Affordable Housing Trailblazers

Time passes.  This is the recently completed Squire Park Plaza at the corner of 17th and Jackson in the Central District.  Developed by the Central Area Development Association and designed by Streeter Archtitects, the $15.5 million project features 59 apartments, 11,000 square feet of retail/office space (including 3,000 sf in live-work units), and 62 underground parking stalls.   Thirty-nine of the units are affordable to those earning 80 percent of the area median income (AMI).

So too just down the hill at Jackson Place, where behind the magnificent Washington State Lottery billboard at the corner of Dearborn and Rainier, Pontedera Condominiums is rising.  Developed by Homesite and designed by SMR Architects, the $35 million six-story project will house 94 condo units, 8 live-work units, and 128 underground parking stalls.  Financing assistance will be available to buyers earning up to 80 percent of AMI.

What is this magic number, 80% of AMI?  As of 2008, it was  $43,050, $49,200, and $55,350 per year, for a 1, 2, and 3 person household, respectively.  This is “workforce housing,” intended to be affordable to the backbone of our communities — folks such as teachers and firefighters (not to mention urban designers).

Both of these projects are good illustrations of what it takes to provide new housing in Seattle that is affordable even to those who earn only a little less than the average Seattleite. There is certainly nothing extravagent about these buildings, and the wood frame over concrete construction type is about as economical as it gets for midrise.  Still the developers have had to be exceptionally creative in bringing together numerous financial partners to get final unit prices down to the 80% AMI level.  And this only underscores the challenge of providing housing for the roughly two fifths of Seattle’s households that earn less than 80% of AMI.

While the sites are relatively close to downtown, both leave much to be desired.  Pontedera is part of an interesting little pocket, but backs up onto one of the most pedestrian-hostile intersections in the City.  The area along Jackson around Squire Park Plaza has great potential to grow into a vibrant urban village, but currently is still relatively desolate.

A less desirable location means cheaper land.  But since construction costs are relatively fixed — and are typically an order of magnitude higher than land costs — cheap land doesn’t typically translate to a significant reduction in total housing cost.  And thus midrise residential projects in low-rent neighborhoods often fail to pencil unless they are subsidized.  Projects like Squire Park Plaza and Pontedera are, by necessity, the trailblazers.

52 Responses to “Affordable Housing Trailblazers”

  1. Stakeholder

    In the realm of “affordable” housing there are few absolutes except that ALL new housing is expensive because of fixed material costs. Even with multiple subsidies, it’s becoming impossible to create “affordable” housing. One of the surest ways to preserve afforability is to preserve the existing stock of older housing instead of demolishing them. That reality is ignored by the for-profit and the non-profit housing industries AND by our elected government.

    To understand the problem with subsidized housing you need look no farther than Rainier Vista and New Holly, twin HUD Hope VI projects located in the Rainier Valley adjacent to the link light rail.

    The Rainer Vista & New Holly public/private partnership cannot be considered a success with 23 housing units still un-sold, some built in 2005. The median price is in excess of $460,000 with some units listed for more than $500,000. This is transit oriented development but it certainly isn’t the “affordable” housing local folk expected. The median price of the older housing stock in the Rainier Valley is less than $350,000. Why talk about creating hundreds of new units of TOD if the end result is housing that is 100K to 150K more than the local market? This is the lesson we’re learning at Rainier Vista & New Holly.

    If affordability cannot be created where the land is already owned by SHA, then where can any non-profit or for-profit developer create new, affordable housing? Face it, in Seattle land is land these days. There is scant little difference in the value of land from Ballard to Southeast Seattle or the Central Area to West Seattle. (In fact, Georgetown & West Seattle has some of the cheapest land in the city these days). Land is not the largest cost of creating new housing, overhead is. We need to have the discussion about overhead costs.

    The most affordable new housing is being created by the private sector, with various subsidies, and not by non-profit housing developers. Even with heavy subsidies, agencies like HomeSight are almost out of the development business because of the huge cost of overhead. The private-sector is actually incentivized to build housing for less, cutting out the waste and excess in pursuit of a profit. The non-profit housing industry has no such incentive. They seek more funding from more sources to support their overhead instead of cutting overhead. The two housing development models couldn’t be more different.

    Instead of subsidizing non-profit agencies, we should be subsidizing the housing project itself, or even offering silent 2nd mortgages to the 80% of median (and under) income Buyer. Why prop up a non-profit agency that isn’t able to perform? For-profit companies go out of business if they can’t perform. Not true with non-profit housing providers. They just keep growing over time. Just because the phrase “non-profit” precedes the agency’s name doesn’t translate to an ability to create lower-cost housing.

    Why not invest in the agency that CAN perform? So what if it’s a for-profit development company? MFTE is a step in the right direction but it needs to be re-tooled to focus the subsidy where affordable housing is needed. MFTE, as it is currently configured, gives too much incentive to some neighborhoods and not enough incentive to others. MFTE must be fixed.

  2. Spencer

    Stakeholder,

    I agree with you that private developers may hold the key to affordability. What I have seen in my experience (in both non-profit and for profit development) is non-profit developers pay more in construction costs due to (I think) Davis Bacon wages. In my three year transition from for profit development to non-profit development I was astonished to find non-profit costs per square foot to be over $200 while for profit was hovering around $150 (while getting better quality in materials and construction). I’m wondering if anyone has studied and compared the cost breakdowns (and reasons why) of both for profit and not for proift development?????

  3. Jeff

    Seems like the first example should be condos and the second apartments. The smaller mid-rises are easier to sell/resell than the larger complexes.

  4. Joshua Daniel Franklin

    Nice post. It’s not a comparison with the “average Seattleite” its a median income. Seattle proper (like many other large US cities) when compared with the overall MSA has a large percentage of low and high incomes, while the actual “average” people like teachers, firefighters, nurses, etc. are overrepresented in the suburbs. There are many reasons for this, but the most obvious is that it is desirable to live close in.

  5. Joshua Daniel Franklin

    FYI, the FY 2009 numbers are available: HUD Median Income Limits effective March 19, 2009. For the Seattle-Bellevue HMFA the numbers are now
    $44800, $51200, $57600 (1/2/3 person households). There is apparently some sort of Fannie Mae Community Lending alternative with a higher number of $77400.

  6. Steve

    Stakeholder — Are you saying the non-subsidized housing in the HOPE VI projects was expected to be affordable? I always assumed it was supposed to be market rate, and since it’s newer, I’d expect it to cost more than the (older) surrounding housing. Did I missing something?

  7. JoshMahar

    Wow Dan, I think you have tapped into my brain and its getting scary. I swear I rode by this on my bike this afternoon and thought, “hmmm, I wonder what these projects are. I should try and find out when I get home” Low and behold you have presented me with the exact information I wanted. Thanks.

    I have to say though. I expected the number of units to be much higher. Those must be some fairly large condo units in the Pontedera because that is one massive structure.

  8. Kathryn

    What is really scary is that we subsidize non-profits. I’d rather directly subsidize buyers and renters in need.

  9. Brian in Seattle

    This is in response to the HUD Income Figures. So in Seattle-Bellevue,if you have one person in your household, you could be classified as low income if you make $44,800?? That’s $21.53 an hour. If a single person can’t make it on $21.53 an hour and put money away as well they have some serious money management issues. Yes, they may not be able to buy a house in the city, but they shouldn’t be hurting financially either.

    The very low income figure would be a wage of $14.18 an hour.

  10. Finishtag

    We subsidize non-profits because they are able to keep housing affordable in perpetuity. It’s a more collective, long-range mindset.

    We do subsidize individuals, but if we only subsidized them, at the expense of non-profits, when their need was over, so too would our return on the investment.

    I support non-profit housing developers because it means at least a slice of this city will remain affordable 50 years from now.

  11. Ellery

    Brian in Seattle – The $44,800 number reflects 80% of area median income, which qualifies you for certain housing programs targeted toward moderate income earners. Many of these programs are incentive programs (multi-family tax exemption program, incentive zoning program) targeted toward private developers in order to make some units in new market rate buildings more affordable to teachers, firefighters, etc. The low-income threshold to qualify for subsidized units (such as those built by non-profit housing developers using the housing trust fund or Seattle housing levy) is set at lower levels, some at 60% area median income, and some at 30% area median income.

  12. Joshua Daniel Franklin

    Stakeholder, while it may be true that “one of the surest ways to preserve affordability is to preserve the existing stock of older housing” that does not help place growing population. Seattle’s population is growing and I’d argue that more people want to live in the city than can afford it and so end up with long commutes from the suburbs.

    Ideally Seattle would have built plenty of housing along the way, but since we can’t go back and build density 20 years ago isn’t the best option to build density now?

  13. Spencer

    Joshua, you’re assuming Stakeholder is talking about Single Family stock which Stakeholder does not define either way. I think Stakeholder’s sense is that some existing buildings are available for use but are being demolished for new housing.

    From all the talk about subsidizing non-profit developers I’m not sure those of us commenting here know a lot about them. In my experience, these types of developers rely on subsidies,tax incentives, grants, etc to build projects. It sounds more like people think they are paid out of subsidies. Anyone working in non-profit development care to comment?

  14. Chris

    Spencer,

    I’ve worked with both sides. the question you posed could be answered in a dissertation but suffice it to say that within some funding programs, there is little incentive to cut costs on the part of the non-profits but it really depends upon the individual deal and the markets. In places, for example, where their are ample sources of soft debt (forgivable debt) and grants, the pressure is lessened to make every dollar stretch. In today’s environment, where these local sources are stretched thin and tax credit pricing in the tank, there is not a lot of fat to cut. Also, most non-profit developers don’t have a big staff or lots of overhead compared to private sector developers in my experience. That said, federal regulations like Davis-Bacon have a big effect on project cost, although requirements for D-B wages is the exception rather than the rules in the majority of affordable housing projects.

    However, I challenge the concept that we, through public policy, should be specifically subsidizing new development for the 80% of median income level. The Pontedera may be a case in point as to why. I pulled one unit at random so this may not be indicative of the entire development, but a 890 sf two-bedroom is running at $290k. Targeting such a unit to a household earning 60k might have made sense in 2006, when prices were sure to head to the moon forever. Now, that price per sf is comparable to market price in many places of the city – just pull up Redfin and see what you can buy for less than 300k for 2BDs – few are new construction, but many are much better located. What’s more, Pontedera is income-restricted, so that only people making up to 60k can buy it. Assuming a subsidized interest rate of 4.5% (for grins), you’re still looking at about $1800/month payments after taxes, insurance and HOA. Before tax, that’s about 37% of gross income, which may be a little high, so maybe the rate is even lower than assumed, or HOA is subsidized. At any rate, you would still need to convince someone to spend about 40% of after-tax income on a condo where what limited upside appreciation there might be in the market is likely capped to preserve affordability in the future.

    The short of it is that we jump through myriad hoops to provide a small number of “affordable” units with all sorts of complicated funding sources and regulations, when we could just focus on making new construction more affordable in close-in locations.

    Note: housing for transitional homeless, chronic inebriates, extremely low-income is where we should be focusing funding sources. These people have little hope of finding any housing at any price in the market.

  15. Kathryn

    Ok I’m going to weigh in from a really ‘big’ picture policy perspective. Housing needs to be addressed at the national level, it needs to be tied to the gap between the market and peoples’ incomes, and it needs to be separated from building activities.

    The problem of leaving it to municipalities is that some do better and some do worse, whereas people need to live in places near to jobs. It’s creating conditions for a rise in incomes that mitigates the need for programs.

    The problem with big building projects (including hope(less)) is that they create ghettos and still don’t provide for everyone who originally lived there. Not that I’m suggesting that well functioning societies like Yesler Terrace should be messed with, just that Hope is a very cynical displacement scheme in my view.

    The problem with incentives and subsidies for builders which is tied to income is that they tie together two disparate realities. Worse, playing around with building incentives that target near median income really screws around with the market.

    Median by definition means that half of the people are below that number and half above. When rents and home prices are high we need to address the housing needs of people, but realize that there is a range of rents and home prices. When rents and home prices are low, only people with very low incomes need help. I’m not so sure I would focus on home ownership from a government perspective too much. Seems Habitat for Humanity does ok without any help.

    Can there be requirements that all apartment buildings accept a certain percentage of Section 8 renters? Possibly. Should the subsidies vary or kick in and the percentages vary base on the actual market? Could be.

    Should non-profits exist? Well, I’m all for advocacy. And, I agree that the all-sided social service provision to house transitional homeless and extrmely low-income folks is a proper and valued thing for very purpose driven organizations.

    But, I think some of what we are seeing here is a result of privatization which created a non-public (no chance of forcing accountability and transparency) entities that have to fight for patronage to get anything done. Some things just belong in the public domain.

  16. eric

    As a non-profit housing developer, and one who develops exclusively for sale housing I can give you a bit of background info. First of all there is no capital subsidy available for builders of for sale housing. The subsidy that is available is all on the take out, that is we can provide financial assistance to first-time homebuyers with incomes of 80% or less of the area median. We price all of our homes at what we believe is a fair market price, so the affordability is in the financing assistance we can offer the qualified buyer. The reason we don’t price homes below market to make them affordable is that our costs are essentially the same as everyone elses, except perhaps our overhead is pretty low, and we don’t make a profit. But more importantly is that if we sold homes below market price it would artificially skew the appraised value of homes in the neighborhood, which wouldn’t make us very popular with the homeowners in the community. As construction, and more importantly land costs, rose in Seattle it becomes harder to help first-time homebuyers since the financing subsidy has remained flat for over a decade. We’ve been able to deal with this in part by selling more homes to the open market and using the “profit” to provide additional subsidy to the income qualified firs-time home buyers. But the idea that we stay in business and don’t have to control costs because we receive massive public subsidy is simply not true. If we don’t do our jobs well we will go out of business, which has happened and is happening to many non-profit developers right now.

  17. zelda

    Chris,

    A correction regarding the Pontedera: it is not income-restricted. The income restriction is associated with the financing subsidy available to qualified first-time homebuyers in the form of 2nd and 3rd mortgages.

  18. kt

    Question for eric and zelda. If you all could focus on the financing and not on building, if we mandated that all developers make one of the four-pack or six-pack available to folks who could get financing assistance from you, would that work?

    I’m just really PO’d that four low income rentals were turned into twelve townhouses across the street from me, sold only to singles and couples at very high prices. We got back a few children which was also a concern. One of them is still on the market a year later.

    I would have preferred either two offered through a program for sale, or the whole thing be built as a rental apartment building with some units available to people with vouchers.

  19. Joshua Daniel Franklin

    kt, just to clarify by “low income rentals” do you mean just rented cheap or were they actually managed by a low income organization like Capitol Hill Housing or LIHI? (Also I’m curious on the property zoning.)

  20. Kathryn

    It was just some older duplexes on two lots zoned L1. Not sure if the owner took Section 8 vouchers or was just renting cheap. No one did anything wrong. It’s just how all the laws and programs seem to not really work out in the face of gentrification.

  21. ktstine

    Great post and comments here. Full disclosure, I am a non-profit developer. I just wanted to make a few points.

    I think that it is true that there are a lot of nonprofit developers in this town and it is an ongoing and very good discussion about whether there are too many. By this I mean that to some extent, Stakeholder is right, when we subsidize a nonprofit in X community and then another in Y and another in Z, do we ever reach a point where we could achieve economies of scale in construction bidding, property management, etc. by just subsidizing one larger nonprofit to build long-term permanent affordable housing? Maybe, but then that might start to look like a housing authority, and we have one of those already.

    Part of the reason we have so many nonprofits here is that they organically emerged out of disenfranchised neighborhoods as community development corporations, which was a model began in the 60s for reclaiming neighborhoods by neighborhood residents and activists. Just like our neighborhoods in Seattle have their own individual and unique neighborhood plans, some also have their own CDC (community development corporation) and most, if not all, are nonprofit housing developers. Because Seattle has been so successful and pioneering in passing a Housing Levy every 7 years since 1981, a consistent stream of funding has been available for these groups to build long-term permanent affordable housing (50+ years). This is not an argument for having a nonprofit developer in every neighborhood, but we can’t forget the history of why disenfranchised neighborhoods sprouted them.

    The City of Seattle regulatory restriction of 50+ years (in exchange for Levy funds) is the reason that there are practically no private developers building affordable (80% and below) subsidized housing in Seattle. It means that you can never sell the building, or realize appreciation, or realize a lot of cash flow (by raising rents) which basically removes any incentive for private developers to build this kind of housing. (food for thought: would we want by allowing private developers to build and then sell earlier than 50 years?)

    In terms of cost, I do think that sometimes we pay a premium for a variety of reasons. If you are a State and City funded project (which almost every subsidized project in Seattle is) you must pay State Prevailing Wage (always residential, sometimes commercial, depending on your building type). This increases the cost of development significantly. Other regulations that increase cost include: the requirement by the State that your project must have 10% apprenticeship participation (if you GC is a non-union shop, you will pay a premium for this); and the City also requires that your GC check-in all subs on the construction site and certify all payroll against this check-in list (due to a drywall issue a few years back) which also increases cost. And yes, lastly, there are Davis-Bacon wages, which are even higher than Prevailing Wage in many cases and must be paid if you have any federal (non low-income housing tax credit) HUD dollars in your project. This is a big deal for housing authority projects and any projects that receive federal homeless money.

    I think we as a community need to continue to incentivize private developers to build long-term affordable housing through mechanisms like incentive zoning and inclusionary zoning (i.e. mandating that a percentage of every new development have longterm affordable units in it). WA is a strong property rights state and so far, this has been considered a “taking” in the City of Seattle. But I think that we need to continue to push for it as good policy. However, this is very differnt than providing a direct subsidy to a developer.

    Lastly, Housing Authority HOPE VI projects are really different than what nonprofit developers do, in scale, building type, funding sources and intent. While some nonprofit developers wind up buying land and developing in or near Hope VI projects (the Gennessee on MLK by HRG is a good example) they must not be confused with one another. Most nonprofits do not have the ability to build anything the size of a New Holly or a High Point and probably would not want to. In keeping with the CDC tradition, most are focused on smaller projects in specific neighborhoods, although many are City wide. Until a couple of years ago, using Low Income Housing Tax Credits, which almost every nonprofit uses, precluded developing anything larger than 50 units on one site.

  22. ktstine

    corrected food for thought statement: would we want to to lose enormous public subsidy by allowing private developers to build and then sell (and lose the affordable restriction) earlier than 50 years? Perhaps at year 10 or 15?

  23. Kathryn

    I did want to mention that the building is pretty IMO. Not necessarily my architectural cup of tea, but puts on a nice little commercial scene. It’s nicer than the 23rd and Jackson buildings, but those can get reconfigured later.

    Jackson Street is coming along nicely and I do need to give credit to CADA. I realize that people will criticize for any number of reasons but we might just get a really nice neighborhood for an incredibly diverse population at the end of the day.

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