not just those at the highest wage scales. That is why we must have an incentive zoning program that also produces housing for workers earning 60% of the AMI. These are the security, clerical, maintenance, sales and hospitality workers. One proposed new building, just outside the SLU boundary, will be Seattle’s largest hotel employing over 400 people earning less than $25,000 a year. These are people who deserve the opportunity to walk or bike to work, rather than being forced to drive from Kent, Renton or beyond every day because they cannot find affordable housing in Seattle.

CONCLUSION

Council does recognize the opportunity of capturing additional public value for the private value we intend to create.  And, upzoning adds significant value to private property. The Department of Planning and Development has estimated that future growth due to upzoning SLU could result in over $12 billion worth of development over the next 25 years. Is it reasonable to expect that we should shape that development to be sensitive to our physical environment and our community values? I don’t want to see a downtown enclave created that can only house the most highly paid workers.

My vision is the creation of a functional and sustainable new downtown urban center that reflects the social diversity and environmental goals of our city. Can we do that by creating another 500 or even 700 affordable units when we expect there to be 15,000 housing units in SLU by 2031? I, for one, believe we can and must do better.

I welcome the Council’s continued resolve to grapple with these issues now, as well as the fact that we are also collectively rolling up our sleeves to do the same for incentive zoning throughout the City. But we need your guidance. What do you believe we should do?

Keep in touch…

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