Microhousing news goes from bad to worse

In my last post I delivered the bad news that Seattle just functionally eliminated micro-housing by issuing Directors Rule 7-2016, making Small Efficiency Dwelling Units (SEDU's) almost as large as a conventional studio apartment. This week the other shoe dropped.  I got official word that the new rule doesn't just apply to SEDU's.  It applies to all housing, so it will make conventional studios larger as well.

To understand just how far we have wandered off the path, let's compress the last two years into the narrative of a single development project:

You buy a plot of land in a dense Urban Village to develop microhousing.  Your goal is to provide housing at affordable rents in a desirable neighborhood for the most people that you can.  You'd also like to participate in the Multi-Family Tax Exemption (MFTE) program so that your rents can be as affordable as possible. You draw up plans to build (40) 175sf units and rent them each for $900/mo. 

Not so fast. Some of the folks who live nearby are upset about what you have planned, so the city council passes new rules to help you compromise with your neighbors.  First, they propose to bump up your units to an average of 220 square feet, then in committee, they add some more rules that bump your average unit size even further.  You re-design your project according to the new rules. You are now down to (27) 260sf units that rent for about $1200/mo. Your projected rents just went up 33%, but at least you are in the MFTE program so 20% of your units will offer a discounted rent of $1020/mo in exchange for a property tax reduction, which is a nice break for some of your renters and actually works out to your benefit as well.

Hold on just a second. The Office of Housing figures out that the MFTE deal is too good for you. They reset the program requirements, dropping SEDU rents down to $628/mo. Some quick math tells you this is a drastic over-compensation that will cost you way more in rent abatement than you would ever get back in property tax relief.  Then the Mayor's office jumps in and decides to promote family-sized housing by bumping your participation rate up from 20% to 25%.  You're not exactly sure how driving you out the MFTE program is helping to build family-sized housing, but you've got bigger fish to fry, so you give up on the MFTE program.  There will be no discounted units, but at least you'll be adding some much needed inventory to the housing supply.

Nice try.  The building department in concerned that your units are so small that they pose a threat to life, health and safety.  They publish a new code interpretation that requires your SEDU's to have larger living rooms. You re-design your project again. You are now down to (24) 290sf units that rent for about $1300/mo. At this point, you realize you're better off converting the units into to small conventional studios.  Your unit size bumps up again, to a little over 300sf, but at least conventional studios can rationally participate in the MFTE program, so 25% of your tenants will get an affordable rent.

Not quite. The building department has a follow-up memo.  It turns out that the living room size problem doesn't just concern SEDUs; conventional studios are also in danger of sliding below the minimum threshold for human habitation.  The new interpretation applies to all housing, so your studios have to get larger again. Your units jump up to an average of 330sf.  Your unit count drops to 21.  Your rents are now at $1400/mo.

This is how Seattle micro-housing has evolved in less than two years. Spread over the dozens of small-unit development projects this represents the loss of significant amounts of affordable housing and a huge increase in average rents.  How much? I'll explore the numbers in a follow-up post.