Booming Washington City Makes It Easier For Developers To Build Affordable Housing

Investment in new office space in the Seattle suburb of Bellevue, Washington, is booming, driven by tech giants such as Amazon and Facebook. Bellevue will add more than 30,000 tech jobs in the next four years, according to one projection.

Despite all of this investment in jobs and office infrastructure, something has been missing in this city of 145,000 people: affordable housing for residents, particularly those who don’t have high-paying tech jobs.

“There has been a ton of interest in the Bellevue market from employers large and small,” said Abigail Pearl DeWeese, a land use attorney with Seattle-based law firm Hillis Clark Martin & Peterson. “But the downside is because there's so much office development happening, there's not multifamily development going on to keep pace with that growth in offices.”

DeWeese said the Bellevue City Council took a major step toward addressing that disconnect when it revised its Multifamily Tax Exemption program this summer to better support market-rate and affordable housing development.  

“The update of the MFTE program will make multifamily development in the city more attractive to developers,” she said. “The city had a program in place prior to this update, but it was not frequently used because the area median income levels were too low for developers to make projects work.”

DeWeese said the revised MFTE program better aligns with the true cost of providing affordable housing in the city. This is expected to lead to greater participation by developers in more multifamily projects. Also, while the old MFTE program applied to only certain neighborhoods, Bellevue expanded it to include all areas zoned for multifamily development. This is a key change since 65% of Bellevue residents said in a recent survey that they would support the construction of affordable housing options in their neighborhoods.

As a participant on the Eastside Housing Roundtable, whose members include developers, employers and nonprofit housing advocates, DeWeese said participation by both the public and private sectors helped ensure the passage of needed MFTE revisions. She credited city leaders, too, for being open to making improvements to what she described as a previously underperforming MFTE program. DeWeese said the result is a win-win for multifamily developers and other stakeholders on multiple levels.

“My clients view this as something that will help their projects pencil,” she said. “They want to participate in it because they want to make the right choice for the community and provide those affordable units. They feel like this is a good tool for them that also provides a public benefit, and they're proud to participate in it.”

Bellevue’s MFTE program gives a developer a 12-year local property tax exemption for setting aside some of the residential portion of its project for affordable housing. DeWeese said revising the program to apply citywide and lifting the area median income ceiling from 60% to 80% for units in most projects will benefit developers and lead to more housing construction. 

“The old program was very complicated and hard to administer,” she said. “But now you no longer have to check and see if your neighborhood is or is not eligible for the MFTE program.”

The revisions also consider other affordable housing rules that may exist in certain neighborhoods, allowing developers to take advantage of additional land use code incentives in conjunction with the MFTE program. Previously, the program focused on the construction of two-bedroom units as a threshold requirement. It now gives developers greater optionality to build the kind of product they think will perform best in a particular location, whether it is one- or two-bedroom units or efficiencies. 

In addition, parking will be offered at a 30% discount to affordable housing tenants who live outside of downtown, and annual rent increases for existing tenants are to be capped at 3% for affordable units.

DeWeese said the cap on rent increases was structured in a way that doesn’t benefit tenants alone. In years when areawide AMI increases fall below 3%, developers can use banked AMI capacity from prior years to make up for the difference. This means that even if the economy is bad, developers can still count on the 3% income increase.

“That is unique and reflects the compromise between housing advocates and developers that went into this legislation,” she said. “It was an amazing partnership that came together on this.” 

DeWeese said Bellevue’s MFTE program — and the cooperation among stakeholders that went into revising it — could serve as a model for other cities’ affordable housing programs. 

“Our region, like the rest of the nation, is experiencing a huge housing crisis right now,” she said. “As homes continue to get less affordable here and in other places, rents continue to rise. And so I think it’s important to do everything we can to produce more housing to address the supply and demand issue we face. And, of course, construction of these properties has a huge benefit to local economies.”

This article was produced in collaboration between Studio B and Hillis Clark Martin & Peterson. Bisnow news staff was not involved in the production of this content.

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