Washblog

From: Nick.Licata@Seattle.gov
Subject: Message from Nick Licata about City housing program
Date: June 26, 2008 5:51:12 PM PDT
To: ktkeller@earthlink.net

I am writing because you have written me in the past about a civic issue important to you. While this issue may not fall within those you are passionate about, it is one I believe central to the health of our community, and thus, am hopeful you will give it your attention. Should you wish not to be contacted by me on issues outside of those you have written me about, please reply with that request and I won't contact you outside of your issue areas.

The Mayor has recently proposed changes to an important affordable housing program that would greatly undermine its effectiveness. This program, the Multi-Family Tax Exemption (MFTE) has helped produce 763 units of long-term, low-income housing since 2004. Under the new proposal, this program will 1) subsidize private developers to build units at essentially market rents, 2) expand the program to build units in neighborhoods that have already met growth targets and 3) raise rents and taxes for the rest of us to pay for it.

Last week the Council's Housing and Economic Development Committee voted to approve these changes.  I cast the lone vote against the MFTE legislation, Council Bill 116245, after first trying to amend the bill. The Full Council will vote on Monday, June 30th at 2PM.  I will try and amend the bill again so that it can only be used in neighborhoods that have not already witnessed dramatic growth.  

I have attached a point-counter point published in today's Daily Journal of Commerce that I think fairly captures the two perspectives on the proposed changes to the program (I have included it as a Word document as well as a Adobe PDF document).  Should you wish to let Councilmembers know your thoughts about this bill you may speak at the public hearing at the start of Monday's meeting, or you may contact them, their emails are listed below.  

Sincerely
Seattle City Councilmember Nick Licata

COUNCIL MEMBERS & MAYOR'S EMAIL ADDRESSES

Tim.Burgess@seattle.gov
Sally.Clark@seattle.gov
Richard.Conlin@seattle.gov
Jan.Drago@seattle.gov
Jean.Godden@seattle.gov
Bruce.Harrell@seattle.gov
Nick.Licata@seattle.gov
Richard.McIver@seattle.gov
Tom.Rasmussen@seattle.gov

Citizens are directed to the following website to complete a form to send an email to the Mayor's Office. http://www.cityofseattle.net/...

Business
June 26, 2008
Opinion: Should we change the Multifamily Tax Exemption?
The Multifamily Tax Exemption program started in 2004, giving developers a tax break for earmarking some units in new buildings for lower income tenants. The exemption now applies to projects with 20 percent of units at 60 percent, 25 percent of units at 65 percent or 30 percent of units at 70 percent of median income.

A new bill extends the exemption to higher-rent units. Developers would get the exemption when 20 percent of rental units target people making 80 percent of the King County Household Median income for studios and one bedrooms, and 90 percent for two-bedroom units.

The full council will consider the bill on Monday. We asked council members on both sides to weigh in.

PRO: Rising costs mean it's time to expand tax break
By RICHARD MCIVER, BRUCE HARRELL and JAN DRAGO
Special to the Journal

The Multi-Family Tax Exemption is an effective tool in creating housing that otherwise might not be created by the private sector, in areas experiencing rapid development, but also in areas that are not seeing development.

It provides a modest subsidy intended to capture a share of the development of housing in areas that are seeing robust development of market-rate housing but in which the city also wants to develop housing affordable to moderate income households earning 80 percent to 90 percent of median income. Without the MFTE program, obtaining moderate income housing in these areas is difficult.

In order to provide a range of housing choices for people of different income levels and to give people more choice of neighborhoods in which to live, we are proposing to expand the MFTE program to 22 new neighborhoods, including: 12th Avenue, Admiral, Aurora-Licton Springs, Ballard, Belltown, commercial core, Crown Hill, Dravus, Eastlake, Fremont, Green Lake, Greenwood-Phinney Ridge, Lake City, Madison-Miller, Morgan Junction, Pike/Pine, Ravenna, Roosevelt, Upper Queen Anne, Wallingford, West Seattle Junction and Uptown.

We believe the affordability requirement for rental projects for the MFTE program should be established at 80 percent of median income for studio/one-bedroom units and 90 percent of median income for two-bedrooms.

High construction costs and land prices make this level of affordability appropriate at this time. The City Council's Housing and Economic Development Committee will review the program and the affordability levels in one year to see if the real estate market has changed enough to allow for the affordability requirements to be modified.
The council has made modifications to the program in the past to respond to fluctuations in the real estate market and will do so, again, if the information warrants such. Overall, we believe this is the right proposal for this program at this point in time.

CON: Why subsidize housing so close to market-rate?
By NICK LICATA
Special to the Journal

The mayor wants council to make changes to a housing program and greatly undermine its effectiveness. With these changes, this program would 1) start subsidizing developers to build essentially market-rent apartments, 2) include neighborhoods that are growing too fast and 3) increase our taxes so the rest of us can pay for it.

Since 2004, the Multi-Family Tax Exemption program has helped produce 1,278 apartments. Developers were required to set aside 305 of those units at rents affordable to those making 60 percent of median income or less, yet they set aside 762 units at those rents. That's a good return on our investment.

Why change a program that produces housing the average renter can afford into a program that builds housing that fewer can afford? With these changes, a studio would rent for as much as $1,115. This is considered affordable to people earning 80 percent of median income, or $46,704 a year if you are single. What is the public getting for their tax dollar if the rents set by this program are so high?

Secondly, the program should focus on neighborhoods that aren't growing. I propose taking out neighborhoods like Ballard, that in less than four years have met 174 percent of their 2024 growth goal. Some on the council say Ballard can take more growth. I think neighborhoods like these need to be more livable with the services, open space and transit they deserve and that the Growth Management Act requires.

We can and should keep using the MFTE to build housing for the average renter and meet a real need in the rental market. The workforce sector most lacking affordable housing earns no more than 60 percent of median income or about $35,000 a year. These are Seattle's clerks, laborers, nursing assistants, cooks and childcare workers, among many other occupations.

They represent 44 percent of working people in Seattle; they are nearly all renters. Without housing they can afford, they will move out of the city. Their increased travel time to work in Seattle will contribute to greater traffic congestion and pollution.

There is no data to support the claim that significant numbers of higher-income renters are leaving the city because they can't find affordable rent. In fact, a 2006 King County report says "more than nine out of 10 rental units in King County were affordable to households earning 80 percent of median income."

Let's build housing for the people that need it, so they can keep working and living in Seattle.

© Seattle Daily Journal and djc.com.

Granted worse laws have been passed in Seattle. But, I personally have gone through quite a learning experience over the last month, forced to deal with understanding as well as I could, one facet of how public programs do or do not work well with the market to maximize taxpayer investment.

Over a month ago, as I was listening to the Housing and Economic Development Committee meeting (I admit that I am a nerd who tapes all of Clark's and many of McIver's meetings) while I did various chores, my ears perked when I recognized a friend of mine testifying about the Multifamily Tax Exemption Program (MFTE).  He commented that many of the areas of town covered had average rents such that landlords would not find it feasible to use the program, whereas areas that could use the program are underrepresented.

This same friend walked a group of us through the proposals at a community meeting on May 19:

The MFTE program provided exemptions to property tax proportional to the number of units reserved for low-income people.  The program was not widely used.

The program has run out, and the City Council and Mayor's office are both looking at revising and extending the program. The mayor would like the program expanded to other geographical areas throughout the City, and would like the affordability requirement raised to allow for higher income renters and buyers to participate. The State guidelines stipulate that the Maximum Affordability Limit in low cost neighborhoods is 115% of median income, and for high cost neighborhoods as 150% of median income.

The Chair of the Housing subcommittee of the City Council has suggested the following parameters for the program:

1.For Rentals In all areas, 20% of units in a project must be affordable, with Studios at 70% of median income, and 1 and 2 Bedroom units at 80% of median income. Additionally, 20% of units must be affordable at 60% of median income.
2.For home ownership in all areas, the program would allow people at 100% of median income for studios and 1-Bedroom units, and 120% of median income for 2 Bedroom units.

Most of the group liked the Mayor's proposal.  Most felt, with the expense of renting in the city, workforce-housing opportunities need to be supported.  Also, we would have preferred a citywide program, but State law mandates that it is only available more narrowly.  We supported extending it to all areas where it can be available.  And, we wanted a program that WOULD be used.  What innocents!

In subsequent weeks, debates were played out among those who follow these things in email, on the blogs and at McIver's committee meetings.  Having an innate aversion to knee-jerk agreement with proclamations by anyone, and a flight response when presented with things having to do with monetary calculations, I did no more than pass along information between people in the group. To give credit, one member engaged one side of the debate, even while holding the other position.  (http://millerparkseattle.blogspot.com)

At two subsequent meetings of the Housing and Economic Development Committee speakers lined up to argue that offering this program to people who make up to 90% of median income will create needed workforce housing and allow regular working people to live in this increasingly unaffordable city. If Council won't provide greater scope in the program, it was claimed, we will have people commuting from the foot of Mount Rainier to work in Seattle because they won't be able to live any closer.  And, we don't want to cause more sprawl and pollution, do we?

On the other side, there were also well-reasoned arguments, along with those who waxed nostalgic about sharing houses the way many of us did when we were young and those who wanted to rant about the rate of new building activity. But, one speaker presented an analysis that showed that, as buildings age, rents drop at or below the maximum allowed for people at the higher incomes.

Councilmember McIver and the Executive came to a meeting of the minds, and over the strenuous objection of Councilmember Licata, the committee passed a plan on June 18 where the targets are 80-90% of median income and large swaths of the city are included.  The current proposed ordinance is due to be voted on Monday by full Council.

During these weeks, I've had a nagging feeling about this thing.  As a taxpayer, shouldn't I be concerned that we are good stewards of scarce resources?

I am desperate for Seattle to be a place where all who work, go to school or have roots in the community are able to afford to live (life in the fullest sense of the word) here.  That's not just a bleeding heart liberal point of view.  It's from a point of view that wants sustainable communities, a sustainable environment and healthy families.  The notion that we separate working parents from their children by hours of commuting is not only bad for the environment, it's been horrible for families from the time we accepted long commutes.  

We also have to confront the fact that people, people who have lived here their whole lives, people who do the jobs that don't pay so well, are finding it difficult to live near where they work.  Certainly that is not only a problem in Seattle, lack of regional planning creates the same issue with our suburban towns.  The ideal model is one of fairly dense cities and towns with a good mix of income levels, open space and farms between, and a great transit network so that people have easy access to work, school, life's amenities, etc.  But, I am digressing; the elaboration of that model would be the subject of another diary.

In any case, the naivete with which I approached the issue came from the following attitudes and experiences:

• I WANT more workforce housing in Seattle.  I want the teacher/fire department personnel/police officer/garbage collector/hotel worker to be able to live in the city.
• We continually see headlines such as `Average Seattle worker can't afford to live here' http://seattlepi.nwsource.com/ and `Apartment hunt will be tougher for renters' http://seattletimes.nwsource.com/
• When I look at the `going rate' for many jobs, I can't understand how our median income (used for Housing programs) is as high as $57,000 for an individual up to $87,900 for a large family.
• I don't like the fact that Seattle, compared to King County, the state and even most other major cities is both being built for, and has populations skewed towards, singles and childless couples.
• It freaks me out when I hear a developer in the Central Area say that his building will be all market rate apartments, and that he will offer 1000 SQFT for around $2000 in rent!

I, like many others respond with an element of desperation. We WANT an underutilized program to be enhanced to provide more reasonable rents to the folks that make our city what it is. I was very resistant to arguments that seemed to me to pit the have nots against those barely hanging on, when those barely hanging on seem to have no programs.

Over the last week I took a deep breath, stepped back and realized that I needed to look at this program, not in terms of my hopes that more people get housed at an affordable rent (there always has been a home ownership component that NO ONE has used), but in terms of what it will or will not deliver.

This program is meant to ENCOURAGE new development, and now, in areas that may not need it.  It does not put existing housing into `service' (in use by a low income housing program).  In many of the areas targeted, developers like the one in the Central District noted above who expects to rent at luxury levels, won't even use the program at all.

What is the value to us of subsidizing, through tax exemption for the property owner, the difference between rents set to 30-35% of income versus what is available in the market?  Is the property owner giving enough in return for reduced tax revenues?

Here are the 2008 tables posted on Seattle's Office of Housing website http://www.seattle.gov/housing/incentives/SeattleHomesWithinReach.htm for the MFTE, now renamed "Homes Within Reach" by the Executive:




SEATTLE HOMES WITHIN REACH
2008 Seattle Homes Within Reach Income Limits
Family Size	60%	65%	70%	80%	90%	100%	120%
1 Person	$34,200	$37,050	$39,900	$45,600	$51,300	$57,000	$68,400
2 Persons	$39,060	$42,315	$45,570	$52,080	$58,590	$65,100	$78,120
3 Persons	$43,980	$47,645	$51,310	$58,640	$65,970	$73,300	$87,960
4 Persons	$48,840	$52,910	$56,980	$65,120	$73,260	$81,400	$97,680
5 Persons	$52,740	$57,135	$61,530	$70,320	$79,110	$87,900	$105,480
6 Persons	$56,640	$61,360	$66,080	$75,520	$84,960	$94,400	$113,280
7 Persons	$60,540	$65,585	$70,630	$80,720	$90,810	$100,900	$121,080
8 Persons	$64,440	$69,810	$75,180	$85,920	$96,660	$107,400	$128,880
2008 Seattle Homes Within Reach Maximum Rent Limits
Unit Size	60%	65%	70%	80%	90%	100%
Studio	$855	$926	$998	$1,140	$1,283	$1,425
1 Bedroom	$916	$992	$1,068	$1,221	$1,374	$1,526
2+ Bedroom	$1,100	$1,191	$1,283	$1,466	$1,649	$1,833
The amounts shown in the above table assume that the costs of basic utilities are included in the rent. If the tenant pays basic utilities, this amount needs to be subtracted from the numbers above.

This is posted BEFORE any ordinance has been passed by Council, and in anticipation of levels including up to 120% of median income, whereas the current proposed ordinance caps inclusion at 90%.  Seesh.

A look at what's available to rent in Seattle (rent.com, seattlerentals.com, seattlep-i.com) shows more than plenty of rentals in the ranges of what a landlord can charge for those in the 80-90% brackets while we taxpayers would agree to not collect full taxes on the property.
http://www.apartmentratings.com/rate/WA-Seattle.html has a nifty graph at the bottom of the page that shows generally rising rents, but average rent for Seattle for a 2-BR unit is just over $1300, and I-BR units average just over $1000.  www.apartmentfinder.com shows average rents in DOWNTOWN Seattle of $1300 for a 1-BR unit and $1600 for a 2-BR.

Given that, other than for some luxury units, rents tend to stabilize as a building ages (sounds like what happens to new cars) and that we are facing a downturn in property values, the new units will also end up priced at a rate that does not justify taxpayer subsidies at the higher incomes.  The individual renters do not benefit.  No matter waht, they are paying 30-35% of their income on rent.  Rather, the developer gets to collect the same rent as for units offered on the open market, and also pay lower property taxes. If an individual developer 'needs' to charge more for new units, we do not need them to participate in the program as there are plenty of other apartments available on the market at the target rents.

This is quite a contrast to units available at given rent levels set for lower incomes.  On one website I found twenty 1 and 2-BR units at or below the maximums allowed for 60-70% median versus eighty units at or below maximums allowed up to 90% of median.  Searching the Seattle P-I real estate ads yielded the same ratios.  We do seem to have a glut of cheap studio apartments, however.

My opinion is that, in this rental market, taxpayers get good value for the subsidies by serving people who make 60% of median income or lower.  This is because there is a price below which no housing is available on the open market, and little is available until prices get nearer average.  As expensive as everything is, (you economists out there can check my numbers, my logic and educate me more) average rents and what median income can presumably afford seem close enough that the taxpayers gain no `bang' for having a program offered to this income level.  Also, enough housing stock is available at average rents that I question the use of this program to encourage more building in areas that are glutted.   Other, better programs do and will exist.

After researching it for myself, I now do believe that The "Housing Within Reach" AKA Multifamily Tax Exemption Program, as proposed, is truly just taking my hard earned tax dollars and handing them to developers with no public benefit that I can see.  

Next up:  Incentive Zoning