Sightline had an interesting report recently about displacement of older (presumably more affordable) homes by new development. They looked at 19 apartment complexes built in Seattle (all of the 8+ unit developments the King County Assessor considers as built in 2016). Those developments created 1,764 new homes while displacing only 21 older homes, a compelling 84-to-1 ratio. 12 developments on former commercial sites did not displace any older homes at all.
That’s great news, but what’s this? In Bellevue, the King County Housing Authority stepped in to buy a 76-unit apartment complex that was to be demolished for 87 town homes. Rents at Highland Village Apartments average $1,200 per month, well below the average Bellevue rent of $1,930. The KHCA spent $20 million to buy the complex, located on NE 8th St between Downtown Bellevue and Crossroads. The KHCA will now renovate the apartments, maintaining rents near their current level.
The Sightline report reminds us that development generally expands supply and is mostly good for affordability. But the story of Highland Village is hardly unique. It may be more typical in a certain kind of pricier suburban community. Highland Village look like hundreds of other older multifamily developments in this region. Two stories; on an arterial but not in downtown; surrounded by surface parking; in a low-rise neighborhood where the zoning will not permit much greater height or density (and perhaps not the market either). Rents are lower because the buildings are depreciated. Older small single family houses may get more sympathetic news coverage because they appeal to boomer nostalgia, but older multifamily units are the most affordable unsubsidized homes in most cities.
Like Highland Village, many older apartment buildings are ripe for redevelopment to higher-priced homes.
Naturally occurring affordable housing is particularly critical in high-priced suburbs. Unlike Seattle, which just doubled its affordable housing levy to $40 million a year, 15 Eastside cities jointly contribute just $1.5 million per year to ARCH (A Regional Coalition for Housing), a partnership of the cities which pools their contributions and works with affordable housing providers to build and preserve housing on the Eastside.
There is strong demand in many places for homes loosely following a single-family template. Maybe a patio rather than a yard. Maybe it is attached or minimally set back from neighbors rather than separated by lawns and trees. But no neighbors overhead, more bedrooms than the typical apartment, and with its own garage. In higher priced neighborhoods, the economics of converting older depreciated apartment buildings into such homes are compelling. Both regulation and market demand favor replacement by larger pricier homes, but the number of units are often comparable.
In a region as fast growing as ours, increased supply and densification is the friend of affordability. We can only address the housing shortage by adding more homes, and cannot afford an absolutist stance toward preservation. But the sight of new developments where there is a near 1:1 replacement of affordable units by higher priced units should give us pause. How can we tilt the incentives so new construction delivers the most NET new units, and impacts the limited stock of affordable homes the least?
In most cities, new multifamily construction must include affordable units. A typical requirement is to allocate 10% of new units to homeowners making less than 80% of median income. The numbers vary by city, sometimes neighborhood. A developer might pay a fee in lieu equivalent to what building affordable units on site would have cost.
The structure, however, is always to extract concessions from developers based on what is constructed, not on what is lost. The developer pays no more to demolish 76 existing units at Highland Village than if he were building on a former parking lot. When so many units are demolished, making 10% of the new units affordable hardly seems an adequate response.
Several policy options deserve examination. One is a demolition fee or tax. That would tilt the economics of development away from projects where the tax can’t be spread across more added units. It might even be a meaningful revenue source for suburban affordable housing agencies. A transfer of development rights (where developers get increased density benefits elsewhere for protecting affordable units) might work. Yet another option would tier affordable housing requirements so the development projects that displace the most would have to add more new affordable units.