Title
Approval of the Affordable Housing Emergency Ordinance Permit Fee Grant Program Funding Proposal
Recommended Action
Committee Recommendation:
Move to approve Finance Committee’s recommended funding proposal for the Affordable Housing Emergency Ordinance Permit Fee Grant program
City Manager Recommendation:
Move to approve the funding proposal for the Affordable Housing Emergency Ordinance Permit Fee Grant Program.
Report
Issue:
Whether to approve the recommended funding proposal for the Affordable Housing Emergency Ordinance Permit Fee Grant Program.
Staff Contact:
Jacinda Steltjes, Housing Division Manager, Community Planning & Economic Development, 360.790.5224
Presenter(s):
Jacinda Steltjes, Housing Division Manager, Community Planning & Economic Development
Background and Analysis:
The Permit Fee Grant program is the most recent action the City of Olympia has taken over the last decade in response to the insufficient supply of affordable housing and the ongoing housing crisis facing much of the nation.
History of Efforts to Increase Affordable Housing Supply
Middle Housing
In 2016, the City launched its Missing Middle Initiative, an effort to analyze and consider changing city codes to allow more than one housing unit per lot, thereby allowing for a range of housing options and helping to ensure housing availability and affordability for Olympia residents. The initiative included two public surveys. The surveys polled residents’ support for proposed code changes regarding accessory dwelling units, duplexes, triplexes, fourplexes, and cottage housing, for example. The results showed strong support for many of the proposed code changes. City Council adopted a Missing Middle Infill Housing ordinance in late 2018. In 2019, the ordinance was challenged by a small group of residents and ultimately invalidated by the Washington State Growth Management Hearings Board (GMHB), despite the 2019 Washington State Legislature’s passage of a bill (House Bill 1923) encouraging middle housing.
In May 2022, the GMHB’s decision was reversed and vacated by the Thurston County Superior Court’s Order of Judicial Review. An appeal of the Superior Court’s ruling was filed with the WA State Court of Appeals, which affirmed the Superior Court’s ruling in an opinion dated June 26, 2023. Today, long-range planning staff are preparing to update city codes to permit more middle housing, as required by legislation (HB 1110) adopted in the 2023-2024 session.
Impact Fee Exemptions and Home Fund
In 2018, the City approved an ordinance reducing school, park, and transportation impact fees by 80% for developments affordable to low-income households. That same year, a one-tenth of 1% sales and use tax levy known as the Home Fund was put to voters and was approved. The City began collecting Home Fund revenues, which are dedicated to the construction of affordable housing and emergency shelter for low-income households.
One Community Plan
In 2019, following a noticeable uptick in unhoused community members, the City of Olympia launched a yearlong planning effort aimed at finding community agreement around how to best respond to the homeless crisis. This process included hearing from over 1,200 people through 20 different community conversations and two online surveys. The effort resulted in the One Community Plan. Focus area 2.1d of the Plan calls for reducing costs and other barriers to building more housing stock of all types. Focus area 2.2c of the plan calls for adjusting policies and codes to facilitate affordable housing construction.
Housing Needs Assessment and Housing Action Plan
In 2020, the City partnered with regional jurisdictions and Thurston Regional Planning Council, resulting in a county-wide Housing Needs Assessment. This led to further collaboration and in 2021, the City of Olympia adopted its Housing Action Plan identifying six strategies and more than 70 actions the City can take to increase housing supply, bolster the diversity of housing options and increase affordability and stability for residents. Strategy 1 of the plan is to increase the supply of permanently affordable housing for households that make 80% or less of the area family median income. Strategy 3 is to expand the overall housing supply by making it easier to build all types of housing projects. Strategy 5 is to continually build on resources, collaboration, and public understanding to improve implementation of housing strategies.
Affordable Housing Emergency Declaration Ordinance
The most recent effort to increase affordable housing supply began in early 2024 when a handful of local affordable housing developers and private property owners wishing to construct affordable housing communicated to city staff and the City Council the barriers they are facing to develop in Olympia. Developers shared that the hard costs to construct affordable housing in Olympia are too high, soft costs accumulate quickly as projects make their way through permitting, and navigating the City’s processes and municipal codes can be challenging. Several developers noted hard costs associated with design and development standards. One example provided by South Puget Sound Habitat for Humanity is the construction of a 12-unit cottage community at 2502 8th Ave. SE. A private landowner has agreed to donate the land to the non-profit if Habitat agrees to construct a small cottage housing community. According to the project’s architect, the costs associated with the required off-site improvements of the project total $740,000, of which sewer and road infrastructure costs account for $437,100. These hard costs have stalled the project.
In June of 2024, Homes First and South Puget Sound Habitat for Humanity gave public comment at a city council meeting describing the barriers they encounter and asking the city council to take action. Subsequently, the city council requested Housing staff bring forward solutions to assist developers in creating affordable housing in Olympia.
On December 17, 2024, the Council approved the Affordable Housing Emergency Ordinance, number 7414, which is intended to reduce barriers and increase housing supply by lowering development costs and fostering an environment in which affordable housing is prioritized and open lines of communication between city staff and developers thrive. The ordinance includes the following six actions:
• Prioritize affordable housing projects in the permitting process;
• Dedicate staffing to assist developers;
• Adopt a process for the developer to request a waiver related to city codes or regulations when they are creating a barrier to developing an affordable housing project;
• Consider issuing a threat of eminent domain when affordable properties are at risk of being sold and losing their affordability;
• Adopt a grant program to provide developers funding to apply toward infrastructure costs; and
• Adopt a grant program to provide developers funding to offset all or some of the plan review and permit fees.
All strategies adopted apply to projects in which all housing units developed are affordable to low-income households whose income does not exceed 80 percent of the Olympia-Tumwater Metropolitan Statistical Area Median Income and which will retain affordability via a Restrictive Covenant for a minimum of 25 years.
At the time the ordinance was adopted, funding for the infrastructure assistance grant was identified. That funding is provided through money set aside through the utility rates. Funding for the grant program to offset plan review and permit fees was not determined at the time the ordinance was adopted. Staff were directed to proceed to Finance Committee and then return to full City Council in early 2025 with a proposal to fund this grant program.
Permit Fee Grant Program Funding Proposal
Staff recommend the Permit Fee Grant program maintain a minimum balance of $500,000 and a maximum balance of $700,000. This range would be sufficient for approximately two larger projects of 50-plus units per year in addition to a mix of medium and smaller middle-housing type projects. For example, a large project like the 162 units being constructed as Lansdale Pointe, 911 Burr Rd. SE, will cost approximately $53 million to build, of which $409,285 is associated with permitting fees. A smaller project such as Low Income Housing Institute’s 65-unit Unity Commons, 161 Pattison St NE, cost $21 million to build, of which $165,985 was associated with permit fees.
To determine the proper fund balance for the grant program, staff examined the permit fee costs incurred by current and recent development projects that fit the ordinance criteria. While fees will vary depending upon a project’s location and several other factors, staff felt the sampling of projects were similar in nature to projects the City can expect to see in the next few years. A summary of permitting fees associated with four recently completed affordable housing projects is provided as the attachment titled Project by Project Sum of Fees. A line-item account of typical permitting fees and the average cost of such fees based on the four projects is provided as the attachment titled Typical Associated Permit Fees. It should be noted that applicable permit fees vary from project to project and are dependent upon factors such as location, type of housing, and environmental conditions, among other things.
A multi-pronged approach to funding the grant program is recommended. First, staff propose to immediately seed the program with $500,000 from the Economic Development Fund. This will provide immediate funding to begin assisting project applicants. The current balance of the Economic Development fund is $1.2 million. Second, staff propose that the first 10% of the proceeds of any property sold by the City be deposited into the Affordable Housing Grant fund. If the fund is within the established range, funding from the sale of property could be deferred. Because the City does not sell property on a regular basis, staff will monitor the fund balance for the grant program and may make recommendations to provide funding for the grant program through the annual budget process.
Based on the known pipeline of affordable housing projects that are planned to occur in the coming two years, it’s anticipated that the Permit Fee Grant Program funding in its current form will be exhausted by the end of the second year, or sooner.
Staff view the program as a pilot and after the first two years of the program, recommend that the grant program and the funding strategy proposed be revisited to ensure sustainability and evaluate whether the program is accomplishing the intent of the Affordable Housing Emergency Declaration ordinance.
Permit Fee Grant Program Details
A Permit Fee Grant Program will reduce costs incurred by the developer to construct new affordable housing units. There will be no net loss to the City’s permit fee revenue. The fees will be paid from the grant program funds rather than by developers.
Staff recommend the grant program exempt permit fees, which are typically due toward the end of the permitting process and must be paid before a permit is issued. It’s recommended that plan review fees still be applicable and the full responsibility of the developer. This approach is recommended so that the funding made available through the grant program may stretch further and assist a greater number of projects. This approach considers that planning review fees are typically due by the developer at the time plans are reviewed, generally at the beginning of the permit process, that staff often review a project multiple times before it moves forward in the permitting process, and that some projects never reach fruition, despite plan reviews. While the Permit Fee Grant program will not reduce plan review fees, it’s anticipated that some of these fees will be avoided as a result of dedicated CPED staff implemented through the Affordable Housing Emergency Declaration who are available to assist developers in understanding City codes and regulations and troubleshoot barriers to development.
Staff recommend the amount of grant funding available to a developer be dependent upon the affordability level of the housing development and whether the development will meet goals identified in the City’s Comprehensive Plan. Projects producing units affordable to households whose gross annual income is 50% or less of the Area Median Family Income shall receive a 100% exemption of all permit fees. Housing units serving this income range will be most needed to accommodate Olympia’s population growth over the next 20 years, according to data being used to update the Comprehensive Plan. A minimum of 7,027 housing units for this income range will be needed by 2045. Projects providing affordable housing units for households whose gross annual income is between 51 and 80% of the Area Median Family Income would receive a 50% exemption of all permit fees.
Staff recommend that projects eligible for a 50% exemption could achieve a full, 100%, exemption of permit fees if they are able to demonstrate in the permitting process that the project not only serves low-income households but also meets at least one of the following goals outlined in Olympia’s Comprehensive Plan update:
• Is located within one-quarter mile of public transit
• Maximizes density allowed under the property’s zoning designation
• Provides open or green space in excess of that required under city code
• Provides sidewalks in excess of that required under city code
Permit fee exemptions are summarized as follows:
|
Affordability Level |
Standard Permit Fee Exemption Based on Affordability Level |
Potential Additional Exemption Based on Meeting Comprehensive Plan Goal(s) |
Total Possible Exemption |
|
Projects serving households with incomes up to 50% of Area Family Median Income |
100% |
Not Applicable |
100% |
|
Projects serving households with incomes between 51% and 80% of Area Family Median Income |
50% |
50% |
100% |
Climate Analysis:
Increasing the supply of affordable housing is anticipated to lower greenhouse gas emissions by maximizing density in urban areas, reducing transportation emissions, and reducing energy use by incorporating energy efficient appliances and building designs.
Affordable housing projects do not frequently generate large amounts of net operating income from rents; this means developers must rely heavily on public funding sources, as opposed to private lenders, to finance their project. In Washington state, the Housing Trust Fund and Low Income Housing Tax Credits are often needed to make an affordable housing project possible. These competitive financing sources require funded projects to maximize energy efficiencies and build in accordance with the Evergreen Sustainable Development Standards (ESDS). ESDS contains criteria that safeguard health and safety, increase durability, promote sustainable living, preserve the environment, and increase energy and water efficiency. These funding sources also prioritize projects in close proximity to transit and infrastructure.
Equity Analysis:
A lack of housing, specifically that affordable to low-income households, creates housing instability and is a factor in increasing homelessness. The Permit Fee Grant Program will help increase affordable housing supply and therefore most prominently impact Olympians who are low-income. Low-income households and people of color are disproportionately negatively impacted by insufficient supply of affordable housing. Approximately 7,600 Olympia households are currently 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 the household is 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, due to systemic racism and other discriminatory practices, are less likely to own their own home, have a smaller household income, and are more likely to experience housing instability and homelessness than their white, non-Hispanic counterparts. Access to housing is essential to the security, health, wellbeing, and prosperity of our community.
Alignment with Comprehensive Plan Update
In 2021, the Washington Legislature changed the way communities are required to plan for housing. House Bill 1220 (2021) amended the Growth Management Act (GMA) to instruct local governments to “plan for and accommodate” housing affordable to all income levels. Previously, City’s were required to encourage affordable housing. The amended law also directed communities to project their future housing needs by income bracket and outline in the housing element of their comprehensive plan how they will plan for housing. In preparation for updating the City’s Comprehensive Plan, jurisdictions across Thurston County came together to identify their future housing needs by income bracket. Thurston Regional Planning Council assisted with this task. It’s projected that in the next 20 years, Olympia will need approximately 12,600 additional housing units within its city limits and 1,651 in its urban growth area to accommodate population growth at all income levels. Of these, 7,616 units will be needed for low-income households with incomes at or below 80% of the Area Family Median Income.
Neighborhood/Community Interests (if known):
Housing is a community interest, as is the City’s budget and decisions about how to achieve additional housing supply.
Financial Impact:
Funding for the Permit Fee Grant program is proposed as follows:
1. $500,000 from the Economic Development Fund in 2025, reducing the fund balance from $1,200,000 to $700,000.
2. First 10% of the sale of any City property, unless the fund is within the established target range of $500,000 to $700,000.
3. Monitor and add funding to maintain the established target funding range through the City annual budget process, if necessary.
Options:
1. Move to approve the funding proposal for the Affordable Housing Emergency Ordinance Permit Fee Grant Program.
2. Move to approve the Permit Fee Grant program funding proposal with modifications.
3. Do not approve the Permit Fee Grant program funding proposal.
Attachments:
Project by Project Sum of Fees
Typical Associated Permit Fees