Title
Emergency Declaration Related to Affordable Housing Discussion
Recommended Action
Committee Recommendation:
Not referred to a committee.
City Manager Recommendation:
Move to recommend for City Council consideration an emergency declaration related to affordable housing.
Report
Issue:
Whether to recommend for City Council consideration an emergency declaration related to affordable housing.
Staff Contact:
Jacinda Steltjes, Affordable Housing Program Manager, Community Vitality Housing and Homeless Response, 360.752.8482
Presenter(s):
Jacinda Steltjes, City of Olympia Affordable Housing Program Manager
Background and Analysis:
Across the United States the lack of affordable housing has reached crisis levels. Thurston County, including the City of Olympia, is not immune to this crisis. Many Olympia households are struggling to stay housed while also affording their other basic needs. This emergency declaration related to affordable housing is proposed with this in mind. The declaration includes strategies to increase the supply of affordable housing and middle housing. Many of these strategies decrease the costs of constructing these housing types. Middle housing is included in the declaration because this type of housing is often constructed locally by affordable housing developers and because this type of infill housing can be costly.
In Olympia, we need a greater supply of affordable housing as well as middle housing. Several local plans, studies, initiatives, and state requirements call for this. For example, the One Community Plan; Housing Action Plan; Affordable Homeownership Study; county-wide 2023- 2027 Consolidated Plan, Fair Housing Assessment, and Growth Management Act, to name a few.
Demand for Affordable Housing
According to 2024 Thurston County Point in Time (PIT) Count Preliminary Data Report, 864 houseless individuals were counted during the PIT count occurring on January 25, 2024. This is 120 more individuals than were counted in the 2023 PIT. Of the 864 houseless individuals counted this year, 417 were living unsheltered in encampments or in a vehicle, 400 were in emergency shelters and another 47 were in transitional housing. An additional 82 individuals who do not meet HUD’s definition of homeless and were therefore not included in the official count number of 864 were living doubled up with friends or family members or couch surfing. In addition to those who are currently houseless, still more individuals are unstably housed.
In Olympia specifically, approximately 7,600 households are housing cost burdened- meaning they spend more than 30 percent of their income on housing expenses, according to a Housing Needs Assessment produced in January 2021 by Thurston Regional Planning Council. In general, the lower a household’s annual income, the more likely they are to be housing cost burdened. “While some households may opt to spend more than 30 percent of their income on housing expenses, most - especially at lower income brackets - do so because there is not enough affordable housing available. This makes the number of cost-burdened households a good indicator of the current gap between the supply and demand for housing at a given price point,” According to the Housing Needs Assessment.
While the demand for affordable housing in Olympia is already high, its projected to increase significantly over the next 20 years. Per Washington State Growth Management Act regulations, the City of Olympia must plan to accommodate future population growth with a variety of housing options. The City anticipates needing more than 12,600 new housing units by 2045. Of these, an estimated 6,800 are needed for low-income households whose annual gross income does not exceed 80% of the area family median income. To meet this projected demand, the City must more than double the number of housing units permitted annually, increasing units permitted from 300 to 600+ per year. Local housing developers and private residents are eager to meet this challenge. However, several barriers to increasing affordable housing supply currently exist. Many of them are related to the cost to develop affordable and middle housing.
Cost to Construct New Affordable Housing Units
The cost to construct new affordable housing is exorbitant and creates a barrier to constructing new units in a timely manner. Unlike market rate housing, affordable housing often requires subsidies to build. This is because rents are the primary revenue source for all housing projects. When rents are purposely kept low so to be affordable to tenants, there is less revenue available to service the project’s debt. As a result, bank financing available to affordable housing projects is much lower than market rate projects and developers must layer their bank financing with a variety of alternative financing sources to make their project a reality. These sources typically include local, state and federal funding, all which are usually only available once annually, are awarded via competitive processes that take into account a project’s total development cost, and are traditionally over-subscribed with more applications for funds than is available to award. This has caused many jurisdictions in Washington state and nationwide to take actions to reduce total development costs as a way to increase affordable housing supply. Decreasing development costs means an affordable housing developer has less need for alternative financing and therefore a better chance of bringing their project to fruition.
Olympia’s Efforts to Decrease Affordable Housing Costs
The City of Olympia has already taken several measures to increase affordable housing supply in recent years. Olympia voters adopted a 1/10th of 1% sales and use tax (Home Fund) in 2018.
We’ve exempted impact fees by 80%, reduced permitting times, exempted general facility charges by 50%, implemented LOTT’s program to decrease connection fees by 50%, adopted middle housing zoning provisions, reduced parking requirements, and created pre-approved accessory dwelling unit plans, among other things. These efforts have all made a positive impact.
Additionally, Olympia combines our funds with other regional funds for affordable housing to maximize our impact. Those funds are awarded through the Regional Housing Council. This allows us to coordinate a pipeline of affordable housing projects. As of today, our Thurston County Affordable Housing Pipeline of Projects includes 971 affordable housing units planned for completion through December 2028. Of those, 787 of them are planned to occur in Olympia. Still, greater efforts are needed if the City wishes to meet its goal of creating 6,800 new affordable units by 2045.
Proposed Strategies to Increase Affordable Housing Supply
The Emergency Declaration related to Affordable Housing proposes seven strategies intended to reduce development costs for affordable housing and middle housing. A handful of these strategies can be implemented relatively quickly. Others will require more time and careful consideration to structure them in a way that balances increased housing supply with impacts to city staff capacity and abilities to provide services to Olympia residents.
Short term strategies are:
• Prioritizing affordable housing and middle housing projects in permitting processes so that they move to the front of the que
• Designate specialized CP&D staff to actively assist affordable and middle housing developers in the permitting process
• Give CP&D, Public Works, and Fire authority to waive or alter City processes for affordable & middle housing projects
• Participate in 1033 Tax Exchange transactions with willing property owners who sell to new ownership who will utilize the property as affordable housing.
Long term strategies are:
• Adopt revised Engineering Design and Development Standards (EDDS) for affordable & middle housing projects
• Establish a grant program to provide financial assistance for infrastructure necessitated by affordable housing or middle housing projects
• Waive, in full or partially, permit and other fees
Climate Analysis:
Affordable housing and middle housing create density and better utilizes available land. These housing types also tend to increase the use of public transit, reduce energy use in new construction, and implement Evergreen Sustainable Development Standards (ESDS).
Many large-scale affordable housing projects that are constructed in Washington state are partially financed with state and/or federal financing, such as Housing Trust Fund. These financing sources are extremely competitive and typically include scoring criteria related to a project's proximity to transportation, services and food. As a result of the competitiveness of these funding sources most affordable housing projects that score high enough to attract state funding are located near transportation, making it easy for tenants to avoid the use of personal vehicles and to instead use a bus, walk, or bike to meet the majority of their needs.
Similarly, affordable housing projects that receive state financing must be constructed using Evergreen Sustainable Development Standards. ESDS includes criteria that: Promote sustainable living, improve energy and water efficiency, protect health and safety, increase durability, and protect the environment.
Equity Analysis:
The Emergency Declaration related to Affordable Housing will increase affordable housing supply and therefore most prominently positively impact Olympians who are low-income. Low-income households are disproportionately negatively impacted by insufficient supply of affordable housing. Approximately 7,600 Olympia households are housing cost burdened- meaning they spend more than 30 percent of their income on housing expenses, according to a Housing Needs Assessment produced in January 2021 by Thurston Regional Planning Council. In general, the lower a household’s annual income, the more likely they are to be housing cost burdened. According to the Housing Needs Assessment, about one in four Thurston County residents is a person of color - those who are Hispanic or Latino of any race and those who are any race other than white alone. Those who are Hispanic or Latino, Asian, Black, and multiracial are the largest minority populations in Thurston County. According to the Needs Assessment, people of color generally have more people in their household, are less likely to own their own home, have a smaller household income, and are more likely to experience homelessness than their white, non-Hispanic counterparts.
The 2023-2027 Consolidated Plan and the Assessment of Fair Housing presented similar data. The Consolidated Plan includes a Housing Needs Assessment and a Market Analysis. It provides a community profile and explored topics such as cost to purchase housing, housing cost burden, increase in rental rates, rental vacancy rates, and change in housing cost versus change in income.
Some key findings from the Consolidated Plan were:
• 36% of Olympia households pay more than 30% of their income on housing.
• 17% of Olympia households, are severely cost burdened, paying more than 50% of their income toward housing.
• Rents have increased 32-35% in Thurston County since 2017 and the vacancy rate for Thurston County has decreased. In Fall 2021 the vacancy rate was 3.7%.
Some key findings of the Assessment of Fair Housing were:
• The 600+ community members who participated in a survey to assess fair housing barriers and priorities in Thurston County rated access to affordable housing among the highest priorities needed to address housing disparities in Thurston County.
• Housing that is safe, accessible, and affordable to households experiencing a disability is severely lacking in Thurston County.
Neighborhood/Community Interests (if known):
Housing continues to be of high interest to the community. The strategies proposed as part of the Emergency Declaration Related to Affordable Housing are a result of feedback provided from several local developers of affordable housing and middle housing. These developers have communicated the challenges and barriers they face in constructing this type of housing to staff and a handful of them gave public testimony regarding these challenges to the full City Council on June 18, 2024. Council requested that staff follow up on the issue and bring forward proposed strategies to reduce barriers to increasing affordable housing supply.
Financial Impact:
A utility charge increase of up to 1% is proposed to support an infrastructure assistance grant program. This could make $295,000 available in 2025. The full financial impacts of funding this program, fully or partially, with an increase in utility taxes by up to 1% will be researched in full by staff if LUEC decides to pursue the grant program.
Permit and other related fees collected by the City partially support staff salaries. The full impacts to staffing capacity and the city’s ability to offer sufficient levels of service to residents should fees be partially or fully waived will be further research if LUEC is interested in waiving permit and other related fees.
Options:
1. Provide guidance on the proposed strategies included in the Emergency Declaration Related to Affordable Housing and approve moving forward to Council for consideration.
2. Provide guidance on the proposed strategies included in the Emergency Declaration Related to Affordable Housing and instruct staff to return to LUEC for further discussion and refinement.
3. Do not provide guidance on the proposed Emergency Declaration Related to Affordable Housing. This option would result in continued challenges and barriers to increasing the supply of affordable housing.
Attachments:
Thurston County Affordable Housing Pipeline of Projects 2024- 2028