By Anne Higuera
Reporting for West Seattle Blog

Six years into the city’s efforts to have developers help meet the need for affordable housing, things aren’t turning out exactly as expected. Seattle’s Mandatory Housing Affordability (MHA) laws, which the City Council unanimously made citywide in 2019, were supposed to both provide more income-restricted units in market-rate buildings, and fund the construction of additional low-income housing. While some of that has happened, the MHA is also being blamed for making it harder to build multi-family housing units in Seattle, according to a report released recently.

Mayor Bruce Harrell’s office commissioned the report by BERK Consulting and Heartland LLC to evaluate how well the MHA policies, which included select upzoning to increase density, met goals during the first 5 years. After giving latitude to construct taller buildings with more units because of the upzoning, the city asked developers to either commit to providing a limited number of low-income units in their buildings for 75 years or to pay a fee based on the building square footage. It might seem like a simple choice to make, but it’s complicated by market conditions, land costs and in the case of the period from 2019–2024, the turmoil caused by the pandemic. The report paints a picture of declining feasibility not just in Seattle but across 13 “peer” cities they examined, where higher interest rates and increasing construction costs made it difficult for projects to pencil out. “MHA requirements play a relatively small but important role,” notes the report, adding that even with better market conditions, the cost of complying with the MHA could well be the deciding factor for a developer to say, “No go.”

As bleak as that sounds, many thousands of new housing units have been built since MHA passed. Through 2023, developers paid $300 million in fees to the city. The report points to MHA funds supporting 4,702 new low-income units, but those funds were pooled with other financing, so it’s hard to tease out exactly how many units can be attributed solely to MHA funds. The developers themselves only built 404 income-restricted units in projects during that time. The stated goal was for MHA to be directly responsible for 6,000 new units over 10 years, with no specific goals for how much of that would be achieved through developer fees. It turns out that 95% of developers opted to pay fees for their projects, most of which were either low-rise or high-rise. Of the 5% who did not, the vast majority of the income-restricted units were built in mid-rise projects.

While the preference for paying fees has been consistent, the amount collected has varied significantly. Fees from developers made up almost half of the Office of Housing budget in 2021 by bringing in $74 million that year, but that is down to a projection of $22 million for 2025. The Office of Housing does have other revenue streams, including the Housing Levy and Payroll Expense Tax on companies with high earners. That means the opportunity to build many more affordable housing projects remains, but not because multi-family housing is booming generally.

In light of some of the challenges during MHA’s first 5 years, and knowing that the legislation was written based on much different economic situation than the current one, the BERK/Heartland report makes a number of recommendations to take that all into account and still encourage more affordable housing:

* Adjust MHA fees annually based on market conditions, housing type and location, rather than using a formula

* Allow fees to be paid later or over time (currently paid early in the process, which is an added financing cost)

* Raise fees or remove fees entirely as an option to ensure more income-restricted units in projects.

* Remove red tape: Streamline permitting and eliminate design review, adjust other miscellaneous policies

In a letter to the City Council last week, Mayor Harrell indicated he will look into the possibility of fine-tuning the MHA, saying the report, “…serves to confirm that MHA can be a useful tool, but it requires careful design and active management to ensure it does not result in unintended consequences for Seattle’s housing market.” Harrell’s Press Secretary Callie Craighead told WSB that a 5- to 7-person technical review committee will be convened to assess and provide feedback on the report. Craighead said the BERK/Heartland study cost $250,000 and was funded by MHA administrative fees collected by the Office of Housing.