Select Committee on the Comprehensive Plan 3/28/2025

Good morning, Rise and Shine, everyone.

The March 29th, 2025 special meeting of the Select Committee on the Comprehensive Plan will come to order.

It is 9.37 a.m.

My name is Joy Hollingsworth.

I am chair of the committee.

Will the clerk please call the roll?

Council Member Moore?

Present.

Council President Nelson?

Present.

Council Member Rink?

Present.

Council Member Rivera?

Council Member Saka?

Here.

Vice Chair Solomon?

Here.

Chair Hollingsworth?

Here.

Chair, there are six members present.

Awesome, and just for the record, Council Member Kettle and Strauss, they are both excused today.

We will now consider the agenda.

If there are no objections, the agenda will be adopted.

Awesome, today we will only be accepting written public comment.

Please drop off your comments at the front of chambers and send us your thoughts on the comprehensive plan to council at council at seattle.gov.

After this meeting, moving forward, we will be accepting public comment, but we know that we wanted to get through a lot of the legislation that has been passed down and wanted to make sure that we had enough time because we have a full packed Wonderful agenda.

Okay, so couple things.

Reframing on the situation that we're in, we are required to pass House Bill 1110 through interim legislation.

We've made this pivot because there are six appeals made to the Comprehensive Plan Environmental Impact Statement.

So we cannot vote on a comprehensive plan and the hearing examiner resolves these challenges to the environmental impact statement.

The mayor's office and Office of Planning and Community Development are here today to brief us on the executive's proposed interim legislation to House Bill 1110. So the executive has sent down The mayor's office has sent down the legislation, so this is their proposal.

Today we will learn more about what the executive's interim legislation includes, how it will be similar and different to the eventual permanent legislation, and for how long this legislation will be in place.

We will also hear from the mayor's office on the recommendations of how the city's implements mandatory housing affordability, also known as MHA.

In addition, we will hear from consultants on the executive's sponsored five-year evaluation report of MHA.

So a couple reminders, over the next few meetings until May 30th, we will learn about interim legislation.

We will implement this by June 30th, if all goes well, and it will come into compliance with the state mandate because we are on the clock with the state deadline.

House Bill 1110 is a state mandated legislation to create missing middle housing.

This legislation will be in place until we pass a comprehensive plan and can work on permanent legislation to implement House Bill 1110. Obviously this is not the most ideal situation when you're doing interim legislation but it's the position that we're in.

Council's on a tight timeline and honestly we're doing the best we can and so we're gonna move forward.

After the public hearing we had on February 5th due to severe weather, our office made a promise to honor the speaking order of those who were not able to speak at the end of that meeting.

That promise will continue to be kept.

We've been getting emails from folks who signed up.

We had over 300 plus people sign up, came down in person and we will honor that request to make sure that the people that did not get to speak during February 5th will be heard and you will be prioritized first.

Public hearing will be prior to May 30th and we will be announcing that date soon.

Other than that, will the clerk please read item one into the agenda?

Agenda item one, overview of interim legislation to implement House Bill 1110 for briefing and discussion.

Presenters are Brennan Staley from the Office of Planning and Community Development and Krista Valles from the Mayor's Office.

And before we jump into your presentation, let me also state for the record, we have Councilmember Rivera joining us online.

Welcome.

Please introduce yourselves for the record as well, and you may begin your presentation.

We're looking forward to it and your smiling faces.

Thank you.

Brennan Staley, Office of Planning and Community Development.

Chris Devias, Deputy Director of Policy in the Mayor's Office.

Jeff Wentland, Office of Planning and Community Development.

So thank you for that overview, Council Member Hollingsworth.

That was a really good description of the things that are in play right now.

We have three presentations for you today.

The first one will be going over the interim legislation that we need to pass to implement HB 1110 by the state deadline.

The next presentation is going to be on the city's mandatory housing affordability.

And the reason why that is getting teed up today is because it has relevance to the decisions you're making with regards to the interim legislation.

And then we also have our consultants who recently conducted an MHA evaluation for our office here as well.

While the evaluation that they completed was done for broader purposes, we think the information is indirectly helpful for you to take into account as you are making your decisions with this legislation.

So I also just want to note that yesterday we did transmit the actual comprehensive plan legislation down to the city council and we are continuing to work on finalizing the permanent HB 1110 legislation along with the neighborhood centers and corridors legislation.

And while that has been slowed down a little bit in part because we had to pivot to creating the interim and our law department is very busy working through the appeal process, we are still planning to send those down as quickly as possible in the event we're able to clear those appeals quickly.

So with that, I want to turn it over to Brennan to go through the interim legislation.

Great.

So I'm going to give a very brief background on the new state requirements, an overview of the interim legislation, and then talk about some of the topics that are omitted from the interim legislation.

So, obviously, the primary purpose of this interim legislation is to comply with House Bill 1110. It is also worth noting, though, that it would also implement changes to comply with a number of other state laws that have similar deadlines.

1293, which requires clear and objective design standards.

6015, which limits how cities regulate off-street parking.

And then 1287, which has standards for electrical vehicle charging in new development.

Again, very briefly, the key provisions of HB 1110. A lot of people focus on the density provision, which is important, but there are actually a lot of things that we have to comply with.

The first is that we're required to allow six of nine different housing types on all residential zones for residential use, and those go from duplexes to sixplexes, but also include courtyard apartments, cottage housing, townhouses, and stacked flats.

We're required to allow at least four units on all lots or six units if those lots are within a quarter mile walking distance of a major transit stop or if at least two are affordable.

Design review for affordable housing may only be administrative.

Middle housing development standards and permit review processes may not be more restrictive than those for single family homes.

And then parking may not be required within a half mile of a major transit stop.

So there's a number of different things we have to comply in addition to those other bills that we're trying to comply with as well.

And again, if these changes are not adopted by June 30th, then the state's model ordinance will go into effect.

So the primary, talking a little bit about the geographic scope, obviously the primary zones that are affected are our neighborhood residential zones, including NR1, 2, and 3, and residential small lot.

Those represent about two-thirds of the city.

It is also important to note, though, that we are required, because of this legislation, to change low-rise 1 regulations as well, and there are a variety of things we have to do to support middle housing, regardless of what zone it occurs in across the city.

And then, obviously, again, the reminder of HB 1110 is intended to both create more supply of housing, but also to create a wider variety of housing types.

And here's pictures of the nine different housing types that they specifically had in mind.

So the proposed interim legislation is much more narrow in scope than the permanent legislation that we'll be transmitting soon.

The interim legislation only modifies those standards that are either addressed in HB 1110's model ordinance specifically or are otherwise necessary to comply with state law.

Where the state's model ordinance is similar to the proposed permanent legislation, we are using the standards in the proposed permanent legislation.

The reason for that is that the interim legislation creates a lot of uncertainty for home builders.

It takes a long time to find a site.

secure it, design property, get the financing, get the permit application in.

And while a lot of big developers can afford to wait out this period, the smaller ones really cannot.

They can't afford to stop making money for a while.

So there's lots of projects that are being designed by people who don't know if that project will be subject to the interim legislation or permanent legislation.

So we're trying to, where possible, kind of align the permanent and the interim legislation to kind of minimize that confusion, both for home builders and also for city staff.

Lastly, the interim legislation has a number of elements that are required for all interim legislation, including a context and rationale for why we're adopting interim legislation, the length of time the interim would be in effect, and that can be from six months to a year.

Currently, it says one year.

And then a work plan to prepare permanent legislation.

So as you mentioned, the biggest changes are in our neighborhood residential zones and are one, two, and three.

This slide summarizes what is in the proposed interim legislation and how that compares to the proposed permanent legislation.

On the first topic, the number of units allowed on a lot.

This is the one area where the interim legislation is very different than the permanent legislation.

Under the interim legislation, lots would be allowed to have up to four units per lot, or six if they're near a major transit, or if two are affordable, consistent with HB 1110. And that would only apply to existing lots.

So if you have a 5,000 square foot lot, you'd be allowed to have four or six units.

you'd be allowed to have four or six units.

And if you chose to subdivide those lots, then that allowance wouldn't go away.

You wouldn't be allowed to have four or six on those subdivided lots.

So that is basically the absolute minimum necessary to comply with state law.

The permanent legislation would use a density limit so that larger lots would be allowed to have more units, so that it's not just based on what the lot size is today.

The next topic is the floor area ratio.

That's the ratio of the amount of square foot you can have in your building to what's on the lot.

So to find out how much building you can have on your lot, you take the floor area ratio and multiply it by the lot size.

So that basically regulates how big can buildings be.

So the interim legislation, the FAR would vary based on the number of units on the lot.

It would start at an FAR of 0.6 if you have one unit on a lot, and it would go up incrementally to 1.2 FAR if you have four or more units on a lot.

And so to make that practice, if you have a 5,000-square-foot lot, and you're going to build four units, you'd multiply that 1.2 FAR by the lot size, and that would say you could have 6,000 square feet.

And so that would be four units that are each 1,500 square feet.

So these are kind of two-bedroom or three-bedroom units if you're maximizing your floor area on a small lot.

The permanent legislation is the same as the interim, except that it would also have additional bonuses for stacked flats and low-income housing.

The remaining ones are the same for the interim and the permanent.

So the high limit would be 32 feet plus pitched roofs, again, three stories generally.

The amount of the lot that could be covered by buildings is 50%.

And then the setbacks, that's the distance that buildings would have to be set back from a lot line would be 10 feet for front yards, 10 feet for rear yards or zero if they have an alley, and then five foot setbacks in the side yard or zero if they're on an alley.

And I do want to clarify for people, even if you have zero setback on an alley, that doesn't mean you can necessarily put a building right on the alley.

The garages are still subject to turn radiuses to make sure it's easy to turn into there.

So that means that garages still, even with a zero setback, have to be set back generally four to eight feet to allow for that turning into the garage based on the size of the lot.

So those are the changes to the NR zones.

There would be important but more minor changes to the residential small lot zones.

We would have to update the density limits to comply with HB 1110. We are proposing to have that same increase from 30 feet to 32 feet, that is in neighborhood residential zones.

We would also increase the floor area ratio so that it would be equal to what's proposed in neighborhood residential zones as well.

There are then a variety of other smaller changes that are required as well.

We do have to update various standards in low rise zones, both to comply with HB 1110, but also the requirements that design standards be clear and objective in 1293. We would remove residential parking requirements for middle housing throughout the city if it's within half mile of major transit, again, as required by HB 1110. We'd have to modify certain parking size and a tandem parking requirements in order to comply with 6015. modifying standards for pedestrian access and circulation, as well as access requirements, again, by 1110. We would exempt middle housing from parking requirements, again, consistent with 1110, and then update the EV charging requirements as well.

So it's very important to note that there's a wide variety of things that are in the permanent legislation that are not proposed to be in the interim.

And again, the idea there is we wanted to do something that is to address those things that are necessary to comply with HB 1110 and not necessarily kind of feel all the other things we want to accomplish through this legislation.

I certainly won't read all of these things, but just at a high level, You know, the permanent legislation includes a comprehensive update of neighborhood residential zones.

It's the first time we've done that since 1987. So there's a really wide variety of things we'd really like to improve as we do that.

And so there's a lot of things, again, not part of the interim legislation that we'll be talking about as part of the permanent.

So that concludes my presentation.

And so I'll turn it over to see if there are questions.

I also just want to clarify that the things that we left out, it's partly due to a constraint in terms of what we can include since our EIS is under appeal.

So I just want to be clear that we would have made other choices had that not been the case.

Awesome, well thank you for the interim legislation from our wonderful executive.

I wanna pause here and find out if there are any questions.

That's the first smile that you all popped when I said we should smile.

All y'all looked at me scathingly.

I'm just playing, just a joke.

So I'm gonna pause here to see if any of my colleagues have any questions and I see council president with your hand up.

Council president, you're recognized.

Thank you for this presentation.

I have a question and it comes up over and over again so I'm just asking it now.

How is frequent transit defined?

Yeah, so frequent transit is already a definition that's in our code.

We've been using it for a while for parking requirements.

It is a little bit detailed, but at a high level, it means that it is those stops that have service that is every 15 minutes during the weekday.

And it's kind of, I think, like a 10-hour period during the weekday.

And then there also are some requirements for the weekend as well.

Okay, so it has nothing to do with the number of bus routes or anything like that.

It's basically 15...

if you're there for 15 minutes, you're gonna be able to get on something.

That's right.

Okay, thanks.

Thank you.

Council member Moore followed by council member Saka.

Thank you, Chair.

Thank you very much for the presentation.

And then looking at slide 12, I guess, changes to the neighborhood residential zones.

Can you just explain the thinking?

I see that there are the two top columns between the interim and permanent legislation.

There's a significant difference.

And I'm most particularly interested in the FAR because I have been meeting with proponents of stack flats like Matt Hutchins and others who talk about the need to have a minimum of 1.4 to be able to really pencil stack flats and actually needing even more FAR than that.

So I'm just curious as to why a decision was made in the interim legislation to not include what I think are good additions, additional bonuses for stacked flats and low income housing.

Yeah, I mean, simply with the goal of the interim legislation was to try and comply with HB 1110 and So we got limited to those things that kind of were necessary to comply and those stacked flat and low income housing bonuses are not kind of necessary to apply with HB 1110.

Again, the constraint is our EIS is under appeal.

So the substance of what's in the EIS addresses the impacts of development.

And so we are...

not able to take a formal vote on the permanent legislation right now while our EIS is under appeal.

So it's on advice of our attorneys, we are hewing very closely to the model code ordinance as long as our EIS is under appeal.

Okay, so let me just clarify.

So you're saying that because the EIS is under appeal, we are legally prohibited from including in the interim legislation additional FAR and bonuses for low-income housing?

I wouldn't necessarily put it that way, but I think we can also maybe take this conversation offline if we're going to start getting into attorney-client privilege information.

But the short answer is yes.

The fact that our EIS is under appeal is limiting our ability to put additional things into the interim legislation that we would like to see in the permanent.

Okay, yeah, I would like to have clarification as to whether the differences on FAR and number of units is related to between the interim and permanent is because of legal constraints versus just a policy decision that we don't want to take that step at this time.

So that clarification would be helpful.

Yeah, and there was some judgment used in this, and I do think there's some gray areas, so welcome to have that conversation with you.

OK.

And I think another thing that would be helpful is if you could, in the chart, can you specify?

So let me go back to looking at my questions.

Same thing, I guess, with the thinking of one unit per 1,250 square feet.

What is the range of lot sizes in Seattle neighborhood residential zones at this point, a number of units implied?

Yeah, I mean, there's a huge range of lot size in Seattle.

I mean, you see lots as small as 3,000 square feet and ones as big as, you know, 100,000, more than 100,000 multiple block sizes.

So it's a huge range of different sizes, if that answers the question.

Was there a second question, though?

What was the other question then?

No, that was it.

Thank you.

And then my last question at this point is, because we have this appeal process, if the appeal gets resolved before we implement or pass the interim legislation, is what we would be passing then considered the permanent legislation?

No, regardless of the appeals, this is interim legislation.

It's part of the legal framework for it.

It's in the legislation itself that it will expire after a certain time unless it's renewed or permanent legislation is passed.

Okay, great, thank you very much.

Thank you, Chair.

No, and thank you for that, Council Member Moore.

Could you go to slide 11, please, that the stuff that's not included in term legislation, and I'm more than happy to take it offline, but some of those, and please correct me if I'm wrong, some of these are because potentially they're in the environmental impact studies, some might be a policy choice, but it's a mixture on this slide.

Is that a correct statement?

Well, I would say the approach, yeah, it's really the overall approach is, you know, to try and hew to what is necessary to comply with HB 1110. I think that, you know, as the extent to which it's policy versus legal, I think that is a question for the lawyers that we don't want to expound on their judgments here.

Understood.

Yeah.

Yeah.

No, good, but I like this slide because I think it helps us see what is not included, but that would be potentially addressed in the permanent legislation of House Bill 1110, and then what you just said, Brennan, so thank you.

Council Member Saka.

Thank you, Madam Chair, and thank you for this presentation here.

Quick question on the duration of the interim legislation.

So the proposed interim legislation, I understand, is intended to survive and terminate for after one year.

And so help me better understand the timeline, the anticipated timeline of the proposed permanent legislation.

I know it's all hinges upon the various challenges, but help me better understand what's currently anticipated in terms of timeline for proposal.

So we were planning on sending the permanent down in March, but when the appeals came in...

I know, I understand.

So we are hoping to send that down in May.

So you will have that in hand by May, hopefully.

Our law department is pretty overwhelmed right now, so that is actually...

one of the issues with getting a quick turnaround review.

And then the second piece, the corridors and neighborhood centers legislation might take a little bit longer after I had a conversation with the law department yesterday.

Again, the appeals process is taking up a lot of their time right now, but we are also driving towards May, June transmittal for that as well, fingers crossed.

So May for the first part, and then for some of the corridor implementing legislation, June, by June.

Yes, and then the third piece we did transmit yesterday, which is the actual comprehensive plan with the future land use map in it.

Thank you.

No further questions, Madam Chair.

Thank you, Council Member Saka.

And I see Council Member Rink, you are recognized.

The floor is yours.

Thank you so much, Chair, and thank you today for this presentation.

Our office is happy that the 1110 interim legislation aligns as closely as possible to this proposal where we really can in order to promote stability.

A couple questions for today.

On slide eight, you're proposing a change from one unit per 2,250 square feet.

the blanket, four to six units per lot.

Can you explain a bit more what the potential impact of this could be?

Yeah, so sorry, just to be clarified, what is the difference between the interim legislation, the permanent legislation in terms of outcomes and on-site?

Yes.

Great, thank you.

Yeah, so the difference is that, you know, The interim legislation would apply a certain allowance for a number of units that's based on what lots exist today.

And so if you happen to have 100,000 square feet of area, if it happens to be one lot, you get four units.

If it happens to be broken into 20 different lots, then you would get 100 units.

And it also would kind of discourage a subdivision, because once you subdivided those into multiple lots, then you would lose the ability to have four units on each of those.

Instead, you'd have the current allowance, so they have one unit plus two accessory dwelling units.

The difference is that permanent legislation is that they would scale based on how, if you had more units, if you have a larger lot, if you subdivided, it wouldn't make a difference, so it'd be easier to kind of change things around.

So there'd be a lot more flexibility and a lot more, you know, it'd be based on the, it wouldn't be based so much on what the lot size happens to be today.

Great.

Thank you for that.

And would the interim legislation as is allow for all nine forms of middle housing?

It would.

Yes.

And how can we work with, how can we work to make stacked flats, pencil and neighborhood residential zones?

Is the state legislation to reform condo liability laws, a potential fix to this problem?

Yeah, that will certainly be helpful.

But the other factor is that our commercial building code kicks in after I think two units.

Is that correct?

So that's another factor.

It's just a really hard product to make pencil and neighborhood residential.

And this is one of the reasons why we are proposing neighborhood centers and up zones along corridors, because those will allow for bigger multifamily buildings that are more feasible to be built.

And so there might be a path forward with stacked flats as market conditions change, but right now it's not looking like we're going to see a lot of stacked flats in neighborhood residential zones.

Unless we increased the zoning significantly to what is being proposed.

Understood.

Thank you for that.

And just two more questions.

First, what can we do to increase the number of parcels that appear to be potential candidates for redevelopment to above 19 percent as referenced in the Eco Northwest study?

So, I mean, that's a really good question.

It's something that the mayor is really focused on in terms of looking at those levers that the city has control over to reduce the cost of building housing in the city.

And I think that's a good segue into our next presentation, starting with our recommendation to not extend the mandatory housing affordability program into neighborhood residential is that will add cost.

And we are seeing through the Eco Northwest report, I also have another one in front of me from UC Berkeley's Turner Center for Housing and Innovation that also concludes that middle housing is a really difficult type of small scale development that is difficult to pencil for a variety of reasons.

I would recommend everyone pick that up and read it.

But it echoes a lot of what we had in the Eco Northwest study about the difficulty of making middle housing pencil.

And so today we're gonna talk about one of the things we would recommend to make it more feasible in neighborhoods.

I will also say that we went out with our first draft with a smaller FAR and OPCD's thinking on that was that smaller units would be more affordable.

So there was good intent behind OPCD's recommendation with that, but we got a lot of feedback asking to increase the FAR.

And the positive about increasing the FAR is a lot more projects penciled under the larger FAR as well.

So we were happy to make that change, but there's trade-offs with all of these decisions.

thank you so much for that i'm gonna hold the rest of my questions until after the mha presentation thank you all so much and thank you chair awesome thank you council member rink um we see a hand from council member moore you're recognized floor is yours yeah thank you chair i just would like to make a request that maybe we could have some of the stack flat builders come to the council table because there's a lot of You know, I'm hearing one thing from this table.

I'm hearing another thing when I meet with people who are developing stack flats like Matt Hutchins in Spokane about what the obstacles are.

And a lot of it revolves around FAR and also needing to get having that additional density bonus of four floors for it to begin to pencil.

So I just...

It seems to me there's a lot of interest into stacked flats.

There's a lot of misunderstanding about what does and doesn't work for incentivizing it.

And I think we're at a juncture here where we have an opportunity to really do something kind of bold, similarly around the issue of courtyard colleges.

And then the other thing that I would just like to point out is that we don't need to have, we can zone to make sure We can up zone without necessarily having neighborhood centers.

So we can build, we can have the level of density, or excuse me, the level of FAR and height that we need throughout the city without necessarily having to place them in neighborhood centers.

So it's not an either or.

I just want that to be clear.

Thank you.

Thank you, Council Member Moore.

Can we go to slide 10 on that note?

Or maybe it's slide six, which shows all the options for...

Is this one or?

No, it's the one that has all the options, potentially.

I think it's number six, slide six, yes.

So this is the goal and this is what we want.

And I have heard a lot of council members talk about stack flats and how can we be able to promote that type of style and building and the code changes.

And I know there's a lot of, this and that.

So I really appreciate Council Member Moore bringing that up.

It's a great suggestion regarding us having the people that are on the ground actually building these things to come and explain, hey, here are some of the barriers and challenges that they are having.

But I just wanted everyone to see that photo because If you go to Eastlake in our city, Eastlake is full of different options.

Duplexes, triplexes, fourplexes, sixplexes, courtyards, sack flats.

They have a bunch of different options.

It's one of the only neighborhoods I believe is like, you know, I don't think there's any...

single family housing in East Lake.

It's just a bunch of really cool options and great density.

So any who, just wanted to throw that out there.

I know a lot of people really want that.

We've talked about that.

A lot of people are really excited about different housing options and density in our city that makes sense, especially that are accessible for folks.

And so that's the feeling, that's the energy we're getting, that's the vibe.

And we wanna make sure that we're able to push that along as best as possible.

And I know that is the energy from a lot of folks.

So awesome.

I don't know if there's any other questions so far.

Seeing none, hearing none, I guess we will move on to the next presentation.

Thank you.

Oh, I have to actually read, have the clerk read the item in the agenda.

Will the clerk please read item two into the record?

Agenda item two, mandatory housing affordability, or MHA, overview and proposed implementation for briefing and discussion.

Presenters are Jeff Wetland from the Office of Community and Planning Development and Chris DeVias from the Mayor's Office.

Awesome, thank you.

We're looking forward to the presentation.

And I apologize if I kind of read that a little slow.

I had a reading disability as a child, and so I'm always trying to get over that.

And for the record, I know that their names are Lish and Ketel.

Yes, I mix those up because I do respect them.

I work with them every day.

They are phenomenal people.

I know how it feels when people messes up their name, but the internet got on me for that.

I have a reading disability, I'm getting over that.

So just wanna thank them for all their hard work.

They are in our audience today and I just wanted to say that for the record.

You may begin, thank you.

Great.

Well, good morning, council members.

Thank you for having us to give you an overview of mandatory housing affordability this morning.

We're just going to do kind of a 101 level recap of how MHA works.

And then we're going to talk to you about how MHA is proposed to be applied under the new One Seattle Comprehensive Plan proposal.

And then we're going to talk about some ideas for how MHA could be improved in the future.

So we'll start with the background here.

What is MHA?

So mandatory housing affordability.

It's a requirement in Seattle that new development includes affordable housing in development or pays an in lieu fee for affordable housing development.

Currently, MHA applies in the vast majority of the city's multifamily and commercial development areas.

It's important to note that MHA is implemented when additional development capacity or an upzone is given with the premise that that additional value offsets the cost of an affordable housing requirement.

And MHA is authorized by a state approved inclusionary zoning program under the state's Growth Management Act.

A brief history for you.

This goes back roughly 10 years now, and it was one of the recommendations of a previous administration's Housing Affordability and Livability Agenda Task Force in 25-2016.

It was then implemented in several areas initially where there was an existing incentive program or an ongoing neighborhood planning process.

So the first areas were downtown, U District, Central Area, and the Chinatown ID and Uptown.

And then in 2019, it was later implemented citywide in the remaining urban villages and multifamily and commercial areas of the city.

And we'll show you a map in a moment.

Since then, it has continued to be implemented whenever the city does an area-specific upzone.

So some of those have happened in places like Georgetown, Ballard, some sites along Rainier Avenue.

So the current practice is as the city makes upzones, we continue to expand where MHA applies.

Just emphasizing this, how does it work?

Just again, it's important to note that the affordable housing requirement is added when we're pairing it with an up zone that increases development capacity.

And the bigger the up zone, the higher the affordable housing requirement, generally speaking.

So the image is just showing you that on the left, Before MHA is in place, maybe a developer could build a maximum of a four-story building with about 40 units.

The city provides an up zone.

Now that developer can build a five-story building with the added capacity in blue, and now they can build 52 apartments and would be required to include a portion of that as affordable.

So this is the map showing you where MHA currently applies in the teal color.

And you'll see that that's generally in the existing, under the existing comprehensive plans, urban centers and urban villages.

You can see those outlines in black.

And outside of those areas, the commercial and multifamily zoned land that is outside of those growth areas.

MHA does not currently apply in historic district and shoreline areas.

Those are places where we haven't been able to or done up zones.

And it currently does not apply in the neighborhood residential, formerly single family zoned areas, nor does it apply in industrially zoned areas.

I want to take a minute just to give you an overview of the program's affordability requirements.

So remember that developers have the choice of performing where they build the units on site with the development or making an in-lieu payment.

If a developer chooses the performance option, the affordable housing must be provided to households with 60% area median income or below, and those units must be maintained for 75 years.

The in lieu payment option is intended to approximate the cost of that onsite affordable housing.

The requirements are calibrated by a few factors.

One of them is the market strength area of the city.

So in higher market strength areas, on this figure, the highest cost or market strength areas are in pink.

You have a higher affordable housing requirement.

In the medium areas, it's a little less.

And in the low market strength areas, it's a little less.

percentages of homes a developer would have to include range from 5% in the chart on the low end to a maximum of 11% on the high end.

The other factor that varies the requirement is how big the upzone was.

So that's indicated by an M, M1, or M2 suffix after the zone.

And it basically means if an area got sort of a one notch up zone, like a one story addition, it would be an M level.

MHA requirement.

If the area got a bigger, say a two-step up zone, it would be an M1 level requirement.

And if the area got a really big up zone, you would apply the highest M2 tier requirement.

So you can see those amounts in the chart on the bottom.

Oops.

You may ask, well, how does the city produce affordable housing with those proceeds?

And this is just giving you an example.

Those dollars go to the city's Office of Housing.

And every year, the Office of Housing combines those revenues with other sources, and they give awards to nonprofit housing developers to build whole buildings of affordable housing.

And to date, MHA has yielded 4,702 of those affordable units.

The image is an example of the type of building that the Office of Housing funds.

This one is in the University District.

And you'll see a building like that in pretty much every neighborhood in Seattle that OH has funded.

While most developers have chosen to do the payment option, developers have also provided 404 affordable units on site through MHA.

So that's what you're getting by the MHA proceeds that the city receives.

Okay, I'm gonna pivot now to how the executive is proposing to expand MHA under the One Seattle Plan.

You've seen this map once before, and what it's showing you is we're recommending to basically continue the current practice of extending MHA to new areas that are up-zoned for multifamily and commercial development.

So under the proposed One Seattle plan, those are gonna be the new neighborhood center areas, those walkable, livable neighborhood centers, there'll be 30 or more around the city, as well as expanded urban and regional centers, and the frequent transit corridors.

Those areas are indicated in orange on the map.

We're proposing to continue to apply MHA in those places, And that would increase the acreage of MHA in the city by 21%.

You can see the acreage is listed in the table below.

And we're also recommending to continue the existing and current practice of not applying MHA in the neighborhood residential zones.

Before you go on the next slide, Jeff, I want to recognize Council Member Rivera has joined us in person.

And I believe you have a question, Council Member Rivera.

Thank you, Chair.

Just a quick question on the creation of those 4,700 units.

You said to date, so does that mean since 2017?

I just want to make sure I'm understanding correctly.

Well, since the program was implemented in phases, the first of which was 2017 and then later in 2019, and those numbers are run through, I think, the end of 2024. So when I say to date, it's the best numbers we've got.

From 2017 to 2024.

Correct.

Thank you.

Yep.

And just to be clear, those numbers are combined revenue sources to create those units.

It's not MHA alone that created that many units.

So this is important.

We want to take a minute to tell you why we're recommending that we exempt the neighborhood residential areas from MHA requirements.

The first reason here is that HB 1110, as mandated by the state legislature, already requires that the NR zones include a built-in density bonus for affordable housing.

So there's a requirement in there that comes with that legislation that if at least two of the units are provided as affordable, you get to go up to six units instead of four on a typical lot.

So that's reason number one.

The next several reasons are because we really want to prioritize seeing the production of middle housing in the new neighborhood residential zones.

Everyone agrees that middle housing is a high priority, and we want to make sure it comes to fruition.

We know that current market conditions for housing are already quite challenging, and you'll hear today from experts about that fact.

The report commissioned and prepared by Eco Northwest of the Neighborhood Residential Zones found that 80 percent of the parcels in the new NR areas will not support a middle housing project that can pencil economically.

We also know that MHA provides some particular and unique challenges to small scale developers.

So the Burke and Heartland Report found that when they were looking back at the 2019 up zones, the up zones that were provided in the low rise zones created somewhat limited development value for small scale and town home scale developers.

The changes to the NR zone would be similar to those.

The types of small-scale developers just sort of they have more difficulty addressing the MHA requirement than big institutional developers in downtown or a very high-density large-scale development.

There are some unique challenges there.

We also are noting that what we're proposing in the NR zones is pretty modest in terms of the scale of the upzone.

Some of the upzones that were applied to put MHA in place in other areas were significantly changing the scale of development, adding multiple stories that you could build, really large scale changes to the form that could be built.

And that's just not the case with what would be done here in neighborhood residential.

So we're skeptical that the scale of those up zones are in the spirit of what would be required to apply MHA.

And we do want to tell you that many cities with inclusionary zoning programs like MHA, noting that there's particular challenges for small-scale developers, they exempt low numbers of units from an inclusionary requirement, which is typically in the 5 to 30 unit range.

And that's quite common for peer cities that have similar programs.

So in sum, we want to emphasize that production of middle housing is very important.

And in order to make sure it happens, we are recommending not applying the MHA requirements in those areas.

And I'm going to turn it over to Krista, who's going to tell you a little bit about some ideas for how MHA could be improved in general.

Before we pivot, are there any questions about what we just covered or?

Council President Nelson.

How much does MHA generate right now?

That's a good question.

I don't have that figure off the top of my head, but the consultants have in their slide deck a really nice slide about all the revenues that have been generated on an annual basis.

So we'll be able to take a look at that.

But in past years, it has been substantial, not so much in recent years due to the challenging housing market conditions.

Again, MHA works only to the extent new housing actually gets built.

Well, okay.

It's in the report though.

Correct.

All right.

Thank you.

And council member Moore.

Oh, thank you very much.

Um, So let's see.

I guess the first issue here is that neighborhood residential up zones in 2019 low rise up zones may not be of similar scale.

So I think suggesting that the evaluation findings for low rise up zones, they are not going to be necessarily fully applicable to neighborhood residential up zones.

I think you made the case that this report found that they were of limited value to townhome developers, but the neighborhood residential up zones are going to allow significantly more units than are currently allowed.

because we're going to be increasing density to one unit per 1,250 square feet.

So I guess I just think that we're not really comparing apples to apples when we say it didn't work for low-rise, therefore it wouldn't necessarily work in up-zone neighborhood residential.

Has there been any evaluation of how MHA would work for...

what would its impact be on other housing types that are contemplated by HB 1110?

Like stacked flats, which are, you know, they pencil out at four, five, six stories.

And actually we're talking about neighborhood centers being allowed to have MHA.

Well, neighborhood centers are actually located in neighborhood residential right now.

They're not suddenly in a commercial zone.

they're now in a neighborhood residential that we're just allowing in this particular area to go high.

So, and you're really gonna open that up.

So, can you just answer that question?

So just to be clear, we are recommending expanding MHA into the neighborhood centers and along the corridors where there will be higher density proposed there.

Right, but you're recommending that it be in a neighborhood center.

My point is neighborhood centers are located in neighborhoods, so I guess it doesn't make sense to me to say that MHA isn't going to work in neighborhood residential when in fact you're including it in neighborhood residential.

You're just calling it, you're just designating a small piece of that neighborhood residential neighborhood center.

Yeah, and I think the key difference there is that neighborhood centers would have higher zoning and bigger up zones that would allow for a pleasant walkable community of, you know, multifamily buildings with, you know, four, five, six stories, whereas the neighborhood residential zones are a lower scale zone that doesn't have as much of a zoning increase.

But you could do a story bonus in a neighborhood residential for MHA, right?

You could zone it so they could get a, if they went four stories, they would get, if they did MHA, they could get a four or five story bonus in a neighborhood residential.

Correct?

I mean, that's a policy choice you can make.

That's not how our program is currently structured.

We are proposing a stacked flat bonus in HB 1110 areas as part of our permanent HB 1110 legislation.

But the ECHO Northwest study shows that those are very difficult to pencil, so we would not recommend layering on additional fees to those projects, given the difficulty of making stacked flat pencil.

Well, again, and that goes back to my point about we need people who are building stacked flats at the table to actually talk to us about that.

But the other piece to this is, and nobody's answered the question, what's the return on investment that most of the private developers are getting?

Because my understanding is in the past when they were building, they expected 15% to 20% return on investment, and they're still seeking those kinds of high-level investments.

If you talk to some of the smaller for-profit developers, like people who are doing Core Day Allied Aid, where they're doing really innovative work with co-ops, they're not looking to make more than 10% return on investment.

And so things do actually pencil out.

penciling out, are we talking about we're penciling out at 15% profit or are we talking about penciling out at 10% profit?

Like nobody's really answered that question.

What does it truly mean to pencil out?

Yeah, you know, there's an interesting discussion about returns on investment in the Berkeley study that I cited, and there can be a wide range.

My understanding is it depends on how you get your financing and whether your investors, what kind of return they might expect, but small scale development do not have the typical financing options that larger development has.

But we do have our consultants in the audience who will be coming up for the next presentation on the MHA evaluation and a lot of expertise in housing feasibility and economics.

And they actually went into a lot of that in their evaluation report.

So I think it'd be great if we wanted to continue this discussion that we tap our experts while they're here for that.

Yeah, I think we need to do a lot more deep dive, and I also have some questions about who did the study and kind of where they're coming from.

And I guess the other point I want to make is that...

HB 1110 doesn't mandate two affordable units on every development.

If you put two additional, you can get six if two are affordable, so there's no mandate.

So I just want to correct the record that there's no mandate for affordability through HB 1110, and that's something that we are trying to look at through the and even permanent legislation.

And also, the other point, we do have a lot of different funding sources for affordable housing, but we've been looking at the jumpstart tax, and we all know that the jumpstart tax has come in significantly lower than we anticipated it to come in.

We also know that last year, to cover some of our budget, we pulled from the jumpstart the housing money that was set aside and jumpstart to cover some of our general fund deficit.

So we just need to be clear that we don't have a huge pot of money over here that's necessarily going to replace MHA.

It is, as they say, a braided approach to funding, and we need to make sure that we're keeping all our options available.

Thank you.

Thank you, Council Member Moore, and I see Council Member Solomon.

Thank you, Madam Chair.

And you may be getting to this later on, but I was wondering if there was a threshold for MHA applicability, especially when it comes to single family residential or ADUs.

Say I've got a lot.

I want to put three ADUs on that lot.

Does MHA kick in for that?

MHA does not apply to accessory units.

OK.

In other developments where MHA applies to the zone, anytime you're adding one or more new housing units, the program applies.

Okay, you're saying it does apply?

So, I'm sorry, I didn't mean to be confusing.

MHA does not apply to accessory units.

Okay.

All right, so let's say I've got a large lot.

I want to split the lot, and I want to put up a couple more houses on that lot because I can't.

Then does the MHA kick in if they're not ADUs?

That's correct.

Okay.

Again, I just wanted to be clear about that for our individual single-family residential property owners out there who may be looking at doing some development.

that this could impact them?

Yeah.

I want to make sure we're all on the same page that if it's an MHA area where MHA is applied by the zone.

Oh, OK.

All right.

Yeah.

Yeah.

So when I said yes, it was if MHA were applied to that zone, if you're adding new homes, then it applies.

But in today's neighborhood residential, or as we're proposing, the future neighborhood residential, we're proposing that MHA would not apply to those areas.

All right.

Thank you for that clarification.

Thank you.

I see Council Member Moore.

Is that an old hand?

No, it's stupid.

Oh, no.

Oh, okay.

Okay.

Got it.

Council Member Rink, you're recognized.

Thank you so much.

I was going to save my questions until the end of the presentation, but just given the discussion here, wanted to chime in with something that I wanted to follow up on.

Just to be clear, would mandating a number of affordable units for the four units be within the spirit of House Bill 1110, and would that be technically legal under state law?

Yeah, the HB 1110 bill, as I understand it, does allow for...

for programs like this to be applied.

I think there's some language in there that allows it to occur.

You also asked if it would be within the spirit of HB 1110, and the viewpoint from the executive is that the primary goal of HB 1110 is to produce middle housing, and that's where we're coming from, which is we wanna prioritize making sure there's production of middle housing.

Thank you, and thank you, Chair.

Absolutely.

Council Member Moore.

Thank you, Chair.

Yeah, I just want to be clear that in talking about looking at applying MHA to neighborhood residential, that I appreciate that doesn't apply to ADUs, and we've seen a fair amount of development, I think, because of that.

And I do think that any consideration would need to look at carving out an exemption for people, families who are wanting to develop their lot, so basically as an attempt to create multi-generational housing on their lot as also an attempt to create intergenerational wealth building on the lot.

So it's not about blanket application, it's about sort of taking, being strategic because one of the things that we really do want to encourage with this is increased home ownership opportunities and increased affordability vis-a-vis home ownership.

So very much mindful of that concern and certainly would be wanting to consider some sort of exemption for that to foster that.

Thank you.

Thank you, council member Moore.

I don't know.

I don't see any other questions, but so continue.

So we want to tell you a little bit about some ideas for improvement.

And then we also have the technical consultants to hear from today.

So we'll move forward.

Yeah.

I just want to speak to this slide very quickly because the consultants are also going to cover a lot of this, but last week the mayor sent all of you a letter when we released the MHA evaluation discussing next steps.

We would like to pursue some of the recommendations in the evaluation.

They're listed out here and we think these will help make the program stronger while also ensuring that it's not having negative impacts on housing production.

So I won't go through all of these.

I just wanted to flag for you that we are interested in pursuing these and we're happy to work with the city council on the next steps associated with that.

But at this point, I'd like to have the consultants come up and they can explain more about where these recommendations came from and why they're making them and just their work in general on the evaluation for MHA.

Is this item three?

Because I'll have to read it into the record.

This is item three.

Oh, awesome.

Thank you.

Sorry.

I appreciate that.

Just want to make sure that I follow the rules.

All right.

Will the clerk please read item number three into the record.

Agenda item number three, mandatory housing affordability panel for briefing and discussion.

Presenters today are Kevin Ramsey from Burke Consulting, Lee Stryer, Heartland Consulting, and Krista Vias from the mayor's office.

Awesome, thank you.

And I know we're getting that piece up.

And while we're waiting, if the sun blew up right now, we wouldn't know for eight minutes.

That's how long it takes for light from the sun to get here to the earth.

So you have eight minutes, we wouldn't know.

Cool, interesting fact.

I just thought it was like, you know, we don't want the sun to blow up, but if it did, we wouldn't know for eight minutes.

I think it's kind of cool.

I don't know where to go with that.

Oh, we could.

And I don't think Seattle would know because we never get sun, right?

So we wouldn't know where the sun is, right?

All right.

Please state your name for the record and you can go ahead and jump into the presentation.

Even though if you've already stated your name, we just need everyone to do it again.

Thank you.

I'm Kevin Ramsey with Burke Consulting.

I'm Lee Stryer with Heartland.

Thank you for having us today to talk about this work.

So as Jeff and Christa have mentioned, Burke and Heartland were contracted to jointly conduct an independent evaluation of outcomes of the first five years of Seattle's MHA program.

So looking at historic outcomes of the program, how has it been performing?

I just want to give a little bit of information about our firms and our background, and then we'll get into the evaluation.

So I work for consulting.

We're located here in Seattle.

We've been around for over 35 years now.

We're an interdisciplinary firm.

We do a lot of public sector consulting in housing and land use policy, financial and economic analysis, data analysis.

area of expertise is housing and land use policy analysis, as well as program evaluation.

We are also a Seattle-based real estate advisory firm.

We've been around a little more than 40 years now.

We work with public and private clients, both nonprofit and for-profit on the private side.

And we primarily work with real estate advisory, land development, building development, also in brokerage and asset management for existing assets.

So we kind of cover a wide range of real estate development advisory activities.

Awesome.

And before you continue, I apologize.

I just want to let my colleagues know, please raise your hand during this presentation throughout.

I know it's a lot of content and it's really heavy.

So if you have any questions, please just go ahead and feel free, raise your hand and I'll recognize you.

Thank you.

So Jeff did a great overview of the MHA program as it currently exists.

So I won't go into those details again.

I did want to emphasize one point, though, which was really central to our evaluation.

And that when the program was created, a big goal that they had was for MHA to have either a neutral or even positive impact on the total housing production.

in Seattle.

So trying to balance out the costs of complying with MHA and providing the affordable units or the fee with the benefits of the increased development capacity with the goal of not impacting housing affordability or even market rate housing production at all or even increasing it over time.

When we were hired for this work, the city staff developed a long list of evaluation questions.

I won't read through all of these, but these came from various city departments that had an interest in this evaluation.

So the report is very comprehensive.

It looks at a wide variety of different questions, obviously.

We're not gonna get into all of them today, but I do wanna emphasize three kind of overarching questions that are a big part of our focus in the executive summary and in the presentation today.

One, like, does MHA impact the rate of market rate housing production?

Two, how should the city weigh the benefits of new affordable housing that's generated through MHA against any possible negative impacts on market rate housing production?

And lastly, what policies should the city consider to balance these trade-offs?

So we'll be talking about these themes today.

And we'll start by looking at our findings and specifically focus on the impacts to market rate housing production.

And I'll hand it over to Ali here.

Thanks, Kevin.

So if you recall back in 2019, we were in a pretty strong kind of development environment.

MHA since then is only one of several factors that have negatively impacted market conditions.

I say negatively in terms of It is an extra fee, so if you're only thinking of it from a market-based profit perspective, they would have a negative impact when you charge a fee.

It's not a policy statement.

It's an economic statement.

But there have been several other factors since 2019 that have negatively impacted market conditions, and we've tried to lay that out in a timeline here.

There are also some of these things are within city control, and other things are beyond.

Obviously, one of the items in here are responses.

to the COVID pandemic.

And the COVID pandemic is clearly beyond anyone's control.

A significant rise in construction costs, both related to inflation as well as supply chain impacts, et cetera.

Obviously, those are beyond city control.

MHA.

adopted in 2017 and 2019, along with the Seattle ADU reform in the NR zones, which we've talked about.

Also in 2019, changes to the Seattle Energy Code that have taken place over the last few years that have impacted cost and design.

There's also been state funds that are beyond the city's control that have been added in.

And then obviously in the last couple of years, you've seen a pretty significant impact in terms of the increase to interest rates, which really impact borrowing costs.

Shown here on this chart, that's the short-term rate, which is typically what construction loans are pegged to.

So another increase in development budget costs.

So a lot of things have combined that just happened to coincide with when MHA took place in the development cycle to negatively impact the production of housing, not just in Seattle, but nationally.

Oh, yeah, and one other point that's important to make here at the bottom, the last bullet, is that rent increases, while rent has gone up in the several years since 2019, they have not kept up with a lot of these other inflationary impacts on development.

Now, this slide has a lot of charts in it, so happy to answer any questions, and I'll try to walk through this kind of at a high level, there's three different sections here.

There's low fee areas, medium fee areas, and high fee areas.

And within each of those fee areas, you have different designations depending on the up zone, the M, the M1, and the M2.

This is looking at two different time periods.

You have 2019 and you have 2024. And what we are looking at is a typical mid-rise project.

There's also obviously low-rise projects and high-rise projects.

For the purpose of this slide, we focused on a typical mid-rise project.

You might ask, what is typical?

There's obviously properties where, due to location or lot characteristics, the economics could be worse or better than this.

We've used a lot of median rents and median costs and median land costs, et cetera, to inform the economics of a typical mid-rise project in 2019 and 2014. We've identified a typical threshold for feasibility, I know that question was asked before, of 15 to 20 percent.

There's obviously investors and developers that might accept lower returns, impact investors, et cetera.

They're a little bit more limited in number, but we focused on this kind of more generally market prevailing 15 to 20% investment target for penciling as we were talking about before.

And generally developers will not proceed with the project upfront unless they're penciling it out to have a minimum rate of return.

And what you can see here is that in 2019, in low fee, medium fee, high fee, all the different ranges, a project would pencil either if you've removed MHA, which is all of the blue charts, or even up to the highest M2.

And then you look at 2024, and you say that the same typical project is not feasible, even without MHA.

There's a little bit of, you might ask, well, what does this mean?

And that's a robust discussion can occur, what we're seeing in great times in a very booming development market.

And when a lot of the studies were done that informed the fee rate setting, it made sense.

And projects were penciling and things were being built.

And you can even see that later on when we show the revenues that were generated.

And right now, even if you removed MHA, the development conditions still make it quite difficult for many or most projects to pencil out.

However, there are also likely to be time periods in between boom and bust where the fee could provide kind of a go-no-go factor of decision-making.

If you look at the high fee area in 2019, you have an 8% difference in IRR between, let's say you had no MHA versus the M2.

You could be in a...

paradigm where returns are in that closer to that 15 to 20% threshold where a very high fee might impact go, no go.

So at the margins, it is likely that the size of the MHA fee, particularly a larger size of the MHA fee would inhibit the production of market rate housing.

But it's a very, it's a constantly moving and influx situation.

So I imagine there might be some questions.

There's a lot of info on here and happy to answer those.

I think we're just taking it all in.

Yeah.

But we will pause.

I don't know if anyone has any questions on that.

But I think as we're moving through the slides, probably people will have some more questions.

So thank you.

And here, this is a little bit simpler.

This is just DMHA fee as well as other development costs as part that would be, they make up kind of the total development costs of our project.

And I don't mean to cut you off.

I'm so sorry.

There is some questions for the previous slide.

I apologize.

There are, yes.

My apologies.

I saw Council Member Moore.

I don't know if it was Council Member Rivera or Moore.

Thank you.

Thank you, Chair.

Just, I wanna make sure I'm tracking this on this slide.

Can you remind us what the low fee, medium fee, high fee area means?

Yes, so those were outlined in the map that were shown before and the low, medium and high, you're more of the experts on the definitions, but they were defined based on market conditions.

So a high fee area was where rents are higher and land prices were higher and development conditions were the most ripe and low fee areas might be where development economics were not as robust.

And when the city created those maps, they were, based on development conditions at the time.

And a lot of thought was put into what the fee might, what levels of fee might impact development so that you're not impeding the creation of market housing too much by doing it.

And basically that just means throughout the city, there's some areas where it's going to be more expensive to build than others.

I mean, is that the fee is higher in a high fee area?

The fee that's charged for MHA, if you choose the payment option or performance, you need to, include additional units, as Jeff was talking about before.

So that's why there's a difference between the low and the medium and the fee in this chart, because the costs related in a high fee area are higher costs to the developer than in a low fee area.

Higher additional costs due to MHA.

So it's not a development, I mean, development costs are the same throughout the city.

It's just in certain areas.

Is it more desirable areas or something?

What's it based on?

I mean, a lot of it was driven by market rents.

If you look, Capitol Hill and Queen Anne are definitely in the high areas and other areas where you see less development and rents are slightly lower would be in the low fee areas.

Okay.

So the idea would there be more potential for returns because you're getting higher rents in Capitol Hill, for example, but There's also higher costs due to MHA, and this is looking at the impacts of those costs.

It's important to note that, yeah, downtown and South Lake Union are not included in any of these.

They're not shown here because they have entirely different economics and often different building typology.

Okay.

All right.

Thank you.

Council Member Moore.

Thanks.

Do we have a map that shows us where these various areas are that would be helpful?

There was one included in the prior MHA presentation.

I'm sorry?

There was a map included in the prior MHA presentation that we just did.

No, not that one.

No, it's the MHA.

Oh, is this the page 24?

Is this it?

Oh, okay.

This one, this one.

Did you find it?

Yes, apparently we had multiple maps in our presentation.

Yeah, I guess the other question, though, is how much building was going on in the low fee areas?

How do we compare that?

We have a map later on that shows, like, point level, like, where, you know, you kind of see visually what the dispersion of development over the past five years was across the different areas.

I don't think we have any charts in this particular presentation that, breaks it down.

There is less in the low fee areas.

There was more in the medium and higher, and you'll be able to see that in the map coming up.

So I guess part of my question would be, did the volume create a change in the fee as well, the volume of development?

The fees were set once at the beginning of MHA, and they have not been recalibrated to any volume or anything like that.

Yeah, they increase with inflation or cost of living adjustment each year.

They have not been...

That's been set since the legislation was passed.

Okay.

Thanks.

Sorry, Chair, one more question, if I may.

Oh, it...

My apologies.

Yes, Councilmember Rivera.

I think Councilmember Moore and I are kind of going back and forth.

But the low, medium, high is impacted by the cost of the development, the rents and the development projects themselves.

So are you saying if there's a development project where it's higher rents, you're going to see higher MHA fees?

If you build a project in a high fee area, you are charged a higher payment fee for MHA than if you build one in a low fee area.

And I guess the question is, what determines the high fee area versus the low?

It's mapped out.

It's per the zoning code.

It was predetermined as part of zoning.

Actually, it's the map, the map that's in your presentation.

If you're in a high fee area on that map, you pay the higher amount.

So we zoned it.

This area here is high.

This area here is low, this area here is medium as per the map.

Exactly.

Those were made based on the high rent or higher market strength areas of the city based on some data.

But once the map was set, it is what it is for those boundaries.

And then thank you.

And then.

Back to this bar graph, then the high fee areas where the area and the pink here developers sit for saying that's what's penciling out development in that high fee area.

Oh, well, medium, I guess.

Sorry.

In 2024, for instance, is that this is indicating.

So nothing is penciling in 2024. And so.

you can see that that gray bar that goes all the way across, that's the threshold.

That's the minimum.

Yeah, so, you know, 2019, you see everything above that bar, right?

That means they're penciling.

So nothing is penciling, although the medium fee area is doing better than the other.

But nothing is penciling, so nothing is getting developed.

Exactly.

That's correct.

And there could be lots.

I mean, there's not nothing being built.

There are things that can get built.

Right.

But the typical project, which is...

It's a difficult word to define, but the median project is not being built now.

And we wanted to be clear that, like, just if you removed MHA and said there's no more fee, that might not even make a big difference right now.

Also, these are 2024 numbers.

We're in 2025, and things might already be different.

And so it's the rate of return that is the minimum looks to be between 15 and 20 percent.

Yeah.

Thank you, Chair.

Awesome.

No, you're good.

No worries.

Numbers in 24, though, track to our permits going wildly downward.

Yeah.

Thank you.

Council President Nelson.

I keep thinking to myself, I must be reading this wrong because it's staggering.

It's a wonder that anything gets built at all, right?

With or without MHA.

I mean, nothing is hitting the...

typical project feasibility threshold, correct?

That's what I'm reading here.

And this map that was in the other presentation shows medium, low, medium, and high.

That's basically desirability to build, right?

But within each, taking away those colors, is MHA different for a low-rise zone than a high-rise zone per square foot?

Is the MAHP different?

Yeah, it's the fee charge per square foot.

It's different.

So the fee is different according to the area of the city and also the particular zone, low rise versus 160 foot towers or whatever, right?

The size of the building does not impact the fee.

So a high rise, a mid rise, and a low rise is defined based on where you are located in those maps.

Right.

It's just a per square foot number.

Well then that just makes sense that a taller building can better afford MHA than a smaller building because you're absorbing that cost for the whole building basically, even though it is per square foot or so.

It just makes sense that MHA would be, it's a cost that's harder to bear for the smaller building with fewer units that are going to provide a return on investment ultimately.

Excuse me, I'm getting over a cold I had last week, but no longer, no worries.

But if you are able to pencil out a high-rise, in theory, I mean, it's a much more expensive construction type to build anyway.

So thus, if that's building out, it would be able to bear more per square foot than a low-rise building just because of the economies of scale and the reason why you're building such a high-rise development to begin with.

However, we're not even showing high-rise here.

That's an even more bleak situation at the moment to pencil out in terms of costs and rents.

So you're saying you're not even showing high-rise, you're showing low-rise only here?

Sorry, this is for a typical mid-rise project in these charts.

In the longer report, we did analyze multiple different building typologies.

How many stories is a typical mid-rise?

How many stories?

Stories, yeah.

Six, seven, eight.

I'm trying to even remember which one we showed here.

I think it was a seven story building here.

And that's where most of our affordable housing is built.

Yeah.

Thank you.

Awesome, yeah, next slide, thank you.

All right, this slide has a simpler chart and this is kind of just a graph showing total development costs.

And kind of once again, the costs here in the middle, so the soft costs, your design and engineering, your hard costs and your financing, those are kind of elements that are you're gonna see not just in Seattle, but throughout the region, King County, et cetera.

Then the land and the fee are kind of what are more typical and specific to either the lot or Seattle itself.

And you can kind of see that it's a pretty small share.

The MHA fee was $22 a square foot.

of built square foot, not per land, in 2019, and on the average in 2024, 28 per square foot.

But if you think of it as a feasibility question, when a developer is looking at identifying a project, they're looking at, well, how much, they can't really control those three middle portions, but there's how much can they pay for the land, and that's their negotiation with the landowner.

And then there's how much are they going to have to pay for the MHA fee?

And you can kind of combine those fees, both the land cost and the MHA fee into will this project pencil, given the if you want to call it certain development costs in the middle.

And on the margins, if you have, especially if your fee is higher, if you're in a low fee zone, the margin is much smaller.

If you're in a higher fee zone, especially the M2 within the high fee zone, that's going to make much more of an impact when you're in that 15 to 20% IRR threshold area.

And one key point here is that this chart really drives home how the market conditions have changed for developers in that there's been a 35% increase in total project costs.

And as Lee was saying, most of that is not due to MHA.

MHA costs went up a little bit during that period as well.

But the other costs really ballooned during this period, which really raised the cost.

And the potential revenues have not raised the same way.

Uh, I see we have a question from council member Moore.

Thank you chair.

Um, so what are, what's included in the hard construction costs?

The reason that, well, two questions.

One is they say the MHV was 4.9% of total development costs in 2024. What was it in 2019?

And then also, um, the slide.

seven or 39. Conditions that have changed significantly since 2019 are new building codes for energy efficiency, increased costs, plus construction costs going up.

So I guess my question is how much...

A, what was the percentage of MHA for total development costs in 2019?

B, what are these hard cost constructions?

What are the hard construction costs?

And how much did the energy efficiency increase costs add to this picture as well?

So the hard cost construction includes all cost materials, labor.

It includes Washington State sales tax as well.

So basically everything you're paying to the general contractor to build the building.

That's obviously, as you mentioned, impacted by the energy code.

It really would depend on the type of construction.

We didn't necessarily study exactly how much The energy code has to do with it because it's not just Seattle city code.

There was also state code.

And you ask five different general contractors, they'll give you five different answers.

And that's not to malign them.

That's just every project is designed differently.

Every unit has different needs.

How many bedrooms, how many bathrooms on a per square foot basis.

Sorry to sound like I'm hedging, but it's a bit of a difficult question to answer.

But general contractors would give a better answer on that.

Okay, thank you.

As you saw on the chart earlier on, like construction costs outside of energy codes went up significantly.

We show that they went up 70% between 2015 and 2024. So a lot of it is just the non-energy code related increases in construction costs.

But I think it would be helpful to have that breakdown because basically we're talking about a difference of $6 for MHA, which is a significant piece of how we're able to build and provide affordable housing.

And sort of the underlying argument here is that $6 is what's tipping us and leading the city to back away from its commitment to MHA.

And I think we need to be looking at what are the other costs that are contributing because The development of affordable housing, in my opinion, and I'm sure in the opinion of my colleagues, is as equally important as sharing that we have energy efficiency.

And yet we've determined that energy efficiency is a cost that we will require our developers to absorb.

So I think we need a policy discussion about whether we think $6 to ensure that we continue to have affordable housing in this city is a cost that we think is appropriate for our developers to absorb and reduce their return on investment a little bit.

And I guess I'm unconvinced that the $6 is really, across the board, going to be the thing that prevents affordable housing, particularly when you look at, you say, on your next slide, there's no clear evidence that housing production declined in Seattle following adoption of MHA compared to peer and neighboring cities.

So Chair, do you mind if I address those comments?

No, absolutely, please do.

I would just like to be really clear.

We do not consider our position on this as backing away from MHA.

As we explained earlier, we are proposing to expand MHA area by 21% with the up zones in the neighborhood centers and along the corridors.

So this is consistent with past city practice and policy.

What we are not recommending is to apply MHA in neighborhood residential zones for a variety of the reasons that Jeff walked through earlier.

But some of those are, as we are seeing, this is a really difficult environment right now for housing development.

And we want to make sure that the infill that we hope to see under HB 1110 has the support that it needs to happen.

We see from the Eco Northwest report that only 19% of parcels in neighborhood residential zones will actually be feasible for HB 1110 type development.

So we really don't think adding on additional fees like MHA make a lot of sense in small scale development.

So this lead up in here is the evaluation and was not actually part of our reasoning or rationale that the last couple of slides we've been talking about.

I think the point Burke and Hartland are trying to make here is that overall, MHA has not had a negative impact on housing production in the last five years in the areas where it's been applied.

And I think that's their central point, but they'll get more into the impacts on low rise.

And there has been some negative impacts to low rise from MHA, which is of concern to us because that very closely tracks to the kind of development we're gonna see in neighborhood residential.

Do you mind if I address the $6 a square foot just to clarify that?

Because I understand why it's presented a little confusingly.

And we are not saying that that $6 is having a dramatic impact.

We're saying that having a fee in general, be it $22 in 2019 or $28 a square foot now, on the margins could have an impact on a developer making a decision in the current market dynamic.

Those fees were set in a different dynamic.

in 2017 through 2019, and now you have a different one.

So if you look at one of the recommendations that Krista had mentioned earlier and which we'll get to later is to maybe revisit as conditions evolve how to set that fee so as to continue to have the MHA fee but not inhibit the creation of market rate housing that is needed to generate the fee.

I just have a quick clear.

One second, Council President Nelson.

Did you have a follow-up, Council Member Moore?

Yeah, I just think that we have a disagreement here.

I see that we have an opportunity to actually expand MHA thoughtfully to neighborhood residential.

And I do feel that there is a backing away from MHA.

There's a talking about recalibrating the fee across the board, not just to smaller projects.

I'm pleased to hear that the executive is fully supportive of MHA and is not backing away and is looking for opportunities to expand it.

And I just think that we need to work together to look at how we can...

We're going to open up this city to tremendous development and density, which is good, but we need to make sure that we're utilizing all our tools.

And MHA is a powerful tool.

It can be tweaked, but...

To just simply say it shouldn't apply across the board, in particular neighborhoods, I think is a missed opportunity.

And again, it's a calibration of what are the costs that we consider valuable in this society.

Thank you.

Thank you, Council Member Moore.

Council President Nelson.

So you're saying that the original fee was between 2017 and 2019 was 22, and then it went up to 28 and hasn't been changed.

Is that correct?

Yeah, that's on average.

I mean, as you saw, and there's low fee zones and high fee zones.

The average in 2019 was $22 a square foot.

It has gone up, and that's not been a change in legislation.

That's just the inflation inherent in the fee setting.

So the $22 increases every year.

from 2019 to 2024 based on the inflationary index that was set in the legislation.

Okay.

Thank you.

Awesome.

Next slide.

All right, I'll take this one.

So we referred to this a little bit earlier.

The one thing that we did was look at building permit activity over time in Seattle, compared to a number of different peer jurisdictions around the United States.

We looked at different jurisdictions that had inclusionary zoning programs like MHA in place and some that didn't have those programs in place.

What we found was that market conditions have changed everywhere and you're seeing some fluctuation in the amount of development And there wasn't clear evidence that Seattle was responding in a fundamentally different way than the peer jurisdictions, with a few kind of isolated exceptions.

In general, the way permit activity was fluctuating in Seattle was similar to other cities, regardless if they had inclusionary or not.

This chart here, another thing that we did is we looked at Seattle and compared it to the remainder of the King County region.

One reason we did that was kind of a hypothesis that, well, if the fees in Seattle were a huge disincentive to development over this period of time, then you might expect to see some of the local and regional developers that would build multifamily housing in Seattle, perhaps moving and building more in Bellevue or Redmond or somewhere else, right?

And this chart here just shows over time units issued in multifamily building permits, comparing Seattle, which is that pink line, which turns into kind of orange over time as the fee set in just to kind of indicate when the new MHA was put in place.

So you could see that on the timeline.

And then that blue or black line there is the remainder of King County.

As you can see, there isn't a really clear trend.

They're kind of moving in parallel there.

If you look at an individual year, you might be able to see some differences.

But in general, we're not seeing a really clear evidence that there was a big shift.

And all of a sudden, there's more development in the rest of King County compared to Seattle.

That's not like positive evidence that MHA's had no impact in Seattle.

It's just showing that we're not seeing clear evidence that there was a shift to other areas or that Seattle really responded very differently than other cities.

Does that make sense?

I'll start with this one and then Kevin might chime in as well.

So this is talking about low rise, getting into a different housing typology and starts to get closer to that discussion between the LR zones and the NR zones.

The low rise housing production has shifted to the neighborhood residential zones following the adoption of MHA for a variety of reasons.

We did note that there was ADU reform in 2019 that passed almost around the same time, and that definitely had an impact.

But prior to MHA, townhomes were the predominant form of development in low-rise zones.

You were allowed to do stack flats of a certain height of apartment buildings, small apartment buildings, but townhomes were the predominant form.

The up zone provided in the LR zones provided limited value for townhome developers.

There's not many developers that would build a four-story townhome It's not necessarily something that the market is looking for.

But the MHA requirements increased costs.

There have also been other increase to townhome costs that are very building code specific as well that have negatively impacted that.

So we wanted to note that.

But on a low-rise project, the MHA fee, while it's the same per square foot in a low fee, medium fee, high fee, compared to a mid-rise project, as we were talking about before, on a smaller project on a per square foot basis, it has more of an impact, especially on smaller developers that are paying that fee.

As noted, in 2019, Seattle adopted the ADU reforms.

That enabled a new low-rise housing product type in the NR zones where MHA is not imposed.

And while those are a different product type, there's more detached in those zones and not townhomes per se.

A lot of the builders that are building the product are the same.

So they're making a choice, do I want to build in the LR zone or do I wanna build in the NR zone?

And they have voted to go to the NR zones with their projects.

So the combined impact of these changes, yeah, has prompted that to happen.

Yeah, so the idea is that there's, you know, a cohort of developers of townhomes.

They kind of specialize in this product.

In 2019, there's new fees in the low-rise areas, and there's no fees at all in the neighborhood residential.

there was a change in regulations around accessory dwelling units to let them build a very similar product type.

So what we're seeing in the data and the charts here, and I'll talk this through, is that there was a shift in low rise development in Seattle from majority of it being in MHA zones, which were subsequently turned MHA.

So if you look at the top chart there, the black line, is the amount of units in low-rise projects that were in zones that became MHA zones when we passed MHA.

And you see that, you know, it's trucking along pretty well.

And then around 2018, 2019, when MHA starts kicking in, it starts going down pretty precipitously in terms of the units permitted each year.

In the blue line there, those are low rise projects outside of MHA, that's predominantly the neighborhood residential zone.

And it's much less in terms of the total unit count over time, but then starting in 2019, it starts launching up, right?

So you're seeing, you kind of see this shift where the lines cross.

In the latest year, you know, the numbers go down, Everywhere, and that's because conditions have declined in Seattle, as well as just things take a while to get through the permit pipelines to show up in our data.

The bottom chart there breaks down just the net new units in these low rise projects that are outside of MHA areas.

So where MHA does not apply, it's just showing what types of units were being built.

And this just reinforces the point, the orange and the pink ones there are looking, those are projects with ADUs, primarily in neighborhood residential lots.

And we're seeing a big explosion in that type of thing compared to historic trends.

So there, you know, more evidence that there was kind of a shift to that new building type.

And, you know, the differential is particularly acute in the LR1 zone where there isn't as big a difference between what you can build now in neighborhood residential and the LR1.

And, you know, with the kind of changes to HB1110 in the future, that differential is going to be even less, right?

So there would be even more incentive to see this type of shifting to neighborhood residential.

Let me see.

OK, now we're going to shift to impacts to affordable housing.

So what did MHA get us in terms of affordable housing over the last several years?

First, this is revenues.

So MHA generated significant revenue for affordable housing But it's expected to be a smaller share of Seattle's future affordable housing funds as other funds increase.

So we're seeing, you know, this is data from the Office of Budget here.

And you'll see that particularly like 2020, 2021, MHA was like the dominant source of funding for affordable housing and it created a significant amount of funds, 2022, 2023, but you start to see it declining and the projections moving forward from the budget office based to what they're seeing is that it's going to be a much smaller share, you know, 25 million a year, 20, 22 million a year.

And during that, you know, the same period, these other sources of funding, the jumpstart, which is payroll expense tax pet in this chart is the jumpstart tax.

as well as the levy, the increase in the levy is providing significantly more resources.

So moving forward, MHA is expected to provide a much smaller share of the total revenues for affordable housing.

And as been mentioned earlier, the payment revenue, so developers that pay the fee, that money goes to the Office of Housing, and then they leverage it.

by contributing to affordable housing projects across the city.

And as we heard earlier, those contributions, the buildings that have received those contributions have included over 4,700 units over that five-year period.

I think it's 2017 to 2023, actually.

The 2024 numbers aren't in yet.

So during that five-year period, There is 4,700 units in those buildings.

But as this chart shows, you know, what does leveraging mean?

So this is just one example of affordable housing project in Seattle.

And you can see the various sources of funding that go into making that happen.

In this particular case, MHA provided a little over $11 million in a project that was close to $100 million total.

So it's significantly leveraged, and it creates an important contribution, but there's several other funding sources that go into each of these projects that make up the full 4,700 units that MHA has been leveraged to help create over time.

And this slide gets into kind of the what are developers selecting payment or performance?

And as discussed earlier, 95% of the projects subject to MHA are selecting the payment option rather than building affordable housing on site.

We did a lot of developer interviews as well as doing our own modeling based on inputs, and the developers reported challenges associated with financing, with marketing, management, and reporting requirements associated with the performance option.

And it's important to note that this is feedback from those who actually chose to perform.

This wasn't those who were maybe necessarily afraid to perform.

We wanted to get kind of input from those who had gone through the experience.

It's also interesting to note that there's variation in outcomes by product type.

So within the mid-rise projects, close to a quarter of those projects had picked the performance option.

So within the mid-rise building typology, performance has been a more viable option for many reasons, but nearly all of the low-rise and high-rise projects selected to pay the fee in lieu.

High-rise being often because high-rise projects are the highest rent buildings, in the city.

So the kind of the delta, the difference between the rent and their performance rent would be greater.

And the upside to investors would be smaller if they chose performance.

That's likely the reason there.

And with low rise, more likely just being because those are predominantly townhomes.

So they're going to be choosing the payment as opposed to the performance.

But yeah, in a total, 404 new affordable rental units have been produced by the developers that selected performance option.

This is a map that I referred to earlier that maps out every project that was subject to MHA.

So all the multi-family development that was happening in these zones where MHA was in effect over the past five years.

The little white dots are the ones where they selected the payment option.

The blue dots are the circles where they selected performance, and the green triangles there are projects that were funded in part with MHA fee payments, so contributions from the Office of Housing using MHA fees.

The map shows that there's been a big dispersion of them across the city.

As I mentioned earlier, there is a lot less development at the periphery where more of the low fee areas are.

The colors here don't refer to the fee areas.

The colors here actually refer to Seattle's Access to Opportunity Index from the previous comprehensive plan, looking at areas where There's more resources.

It was a way of looking kind of equity outcomes across the city and where areas where there's more access to resources that help people thrive.

So there's high, medium and low.

And one thing we did in the report was kind of look at, you know, was there some pattern in terms of like performance units being more likely to be built?

higher opportunity layers or lower opportunity areas are the payment funds, where they go into projects in lower opportunity areas of the city or higher.

What we're seeing, what we found was that the payment units that were built with these funds were just as likely or more likely to be put in the high opportunity areas compared to market rate development, as well as compared to the performance projects.

And I believe we have a question from council member Moore.

Yeah.

Thank you chair.

Um, if we, I'm sorry, if we could go back to the prior slide, um, Oh, so you said the developers report challenges associated with financing, marketing, management, and reporting requirements associated with the performance option.

Can you, do you have more specifics about each of those issues and, you know, what was the particular problem?

Do you have recommendations about how those particular problems could be addressed?

I can address, I'll start with, I mean, financing, and it's not all developers.

There's somewhere it would work, but financing includes the investors who are looking to invest in the project.

And when you are limiting a certain, the upside of a certain percentage of apartment units, there are certain investors that just won't want that.

They're going to want the higher returns associated with What if we get a 10% rate increase?

What if we get all these different things that make this building take off?

So it just limits the number of developers interested in doing that.

That being said, especially with impact investors, there are definitely ones who would want to perform.

Marketing and management, that's kind of tied together.

And a lot of that, and this is feedback, not necessarily our opinions, this is feedback we receive, is that the marketing and the management that kind of the expertise to operate a building, there's a difference between managing a building that's predominantly very low to low income renters and those seeking the highest luxury rent amenities.

And it's been a challenge to kind of successfully lease up each of those independently and make the building work for all.

They found it logistically challenging.

feedback from developers that tried the performance option were, you know, supportive of the performance option and really describing some of the challenges that took place and some of them saying, we're not going to take that option anymore.

And so when you talk about management, were the challenges relating to like landlord tenant laws and what they were seeing with the tenants, some problematic behaviors there that they had to manage?

Kind of some of all of that.

I mean, it was, uh, in general, the property managers, there are property managers, they're actually very used to the MFTE kind of paradigm of an 80% AMI renter.

And there's a different kind of level of services that might be required for folks who are moving into housing that maybe have not come from as much of a stable income background and versus those looking for the highest level of finishes and the highest quality amenities, et cetera.

And the property managers are, there's different specialties and expertises in marketing to folks in all income bands that want to live in a building.

And they've found that a challenge.

If I may ask another question.

Yeah, that's very interesting because anyway, to the next slide, you were noted that you said the location affordable units are just as likely to be in high opportunity areas when compared to market rate units.

But in looking at District 5, that doesn't really seem to hold true.

It seems like a lot of them are in low and medium opportunity areas.

So as opposed to like when you get down here to downtown and parts of Capitol Hill-centric district.

So I just wanted to point out that in District 5, where we're getting a lot of affordable housing built, it is sort of being...

What's the word?

Concentrated in areas that are not as accessible to opportunity.

We didn't break it down by district in the analysis.

We were looking overall citywide and what were the kind of impacts of the OHS policies for located in them citywide.

I think district five has more areas that are lower opportunity just based on how the index was calculated.

So I think that's probably part of what you're seeing.

And it probably applies to the market rate stuff as well.

There.

Well, it'd be interesting to see, although I'd see like you've got it high over here, over by, yeah.

District five is more challenged.

Thank you.

All right, we'll move us along here, unless there's questions.

OK, so we were also asked to look at policy recommendations.

As we've said, this is a backward-looking report looking at the outcomes of the of the program over time.

We weren't trying to kind of provide recommendations on exactly how to tweak it moving forward, but there are some findings from the report that we thought were relevant to the city as they look at ways to improve the performance of MHA in terms of meeting its goals of generating revenue for affordable housing and not impacting the production of housing overall.

These recommendations take into consideration the fact that MHA is only effective if Seattle continues to have a healthy market rate housing production environment.

It only generates affordable housing if developers are building housing overall.

So ensuring that the city continues to have the conditions that are encouraging of market rate housing production will will create more revenue for MHA, just that's how the program is designed.

So we have a set of recommendations that are, you know, keep that in mind and are looking to continue to create those conditions.

And the first, which we've discussed a couple times already, is to regularly calibrate the MHA requirements to align with market conditions.

There was a lot of thought and study and consulting work put into setting those fees up front, and there's a formulaic annual adjustment of those fees now since 2019. There hasn't been a new study to reset them or recalibrate them.

They've just been increasing per inflation.

So one of our recommendations is to consider replacing that formula with regular studies to recalibrate those fees based on market conditions.

And then those studies could consider how development feasibility for prevailing housing product types in different zones and in different areas of the city.

So there's a lot of nuance to it.

As you've seen, there's difference between low rise and mid rise and high rise.

And yeah, the paradigm's constantly changing.

And the second one is to adjust the timeline of MHA compliance requirements to lessen the impacts to project feasibility.

Currently MHA legislation requires that the fee payment occurs pretty early in the development timeline, and that's before a lot of all the project financing has been secured, so the construction loan maybe some of the equity that's allowing them to build a project.

This is definitely more harmful and impactful to smaller developers who don't necessarily have that equity to pay that fee.

For example, there was...

One developer we had spoken to and they were developing a high rise project that had certain programmatic requirements so they couldn't choose performance.

And this is not a large developer that just rolls through projects.

And it was a high rise project.

And the fee would have been close to $10 million.

And they would have been a year away from when they would have been able to close on a construction loan.

or receive typical equity.

And that's a real challenge for them.

And they had to jump through a lot of poops.

And that might be an outlier, but that applies if the fee is $3 million, $4 million.

So if you move that fee to something closer to when revenue is generated or when typical debt or equity comes in, that is likely to maybe attract more developers to be interested in paying the fee.

With some of the suggestions, you could tie it to another milestone, such as a certificate of occupancy or the actual building permit issuance, which is a lot of the times the last step needed to procure project financing.

I believe we have a question from Council President Nelson.

It's an affirmation, actually.

I hear about when the fee is due often, and basically you're asked to pay before you have any money.

And maybe I believe that permit issuance would be fair, not necessarily when people start moving in and paying rent, of course, but permit issuance.

And perhaps that could better align all of our policy goals to accelerate when we might get that check if permitting goes really smoothly.

Yeah.

And then this third recommendation is to continue to provide options for complying with MHA requirements to support development feasibility.

So as we noted, nearly all developers are selecting payment over performance.

Heartland's modeling shows performance typically results in a lower IRR across product type, across fee zones, et cetera.

We discussed the qualitative factors that developers are finding discourages their selection of their performance.

So there's potential actions by the city to encourage performance over payment.

such as raising fees would have likely, if you raised fees to make it, bring it more into PAR, that would likely have the impact of reducing development overall.

And we're not recommending that.

Yeah, we are not recommending that.

And this last recommendation.

Before you go to that slide, I apologize.

I got to be quicker when I see someone's hand go up.

My apologies, because I'm assuming your question is about the previous slide.

So Council Member Moore has a question.

Yeah, not so much a question as a statement.

I mean, I just, I guess I would push back a little bit on this conclusion that when you say potential actions by the city to encourage performance over payment would likely have the impact of reducing development overall.

I mean, I think that you yourself have identified a lot of other challenges that go into why people are choosing in lieu over performance, and that being, again, financing, marketing, rental management challenges, which the city across the board is undergoing, and reporting requirements.

And additionally, I think somewhere else you talked about administrative burdens, and we hear that from all providers, that there's too many administrative burdens.

And also the performance isn't about raising fees.

It's about requiring that there be, you know, one unit be affordable within 60 or 80 percent or even higher AMI.

So I just think that we need to...

I'm going to push back on that a little bit and say that there's a broader set of factors that are going into consideration around performance, and I think it would behoove us to have some more detailed discussion about how do we actually address those other pieces of that discourage performance aside from just the monetary piece, and how do we work with financing too to provide sort of the assurances that some of the other banks and financers might need to have.

I mean, that's part of why we're dumping the money in the front end, right, is to show that the city is behind this project and we're going to support it.

Well, maybe we can do a similar sort of outreach for performance.

So thank you, Chair.

Absolutely.

All right.

I'll move on to the last recommendation here.

which is to evaluate other options for incentivizing multifamily housing production in Seattle.

Again, our actions the city can take to try to make it easier to develop, particularly given the current more difficult market conditions.

So one is to eliminate design review requirements and streamline permitting timelines for all multifamily housing projects subject to MHA.

I believe we do this for performance units, or Seattle does this for performance units now, or performance projects now, and our recommendation is to expand it to all multifamily housing projects that are subject to MHA, so those doing the payment as well.

That provides more predictability for developers and reduces risk and reduces cost.

Implementing future zones without additional MHA fees or requirements.

and allowing developers to count the MHA performance units, so those that are choosing to perform under MHA, using those to count towards MFTE.

So basically allowing them to layer MHA and MFTE requirements to get that incentive of MFTE.

the property tax exemption on that part of the project in order to make perform...

To answer your question, Council Member Moore, that would be one good way to encourage...

One thing the city could do to encourage performance overpayment is by allowing those performance units to count towards the MFTE requirements.

We did not model a lot of those things out from a feasibility perspective.

These require additional evaluation.

And I understand that's an idea that is being discussed as part of the state TOD bill.

So that's one of the areas that the mayor mentioned in his letter and that we flagged on the slide that we would be interested in looking at under maybe some select circumstances.

But again, some of these things that we're interested in looking at are exploratory.

Others are, I think we think are definitely a good idea, like more regularly calibrating the fees to align with market conditions.

As this presentation showed, market conditions were really great for housing at the start of MHA's inception.

And now the market has really become much more hostile to building And we really wanna do whatever we can to support more housing in the city.

And those levers that are within the city's control, we wanna make sure that those levers are in support of more housing production.

And I'll just close my comments by saying that the state growth targets that we received show needed housing at all levels of income.

And actually, the largest single category is for housing at 125% AMI and above.

And so we need more market rate housing.

We need more low income housing.

We need more subsidized housing.

But I think, in general, our position is to be as supportive as we can.

And zoning alone isn't going to get us there.

So zoning is the start of what we need to do to support more housing in the city.

That's our pitch for how we would recommend approaching the expansion of MHA.

Thank you all so much for the presentation.

I know now I would love to open it up to more questions.

And I see Vice Chair Solomon, you are recognized, followed by Council Member Rivera.

Thank you very much, Madam Chair.

Looking at the fourth recommendation, eliminating design review requirements, streamlining permitting timelines, got no problem with streamlining the permitting timelines and accelerating those to bring some units on to, you know, bring those units online as quickly as possible.

Tell me about the eliminating the design review requirements.

And the reason I'm asking is in my previous role, I would have developers come to me, show me their plans and say, hey, can you take a look at these from a safety and security standpoint?

And I would provide recommendations basically to eliminate safety and security problems before they happen just by asking them to make some tweaks in the design whether it's making sure that the lighting plan and the vegetation plan didn't conflict with each other talking about access control things lines of sight those kind of issues so if there's no opportunity to review the design of the project, how can we work to ensure that safety and security issues don't crop up?

Or am I am I getting something's messed up here?

Yeah, I that that as we noted, this here, these are things that will need to be evaluated.

wasn't necessarily something that was studied specifically.

A lot of the reason from an economic perspective, which is a lot of what this study was looking at from an evaluation perspective is the length of time from design review and the uncertainty of that is impactful and something within the city's control, but obviously would need to consider those more qualitative elements that you're discussing.

And to be clear, eliminating design review wouldn't eliminate safety-related building codes and whatnot.

Developers are still required to build to the standards that Seattle sets for them.

Design review is a more qualitative process of reviewing buildings, and that's what we're referring to.

Okay.

And again, the reason I bring this up is there are many cities...

throughout the country as well as many jurisdictions in Washington state that have crime prevention through environmental design guidelines baked in the code.

Seattle's not one of them.

And that's something personally I want to change, to have somebody with the SEPTED lens looking at these plans before they break ground so that we can design out problems before they begin, right?

So that's why I was asking about the design review because I look at that as the mechanism by which to have that person with the CPTED lens looking at those particular plans.

I think about Tampa, for example, their design review board, you know, all the different reviewers, there's a guy that's CPTED trained that is part of that review panel looking at those plans.

And that's my vision for what we can possibly accomplish here.

So that was it.

Thank you.

Thank you.

We just want to add one quick thing on this topic of design review and note for the council that one of the state laws that passed requires cities to have clear and objective standards for their design review.

And so that's one of the updates that is coming forward with this kind of broad package of changes.

SEPTED is super important.

Thank you for your comments, Council Member Solomon, and we would hope that those concepts could be integrated into clear and objective, um, um, design standards, um, or in another way in the review of a project, um, outside of the design review framework.

Thanks.

Thank you for that.

Uh, council member Rivera.

Thank you chair.

Uh, thank you for the presentation.

I'm wondering there, um, a handful at least of other cities that have mandatory inclusionary programs.

And so as part of this evaluation, Did you compare, did you look at those other cities and see how well, how do we compare with those cities and how well their programs are working to look at best practices and sort of, are they doing better than we are?

If so, why?

We didn't do a detailed look at how the inclusionary zoning what the requirements were, like a more detailed look the way we did for Seattle.

But if you recall early on, we did talk about a comparison of building trends over time in Seattle with a number of peer jurisdictions.

I didn't show a chart.

There's more material in the report to look at there.

But we did look at several different peer cities that had inclusionary zoning programs that kind of came online during this period or that had been in place for a long period of time.

and compared those kind of building trends in those cities to Seattle, and we also had another kind of cohort of pure cities that have no inclusionary zoning requirements at all, just to kind of see how do, you know, are we seeing anything kind of fundamentally different in terms of building, permitting trends over time?

So, would love to see those comparison charts, if you have them.

They're not in this presentation.

They are in the report.

I'll look for those.

And then also, I do think, though, that as part of this evaluation, I think it would have been helpful to have a look at those other programs and, you know, how do they differ from ours?

And were there off the top of your head any that, on the housing production side, they're doing better than we are when you were doing those charts, when you were looking at?

I don't recall if there was a city with inclusionary zoning that was doing significantly better than Seattle.

I didn't see that happening.

One kind of, you know, talk about, like, the differences between the programs.

Like, one thing we did look at, because the city was really interested in this, was, like, do other programs have any sorts of thresholds with regard to, like, you know, I think in Portland, it's, like, anything built under 20 units does not have any inclusionary zoning requirements.

Anything over 20 units has more.

So that's, like, an example of a pure city that has a similar program that has one really important difference in how it's implemented than it's implemented in Seattle, and that has an impact on production trends there.

So there's differences like that that we talk about kind of briefly in the report.

That was one of our key evaluation questions though, was to look at other cities and stuff.

What's frustrating about that exercise is the devils in the details.

And these programs are so technical and so differentially created that it's really hard to do an apples to apples comparison.

But for us, the threshold question certainly stood out seeing that a lot of cities just apply instead of like just doing it around certain zoning, they just apply it citywide and then they have a threshold exemption for low scale development below a certain level.

And that didn't seem to have make a difference, it sounds like, in terms of their production.

Well, all these cities have different market conditions and things like that.

So it's hard to, attribution is really hard when looking at the impact of MHA along with all the other factors.

Did you all talk to any of those cities to see what they, in their evaluations of their own programs, what they thought?

Like we're evaluating ours and where you've pointed out some things to look at, to consider for, tweaks to make it work better.

Did you talk to those other cities to see if they've evaluated theirs and what they found in their evaluations?

No, we didn't do interviews with other cities.

Thank you.

I do think that would be there would be some benefit to that.

I think anyway.

Thank you.

Awesome.

Thank you, Council Member Rivera.

And then we have Council President Nelson, followed by Council Member Rink.

And just want to clarify that Council Member Solomon and Rivera, those are old hands.

So Council Member, got you.

No worries.

Council President Nelson, followed by Council Member Rink.

One of you mentioned something about, you mentioned building code.

And so, and I think that was in the construction costs, et cetera.

We really do need to look at building code changes as well.

I mean, this is a little bit off topic, but here we're talking about incentivizing multifamily housing.

And that is a crucial area and it wouldn't necessarily fit in this legislation, but because you mentioned it, I would like to know offline what building code changes Would you suggest that, you know, that could be made that don't run afoul of the Safety Standards Board or whoever?

Because remember when we used to talk about micro-units and appodments back in the day?

Does anybody know why those aren't being constructed as much?

Well, I have a...

I have been told that it's partly because of a very obscure rule that was imposed, 7D-7, that it's about how the actual rooms have to be configured, and I was told that that is a huge barrier because of the necessary irregularities in some of these housing units.

we have to make sure that we're not disincentivizing any multifamily housing types.

And so if there are changes to building code changes that we could consider, please just let my office know.

Thank you.

Awesome.

Thank you, council president and then council, council member rank.

Wonderful.

Thank you, chair.

A couple questions, one of them a little bit related to what I asked earlier, but I think it's worth noting.

My staff just notified me that Senator Bateman, who was the original sponsor of House Bill 1110, just provided a statement citing that cities are prohibited from imposing restrictions on middle housing if the restrictions are more onerous than required on single-family homes.

Would this prohibit the city from applying MHA or other affordability requirements on middle housing?

That's a good question.

And we can take a look at that council member rank.

I mean, we haven't because we're not recommending expanding MHA, but we will take a look at that.

Well, thank you.

Certainly appreciate it and would love to follow up on that.

What actions can we take to mitigate the fact that when market rate developers have to pay in the MHA fees, they then pass this cost off on new housing they're building, thus making the cost of housing more than it would have been without MHA fees?

I'm sorry, could you repeat the question?

What kind of mitigating actions can we take when we're taking into account when market rate developers are paying MHA fees, they can pass this cost off onto the new housing they're building, which can bring up the cost of housing.

It would have been without an MHA fee.

Yeah, I can't think of any way where we might be able to get at that.

I'll look to Jeff, who's been in this mix for longer than me on MJ.

That's a great question, and there are trade-offs, but one strategy that the city is doing with the One Seattle Plan update is to expand the housing supply overall.

I mean, that's the overarching sort of North Star is to add places where we can build more housing.

and increase supply.

So that's not going to cause prices to go down likely, but we know that increased supply moderates rent increases and, you know, attenuates those.

So if we increase the supply overall, you know, there's some factors on multiple sides of the lever there.

Even if we had MHA, you know, if you're increasing housing supply dramatically, you know, there are different effects on the overall cost of housing.

But underscoring that overall increases to supply are, in our view, very important.

Certainly, and our office shares that view as well.

Thank you for that.

My office has been hearing about MHA fees are being due on permit issuance, which typically requires developers to borrow funding to cover the payment for during the duration of construction.

And my office has also been informed that this typically adds 12 to 18 months of interest fees on said loans and can inflate costs imposed on new housing construction, which then can be passed on to the consumer.

Any other ideas on how we can mitigate this?

So that's one of the areas we want to look at that was flagged in the mayor's letter.

We're definitely interested in trying to reduce the cost of financing associated with the fees for MHA.

Thank you.

And I'll close.

Thank you for fielding my questions.

As was noted in the 1110 middle housing report from OPCD, it's important to our office.

It's really, we find it essential that we follow OPCD's recommendation that the city should not extend MAJ into NR zones.

This would reduce middle housing and stack flat feasibility and would raise the price of new market rate housing above the affordable level for the median household.

And with that, thank you for the time.

Thank you, Sarah.

Thank you, Councilmember Rank.

I do see another hand.

Councilmember Moore, you're recognized.

The floor is yours.

Yeah, thank you.

I mean, I guess we just need to keep going back to what was concluded here, which is that MHA is only one of several factors that have negatively impacted market conditions.

Other factors have had bigger impacts, noting again that what's happening in Seattle, even though we have MHA, isn't really different than what's observed in other jurisdictions.

Again, the idea that just building will increase affordability.

I think we have to continue to remain clear that there are two types of affordability that we're talking about.

We're talking about big A affordability, which really does require some sort of government funding, either through bonding or through an MHA program or an MFTE program.

And then the smaller affordability, which is about, that you do get when you have more density and greater supply, like when you have more townhouses or ADUs, instead of paying $1.2 million, you're paying $750,000.

But also part of that is utilizing that money be the way that we help fund the need for the affordability.

And I just want this figure to be out here because I think it's important in this discussion, which is that, excuse me, where does it go here?

So in the mayor's proposed comprehensive plan, Seattle's projected to need 62,000 units affordable to households at or below 50% AMI by 2044. 62,000 units at or below 50% AMI.

So we have PET, we have the housing levy, but even with those we're not going to come close to meeting our need.

And so it's important that we continue to to keep that in mind when we're building.

So we can zone for all sorts of supply.

The figures show that even when we zone, the building isn't happening, and there's building in two different places.

And we are not going to get what we need for the 62,000 units at 50% AMI by simply closing out MHA, the opportunity to utilize MHA as a tool in these other neighborhood residential zones because we're not building, yes we need market rate housing, yes we need to look at 120 and above, but where the greatest need when you talk about human need for housing is at 60%, 50% and below for the human need for housing.

So I just think it's important that we continue to be mindful about what are the different types of affordability we're talking about, how are we building to meet those different needs of affordability, and utilizing all the tools that we have and not cutting ourselves off.

We talk about this in the public safety arena all the time, about having as big a tool bag as possible.

I think we need to have the same analogy for our housing needs as well.

Thank you, Chair.

Thank you, Council Member Moore.

I don't know if there are any other additional questions or comments from our presenters.

Y'all are looking at me like, no, thank you.

Thank you for having us.

No, really appreciate it.

I know it was a lot of information today.

It was very well received for us to receive this so we can get information and just understand where we are.

in the process, and I've mentioned this before, one of the things, I know we're heavily on talking about new development, new development and developers, but one of the options, and people have options today, but one of the things, opportunities that we have with the comprehensive plan too, is to talk about conversions for folks, and for us to streamline that process for permits, to give better technical assistance, to improve our water and electricity hookups and the time it takes for that to happen with utilities and just do a deep dive in all the costs that it takes for a person to convert their home and what the city can do better to streamline that.

And then I also know, is that an old hand, Council Member Moore?

That is, that's okay, sorry.

I thought you had more, no worries.

I thought you had more, Council Member Moore.

And so, and also we also know that it's gonna be a big anti-displacement tool for people when converting their homes and adding more density to their neighborhoods and generational wealth and continuing to keep, you know, multi-generations in this city for folks.

And there's a lot of people that wanna age in place and I can't begin to tell you how those are conversations my family is having with my parents and how they're gonna age in place and what does that look like and my mother having a disability and helping physical disability and providing opportunities for her to stay in her home.

And so these are questions that are being asked right now, especially to our community, our families.

There's a lot of people that live in red line areas that have, when they're trying to develop their properties, they have MHA fees potentially.

because they are not in single family homes anymore, they're in L1s and they're in different zones.

And so these are all questions that I think we can address during the comprehensive plan to make building easier for everyone in our city, not just developers, but people that want to convert their homes.

And that's the one thing that I'm, really happy about us being able to address as a council, not just new zoning, but for other people doing those conversions, because that is like one of the coolest ways for people to be able to add density to neighborhoods, stay in their home and provide opportunities for other families as well.

I always call them some of the original affordable housing providers that just wanted someone great in their backyard or their home and they would keep rents low all the time because they were living there.

So anyways, just wanted to throw that out there because I think that's incredibly important when we're talking about a comp plan and we're addressing all these.

Is there any other additional information to come before the council?

Nope, no more interesting facts, okay.

I know we've, last one, this is a trick question.

Does anyone know how many stars are in our solar system?

This is a good one.

How many stars, anyone can guess?

One.

That is correct, there is one star in our solar system.

I don't know if you Googled that really fast, but there are over, in our universe, 20 billion trillion stars in our universe.

So just think about that for a second.

Okay, so thank you, everyone.

With that, we have no other items on the agenda today.

My colleagues, do you have any more items of business?

Seeing none, hearing none?

This concludes our March 28th meeting for the Select Committee of the Comprehensive Plan meeting.

It is 12.08 p.m., Just for everyone to know, our next select committee meeting is gonna be scheduled for Wednesday, April 16th at 2 p.m.

If there's no further business, this meeting will adjourn.

This meeting's adjourned, thank you.