© 2015 by the American Planning Association. Reprinted by permission of Planning magazine.
In 2013, when the Seattle city council considered rezoning the South Lake Union neighborhood to allow high-rise development, it faced a dilemma. The city’s incentive zoning policy required developers to help meet the local need for affordable housing, but the specifics of the requirements changed with every rezoning. For South Lake Union, once again, the city had to decide how much affordable housing it could require without adversely impacting development.
A debate ensued. Local housing advocates called for a higher requirement than had been imposed in other areas of the city, and local developers complained that any increase could make development infeasible. Caught in the middle, the council enacted a modest increase in the housing requirements while also approving a dramatic increase in height limits.
But the council knew there was a better approach. It engaged a team of consultants led by the Cornerstone Partnership, a national nonprofit group based in Oakland, California, and embarked on a yearlong discussion about how to better meet the housing needs of residents at all income levels.
The team conducted a national review of best practices, carried out market and feasibility studies by neighborhood, and combed through a decade’s worth of development records. The team and staff interviewed local stakeholders, convened an advisory group of real estate developers, and conducted a day-long public forum on the issue. In the end, better data made the choices clearer and helped the council coalesce around a new approach.
One key issue was the choice between providing affordable homes onsite in market-rate buildings or offsite by paying a fee. Economic integration was a core value that had motivated the creation of the incentive zoning program. But between 2002 and 2013, in every case where developers had this choice, they chose to pay the fee.
Cornerstone Partnership analyzed data from Seattle’s Office of Housing to better understand the tradeoffs involved. On the one hand, it took the city several years to spend the fee revenue received. But Cornerstone found that $27 million of fee revenue the city generated from 2000 to 2013 enabled it to bring in $97 million in federal and state housing funds that would not have been invested in Seattle otherwise.
This leverage allowed Seattle to produce an affordable home for each $50,000 in fee revenue it received. A typical downtown high-rise rental project paid a fee of about $150,000 for each home that would have been required on site. For these downtown projects, Seattle could use the fee revenue to produce three times more affordable homes than would have been built onsite. The economics were different for other types of projects but, overall, Seattle’s reliance on fees led to far more affordable homes being built. Because Seattle has a well-crafted policy about creating affordable housing in the same neighborhoods as the projects paying the fees, the homes were located throughout the city.
During the South Lake Union rezoning conversations, there was also fundamental disagreement about the economic impact that incentive zoning had on development. Seattle’s program only required affordable units from projects that built bonus floor area above a certain base height. Opponents of the program pointed out that many eligible projects chose not to take advantage of this bonus density, proving to them that the housing requirements were overly burdensome.
To address this basic question, the council engaged David Rosen & Associates to conduct a detailed economic feasibility study, which concluded that many projects would not have built to the higher density even if there were no affordable housing requirement because of the increased cost of high-rise construction and the high profits available from mid-rise projects. Because the city got affordable housing only when developers built taller buildings and the economics often did not support this type of construction, a voluntary program was unlikely to make a large dent in the housing problem.
This detailed analysis and the discussion that accompanied it helped to bring a divided council together around a new solution. In October 2014, the Seattle city council voted 7-2 to move forward to develop an ordinance that would supersede incentive zoning with a housing linkage fee including an onsite performance option. The new fee will apply to all multifamily residential and most commercial developments, regardless of whether they include a bonus density, and has the potential to raise millions of additional dollars annually for affordable housing.
This article was authored by Rick Jacobus and Joshua Abrams, consultants to Cornerstone Partnership (click to read other blog posts they have authored on the Cornerstone blog). Photo courtsey of Matt Westervelt.
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