Mayor Ed Murray speaking on the topic of economic development by Ed Murray on Flickr.

Mayor Ed Murray sent a strong letter addressed to the Seattle City Council yesterday. In it, he dropped a big critique on Council’s approach to regulating microhousing. The mayor communicated to the Council that while he was tentatively supportive of the Council’s most recent microhousing legislation, he was deeply concerned about newly proposed amendments. His reasoning was brief, but clear: more restrictive rules could drastically increase costs to microhousing developments, and thereby future tenants.

According to Publicola, the Mayor’s letter has another dimension to it: veto threat to legislation crossing his desk. Despite the Mayor’s letter, council members still proposed and passed their amendments during yesterday’s afternoon Planning, Land Use, and Sustainability Committee meeting. The full Council is not likely to vote on final legislation until October 18th, so further changes could occur between now and then.

The Mayor’s letter is below in full:

Dear Councilmembers:

As you know, I sent down legislation, C.B. 118067 earlier this year. My intent was to better regulate the development of micro-housing and congregate residences by defining this type of development within the Land Use Code; prohibiting micro-housing development in single-family zones (congregate residences are already prohibited); applying a design review threshold by the size of the building (not number of dwelling units); and providing notice to neighbors as part of the Design Review process.

These were the concerns I was hearing and that is why I responded quickly with legislation.

Wanting to conduct more outreach, Council convened a working group to dig deeper into the issues that were of most concern. As a result of that stakeholder group, a substitute bill was introduced.

For the most part, I was supportive of the proposed approach of C.B. 118201, to regulate small efficiency dwelling units and congregate residences, though I was mindful about how more restrictive regulations could make these types of developments too cost prohibitive to build.

Several amendments are being considered at today’s Planning, Land Use, and Sustainability Committee. As you review the proposed amendments to the legislation, I urge you to keep the affordability issue in mind. I am concerned about indirectly regulating density through land use code standards related to storage space and other amenities, and the unintended consequences that may occur as a result.

Regulations are needed for this type of development, but our regulations need to help and not hinder the process and the outcomes we are hoping to achieve. And one of those achievements is more housing. That is a priority.

With that in mind, I look forward to working with you and the Housing Advisory Committee on the Housing Affordability and Livability Agenda in the months ahead, and developing a bold and actionable suite of recommendations to increase housing affordability and options and neighborhood livability in Seattle.

Sincerely,

Mayor Edward B. Murray

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15 COMMENTS

  1. “applying a design review threshold by the size of the building (not number of dwelling units)”

    Wow. I like that. That is huge, and could really change the way we look at things in the city. Do that, get rid of the parking requirements, and things could really improve. I haven’t dug into the weeds of what is proposed, but I like what I’m hearing from the mayor. It would be nice if he applied that same principle (regulate buildings based on the size of the building, not number of dwelling units) across all building types (including housing). That would essentially, allow multifamily housing in single family zones (as long as the house adheres to the same rules as any other house).

  2. I don’t know if it’s a legitimate concern, but I’m just worried that microhousing will become too much of the norm and low-to-moderate income people who want to live in the city will have no choice but to live in these tiny spaces. I mean, for people like temp residents and students it’s probably an awesome arrangement, but my guess is that most folks wouldn’t want to live in 200 sqft. or less long term.

    • I’m not sure I understand your concern. We don’t face a problem like this with any other type of housing. Just because developers are mostly building expensive units doesn’t mean that’s the norm for what people choose.

      If people are choosing to live in this type of housing they are taking less space because costs are more important to them. If we want those people to have more space, then the key is providing bigger units at a lower cost, not eliminating low cost units or forcing units to be larger.

      • Right, I mean that makes sense as long as the small units stay low cost. (I don’t have a source on hand but I’ve read about some microunits that cost the same as a regularly-sized studio or 1BR). It’s something that I’m thinking might become an issue in the very long term, say 50+ years, but right now it’s not even close to the primary type of housing being built around the city. It’s already embraced in some places like NYC.

        • Microhousing isn’t as cheap as some other types of housing but it is absolutely very inexpensive for new housing. In fact, there are a few micro-housing developments on Capitol Hill, very close to the new 12th ave arts, advertising rents at $750/month. 12th avenue arts is being developed by a non-profit, offering 1 bedroom, subsidized ‘affordable housing’ with a price tag starting at $883/month. That $883/mo price tag is pinned at 60% of AMI. That means the micro-housing is offering units to people below that AMI. Granted the micro-housing is less space and doesn’t work for families but it’s still filling an impressive niche. If costs are your most important factor and you don’t have a family, it works great.

          What’s most interesting though is that this is a way to build ‘affordable housing’ without council passing any more legislation or raising more revenue.

          The question of long-term viability is interesting. I suspect a lot of this could be changed as circumstances change. For example, internal walls could be removed to provide larger units if it turns out people want larger units.

          • If the market for these units ever drops low enough* (not likely, but the future’s hard to predict), a more likely reuse would be as hotel rooms. No modifications needed except to convert the shared kitchens into something else.

            Actually, except for the design review involved I’m not sure why these aren’t built as long-term hotels that charge by the month. I suppose there’s a market demand for the shared kitchens, or removing the design review is really valuable (it is a large waste of time and money on the developer’s end).

            Of course, comparing the rent to hotels instead of apartments makes them seem like an even better deal!

            * note: rents would be really low at that point.

          • How expensive is a design review? I know it costs a lot, but how much (typically)? I’ve heard that parking requirements add around 20% to the cost of a unit, but what about the review (I would imagine it is more of a fixed cost, meaning it really hits small projects hard).

          • That’s beyond my experience, so I can’t give you hard numbers. I can tell you that generally for larger projects design is between 10% to 20% of the total costs, and design review mean redesign (i.e. some of that cost is spent without adding value to the project). For smaller projects architects might not have produced a quarter of the sheets required by design review, not to mention several versions.

            I think the best evidence design review is expensive is the fact that aPodments exist at all. There’s nothing fundamentally different about them from what’s allowed in apartments (for example, nowhere are kitchens required in the code), except they can avoid design review. If DR was cheap, developers would just build apartments instead. Some would have kitchens if they think they can sell kitchens, some would have shared kitchens if they think that market was stronger.

            It’s the code saying that DR is required over a certain number of units, and a unit is something with a kitchen, and you can have only 8 people living in a unit that results in the 8 “pods” per kitchen.

            Adding design review will all but kill aPodments. Murray’s fight to remove the amendments helps, but it’s the DR itself that seems to be expensive and that’s in the original legislation. That said, it is a “limited” DR, so maybe that’s better/cheaper – I really don’t know.

          • Thanks Matt. I’m hoping someone with real experience will chime in with real numbers, but I agree with your assessment. Apodments are being built because developers don’t have to do a DR. The city really needs to take a good look at the entire process — how much all of these requirements add to the cost of developing — and see if the process can be streamlined, or otherwise improved. Once in a while, I’m sure it leads to a better design (for example, pedestrian access through a big block project) but too often, it does nothing but add to the cost of building. I’m guessing this additional cost, like a lot of zoning rules, ends up backfiring. The point, in general, is to try to get the developer to build more attractive buildings. But this fails for two reasons: One, it leads to developers building the same sort of building (which means that it looks really ugly in aggregate). The second is that it leads to projects that take up an entire block, instead of infill projects. After all, if a small (infill) project has the same planning cost, then you might as well buy and bulldoze the old building next to it as well. Again, this leads to uglier neighborhoods. Worse yet, it probably adds to higher rents.

          • Yes. Higher rents are an indirect effect of higher construction costs. If there are 500 projects that make sense under one scenario but you add costs such that only 400 projects are financed, there’s less supply, less competition, and higher rents.

            The best way to keep rents down is to add supply, and the more we regulate and tax*, the lower supply we end up with.

            * unless all of this tax goes to subsidized housing and the government can build more units per dollar than private industry, though that’s traditionally been far from the case

          • Ross:
            We recently took a 41 unit project through full DR and the costs that were directly attributable to DR totaled around $225,000. Our case was slightly unique in that we were forced to present at a 3rd meeting (but I’d venture a guess that neighborhood opposition would force a 3rd meeting for the majority of microhousing projects). The real killer of DR is not just the direct costs, it’s also the costs associated with all of the extra time required. For our project, it was 21 months from when we applied for intake until the MUP was issued. The bulk of that time was not DPD review, but rather waiting for DR meeting spots to open.

            Our costs could generally be broken down as follows:
            — $45,000 for initial architectural work that otherwise would not be necessary if not for DR (not counting work required for the 3rd meeting). The total contract was for $215,000, so $45k is a conservative estimate. Matt below is correct that probably 3/4 of the work produced by the design team would not have been necessary if not for DR (and added no value to the project). Just take a look through any of the booklets hosted on the DPD DR website to get an idea of the work that goes into a DR package.
            — $15,000 for initial consultant work that wouldn’t otherwise be necessary if not for DR. This includes direct costs for consultants such as Landscape Arch, Graphics (renderings), Legal, Structural, Civil, etc. Since DR requires 3 “options” to be presented, there’s additional work produced that never gets used.
            — $45,000 for additional charges associated with the 3rd DR meeting. Since it wasn’t originally planned, the costs for the 3rd meeting weren’t in any of the design team contracts. The additional services invoice for the architect alone was $37,500.
            — $35,000 for additional land purchase price. Our land seller had an offer from a buyer who would have closed within 90 days, but agreed to give us a 15 month contract (at an additional cost of $35k). If we had closed at the lower purchase price, the taxes, interest and other expenses would have been more than the $35k in additional purchase price.
            — $30,000 for extension payments necessitated by 3rd meeting. Since DR took even longer than we anticipated, the 15 month contract was not enough and the seller agreed to extend closing until we had permits (to facilitate financing), but charged us an additional $30k. Had we closed within 90 days at a lower price (and with no extension payments), we estimate that taxes, interest, etc would have cost us $86,000+, so the $65k that we paid in additional purchase price and extension payments was a good deal.
            — $15,000 in fees paid to the City of Seattle directly related to DR.
            — $40,000 for Management/overhead. We had project management and overhead expenses through the 21 month wait for the DR process to run it’s course. DPD charges $250/hr for the time that their employees spend on the project (to account for salary + overhead, etc). Using the same hourly rate as DPD, $40k means that we dedicated less than 2 hours per week to the management of this project (in other words, $40k is a very conservative number).

            Again, these numbers are somewhat unique in that they reflect a 3rd DR meeting, but they are otherwise very conservative. I have a hard time imagining a project in which full DR doesn’t add at least $150k in additional costs (I don’t know the impacts of a “streamlined” DR). As you point out, this hits smaller projects disproportionately hard.

            Another thing to remember is that since all of the DR costs are incurred prior to any permits, they are almost always paid out of equity funds rather than loan funds (which is what is used for construction). This means that not only is the developer taking a risk on the project, but they are also using money that is extraordinarily expensive. Most equity partners are going to charge a 15%-20% IRR for these funds and most developers have internal cost of funds at least as high. Think of it as putting $200,000+ on a credit card in order to get the project started.

            It breaks down a bit when I try to translate this into a rent figure (since rents are set by the market, not by the project costs), but consider:
            — The DR costs per unit were $5,487 ($225k/41)
            — At a 20% annual return rate required on the deployed equity, each unit needs to produce an extra $1,098 per year in order to service the equity return.
            — An additional $91.46 in rent per month is required to cover the DR costs.

            While it’s true that we can’t simply raise rents $92 a month in order to cover the DR cost, the project will never get financed (or built) if the market doesn’t support this higher rent.

          • it should be pointed out that these are the costs for full DR. streamlined DR is substantially less. per DPD’s stats, 7/8 of previously permitted micros would not have been required to go through the full DR process with the square footage thresholds adopted by DPD.

        • Yeah, I think there are several possibilities:

          1) They become less popular. This means that rent will be cheaper. I think this is a good thing, generally. The only problem I can see with this is if these were concentrated in a very run down area. If anything, so far it is the opposite (they are spread out and in wealthy areas). I don’t think those wealthy areas (Capitol Hill or the UW) are going to become poor areas for a very long time (if ever).

          2) The costs rise. Again, I don’t see a problem with that, from a regulatory standpoint. From a zoning perspective, this is the housing on the “loose” end of the scale (so far on that end that some consider it a loophole). If costs rise, it is because there simply isn’t enough housing being built (which is the case right now) or wealthy people are pushing out poor people (which happens, but to a much smaller degree). In the second case, allowing “luxury Apodments” is still a good thing. The alternative (bigger luxury apartments) simply takes up more space. In other words, I would rather have forty yuppies in a luxury Apodment, then forty yuppies, taking up three apartment buildings. By the way, the first legal only because of this “loophole” but the second is legal and encouraged. The fact that we see so little of the second shows that the “rich are pushing out the poor” idea is simply not happening (except maybe in the single family housing arena).

    • I share your concern in the sense that for many, the Apodments are seen as the only alternative. This is due, in part, to the regulations. The “apodment clause”, if you will, allows builders to skirt the review process that would normally apply. Build the same number of units, but put a kitchen in each one, and the planning costs increase dramatically. On the other hand, build the same number of kitchens, but make each unit much bigger, and again, it is perfectly legal. Thus, because of our messed up zoning laws, builders have to choose between two extremes (luxury or shared kitchens) or they have to go through the review process. I too, fear that we won’t improve zoning, and simply say “let them have Apodments”. For many, this is exactly what they want. But for plenty of people, they would like to have a small apartment, and can’t, because builders have to pay too high a cost to build them.

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