#25%

I was recently talking with a friend of mine, and we were discussing the idea of running for office, and promises one makes on the campaign trail. There's what people want to hear, and what we can actually get done. We were in agreement that a trait we both like to emulate, and see in politicians seeking our vote, is that honesty of what can get done, and willingness to educate as to why what people want to hear may not be realistic. 

As I've been continuing down the rabbit hole of housing policy, politics, politicians, and campaigns, one thing that keeps rearing its head is the question of 25% Mandatory Housing Affordability as a goal requirement in Seattle. The idea, as floated, would require all new development (ostensibly multifamily) have a 25% on-site performance requirement for affordable housing. Nikkita Oliver says that her platform policy mirrors that of Jon Grant. So here is Jon Grant's (at least the section relevant here):

25% Affordability Mandate on All New Development

Across the country the cities with the worst housing affordability crises have already imposed a 25% affordability requirement on all new development. Seattle must do this too. Given the tremendous job growth in our city we must require developers to share the cost of mitigating the demand on our affordable housing stock.

People aren’t moving to Seattle because we are building more buildings. They are moving to Seattle because of our tremendous job growth. By 2035, Seattle expects to grow by 120,000 residents and 115,000 jobs. Many of these new jobs are for high earners in the tech sector, so developers are motivated to only build luxury housing. But we know that for Seattle to be a vibrant and diverse city we must have housing affordable to everyone. Given the incredible demand for housing, the city has a tremendous bargaining position with private developers. The city has so far asked for very little; currently our affordability requirements are as low as 3% in some parts of the city. It’s time for us to ask for more.

If existing communities are going to thrive in a hot rental market, the question is how can the city recapture new value from growth and redirect it toward more affordable housing. Requiring 25% of all new housing to be affordable to low income and working class people is the best tool to achieve that goal.

First, a quibble: this doesn't define "affordable housing." There are ideas all over the map of what it means, but since this specifically references "cities with the worst housing affordability crises," I'm going to go with what New York and San Francisco go with: Below Market Rate (BMR) units of housing. 

So, with that in mind, let's take a look at affordable housing programs in other cities. I touched on San Francisco's in a prior post. Notably, the 25% requirement in San Francisco is only for multifamily units that have 25 or more units being constructed. There is a pay-in-lieu option, and it does not include the urban-mixed-use zoned areas. Also of note: the 25% rule didn't come into play until mid-late 2016 following a ballot measure. 

This is an important distinction, because prior to 2016 San Francisco's Mandatory Inclusionary Zoning (MIZ) requirement was 12-14.5%, and since 1992 has only created about 3,000 units. With the dramatic increase to 25%, and data already suggesting it wasn't being used with regularity, there is no reason to believe that units will actually be produced at 25%, making the effective production rate 0.

There is also a legal question, and one that creates an apples to oranges situation when comparing Seattle to San Francisco. In California Building Industry Association v. City of San Jose, the California Supreme Court contemplated a 15% MIZ plan in San Jose, which required all development to include housing that would be deemed affordable to individuals and families making up to 120% of the Area Median Income. The San Jose statute also had a pay-in-lieu option, but along with the lower on-site percentage option, packaged other incentives, including city funds to subsidize the BMR units, reduced parking requirements, reduced set-back requirements, and density bonuses. 

The opinion also turned on statutory issues in California, notably that California State Law explicitly allows for this type of zoning requirement (unlike Washington State Law). In the concurrence, Justice Ming Chin noted that nothing in the subject ordinance required the internal fixtures of the BMR units to be the same as the market rate units. Combined, it was determined that because of the incentives and the ability for there to be profit made, there was no "taking" of private property, and the compelling interest requirement was met, therefore the 15% was acceptable. The U.S. Supreme Court declined to review this case. At the same time, however, this was a 15% requirement with some significant give-backs. The San Francisco plan has not been tested in courts in California, so we have yet to see how legal it is. 

The other city we look to is New York. New York City has a 25% MIZ program in place, but there's is also markedly different from Seattle's. For one, the "give-back" is an increase in FAR of 100-130% in areas where the MIZ is required. So a 7-story building can now become a 14-story building. In Seattle, this would be akin to having a 4-story LR-3 project now be able to rise as high as 8 stories - and that to be allowed to happen everywhere. New York also excludes Much of Manhattan from its MIZ program. The program is designed to cover folks making up to 150% AMI. Also, New York gives additional tax benefits, including directing for-profit developers to utilize the federal Low-Income Tax Credit, to compensate for the MIZ.  

New York also gives a full tax exemption (known as the 421a program) that is similar to MFTE, but limited in scope, and is typically combined with tax credits and affordable housing bond dollars given to for-profit developers. To put it another way, New York City meets its 25% requirement due to (a) massive zoning changes and (b) significant contribution of tax dollars (both direct and indirect).

In addition to everything else above, it should also be noted that these cities do not have the same MFTE, Incentive Zoning, or Housing Levy programs that we have in Seattle. Seattle's MIZ program (Mandatory Housing Affordability) finds its legislative authority in RCW 36.70A.540, which explicitly requires give backs to avoid a "taking" under the U.S. Constitution. The five named options are (i) Density bonuses within the urban growth area; (ii) Height and bulk bonuses; (iii) Fee waivers or exemptions; (iv) Parking reductions; or (v) Expedited permitting. 

In Seattle, we currently have over 3,000 units that are part of the MFTE program, with rents set below market rate, and affordable for folks at 80% or below AMI. Developers who take advantage of MFTE must provide 20-25% of their units as BMR. If this is expanded to include preservation investment (ie: the PTE), then even more units can come online with rents set below market rate. 

Over 13,000 units have been produced with funds from the Seattle Housing Levy, with units being rent-restricted to households making 60% or below AMI (with a fat chunk at 30% or below AMI). With the passage of the 2016 Housing Levy, this is expected to grow by over 2,000 more homes in the next 7 years. 

I don't have in front of me the amount of units produced through the Incentive Zoning program in Downtown and South Lake Union, but if I remember right, it's a couple hundred more. The Commercial Linkage Fee units are also expected to begin being produced soon, adding more developer-funded affordable housing stock to our city. 

We have a totality of programs in Seattle that address affordable housing needs. They're not perfect, and never will be, but actual production of units exceeds that of San Francisco, and the MHA plan is expected to continue that trend. In addition to the affordable housing requirements, other programs require childcare facilities, improvements to pedestrian and transit infrastructure, open space requirements, and so much more to be included with new development. 

That said, throwing out 25% as a number without explaining the whole story is troubling and misleading. The reality is that we may well see some projects in the University District, for instance, having upwards of 35% affordable housing requirements (between the 9% MHA, and if they take advantage of MFTE). This exceeds what is being promised by some politicians in Seattle. 

When I ran for City Council in 2015, MIZ was a hot issue. I disagreed with the 5-7% citywide number that was floating around, and instead stated that 10-15% seemed more on point, particularly when matched with a stronger MFTE. Overall, though, I believed then, and continue to now, that the goal needs to be total homes, using a combination of all available resources. 

When a politician says to you now, however, that 25% is the gold standard, my recommendation: ask how we do it. With calls for a "pause" on development, I'm not convinced that we are getting the full story. 25% works in New York because they are doubling and then some building height and bulk limits. In California, it is much the same. If politicians are going to call for 25%, but not support more housing types throughout the city, then they are effectively selling you a bill of goods. Expect more and demand more, including a plan to get to a goal that is actionable. Right now, however, 25% MHA is not an actionable goal, especially with the concurrent calls for a freeze in zoning changes and development city-wide.