New Affordable Housing Incentive Gets Tentative Thumbs Up

"Poverty Rock" is a phrase most Islanders use with tongue firmly planted in cheek when they talk about Mercer Island. But the lack of economic diversity prompted a majority on Mercer Island City Council to do something about it at a Feb. 7 public meeting, giving preliminary approval to new incentives to developers in creating more affordable housing in the Town Center area.

On a 4-2 vote, a majority of the council asked to put the final touches on an ordinance that allows property tax exemptions on new residential rental units built in the Town Center area, provided the developer also built a small fraction of units that charged below-market rents. The idea for adding the abatement was proposed last year but was tabled when a majority of the the Council asked for a "sliding scale" by which it could be applied. Councilmembers Dan Grausz and Mike Cero voted against the measure and Councilman Bruce Bassett was absent.

Development Services Group Director Tim Stewart said the city had established affordable housing goals in a 2001 update of the city's planning guidelines, which sets targets of 588 new homes for families earning under 50 ($42,800) to 80 percent ($68,480) of the median family income in King County by 2022.

To meet those goals — also inspired by the state's Growth Management Act — the city established two tiers of "Affordable Housing" incomes, at 60 percent and 80 percent of median income. The qualifying income would vary based on the number of occupants. Median incomes are based on a family of four (and adjusted for household size) by the U.S. Department of Housing and Urban Development, and no more than 30 percent of the median income can be calculated for setting target rents.

"We are not meeting the goals established for affordable housing," Stewart said. "Like many cities, we are not making even a small dent in (our) affordable housing (goals)." 

The ordinance would authorize developers to claim tax breaks on buildings for 8-12 years, varying on whether they built in the Town Center or a narrow band around it that is zoned for multi-family housing. Developers would get a longer tax abatement the more deeply discounted the rental units. In the Town Center, for example, a developer could now be granted 12 years for a development with 10 percent of units at the 60 percent of median rate and 10 percent at the 80 percent of median level. 

Only one affordable housing facility — — exists on Mercer Island. The city already has incentives in place for developers in the form of increased building heights and development fee waivers, but those incentives failed to attract any interest in building affordable housing. 

According to a study by real estate consultants DuPre & Scott, Mercer Island rents are 48 percent above the county average. The study also showed the average monthly rent on Mercer Island in 2010 was $1443, or $1.60 per square foot. ARCH executive director Arthur J. Sullivan, who consulted with the city on drafting the measure, said larger rental dwellings suitable for a family like a two-bedroom, two-bathroom apartment are priced at an average monthly rent of $2,068 and weren't affordable to families at even 80 percent of median. He also said most of the existing units aren't located in the Town Center, such as  (645 units), and new rental developments in the Town Center also run at nearly double the rental price (per square-foot) compared to older apartment developments. The typical monthly rent of a two-bedroom, two bathroom apartment at Shorewood is currently priced at $1,020-$1,875. , a 235-unit 5-building apartment complex in Town Center, currently prices the same type of apartment in a higher, $1,700-$1,900 range.

"You need to determine, is it a meaningful incentive that will provide affordable housing?" asked Sullivan. "Your rents are rapidly going away from the 60 percent level." 

The Council voiced its unanimous support for the aims of increasing affordable housing, but Grausz and Cero thought it was a step too far. Grausz pointed out that the city's revised ordinances on allowing accessory dwelling units (ADUs) have allowed over 300 residents the ability to rent part of their property out and increase the population density on the Island without costing the city anything. But he objected to allowing developers of potentially over a decade of tax abatement, which he said would ultimately cost the city more than its fair share.

"Someone else is going to have to pay for those services,"  Grausz said. "It's a giveaway. Plain and simple, it's a giveaway."

Deputy Mayor El Jahncke disagreed. 

"We're trying to incentivize this," he said. "The developer has to realize more in tax savings than what he's losing in income."

The measure is expected to return to the council for final approval on March 21.