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April 28, 2014

Opinion: A closer look at why some developers still choose to build midrises in South lake Union

Special to the Journal


A March 27 DJC op-ed by Ada Healey, vice president of real estate at Vulcan, about the city’s Incentive Zoning Program, points to a recent consultant study showing that 62 percent of developers are not taking advantage of the greater development capacity permitted by the program.

Some have said that this suggests that the program creates a disincentive to build more density and contribute to our affordable housing goals. On the contrary: a detailed review of permitting in SLU shows that there are several factors that influence the decision whether or not to build 240-foot towers.

For starters, the development standards for some of the lots in the SLU rezone area simply preclude tower development. For instance, one property is in the zone for high-rise development, but the small size of the lot and meeting the requirements for maximum tower floor plate size means a similar amount of floor area could be developed in a midrise product.

Another property is in the flight path to Lake Union. Still another property is adjacent to the proposed north portal and off ramps from the 99 tunnel, making it less desirable for tower development.

Further review of permitting for several of the properties in question, reveals that some of the developers are midrise developers with no high-rise development in their portfolio. Midrise development is less risky given that it’s less expensive to build and the construction period is shorter.

Why are so many proponents of growth and density also opposing incentive zoning, when their support for it could address many of the concerns people in Seattle have about growth?

Finally, in some other cases, the developer applied for and vested their development permits before the incentive zoning law passed. Apparently, the developers of these projects preferred to stay vested to the old development standards, rather than invest the time and expense necessary to develop, submit and get approval for new plans under the 240-foot height allowances.

Ms. Healy fails to mention that this same study states, “Overall, usage rates varied dramatically by zone, land use (commercial or residential), and time of application, and it is not yet possible to draw many conclusions.” Yet, the op-ed states that “There are seven residential projects in South Lake Union (SLU) under construction or with a master use permit issued that are not using the ‘incentive.’”

But what, if anything, does that mean? In New York City, the utilization rate of the program is 10 percent (ours is 38 percent) yet it has resulted in 13 percent of all new multifamily units in the targeted zones being affordable units. In other words, fewer development projects eligible for their bonus program have elected to take the bonus, but their program still produces more affordable housing than ours.

Here are two key factors driving the delivery of high-rise projects in SLU:

1. Supply of sites available for high-rise development, given the potential for alternative development of those sites with offices and biotechnology research and development laboratories.

2. Risk associated with high-rise residential development, recognizing that demand is limited because the ability to command higher rents needs to be proven by the market to finance construction and there is competition from development in other areas that also allow high-rise development.

Before jumping to the conclusion that the current incentive zoning program is a barrier to higher density, the council is waiting for an economists’ report commissioned as part of our review of the incentive zoning program. We hope to learn whether taking the bonus height and making the required contribution of a public benefit is financially advantageous.

If we learn that it is, and still only 4 of every 10 projects use the program, then we have to ask whether greater incentives (more height) would be irrelevant to our density and affordable housing goals, because at the end of the day, the choices that a developer makes can be complicated and perhaps their outcomes are not always able to be influenced by city policy supporting greater density or more affordable housing.

The same consultant reporting on Seattle’s incentive zoning program utilization rates also told us that, in his experience, the opposition in Seattle among pro-density, smart growth advocates to incentive zoning was unusual. He reports that in other cities, support of these policies is an important way to build broad support for higher density and transit oriented development among people concerned about displacement and rising housing costs. I think he buried the lede here. Why are so many proponents of growth and density also opposing incentive zoning when their support for it could in fact address many of the concerns people in Seattle have about growth?

In closing, it’s not surprising that Ms. Healey and others point to the Multifamily Property Tax Exemption Program and the housing levy as being preferred tools for affordable housing production. Yes, it’s true that between 2000 and 2013 we have invested $247 million tax dollars to help create 6,140 units of low-income housing. The taxpayers are predominately renters, homeowners and small business people who are not developers. Incentive zoning, on the other hand, is the only affordable housing program that is funded wholly by development. It’s based on the proposition that zoning is fundamentally about ensuring that we create public value when we rezone to increase development capacity and maximize the private value of property.

I would agree with Ms. Healey that the challenge of housing affordability is complex and multifaceted, and incentive zoning alone is not the answer. But it must continue to be part of the answer.

Nick Licata is a member of Seattle City Council and chairs the council’s Finance and Culture Committee.

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