Finding the right price in South Lake Union

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For the past several weeks, the Council has been considering affordable housing provisions in South Lake Union (and I’ve written up my thinking on the topic here and here). As we approach our final decisions on the rezone, how we address affordable housing is one of the biggest choices we have left to make.

In values terms, we are talking about the opportunity to create a mixed-income neighborhood where people from across the city have access to the opportunity—jobs, transit, new parks and public infrastructure—being created in South Lake Union.

To achieve these goals, the city relies in part on its incentive zoning program.  The original intent of the incentive zoning program was to allow developers to build larger buildings with more units as long as they allocated about 5% of the residential units within their building as workforce housing – housing affordable to a family of four earning between $52,000 and $64,000 per year. To allow some flexibility for developers, we also created an option to simply pay into a housing fund (pay-in-lieu) at a fixed price to support others in building workforce housing.  This program is not working as intended, however, as every developer who is given the choice is choosing to pay-in-lieu and we are not getting the workforce housing built in the neighborhood in a timely fashion.  With some modest adjustments now, I think we can start to bring this program back in line with how it was intended to work.

In my previous blog posts, I have laid out my values. Now it’s time to start talking numbers. This week, Spectrum Development Solutions, a consulting firm retained by the Council to analyze the development market in South Lake Union and the impact of potential changes to affordable housing policy, returned to the Council with a complete report and a few revisions to their initial analysis. Council will again discuss affordable workforce housing at our next South Lake Union Committee meeting on Monday, March 18.

Based on the analysis done by our consultants, feedback I have received from folks in both the private development and affordable housing world, and various scenarios we have run internally, I would support an increase within the following ranges.

Project Type

Current Pay-in-lieu fee/
gross sq. ft.

Pay-in-lieu Range



$22.00 – $25.00/gsf



$29.00 – $32.00/gsf

I want to be clear with one point–in working toward setting a price, I realize there is no “right” price.  Each project is unique with unique land, building and financial constraints.  Spectrum was not asked to weigh in on what the “right” price is but was asked to analyze what would be the impact on increased costs to this development. Their analysis indicates that for a 240-foot high-rise building, based on some generic assumptions, the City could increase the current pay in lieu price far beyond the figures I am suggesting here and still have sufficient returns on investment to justify a project.

I believe an increase within these ranges could produce the following:

  1. Workforce housing built in South Lake Union.
  2. An additional $13-$18 million invested in affordable housing, and
  3. Housing developed at the same time as market rate housing, allowing the neighborhood to “grow up” together.

I believe we can achieve these outcomes without disrupting the market to such a degree that we sacrifice the redevelopment or our desire to meet Seattle’s the housing, jobs or density goals in South Lake Union. It’s time to make this change as we approve the rezone. This does not mean our work is done, however, because while it is a significant step in the right direction, this change would still leave us a long way from meeting our affordable housing goals for the neighborhood, let alone meeting the need citywide.

In addition to Spectrum’s analysis, Council has also commissioned a report from the consulting firm Community Attributes to help determine the current and projected need for housing to accommodate Seattle’s workforce in the Downtown area, including specific figures for South Lake Union. The Community Attributes report estimates that the existing incentive zoning program will produce 727 units of workforce housing, or approximately 17% of the housing needed to meet the City’s goal for the neighborhood by 2031. The range of pay in lieu price I support would produce approximately 250 additional units on site, getting us to 23% of the additional units we need to meet our goal. See the diagram below, which takes the Office of Housing report we heard about in Committee (Feb. 25, 2013) and shows the impact of these proposals (click on the image below to enlarge).

SLU rezone imageThe City is also setting up a process to take a look at our affordable housing goals citywide. This process must result in real solutions that help us close the remaining gap. As I mentioned above, our current incentive zoning policy is intended to yield 5% workforce housing in new rezone developments. I think in the upcoming conversation, we need to be thinking about raising our policy targets to 10-20% of total affordable units. In the meantime, the Spectrum Report indicates that we have a path in South Lake Union to create more affordable housing to help us meet our stated policy goals.

On Monday the Council should take a step in the right direction, by supporting increases in the residential and commercial pay in lieu price. Once we’ve taken that step, it’s time for a serious citywide conversation about building affordable housing.