Two steps back on affordability?
If Seattle aligns on anything, it’s affordable housing. We pass our levies by wide margins, and seem to agree that our city should be available for all income levels, whether for empathy, worker availability, or other reasons. We might also agree that the SHA and non-profits do a good job leveraging our money, and the levies aren’t enough.
The South Lake Union rezone, which got committee approval this week, involves fees of $21.68 to $29.27 per square foot (plus inflation) for space above the original height limits. Let’s look at that. Ideally a tax system should put less burden on things you want to encourage, and more burden on the rest. So where do we put the maximum burden? On new construction projects, and the homes and jobs they’ll contain. On the housing side we’re addressing affordability by directly making this housing more expensive for most people, and disincentivizing new supply, which is our greatest weapon to avoid San Francisco’s fate. On the commercial side, we’re disincentivizing the job creation that supports our overall tax base, and the job centralization that’s crucial to maximize walkability and leverage public transportation. We also risk pushing construction outside the neighborhood, perhaps to other municipalities, losing that sales tax revenue.
Outside the A/E/C/RE industry, people seem to think the added heights are an easy windfall, and sometimes they are. But going tall also has downsides – substantially higher cost per square foot (even before the fees), more space to fill, longer construction duration, etc. On top of that the fees add perhaps 6-8% to total development cost above the old height limit. Taking advantage of the new heights therefore assumes high-rents, and requires a bigger bet. The math will work in some cases, such as a big eager tenant wanting to expand across the street, or apartments with permanent water views. Other projects will likely find that six stories with woodframe pencils more easily, and limits risk. Maybe this is why developers continue to advance new plans to build lowrises in South Lake Union.
So what’s a better solution? If we can expand the housing levy, let’s do that. The voters will support it. And maybe we should be less reticent with one-off deals like Vulcan’s Valley Street swap, or similar versions. And then there are micro units.
Miraculously, a chunk of the affordability puzzle is taking care of itself. Micro units of various types are proliferating and filling up with renters eager to pay rates otherwise unheard of for centrally-located homes in good repair. This includes typical units that are simply very small, as well as the “rooming house” concept, where one “unit” might include eight bedrooms rented separately, with a shared kitchen to augment in-room kitchenettes.
Typically, rooming houses stay below a certain unit count to avoid the design review process and fit perhaps 40 homes into what would otherwise be a fraction of that, in multifamily zones. They often take advantage of what has been called a loophole, but it’s also an essential part of building at the most affordable rents. Seattle’s process costs a lot of money, with design review being part of that. First there’s the added time between tying up land and breaking ground, which involves carrying costs in the tens of thousands of dollars. Second, process means uncertainty about going forward at all, in part due to reduced flexibility in market timing. Third, design review means a choppier, less efficient design process, with higher fees. Of course with more units, the land cost is spread among more homes. Much of this relates directly to development cost. The rest affects cost indirectly – if we reduce supply, we cause scarcity, which will cause higher rents.
Basic unit sizes might become a debate topic. Homes are often in the 200 square foot range (similar to a typical hotel room), and some down to 100 square feet or so. But why is that controversial? Wealthy suburbs have often mandated square footage minimums to keep the poor folks out and protect property values. Many people seem offended at the idea that some renters would live in places they themselves wouldn’t. But surely Seattle isn’t an exclusionary, authoritarian city in those ways. Others talk about humane living conditions, forgetting that $10 per hour might otherwise mean mom’s basement, three roommates, and/or spending two hours a day commuting. Still others complain that their public street parking will get tougher, as the new buildings generally have little or no parking. The last point is at least understandable human nature, though the existing residents have no more claim than anyone else. What’s left? Is there a valid reason to not allow even a 200 square foot home, or even 100 square feet? Why aren’t we celebrating these as a choice for people to live independently, and with less energy and stuff?
(Disclosure: I work for a contractor that builds highrises, but have no connections to the micro trend.)
