SEATTLE — Economic headwinds may be impacting a Seattle program that taps new development to fund affordable housing.
The city’s Mandatory Housing Affordability program, which requires developers to set aside units on site for affordable housing or pay fees instead, generated about $75 million in fees in 2022, down 1.5% from 2021, according to city data released Tuesday. Developers set aside 66 units in 2022, down 38% from 107 units the previous year.
The city didn’t immediately provide a reason for the drop, but data from the Seattle Office of Housing shows developers paid fees on, or set aside units in, 260 permitted projects in 2022, down about 10% from 290 projects in 2021.
The city has faced shortfalls in other funding sources tied to the cooling housing market, including real estate taxes.
“We’ve seen the economic slowdown affect everything, including the ability to build. Increased inflation has compounded that,” said Seattle City Councilmember Teresa Mosqueda, who chaired the council’s budget committee and has argued for more upzones to allow denser development.
MHA requires developers to set aside between 2% and 11% of new units as affordable, depending on the location, or pay fees ranging from $5 to $44 per square foot. Most developers opt to pay the fees.
The city created the program alongside upzones in 2017 and 2019 in a bid to fund more affordable housing for people with low incomes. The city initially said the program would create about 6,000 units over 10 years.
Private developers have since complained that the fees make developments more expensive, particularly for small-scale projects like town homes. Builders are also facing economic challenges, such as rising interest rates and high construction costs.
The city issued permits for 42% fewer apartments and 27% fewer town homes in 2022 than in 2021. Meanwhile, developers are building more accessory dwelling units, often alongside new single-family home construction, which don’t require MHA fees.
In 2022, Seattle distributed about $77.5 million in MHA funds to help fund 902 apartments and 30 for-sale homes for people with low incomes, according to the report. In 2021, the city awarded less MHA funding ($57 million), but helped pay for more units (990 apartments and 17 for-sale condos).
Seattle faces a shortage of at least 16,000 homes affordable to people making less than 50% of area median income, or about $58,000 for a family of three, according to a 2021 analysis. In addition to MHA, city officials have looked for other ways to boost affordable housing funding, including a payroll tax and a proposal to triple the city’s existing property tax levy for affordable housing.
A mixed-use development planned for a Safeway site in Queen Anne paid the highest fee in 2022, $6.5 million.
Most revenue from MHA continues to come from the northern and central areas of the city and much of that money funds affordable housing in South Seattle.
Since the city started collecting MHA fees, projects in Ravenna, Roosevelt and the University District (where huge developments have been underway in recent years) have paid the most fees, nearly $60 million. The city also has collected significant revenue from projects in downtown, the Chinatown International District and other nearby areas ($36 million) and the Ballard and Greenwood area ($33 million).
The city distributed the largest amount of funds ($70 million) in the South Seattle neighborhoods of Columbia City, Mount Baker, North Beacon Hill, Othello and Rainier Beach. The city also distributed $52 million in Capitol Hill, Eastlake and First Hill and $37 million in Lake City and Northgate.
Apartment buildings with affordable units set aside under the MHA program are located mostly in Central and North Seattle neighborhoods, including the Central District, the University District, Green Lake and Fremont. The city has issued permits for projects with affordable units elsewhere in the city, including in South Seattle neighborhoods like Othello, Rainier Beach and Beacon Hill, but those projects have not yet been finished.
Several buildings that opened in 2022 included set-aside affordable units, including 44 apartments at Midtown Square, a 432-unit building at 23rd Avenue and Union Street, and seven apartments at the 79-unit Viola Apartments on Seventh Avenue Northeast in the University District.
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