Lower rent limits for tax-break-qualifying microhousing units? City Council to consider rule change

Another new rule regarding microhousing units is about to go before the City Council. With two micro buildings open here, two more under construction, and one in the pipeline, you might find it of interest.

BACKSTORY: Right now, if a microhousing building is eligible for the city’s Multi-Family Tax Exemption tax-break program, the maximum rent and income eligibility numbers are the same as for studio units in non-microhousing buildings. A proposed rule change going before a council committee this week would lower those numbers for microhousing – now formally known as SEDUs (small efficiency dwelling units) –

The MFTE program, explained in full here, currently involves more than 140 of all types around the city. Participating property owners must rent out at least 20 percent of their units at a city-set affordability level, and in exchange, they don’t have to pay property tax on the residential portions of their buildings for 12 years (they DO keep paying the tax on the land and on any non-residential parts of the structure, such as retail space).

The current list of participants of all types, citywide, includes both completed West Seattle microhousing buildings, Footprint Avalon I (3266 SW Avalon Way) and Footprint Delridge (4548 Delridge Way SW). (The exemption is only available in certain areas.)

WHAT WOULD CHANGE: It’s explained in a memo to the council – here’s an excerpt:

What prompted the need for this legislation?

* In 2014, the Council passed an ordinance establishing SEDUs as a new unit type, distinct from other unit types. Because existing Code does not set affordability requirements specifically for SEDUs in MFTE, the MFTE program would regard a SEDU as a studio, restricted at 65% of AMI. This translates to a maximum monthly housing cost of $1,004 and a maximum annual income for a one-person household of $40,170. However, typical SEDU market-rate rents are anticipated to be less than not only market-rate rents but also the restricted, affordable-rate rents for studios.

What would be the result of the lower affordability threshold in terms of affordable rent and annual income limits?

* The proposed legislation would reduce the maximum rent threshold for income-restricted SEDUs in MFTE projects to a level affordable to individuals earning 40% of AMI [area median income], resulting in a maximum monthly housing cost of $772 and a maximum annual income for a one-person household of $30,900.

Again, this wouldn’t cover ALL units in a microhousing building participating in the tax-break program – just the 20 percent required for eligibility. In some areas, this might not mean much of a change – doing a spot check online, for example, we note Footprint Avalon I is advertising rents $800-$899 right now.

Two more microhousing/SEDU buildings are under construction in West Seattle right now, 3268 SW Avalon and 5949 California SW, with another one planned at 3050 SW Avalon. Both of the latter have been approved for participation in the MFTE program, according to this report to the City Council last spring (which also includes data such as how much tax was *not* collected because of the exemption – scroll all the way down the document). The proposed changes will be discussed when the council’s Committee on Housing Affordability, Human Services, and Economic Resiliency, chaired by Councilmember Sally Clark, meets at 9:30 am this Thursday (February 5th) at City Hall.

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Diane February 2, 2015 (11:32 pm)

when I toured Footprint Avalon this summer, they were asking $950 and higher for those teensy units
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this change cannot happen soon enough; it’s a very good thing

Mr Elliott February 3, 2015 (5:14 am)

It’s early and the coffee hasn’t kicked in yet, but I thought the whole point of microhousing was to provide affordable rent so people without cars could afford to live in the city. So these developers can charge exorbitant rates on all but 20% of the units that can be set aside as “affordable” for families? And get a tax break? Has everyone lost their minds?

mike jacobson February 3, 2015 (5:28 am)

I disagree this is a good thing. I don’t want to encourage this type of housing by subsidizing it, even more. Simply it is taking money from one group to another. Let the market Rule.

M February 3, 2015 (6:08 am)

Rents should be controlled by the market.

Reese February 3, 2015 (7:03 am)

Anything over $500/month per person is a scam. Who is renting these? I originally thought the demand side of supply and demand would eliminate future builds, and I’m shocked that people are paying outrageous rent prices to live in these tiny, shared spaces. I love with someone else and combined we pay $1150/month for an entire house.

WSB February 3, 2015 (8:34 am)

Re: “who is renting these?” – not a scientific sampling but a recent story in The Stranger included quotes from several people living in microhousing around the city, including two in the Footprint Delridge buildings, a 26-year-old man and a 47-year-old woman. http://www.thestranger.com/seattle/living-in-a-micro-apartment-is-like-living-in-a-closet/Content?oid=21567320

wetone February 3, 2015 (10:01 am)

People want to know why rents have increased so much, all you have to do is look at where rents start with these micro’s, prices go up from there. Rents were much more reasonable before the building boom took off here a few years ago. These new projects and their owners control rents and the city makes it very easy for them to do so along with being very profitable. Wages in area have not gone up for most the population, so it forces either more people to share a unit creating much worse/bigger impacts on infrastructure (traffic) than area was designed for or to move a class of people out and moving others with more money in, changing areas demographics. Not good either way. Will be interesting to see this place in 5yrs. and if this was such a great idea….. I’m sure Kubly with his big $$$$ bike and transit improvement package will make a big difference for those getting in and out of WS….

bill bradburd February 3, 2015 (11:28 am)

When the lowrise code was re-written in 2010, ‘density limits’ were lifted in the lowrise zones – setting the table for these higher unit density projects such as micro-housing.

We (the so-called “usual suspects”) lobbied the PLUS committee to define the rules such that any additional units beyond the current density should required to be affordable. Since the project could arguably generate more $ per developable sq ft with smaller units with net cost to produce them lower, some of that additional development potential should be returned back in the benefit of lower unit rents.

We were told that the Master Builders (i.e. the developers) didn’t want that, and instead of standing up for community and affordable housing interests the Council went for additional density if “Built Green” (the developers own standard for green, far less stringent than LEED and other international standards). We argued that EVERYTHING should be built green in this day and age and we were just giving away the farm.

So now we see high density, high cost units, and now this attempt years later at trying to close the barn door after the horses are out.

The on-going failure of Council to understand the implication of zoning and the land use code to our current housing cost crisis is frustrating.

This program should offer long term affordability (50 years, as Incentive Zoning does), and apply to far more units.

We need to stop putting a fat bottom line ahead of the interests of our communities.

H February 3, 2015 (11:44 am)

No.
If I’m reading this correctly, this would eliminate almost all property taxes for developers of apodments. I cannot agree with that. If you’re housing that many people within the neighborhood you must pay your share of road maintenance, infrastructure maintenance, firehouse services, hydrant maintenance, etc (city taxes). Don’t quote me on this but I seem to recall that in exchange for changes in building heights on new developments (downtown), buildings were required to offer a % of units that met reduced income HUD qualifications. I don’t believe that apodments (SEDU’s) offer what larger downtown developments offer (amenities serving large groups of the public); therefore, should not be entitled to tax waivers.

I have tenants. They’re a family. I charge less than market rate for rent. Technically I’m renting > 20% at below market rate. Can I stop paying my property taxes too? I’d welcome a savings of thousands of dollars a year.

WSB February 3, 2015 (12:00 pm)

Just in case it’s not clear, the MFTE does not ONLY apply to microhousing. It dates back to the late ’90s and already has been utilized by a variety of multi-family-housing projects (see the list we linked – the WS projects among the 140+ citywide participants include pretty much a roll call of buildings that have opened in the past six years or so – Altamira, Blake, Element 42, Link, Mural, Nova, Oregon 42, Vue, Youngstown Flats) – and the list presented to the council last year that includes not-yet-complete projects with MFTE approval lists Spruce, Junction 47, and the Trinsic project at 35th/Avalon. *Note that a few project names have been changed since the MFTE lists were made – for example, Blake was “Spring Hill,” Junction 47 was “West Seattle Apartments,” etc.* – TR

Matt February 3, 2015 (11:55 am)

wetone, your cause and effect are reversed. Development happens because rents are high (or growing), not the other way around. Property managers only feel comfortable raising rents when there are few vacant units in the area, and lots of prospective renters knocking on the door.

Diane February 3, 2015 (12:42 pm)

Heather, this is not new; if you look through some of the links TR provided with the story, this program started 17 years ago; this has already been happening with nearly all new construction Seattle apts for nearly 10 years; it’s not just apodments developers who are getting away with paying no taxes on apt buildings; look around any neighborhood at giant apt projects; most are NOT paying any property taxes for 12 years on the residential part of their buildings just because they designated a small % of their apts as supposedly affordable; although, with skyrocketing rents, 80% or even 65% rents are still way too high, not affordable for most renters; and I agree, MFTE is a terrible program as currently written; needs to be changed; I would like to see it dumped completely and start fresh with a real program to provide more affordable housing, especially for the most needed 40% – 60%
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there are many other much better solutions being utilized by other cities all over the US; city council and city staff are well aware of other options; I participated in an all day packed affordable housing forum at city hall last February where affordable housing experts were brought in for the day from all over the country; then what? I don’t think Seattle has taken action on any of those excellent alternatives to create more affordable housing; that’s what they typically do; hold a meeting, check a box, tell us they did outreach, do nothing, and move on to next topic
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we need real change in city council in this next election; we need council members who really listen to citizens and then take bold action; Bill Bradburd (above comment) is running for city council at large; I am thrilled, and honored to endorse him; Bill is an expert on housing in our city and will do what is best for the people of Seattle, not just the developers
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we also have 3 local candidates running for city council in our new district 1; two of are very active community leaders, Chas Redmond and Amanda Kay Helmick; wsblog is sponsoring the 1st candidate forum this Thursday night, where you can meet the candidates who may be our next city council rep for West Seattle; show up, get engaged, ask questions, share your concerns; and vote in all elections; voter turnout has gotten ridiculously low; those of us who always vote are the ones who choose the people who end up making these kinds of decisions at city hall that impact all of our daily lives; learn about the candidates, and issues, and vote people!!!

Mike February 3, 2015 (1:09 pm)

So single family home owners pay tax, but not those that own and rent out units in complexes with a far greater impact on local utilities? Single family home owners pay estate tax that also goes to the Port of Seattle, but not those that own and rent out units in large complexes valued in the millions. Single family home owners are required to separate ALL compostable items, but not those living in large complexes with many if not hundreds of units……..hmmm
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Dear local government… piss off.

WestofJunction February 3, 2015 (1:44 pm)

Mike, I afraid that is what the local government is saying to us!

WSB February 3, 2015 (2:05 pm)

Mike, the new waste rules apply to large buildings too, according to this: http://www.seattle.gov/util/MyServices/FoodYard/BldgOwnersManagers_FoodYard/index.htm

Jw February 3, 2015 (2:08 pm)

So with 2080 working hours/year @ $15/hr. An individual making the new minimum wage (once in effect) wouldn’t qualify. $31,200/yr. thats gross. Once you take out taxes your spending what 35% of your income on rent? so the only people that will qualify will have to make less than minimum wage. Wouldn’t they likely already be receiving govt assistance?

Diane February 3, 2015 (2:49 pm)

@Mike; re food/garbage/recycling; I’ve lived in 22 unit apt building for 7 yrs; tenants/management here are VERY conscientious about separating into proper containers; please don’t turn this into another comment thread demonizing renters as lesser citizens; renters are actually the majority in Seattle, and not sure there’s any evidence we are any less responsible in disposing of our waste than homeowners
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re charges for these services; most of the new apt projects charge tenants exorbitant extra fees, far above their actual costs for water/sewer/garbage; it’s one more way for some landlords to make more profit; thankfully my apt building includes w/s/g in the rent, as it has been in most apt buildings for decades; but my last 2 rent increase notices detailed the reason for rent hike was due to increased property taxes and increased cost of water; so renters are also paying these costs; I don’t pay a separate w/s/g, but rent was increased $25 last year and $50 this year, so effectively, I am paying w/s/g and property tax, just like you homeowners

Diane February 3, 2015 (2:54 pm)

@Jw; 1st, it will be years before the $15/hr will take effect for most in Seattle and by then the salary cap for affordable housing will also be higher; it changes annually
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and sorry to say that no, it’s nearly impossible to get any gov’t assistance after making $15/hr; that’s way beyond the income cap for food stamps, or Medicaid; it may be same income cap for other affordable housing, but those options have multi-years long wait lists; in fact right now, the KC Housing Authority has opened the lottery for section-8 housing; only 2500 people have a chance to win that lottery; last time the KCHA opened the housing lottery, 23,000 people who need affordable housing received a rejection letter, “sorry, you were not among the 2500 who were picked at random in the housing lottery to get a chance at affordable housing”; I predict this time around there will be 30,000+ people who apply for the lottery to get an affordable place to live
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our city has a major housing crisis; we need many solutions that are far better than MFTE

natinstl February 3, 2015 (3:54 pm)

That article in the Stranger is a little disheartening. So basically, the people that are renting these units can’t wait to leave and they only see them as short term. That doesn’t do much for the neighborhood at large in terms of instilling a sense of community and seems to go against the idea the city and builders are perpetuating about offering long term affordable housing. The people that were interviewed definitely aren’t looking for long term, at least not in these units.

Diane February 3, 2015 (4:49 pm)

@natinstl; exactly

Heather February 3, 2015 (5:13 pm)

I agree @natinstl that article was disheartening. I do feel that smaller residences are great but they must be designed well in order to become a home.

Mike February 3, 2015 (7:20 pm)

http://www.kingcounty.gov/operations/Finance/Treasury/PropertyTax/FAQ/Assessment.aspx

Less money for our schools, more children in coming, great thinking government puppets

wetone February 4, 2015 (10:25 am)

natinstl, Portland Or. went through this with the micro’s long before Seattle allowed them, having very mixed actually poor results, lots of info out there on the subject. Long term effects from these builds will be everlasting for surrounding area property owners, along with home owners property taxes going up to pay for infrastructure improvements as many of these new builds get big tax breaks from our city.
Matt, this is what I’ve seen here in WS. Around the 1980’s is when bigger projects started coming into WS with the apartment and condo build up. Then you had the conversions back and forth depending on the market. Investment companies that owned or managed the properties started controlling rental market back then and today control the largest share of rentals. So in a way we are both right and as the city pushes for more people to move here the rents will go as high as management company’s can get ;)

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