Affordable Housing Linkage Fee Proposal


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City Council is currently considering a new way to help fund workforce affordable housing in Seattle. It is called the Affordable Housing Linkage Fee. The basis of the proposal is that the rapid growth and new development we are experiencing in Seattle is causing an even greater need for more affordable housing. This new fee asks new development to help pay to mitigate the increasing demand on our affordable housing stock. I am proposing that we replace our current incentive zoning program with this new housing linkage fee program, which has the potential to significantly grow our resources for affordable housing in the city.

This proposal comes out of over 18 months of work. For the full version of this post—which includes extensive background on how we got here, what our consultants have told us throughout this process of developing this proposal and what we know about our current affordability crisis—please check out this page. For the purposes of this blog, I am going to stick to the recommendations section that deals with the linkage fee proposal.

In order to explain how the change to a linkage fee will bolster our resources for affordable housing in the city, we need to start by explaining how our current incentive zoning program works. From our Department of Planning and Development: “Incentive zoning is a set of requirements that property owners in certain zones must meet to achieve the full potential of their building site. Property owners are required to provide public benefits, such as affordable housing, historic preservation, and open space, in exchange for larger buildings.” To meet the affordable housing requirements, a developer can either produce affordable units in the building they are developing or they can pay into the City’s affordable housing trust fund (in land use terms we call this “producing on site” versus “paying the in-lieu fee” to the trust fund).

The City has had an incentive zoning (IZ) program for commercial buildings downtown since 2001 and for residential buildings downtown since 2006. The program has been expanded to additional neighborhoods concurrently with upzones in Pioneer Square, SODO and South Lake Union, as well as around light rail stations. The fee-in-lieu was increased downtown and in South Lake Union in 2014. After the South Lake Union rezone, the Council adopted Resolution 31444, calling for a comprehensive review of our workforce housing programs, with a particular look at 60-80% AMI households, to better understand how we were meeting the need in Seattle.

The consultant found that while the IZ program has provided significant resources for affordable housing ($31 million from 2001-2013), the program is limited in its ability to provide significantly more affordable housing because (a) IZ is geographically limited in scope and (b) it is a voluntary program even in the areas it applies. So the consultants’ recommendation is simply to expand the geographic scope of the program and make it apply to all commercial and multi-family residential projects. The consultants also recommend increasing the fee, and their analyses suggest it can be done without significantly slowing down growth and development.

The proposal I am putting forward is right in line with the recommendations we got from our consultants. My proposal would replace the IZ program with the housing linkage fee for all commercial and multi-family residential development. The fee would be based on the square footage of the project and would be set at the level required to produce 3%-5% of the units being created at an affordable level. Developers will still have the choice they have today—produce 3%-5% of the units in the building as affordable units (with a 99-year period of affordability) or pay the housing linkage fee. The fee would apply in all urban villages and centers, commercial zones and low-rise zones. The fee will not apply in the single-family zones or to single-family home development. This map shows where the fee will be applied across the city.LinkageFeeAreas

Critics of the linkage fee approach are saying that the broader scope and increased fee will slow down development and prevent more housing supply from coming online in the market. They also say the fee will get passed on to renters. But we have good reason to believe that both concerns will not come true.

First, the report on policy recommendations explains how rents will not increase due to the linkage fee. This is because developers are already charging the highest rents that the market will bear. If developers could raise rents and pass on more costs to their tenants, they would do it already. I do not believe this will happen. The theory is that the cost of the linkage fee—with the predictability of a three-year phase in and the certainty that comes from applying it to all commercial and multi-family residential projects—will actually be built into the cost of the land and not passed on to future tenants. In a competitive market with all developers bidding on a project and paying the linkage fee, the land price will adjust to reflect the market reality for development.

From our review of affordable housing best practices and incentive-/inclusive-zoning programs from around the country, we see that the most successful programs in other cities are mandatory. This creates a level playing field for developers across neighborhood, the city and various housing types, and embeds the cost of the program into the land, so that it is less likely that it is passed onto renters.

Second, the economic analysis conducted by DRA shows that Seattle’s jobs, real estate and development markets are so strong that we could raise our fees significantly without halting the growth we are experiencing. The more modest fees that Council are considering are below the level that the analysis suggests would slow development. So I do not believe we will halt more housing from being built than under our current IZ program.

Now, there is a risk in setting the price of the linkage fee too high, beyond the recommendations of the consultants, because that could lead to a situation where projects do not get built and there is not enough supply being created. In that scenario, rents could go up as available space becomes scarcer. But the economic analysis is convincing—if we get the price right we won’t hinder development and we will significantly increase the resources we have to help meet the growing demand for housing at all levels of affordability.

Next steps

On October 14, the Planning, Land Use and Sustainability Committee recommended adopting Resolution 31551, which asks the Department of Planning and Development (DPD) to create legislation based on the linkage fee proposal. The Full Council will vote on the resolution on October 20. The resolution asks DPD to submit a draft of the legislation in June of 2015.

Comments

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Comment from debt consolidation
Time December 24, 2014 at 9:00 am

I think your proposal would replace the IZ program with the housing linkage fee for all commercial and multi-family residential development.
But in that scenario, rents could go up?

Comment from Brian Regan
Time December 30, 2014 at 2:41 pm

This will be one of the many City of Seattle that keep younger and less well-connected developers out of the business.
So, this is great for the big out of town developers!
Just like your minimum wage will unevenly punish small businesses.

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