Smaller, Less Expensive Housing in Seattle
The importance of multi-family microhousing
Why microhousing units are important
Microhousing units are meeting an important demand in Seattle’s busy housing market; less expensive, compact, and flexible housing options are what many people want to be able to live in our city.
Should microhousing be subject to design review?
Affordability shouldn’t have to come at the expense of good design. Less expensive housing options are well built and in scale with existing multifamily neighborhoods.
Requiring microhousing projects to go through full design review adds time and cost to the project. More review time and process means more cost in the form of fees paid to the City, legal costs, and many hours of design time by architects. Those costs translate into higher rents.
Developers won’t raise rents to make more profit; instead, higher costs make projects harder to finance—as costs go up, the loans that have to be paid back go up too, meaning higher operating costs. The only way the project works when costs go up is to increase rents, making smaller housing units less affordable.
The Multi-Family Tax Exemption (MFTE) is a reduction in the property taxes for projects that create workforce housing in Seattle. It is an important program because it reduces the monthly per-unit costs of managing a multi-family building, and the program requires that those savings get passed on to renters. The exemption helps landlords keep their prices low for some or all of their units.
When the City changes policies to reduce the MFTE’s benefits for smaller units it means those costs end up getting passed to renters. Landlords aren’t choosing profits over people when they pass on costs. Instead, when projects are initially developed they are financed and the money borrowed paid back from a steady stream of rent. When the costs return the money that went to allow lower rents has to go to pay off loans and the taxes.
Eliminating the benefits of MFTE for smaller units doesn’t hurt developers or their profit margin; it hurts the tenants that live in them.
A Word on Financing, Banks, Profits and Housing
It’s often not talked about, but most every new development project, including small, less expensive units, is dependent on borrowed money. Banks like certainty, and anything that adds time and costs to projects can affect whether or not they lend money and what they charge to lend it. It may not seem fair, but banks don’t like risky ventures (have you ever tried to get a loan?); they want to be sure that there is demand for the product being marketed and they have a big say in determining acceptable operating costs and rents.
If the Council changes the dynamic of costs—like time for design review, and eliminating MFTE—they affect rents, not profits. Rents reflect what banks, developers, and landlords need to charge to offset costs; when costs go up so do rents.
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