Seattle's Plan to Implement Sustainable Affordable Housing
Listed on Forbes.com as the most overpriced place in the United States for two consecutive years, the city of Seattle has responded by making a concerted effort to promote affordable housing. Such endeavors include adopting new zoning ordinances, providing incentives to developers, constructing housing near public transportation, and promoting sustainable, affordable housing.
Center City Seattle
On January 6, 2005, inspired by the thriving inner-city neighborhoods of Vancouver, British Columbia, Seattle Mayor Greg Nickels proposed zoning changes that would shape the future of Seattle's downtown. The Center City Seattle strategy was adopted in 2006 to stimulate economic growth, improve transportation, and provide new housing in downtown Seattle and nine neighborhoods immediately surrounding the downtown area.
Mayor Nickels' goal for the legislation is to promote affordable housing and encourage smart growth development, both of which are viewed by environmentalists as effective strategies for reducing urban sprawl. Other benefits include the use of existing infrastructure for residential mixed-use development and the proximity of housing to public transportation. "By living within walking distance of work, buses, light rail and the streetcar, people's transportation choice won't be which car to drive; it will be which color shoes to wear," Nickels said. Alleviating downtown traffic will also facilitate Seattle's effort to reduce greenhouse gas emissions.
The bill, which is expected to fund more than $100 million for the development of affordable housing, was unanimously passed by the Seattle City Council and signed into law on April 12, 2006. The legislation encourages new residential development in the downtown commercial core to accommodate the city’s projected growth of 100,000 people by the year 2024. Center City Seattle is expected to create over 50,000 new jobs and over 22,000 new housing units to mitigate the impact of this growth.
The downtown zoning changes are expected to encourage production of affordable housing to serve modest-wage workers. As an incentive for including affordable housing in their developments, the city offers developers the option of increasing the height and density of their residential mixed-use projects. The additional height offered would be an increase from the city's maximum height limit of 540 feet to 700 feet. "The debate is no longer about how tall our downtown grows; it's about how well we grow as a city," Nickels was quoted as saying. In addition to greater height limits, the new changes include:
Greater maximum floor areas;
A new program encouraging the development of environmentally sustainable construction;
Expanding transferable development rights for historic structures in downtown; and
Tower spacing in some downtown areas to break up the skyline.
The new changes are projected to generate as much as $100 million in housing fund revenues over the next 20 years, representing an increase of 60 percent over what the current zone is expected to generate.
In order for developers to take advantage of the incentives outlined in the downtown legislation, projects must achieve a Leadership in Energy and Environmental Design (LEED) silver rating, in addition to including affordable housing. In an effort to mitigate the negative environmental impacts of growth, the U.S. Green Building Council developed the LEED rating system as a voluntary standard for use in designing and constructing sustainable buildings. The ratings are measured in the areas of sustainable sites, water efficiency, energy and atmosphere, materials and resources, indoor environmental quality, and innovation and design process.
Seattle also offers financial LEED incentives for new residential constructions or major residential remodels in the downtown area. Funding is granted to project owners or developers who achieve a silver, gold, or platinum LEED rating, and receive credits for demonstrating conservation of energy, materials, and water. Recipients of the LEED incentive receive $15,000 for a silver-rated project, $20,000 for gold, and $25,000 for projects rated as platinum. The program is financed by Seattle City Light and Seattle Public Utilities, and delivered by CITY Green Building, which is located within the Seattle Department of Planning and Development.
The LEED incentive was incorporated into the downtown zoning changes to mitigate the impacts of growth by protecting the environment, conserving natural resources, and promoting the public health. Once thought of as an additional development expense, green design and construction was often passed over as a viable choice for affordable housing. However, the city has found that green buildings can help save money. A study by New Ecology Inc., the first of its kind to research green affordable housing from a cost/benefit perspective, proves that the long-term benefits of green construction far outweigh the initial investment. The study found that green construction not only reduces environmental impacts, but also lowers utility costs and operating expenditures, making living expenses more affordable to lower income households.
Prior to implementing recent zoning changes, Seattle offered tax incentives to affordable housing developers. The Multifamily Tax Exemption (MFTE) Program, which encourages multifamily development for low- and moderate-income households, was adopted in 2004. The program allows property owners and developers to renovate or construct multifamily developments and receive a property tax exemption for the assessed value of residential improvements or for new construction. New construction is required to include a minimum of four housing units; renovations or conversions must add four new housing units. All qualified developments must be residential or mixed-use residential with a minimum of 50 percent reserved for residential use. The tax benefit, which remains in place for a ten-year period, is transferable to new property owners.
After being considered the most overpriced area in the nation in 2004 and 2005, Seattle has used incentives and zoning changes to encourage the development of sustainable affordable housing. As a result, the city's proactive efforts established Seattle not only as a participant, but as frontrunner in creating affordable housing.
Tax Policies to Support Affordable Housing
Many housing advocates agree that property taxes can have an adverse effect on affordability. To address disparities in the property assessment and taxation system, the Cook County Assessor's Office, in partnership with Chicago Rehab Network (CRN), a coalition of over 40 nonprofit housing developers, devised property tax policies and incentive programs that support affordable housing. Their efforts led to reformed taxation policies by providing greater incentives to create and preserve affordable rental housing, and to reduce the rate of condominium conversions, thus preventing the displacement of low-income residents.
Incentive to Preserve Multifamily Housing, 1988–2000
In 1988, the Cook County Assessor's Office developed the Class 9 Incentive program with the intent of encouraging the rehabilitation of multifamily units in designated low- to moderate-income areas of Cook County. Under this program, eligible multifamily properties could be assessed at the same level as single-family properties if:
The owners were willing to rent a minimum of 35 percent of the units to tenants with incomes at or below 80 percent of the Area Median Income; and
Rents were kept at or below established rent levels for 10 years.
For many owners, this proved to be a significant incentive to preserve affordably-priced rental units, as their assessment level would drop from 33 to 16 percent of market value for a period of 10 years.
An Increasing Burden
In 1996, members of the Chicago Rehab Network (CRN) reported that an increasing property tax burden and stressed operating budgets endangered the sustainability of their affordable multifamily rental housing developments. Several property owners and managers were ineligible for the program, and the increasing property tax assessment was a factor that acutely impacted affordable rental developments.
A Call to Action
To respond to the concerns of its members, CRN launched a campaign to promote accuracy and fairness in property tax assessments in the context of affordable housing. In November 1996, CRN assembled a task force comprised of allied organizations - the Leadership Council for Open Metropolitan Communities and the Center for Economic Policy Analysis - to set the agenda for the Property Tax Initiative. The initiative advocates for public taxation policy that ensures continuing access to affordable housing for low-income households through:
Immediate relief for affordable housing developments that have been publicly and charitably subsidized;
Protection for residents facing displacement due to rising property taxes; and
By 2000, CRN moved forward with proposing reforms for the Cook County Assessor's Office. Recommendations for reform included:
Account for the limited earning potential of affordable multifamily rental properties;
Support the creation of affordable housing in all areas of the county by expanding the Class 9 classification; and
Encourage development of rental properties by reducing the Class 3 assessment level of projects with at least seven units.
Assessor's Office Affordable Housing Initiative
When the Chicago Rehab Network launched the Property Tax Initiative, they found an ally in newly-appointed Cook County Assessor James Houlihan. He believes that "...a balanced mix of both affordable rental property and for-sale homes is essential to maintaining the diversity and vibrancy of the City of Chicago and Cook County." With a heavier burden falling on the shoulders of owners and operators of multifamily rental units, this essential balance could not be maintained.
The sustained advocacy of Chicago Rehab Network and the leadership of the Cook County Assessor's Office enabled the goals of the Property Tax Initiative to be realized. The first in a series of successes occurred in 2000, when the Class 9 Incentive was expanded from targeted areas of Cook County to the entire county, and major rehabilitation requirements for the program were broadened. A CRN analysis of Low Income Housing Tax Credit properties with a Class 9 Incentive demonstrated a 50 percent reduction in property tax costs and a 12 percent cut in operating expenses.
In April 2002, Assessor Houlihan and Chicago Rehab Network partnered again to encourage the Cook County Board of Commissioners to reduce the assessment level for multifamily rental properties, with the intention of preserving affordable rental units and preventing excessive condominium conversions. The Board of Commissioners voted for a two-year phased reduction of the assessment level.
The Chicago Rehab Network also recommended that the Board of Commissioners create a new classification for project-based Section 8 contract renewals under HUD's Mark-to-Market program. Known as the Class S Incentive, owners of properties with 20 percent or more of their units designated for Section 8 tenants may apply to have their assessments reduced from 33 to 16 percent of market value for the portion of units receiving federal subsidies.
We Need the People Who Need Affordable Housing
Insisting that more must be done to support rental housing, Assessor Houlihan proposed another multifamily rental reduction in February 2006. As a result, phased reductions will reduce the assessment levels from 26 percent in 2005 to 20 percent of market value by 2008. Since 2002, that has translated to a decrease of nearly 40 percent in assessment level for eligible properties.
In the eyes of housing advocates, an effective property tax system acknowledges that providing affordable housing is a public good and recognizes that income and infrastructure restrictions are attached to government subsidies. Together, the Chicago Rehab Network and the Cook County Assessor's Office have crafted viable solutions to support housing affordability and encourage investment in multifamily rental properties throughout Cook County.
Planning Affordable Housing: The Goals of New York and New Jersey
New Jersey and New York represent two of the five "least affordable jurisdictions" in the country, according to Out of Reach 2005, published by the National Low Income Housing Coalition (NLIHC). As such, both states have developed plans to address this issue. The State of New Jersey Housing Policy and Status Report addresses the state's pressing need for affordable housing and details New Jersey's goal of building 10,000 affordable housing units over a 10-year period. New York Mayor Michael Bloomberg's Plan, originally announced in 2004, outlines the creation and preservation of 165,000 affordable housing units. To better understand these proposals, this article will examine each of the housing plans.
The Creation of the Affordable Housing Crisis
New Jersey's struggles with affordable housing did not come about in a short period of time. Rather, they developed from a number of factors over a long period of time, such as those discussed in HUD's 2005 publication "Why Not in Our Community?" Removing Barriers to Affordable Housing. Increased complexity of environmental regulation, misuse of smart growth, NIMBY sentiments, impact fee expansion, and urban barriers all helped create the problem, and they continue to contribute to the affordable housing crunch. In addition, local governments are increasingly passing laws, many of which are similar, if not identical, to federal and state legislation. This creates additional steps in the affordable housing approval process.
New Jersey's Affordable Housing Plan
The current New Jersey Affordable Housing Plan increases the goals set forth in the 2002 plan, which included plans for the construction of 20,000 homes over a four-year period. The updated plan includes the goal of housing 500,000 people in affordable housing. To do so, it calls for the construction of 100,000 affordable housing units to be completed by the year 2012. Authors of the housing plan aim to collaborate with private, public, and nonprofit stakeholders to achieve these goals. The plan includes:
Using Low-Income Housing Tax Credits (LIHTC), in tandem with preservation and rehabilitation programs, at the state and local levels to build and maintain permanent affordable housing units.
Creating additional housing units with the Deep Subsidy Program, an effort that helps rental projects lower rents to affordable levels for very-low-income households. This program keeps apartments viable for households earning less than 35 percent of the area median income.
Preserving local deed-restricted affordable housing units by expanding the financial incentives available for owners.
Creating controls so that preserved affordable housing units maintain their affordability for longer periods of time.
Addressing homelessness by ensuring sufficient shelters to accommodate short-term stays and by providing sufficient social services so that those in supportive housing have the ability to maintain their homes.
Increasing community-based housing opportunities for people with special needs, so they are able to be independent and attain housing stability.
New York's Affordable Housing Plan
New York City's $7.5 billion affordable housing plan includes the goal of creating affordable housing units for 500,000 people by 2013. The state hopes to preserve 73,000 affordable housing units and construct 98,000 new units, some of which will be reserved for middle-class households. The creators of New York City’s housing plan consider the following steps to be necessary if they are to achieve this goal:
Seeking areas on which to build new affordable housing units;
Forming incentives, such as a state LIHTC program and extra tax credits points for builders of affordable housing for both the existing and new populations;
Engaging the private market in the creation of affordable housing by increasing tax credits and involving private partners in the preservation of private rental units that are at risk of becoming unaffordable; and
Improving a jurisdiction's affordable housing plan is just one step toward achieving safe and healthy communities. New Jersey and New York City have demonstrated that innovative plans can succeed with the support of their communities. Today, both plans serve as models for other jurisdictions also hoping to expand and enhance their affordable housing plans.
Announcement: Housing Impact Analysis
HUD's Housing Impact Analysis (HIA) is a report designed to assist federal, state, and local governments in identifying the potential impacts that proposed regulations have on the affordability of housing. Current federal regulatory development procedures require new federal rules that have economic significance to undergo a Regulatory Impact Analysis (RIA). However, an RIA may not address how the rule affects housing costs from the standpoint of homeowners or occupants. To remedy this, HUD has developed the HIA to account for the missing housing information and to supplement the RIA. The report can be downloaded at no cost; print copies are also available for a nominal fee. For more information, please contact HUD USER at 1-800-245-2691, option 1.
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