Data & Resources

State of the Cities: Housing report

Contact: Carl Schroeder & Shannon McClelland

• Executive summary
• Introduction
• Planning & zoning responsibilities
• Policy tools
• Financing tools
• Overcoming barriers
• Conclusion

Executive summary

Washington cities of every size are grappling with the lack of available affordable housing for their residents. Cities are struggling with limited resources while they seek to increase available housing for their current and future residents to live and thrive.

Cities are on the front lines facing the reverberating impacts of limited housing availability, but cities can’t solve the problem alone. Increasing affordable housing requires a sustained, innovative approach and a working partnership with the private sector, nonprofit organizations, and county, state, and federal agencies.

This housing report examines the challenges cities are facing, details what policy and financial tools cities are using to address the issue, and highlights additional approaches that could help increase affordable housing stock statewide.

Case studies

This report includes case studies—city snapshots that show variations between cities across the state. They highlight the unique challenges and approaches that cities are taking to address housing affordability in their communities.

80% of cities need state funding to support affordable housing programs and local planning efforts.

Introduction

Many city leaders agree that the availability and cost of housing in Washington’s cities are an increasingly prominent community concern. This multifaceted problem strains a city’s ability to drive change, stretches the limits of its resources, and sparks difficult community conversations. The challenge is daunting. Many agree the ongoing problem stems from the 2008 housing bubble, which led to years of persistent shortfall in housing supply that continues to drive rental prices out of reach in many communities. Most recently, the COVID-19 pandemic has brought the world to a standstill and left hundreds of thousands of Washingtonians unable to pay their housing bills. The state’s housing crisis can seem insurmountable.

Critics contend that cities have a negative impact on market-rate housing supply due to restrictive development regulations and zoning decisions that drive up the cost to build. However, cities and housing advocates regularly work together revisiting these policies to remove barriers and create new approaches that incentivize housing. Ultimately, market conditions dictate whether a city will see a return on its efforts to encourage housing. With the right policies in place, a city can roll out the red carpet for development yet see no improvement in housing supply if other market forces limit the return on investment for builders.

82% of cities rate lack of affordable housing as a problem in their community.

The challenges Washington’s cities face are not uniform across the state, but neither are the opportunities. While the state’s fastest growing cities are dispersed throughout the state, many cities still struggle to attract residential development at all—let alone housing that meets affordability targets. Conversely, cities with a robust real estate market face other challenges, like how to shape growth while harmonizing the needs and desires of future residents with the existing community.

Cities play different roles in promoting affordable housing, from land acquisition to zoning decisions. Cities use various available funding and policy tools to address local issues, but barriers remain that impede progress toward the goal of increasing housing that will support city populations for years to come.

72% of cities lack low-income housing.

This report details many of these challenges and highlights the tools that cities are using to tackle them. However, despite keen interest from city leaders in addressing housing affordability in their communities, many of the policy tools available are dependent on market forces outside their control. More cities than ever are utilizing state revenue tools to support construction of subsidized housing, but the scope of need still overwhelms available resources.

Contrary to the rhetoric around housing, lack of developable land and infrastructure challenges outweighed community opposition when cities identified their top barriers. Cities also report significant challenges in expanding Urban Growth Areas and the high cost of land and construction.

Cities are actively engaged in addressing their local housing policies. 114 Washington cities responded to a survey in October 2020 indicating that they took a variety of actions between February 2019 and October 2020 to increase affordable housing opportunities, as shown below.

The fastest-growing cities in Washington are spread throughout the state and vary in population size. But even with such variety between cities, they all face housing supply concerns.

Local housing situations are different in every city, but it is particularly difficult to find housing that is affordable at lower income levels throughout the state

Planning & zoning responsibilities

Cities can influence whether and how housing is built by exercising a core local government power—local land use authority. The land use decisions a city makes can have a big impact on development patterns. But the community’s vision can remain unfulfilled for a variety of reasons.

Washington’s history of local governance is too broad to explore in this short report, but it is important to situate today’s challenges within historical context. As Washington evolved from a territory to a state, it held onto a strong tradition of (and insistence on) local governance and decision-making. Although the state’s early rapid growth and corresponding urban sprawl and traffic congestion eventually led to an overarching state planning framework (the landmark 1990 Growth Management Act), land use in Washington is still very much locally controlled, where voters elect local officials to make key decisions on their behalf.

While the state provides cities direction on what to plan for and consider in their growth plans, it’s the local community that makes final decisions on how to plan for growth. Using input from community members, elected representatives weigh and determine land use issues with the help of professional staff and local advisory bodies, such as planning commissions.

Our system provides a large degree of self-determination regarding housing and development policies. These choices include:

• Where to place housing throughout the community;
• What type and form of housing to allow;
• What additional requirements must accompany that housing, such as parking spaces and sidewalks; and
• Very specific design standards on the housing appearance, in some instances.

The state growth framework obligates cities to plan for certain levels of population growth, but specifically how to accommodate newcomers in a community is up to its current residents.

Cities face challenges when creating growth plans that are required to include housing needs for all economic segments of the community. With good fortune (and the right real estate market), private development may address the housing need for people with moderate to high incomes. But building affordable units for people with lower incomes almost always requires public investment. Private developers cannot recover costs at the rent levels needed to serve these community members. The mismatch between available public funding and needed units must be corrected. Otherwise, we will continue to see housing and rental costs rise, while the gap between affordable housing and market-rate housing construction widens.

Cities work to balance policies that support and encourage development with those that regulate and shape local growth. Local decision-making attracts the attention of state legislators because well-planned development can also increase construction costs and impact new housing production. Although some policies add cost to housing production, they provide social benefits. Sidewalks allow children to safely walk to school. Tree retention ordinances can complicate development and reduce buildable land; but mature neighborhood trees provide shade, historical significance, visual appeal, habitat, and environmental benefits. These are aspects of development that may not add profit, but that make cities livable and desirable.

A growing number of advocates believe that Washington has failed to address housing challenges because of the tradition of local authority. They contend that insurmountable political dynamics at the local level prevent needed changes. But cities defend the bottom-up approach to land use planning by citing the following advantages:

• Locally decided policies reflect unique circumstances;
• Cities embrace the complex role they play in supporting and shaping development; and
• Cities understand the interaction between the private market and local conditions.

A fundamental principle of democracy is having a voice in decisions that impact your community. This is eroded when decisions are made further away from affected voters. Local elected leaders are critiqued for policy choices and fidelity to community concerns over regional needs. But city officials are held directly accountable to their communities and face different political pressures than state officials.

However, there is an appropriate balance of state direction coupled with local decision-making. State lawmakers are tasked with deciding fiscal and regulatory priorities and reforms with a statewide perspective. Local leaders are better positioned to understand the unique facets of affordable housing challenges in their communities and enact approaches tailored to those needs.

Policy tools

What policy options are cities using to support affordable housing?

In addition to planning and zoning authority, Washington cities have several policy tools designed to address housing. Some tools originate from state-provided authority and others are locally derived.

Case study

Case study

Financing tools

What financing tools are cities using to address housing?

In general, cities are not direct owners or operators of housing. But many cities play an important role in financing the construction or acquisition of affordable housing.

Cities use the following funding tools to support affordable housing creation:

Multifamily Tax Exemption (MFTE) Program

This program was created to help densify cities by increasing multifamily apartment buildings and condominiums. The program allows cities to offer a property tax exemption for qualified buildings to promote their development. The program was later expanded to provide for longer tax exemptions in exchange for dedicating a percentage of new units as affordable at certain incomes.

HB 1406

This 2019 bill created a 20-year program where the state shares a portion of its sales tax receipts with cities and counties to support investments in affordable housing. All cities may use these funds to support the construction and acquisition of affordable housing. Cities with 100,000 residents or less can use the funds for rental assistance programs.

Property tax levies

Cities can ask their voters to support property tax levies of up to 50 cents per $1,000 assessed value to fund housing construction and foreclosure prevention programs for low-income households, affordable homeownership, and owner-occupied home repairs.

Local sales tax increase

Cities can councilmanically adopt a one-tenth of one percent sales tax for housing and related services.

Real Estate Excise Tax (REET)

Cities can use REET receipts to fund affordable housing in certain circumstances.

Development fee waivers & reductions

Some cities offer fee reductions or waivers for development-related costs like impact fees or sewer hookups.

Case study

Overcoming barriers

Cities across the state face differing local challenges, so the tools available to address housing do not have uniform application in all cities. An extremely successful tool in one city could be almost useless in another. Notwithstanding this diversity, the following common barriers may impact cities to varying degrees:

Financial situation of the community

This barrier can take several forms. Smaller cities that lack a large sales tax base do not benefit from optional sales tax revenues. Fee waivers as development incentives may not be financially feasible in cities with tight budgets. And finally, the willingness of the community to tax itself to provide for housing will determine the viability of voter-approved revenue measures.

Infrastructure & community amenities

Financing opportunities for market-rate housing are even more limited for many communities. The Multifamily Tax Exemption Program is the only tool that directly authorizes support for market-rate housing. Conditions within a city can significantly affect market-rate housing costs. For instance, if the transportation infrastructure around a development needs private investment to handle increased capacity, it can have a major impact on overall project costs and raise the rent level needed to recoup that investment. Similarly, a city can work for years on zoning and planning changes to attract multifamily housing without seeing any development until a critical amenity—a grocery store, for example—arrives and changes the demand.

Case study

Real estate market realities

By a large margin, most of the housing in Washington is built by private parties to sell for a profit. The ultimate sale or rental price of those units is determined by the cost of development and the market price for housing. Rental prices are out of reach for too many Washingtonians, yet future rents are still not high enough to entice new development in many cities. Incentive programs that rely on private development setting aside units for below-market rents must still provide a return on investment for developers. Otherwise, there is no incentive and the affordable housing is not built. With such high demand to build as much affordable housing as possible, there is understandable interest to push these policies and provide support with tax exemptions or regulatory relief. However, with so many nuances to our regional housing markets it is important to leave flexibility to local officials who can fine-tune these policies, or they could be rendered useless in many communities.

Case study

Community concerns

A home purchase is the largest investment most people will make. With so much at stake, many community members want (and expect) their city to remain at least as desirable as it was when they moved in. The impacts of new development can sometimes appear negative—with outspoken concerns of more traffic, less parking, or further-stretched community services. Fear of the unknown can challenge the acceptance of a broader range of housing types in traditional single-family neighborhoods. Although most frequently associated with homeowners, these concerns and impacts are often shared by renters in the community as well.

The positive benefits of growth are less often articulated, such as increased population that supports existing and new small businesses and a broader tax base to support and improve community amenities. Younger generations are increasingly priced out of many communities. Authorization of alternative housing types can help provide opportunities for those who wish to stay but can’t find or afford housing as they enter adulthood and start their own families. Another difficulty is that many of these forward-looking policies are designed to benefit people who have not yet moved to the community and, as such, have no voice in the process.

Below-market subsidized housing faces these challenges and more. A stigma against low-income tenants exists in many communities and can be an unstated underpinning of other concerns that are expressed to local decision-makers.

Conclusion

Cities are stepping up to the challenge of addressing the lack of affordable housing. But overly simplistic arguments that the state’s housing challenge can be solved by one type of policy (such as mandated density) fail to address the complexities inherent in the housing crisis. A statewide solution focused solely on city planning is inadequate to address this challenge, given the number of variables found across jurisdictions.

However, there are real opportunities to support cities in understanding their local needs and encouraging action in response to their unique housing challenges. When given new tools, such as HB 1923 and HB 1406, passed in 2019, cities have shown their interest in addressing their local housing situations. But planning policies alone will not build housing. More revenue is clearly needed to address the lack of below-market housing, since the private and nonprofit markets largely cannot deliver those homes without public subsidy.