Seattle has closed the spigot to fund affordable housing this year in order to backfill the rising cost of dozens of projects already in the pipeline.
The city’s Office of Housing will this year award $53.3 million for four new affordable housing projects, 64 percent less than the $147 million for 12 new projects last year, the Seattle Times reported. Nonprofit developers had applied for $380 million.
Since 2018, the annual awards haven’t dropped below $100 million.
The reason for the shortfall: rising construction costs and higher-than-expected interest rates. Seattle will spend $90 million paying for increased costs at the 70 projects and 7,600 apartments currently at varying stages of development.
“Once we award and make that commitment, it’s a priority to follow through on that commitment,” Office of Housing Director Maiko Winkler-Chin told the Times. “When you apply to us, it’s a guess. As projects come into us at this point, they’re coming in at a much higher cost.”
More than a third of the 309,000 new homes required across King County in the next 20 years need to be affordable to residents making 30 percent or less of area median income. At the same time, the city of Seattle will need 112,000 new homes, including 44,000 affordable homes.
This year’s relatively small award for affordable housing came despite the approval of a $1 billion Seattle housing levy last fall and a 2020 city payroll tax to fund housing.
Affordable housing developers depend on funds from the city to pool with money they get from tax credits and private donors. The city draws the funds from its housing levy, mandatory contributions from private developers and a payroll tax on large businesses.
The up to 484-day wait for a permit, plus the 2022 concrete drivers’ strike and supply chain problems have made initial cost estimates fall short for developers as interest rates have soared over the span of projects. Seattle leads the nation in rising construction costs.
The big challenge is the way developers must finance affordable housing projects, according to Ben Maritz, CEO of Great Expectations, an affordable housing developer based in Seattle.
Affordable projects start with a construction loan to build the homes. They stay on that loan until the developer can show it’s drawing rental income on 90 percent of its units. At that point the financing can convert to a long-term — and cheaper — loan.
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But projects are now spending longer on their construction loans, and paying more interest than initially forecast, because rental income struggles to reach even 80 percent — either because apartments aren’t occupied, or tenants aren’t paying the rent.
And when developers finally convert to cheaper loans, the rates are much higher than several years ago.
“These properties have to convert, and everybody knows it, so Office of Housing knows if they don’t put their money into helping these projects, this whole system breaks down,” Maritz told the Times.
The four affordable housing projects funded by Seattle this year will be in the Central District, Lake City, Beacon Hill and Bitter Lake, for a total 443 new homes.
— Dana Bartholomew