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Will private investors build affordable homes?

New legislation mandates zoning in cities statewide to allow multiple housing units on a single-family lot

Every piece of legislation begins with words like these: “The legislature finds that…” What follows is free from any grounding in evidence or constraints of logic. “Findings” are not a place to recognize reality with all its complexity, but to imagine that “saying something makes it so” if you’re a lawmaker. Others have described the “Findings” element of legislation as marketing.

HB 1110 is a bill introduced in Washington’s 2023 legislative session and championed by former Olympia City Councilmember Jessica Bateman. The bill proposes to remedy the housing crisis by mandating changes to city zoning rules.

Under HB 1110, multiple buildings can be put on one single-family lot but they are supposed to be “compatible in scale, form and character with single-family homes.” The charming duplex on the left is pictured in the City of Olympia’s handbook as if it is the kind of housing that developers will build under the “Missing Middle” upzone. The two photos on the right show the reality. The triplexes (2 per lot, one in front; one in back) are new condos (12 units) built after Seattle upzoned lots in this Queen Anne neighborhood. Yes, more units—but they’re in no way compatible with the existing housing, nor, priced at $1 million per condo, are they “affordable.”

Bateman was part of the Olympia City Council in 2017-18 when it pushed to impose upzones similar to those in HB 1110. A community challenge to the proposal was upheld by the Growth Management Board. At a Council work session, Bateman responded by saying that “these are complex decisions that should be made by experts. The public shouldn’t have any input on this.”

Zoning rules caused a housing shortage

The experts at the House Committee on Housing have now weighed in, beginning with these “Findings:” …there is a housing shortage caused by “bans on the development of modest home choices.” Lifting these [zoning restrictions] will lead to construction of homes at higher densities that are “more affordable by design” and that although the state has made “historic investments” in affordable housing through the Housing Trust Fund, private investment is needed to produce housing “at all income levels.”

There is unfortunately no necessary connection between these findings and the provisions of law that follow.

Will mandating cities in Washington re-zone single-family lots to allow buildings “that are compatible in scale, form, and character with single-family homes and contain two or more attached, stacked or clustered homes including duplexes to sixplexes… with four to six units” mean that private investors will soon begin building “modest homes” affordable to working households?

(The only affordability provision in the new law is contained in permission to build the maximum six units if two are affordable (six units are also allowed on lots near bus routes or “amenities.”)

The wrong definition of the problem

Addressing the “housing shortage” doesn’t address unaffordability; it addresses availability. The assumption is that zoning caused the problem so upzoning will fix it. Policies like upzoning with no strings attached assume that if only we would give private investors more opportunities, they would build houses for every income level.

The assumption that “more housing means cheaper housing” fails to recognize that private investors base their decisions on profitability. Construction enabled by HB1110 will serve higher income earners and that might actually tend to reinforce rather than diminish the effects of income inequality.

A few years ago the City of Seattle upzoned 27 neighborhood hubs under its Mandatory Housing Plan. Developers were given the opportunity to put more buildings on one lot—but required to include affordable housing—or pay into a fund that would allow the city to build affordable housing. The result? Developers chose to build market rate and higher priced housing and pay into the fund.

In Thurston County, the offer of automatic property tax exemptions, has stimulated construction of housing units at a brisk pace. A visit downtown and to many residential areas reveals hundreds of new homes and apartments. Yet rents and mortgages continue to rise, remaining beyond an “affordable” level for over a third of households.

The market economy is the problem, not the solution

The housing crisis has more to do with poverty and inequality than with housing supply. According to Thurston Regional Planning 32% of households in the county are “cost burdened”—they spend over a third of their income for housing. This hasn’t changed significantly in a decade.

No private developer is going to invest in construction of dwellings that are within the reach of a household earning an annual income of $50,000 or less—which is the case for a third of all households in Thurston County. Nor is this likely to change as 51% of jobs in the area are in the low-paying service sector.

Research from the National Housing Conference, confirms the widespread reality that there is a huge gap between what it costs to construct and maintain housing compared to the rent most people can pay. This gap is the reason that Olympia, like other jurisdictions, gives for its award of property-tax exemptions to developers. Developers have used the subsidy to build market rate apartments, enhancing their return on investment, even though there is a longer-duration subsidy for building “affordable” units.

The only significant project in Olympia that will produce owner-occupied and “middle” housing that’s affordable to low-income households came because the city made 10 acres of city-owned land available to the non-profit Habitat for Humanity. The cost of land was reduced, and there was no requirement for a return on investment.

Meaningful public investment

The first section of HB1110 cites the legislative goal of creating 1,000,000 homes by 2044. This is corroborated by data from the Department of Commerce: Washington needs more than one million additional homes across Washington by 2044 BUT it also found that more than half or 500,000 must be affordable to people earning below 50% of area median income.

HB1110 refers to the “historic investment” by the state’s Housing Trust Fund as insufficient, in order to support its focus on the private sector as the solution to the housing crisis. In reality, the HTF has had minimal funds to invest in construction of actual housing. Since its creation in 1986, the Fund has managed to build only an average of 1400 new units statewide each year.

Nothing in HB1110 acknowledges the reality that half of the million houses we need must be affordable to households earning half of the median income—in Thurston County that would be about $50,000 a year. Nothing the legislature is doing addresses that.

As Helen Wheatley wrote in these pages last year, “No matter how many housing units are built for people with higher incomes, we will still have people moving here to work in jobs where they earn less, and those people will be struggling to find housing they can afford.  If we don’t use public resources to help working families, they will continue to struggle with increasing desperation in the private housing market.”

Mary Jo Dolis is an intermittent contributor to Works in Progress. She has lived in Olympia since 1984.

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