Chapter 23.58A Incentive Provisions

Incentive Zoning: Another solution searching for a problem.

I just wrote about the concept of incentive zoning with an eye toward the regulation and economics of housing affordability. There is a lot to talk and think about on this topic. But I am going to do my best to cover the chapter in which the incentive zoning idea is laid out. There is a downtown incentive zoning program that is in a different chapter. This chapter is the product of the latest boom in growth in Seattle. It’s intention, I think, was to address the presumed market failure I pointed to in my last post. I don’t think it’s working, but let’s look at what it does.

First, the chapter is missing the refreshing intent language of the signs and communications chapters. Instead we jump right into it:

The provisions in this chapter specify conditions under which extra floor area may be allowed, as exceptions to the otherwise applicable floor area or base height limit, or both, subject to the maximum limits stated in the provisions of the zone and to all other applicable requirements and approvals.

The dial that gets turned up with incentive zoning is FAR, or Floor Area Ratio. As I mentioned before, FAR is a  perfectly logical way to try and regulate height, bulk, scale, and density but allowing for flexibility. But it is deeply flawed because it tends to create a box (or a bookshelf) into which new growth has to be crammed. The idea of incentive zoning in this chapter is to give more FAR to developers–the incentive–in exchange for concessions in how they price individual units.

In order to get this done the chapter establishes “base” and “bonus” language to talk about the incentive. A base FAR and height is established, and then, “allowed on condition that low-income housing be provided, or that a payment in lieu thereof be made” by the developer or person seeking a permit. Essentially, if I want to create more housing units above what I already can create given the zoning where my property is on the land use map, I can do that under the condition that I produce an agreed on number of units at a set monthly price per unit. A developer gets a “bonus” when they agree to produce a set number of affordable units.

How does the code define affordable?

1. In the case of rental housing units, households with incomes no higher than the lower of (a) 80 percent of median income as defined in Section 23.84A.025; or (b) the maximum level permitted for rental housing by RCW 36.70A.540 as in effect when the agreement for the housing to serve as affordable housing is executed.

2. In the case of owner occupancy housing units, households with incomes no higher than the lesser of (a) median income, as defined in Section 23.84A.025, or (b) the maximum level permitted for owner-occupied housing by RCW 36.70A.540 as in effect when the agreement for the housing to serve as affordable housing is executed

A developer gets the bonus above base FAR by producing housing that fits into a box set by Area Median Income (AMI), or more accurately a percentage of AMI. I won’t go too deep into the details on how AMI is determined. It’s essentially a collection of data that determines what income levels are for a particular area. Here’s what it looks like for the Seattle area.

Results of 2010-11 Area Median Income Search
HUD Income
Seattle-Tacoma-Bellevue, WA
Seattle-Tacoma-Bellevue, WA
Seattle-Tacoma-Bellevue, WA

There are a bunch of really obvious problems with this measure when considering affordability. I am going to resist taking on AMI as a gauge at this point. We’ll tackle the problems with this later. I also may have got my numbers wrong in another post, I was operating on the assumption that AMI was more like $50,000 a year in Seattle. That may be the case, since these numbers seem pretty high. But that’s one of the problems, where do we draw the AMI line? Arguably regional AMI is kind of irrelevant when we are considering growth because we’re not talking about the money being earned by people already living here but new people.

But let’s add another twist to AMI. Affordability in this country is determined by measuring monthly income against something called the Housing Cost Income Ratio (HCIR), which sets a normative standard for what’s affordable at 30 percent of monthly income. That is, you should pay no more than 30 percent of your monthly income on housing. Why? Again, I’ll cover this in another post, but the 30 percent has its origins in the idea that a person shouldn’t have to pay more than one weeks wages for housing. That number, 25 percent, got boosted sometime in the last century to 30 percent. Seems random, right? Well, that’s because it is.

It gets, well, more interesting. There is a “performance” or pay in lieu provision. I’m going to cover the performance option. Performance essentially means what has been called “inclusionary zoning,” a requirement that the developer produce the affordable housing as part of the project that is getting the bonus. The idea here, I think, is that a developer will consider just buying their way out of the requirement by offering cash to get the bonus. Sure the City gets some money, the argument goes, but no affordable housing.

What does performance look like. Here’s the best example. I quote it in full for effect.

An applicant using the performance option shall provide low-income housing with a gross floor area at least equal to the greatest of (a) 17.5 percent of the net bonus residential floor area obtained through the performance option, except that an applicant may elect to provide low-income housing equal to 10 percent of the net bonus residential floor area obtained through the performance option if the housing is affordable to, and restricted to occupancy by, households with incomes no higher than 50% of median income as defined by Section 23.84A.025; or (b) 300 net residential square feet; or (c) any minimum floor area specified in the provisions of the zone. The percentage of net bonus residential floor area obtained through the performance option to be provided as low-income housing may be reduced by the Council below 17.5 percent of the net bonus residential floor area to no less than 15 percent of the net bonus residential floor area as a Type V decision on an official land use map amendment or text amendment when the Council determines that the reduction is needed to accomplish Comprehensive Plan goals and policies or to reflect economic conditions of the area. Applicants may provide low-income housing as part of the project using extra floor area, or by providing or contributing to a low-income housing project at another location, subject to requirements in subsection 23.58A.014.B.5 of this section and approval in writing by the Director of Housing prior to issuance of the first building permit for the development using the bonus floor area.

I am trying so hard not be snarky here, honest. But really? What magic happens at 17.5 percent of the bonus area? I hope someone out there can send me data pointing to that number is something based in rationality. I think this officially falls into the MSU category. 

Finally, the units created in the bonus area “shall serve only income-eligible households for a minimum period of 50 years from the later of the date when the agreement between the housing owner and the City.” Maybe the code should just have said “a really long time” rather than 50 years because, yet again, we’re talking random stuff here. Why 50 years? 

Here’s how it works. Take a base FAR envelope at a site. A developer decides they’d like to build more units in the project. They approach the City which sets that base and then calculates a bonus amount of FAR in exchange for producing (or paying for) affordable units on site. Affordable is determined by a 30 percent of AMI discounted down to 80 percent. The developer has to include these affordable units on at least 17.5 percent of the bonus area allowed as the incentive and keep those units priced at 30 percent of monthly income of a person making 80 percent of AMI for 50 years. 

I will say this, if the outcome of incentive zoning is to create units priced at 30 percent of monthly income of a person making 80 percent of AMI, then this program might actually work. If cranking out units priced a certain way is what we’re after–a kind of Rube Goldberg rent control mechanism–then the City’s Incentive Zoning Program could produce results, but only if there is enough money to be made in what’s left of the bonus area. Which, oddly, kind of puts upward pressure on the price of those units. 

But I will boldly speak the motivations of the Councilmembers and others who supported this: they were trying to solve the affordable housing problem. At least that was the stated goal. Is generating units at a set price the same thing as solving a perceived problem with housing price? Maybe. Maybe not.

Here’s my verdict for what it’s worth which isn’t much after all. 

There is no market failure in the housing market–there is no data out there I have seen that definitively establishes a market failure in housing in Seattle. We have anecdotes and we have frustration from those in the housing market that “housing is too expensive” in Seattle. But I reject the notion that there are scads of working families (making 80 percent of AMI) driving around Seattle looking for a two bedroom condo priced at 30 percent of their monthly income.

Poor people need help with housing and other costs of living–poverty is real. Let’s help poor people earn more money, get education, affordable health care, and affordable child care. Putting developers over a barrel to produce a product at a certain price point doesn’t do anything to solve the basic problem faced by many in this city who struggle to make their rent payment. That’s why Council should pass a mandatory sick leave policy. That’s going to help housing affordability much more than incentive zoning. 

What’s with the Puritanism Seattle?–There is stubborn and bizarre strain of Puritanism that poisons much of what we do when it comes to land use. It’s the idea that someone, some private developer is getting rich at the expense of poor people. There is no evidence of that. If fleecing poor people by building more housing was profitable I have no doubt that someone would do it. But it’s not. Here’s an interesting passage from an article about Weber’s theory of money and Puritanism best summed up in his The Protestant Ethic and the Spirit of Capitalism

Why were the Puritans so sure that money was a good thing? Chiefly because they believed that money and wealth were gifts from God. “If we happen to have inherited much property,” wrote William Perkins, “we are to enjoy those in good conscience as blessings and gifts of God.” John Robinson commented, “The blessing of the Lord maketh rich .… And as riches are in themselves God’s blessings, so are we to desire them for the comfortable course of our natural and civil states.” If money and property are gifts from God, Richard Sibbes could affirm, “worldly things are good in themselves and given to sweeten our passage to heaven.”

Ironically, it is not our sense of fairness that causes us to worry about who’s making money at who’s expense, but rather our profound sense that money is good. Therefore we, strangely, want to be sure that we are careful about who gets rich and why. The idea that a zoning change is going to line someone’s pockets drives some people crazy. It’s irrational. I could care less how much money is being made achieving good policy outcomes. In fact, I want people to get rich producing housing that is affordable to a wide swath of income levels. Financial incentives are a great way to encourage people to innovate solutions. And we should help poor people by redistributing wealth in such a way as to help them become sustainable.

False problem, false solution–The City Council cannot, no matter how hard it tries, suspend the laws of supply and demand. The problem is not that some people can’t afford housing but that some people don’t earn enough money, have high expenses for basic necessities, and have trouble managing a myriad of other problems. Other people–the targets of workforce housing legislation–are choosing to live elsewhere for a basket of other complicated reasons. The best thing we can do is make Seattle the best place to live in the region by building dense, safe, livable, walkable neighborhoods, close to transit, with the worlds best public schools. That’s a challenge worth rising to.

Finally, my apologies to everyone who worked on this legislation. I don’t want my tone to come across as criticism of the motivation behind incentive zoning. The motive is genuine. But I’d be letting myself down if I didn’t call this one like I see it. We’ve got to move beyond the “affordability problem” and toward addressing broader issues of how we plan and accommodate growth so that everyone has access to the benefits of density and sustainable city living. Incentive zoning for affordable housing doesn’t get us there.

This entry was posted in 2.Local change, 4. I don't understand, Uncategorized. Bookmark the permalink.

8 Responses to Chapter 23.58A Incentive Provisions

  1. Lack Thereof says:

    I’m with you on this one. I don’t see how this policy helps.

    If I’m understanding this right, the “affordablity” cutoff by these methods is right around $1600/mo. There’s already plenty of $1600/mo apartments in this city – not in all new buildings, but definitely in older buildings. And with every new building built, another building becomes older and gets more affordable. It seems like chasing this measure of affordablity is really pointless. We’ll stay there just fine by simply adding rental units across the city, making sure supply keeps up with demand.

    Maybe eventually, if supply increases enough, foodservice/retail employees (25% of the workforce) will be able to afford their own apartments. Most of the people working under me (I’m a low level restaurant manager) are unable to get out of shared housing.

    Myself, I spend 3 weeks pay every month on rent, on the cheapest 2bd currently listed for rent in the city (my wife is out of work, though, so that’s not typical).

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