Title
Approval of an Ordinance Declaring a Public Health Emergency Related to Insufficient Supply of Affordable Housing
Recommended Action
Committee Recommendation:
The Land Use & Environment Committee recommends approving an ordinance declaring a public health emergency related to insufficient supply of affordable housing.
City Manager Recommendation:
Move to approve on second reading, an ordinance declaring a public health emergency related to insufficient supply of affordable housing.
Report
Issue:
Whether to approve on second reading, an ordinance declaring a public health emergency related to insufficient supply of affordable housing.
Staff Contact:
Jacinda Steltjes, Affordable Housing Program Manager, City Manager’s Office/ Housing and Homeless Response, 360.752.8482
Presenter(s):
Jacinda Steltjes, Affordable Housing Program Manager, City Manager’s Office/ Housing and Homeless Response
Background and Analysis:
Background and analysis has changed from first to second reading.
At the December 10 City Council meeting, the City Council requested that the review of the Ordinance occur at 18 months, instead of 36 months, as previously stated in the Ordinance. Also, language was added stating the Ordinance will come back before the City Council at least once every 12 months to ascertain if the public health emergency still exists and if the sunset date should be extended.
Across the United States the lack of affordable housing has reached crisis levels. Demand for affordable housing far outpaces available supply. City of Olympia is not immune to this crisis. Many Olympia households are struggling to stay housed while also affording their other basic needs. Given the housing landscape in the United States, many jurisdictions nationwide have chosen to take actions to encourage increased supply of affordable housing.
In June 2024, a handful of local affordable housing developers communicated to the City Council the barriers they are facing to develop affordable housing in Olympia. Staff has heard similar concerns from developers and private property owners. Stakeholders communicated that the hard costs to develop affordable housing in Olympia are too high, soft costs accumulate quickly as projects make their way through permitting and other city processes, and navigating the City’s processes and municipal codes can be challenging for developers who are constructing affordable housing projects.
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. These are needed because rents are the primary operating revenue source for all housing projects. When rents are purposely kept low so to be affordable to tenants, there is less operating revenue available to service the project’s debt. As a result, the amount of bank financing available to affordable housing projects is much lower than market rate projects and developers must layer private and public financing sources to make their project a reality.
These financing 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 are available to award. As an illustration of this point, Washington State’s Housing Trust Fund is a common source of state financing sought by affordable housing developers. In 2024, the Housing Trust Fund program made available $91 million. Although funding awards have not been announced yet, the State has announced there was $373 million in funding requests representing 4,500 proposed affordable housing units statewide. The program was thus over-subscribed by $282 million.
Strategies to increase the supply of affordable housing and middle housing
In response to concerns expressed by affordable housing developers and private property owners, Council directed staff to explore actions Olympia can take to help reduce barriers to developing affordable housing and middle housing, which often-times operates as naturally affordable housing, in Olympia. Staff from Housing and Homeless Response, Community Planning & Development, Public Works, City Manager’s Office, and Legal have worked to develop the proposed ordinance, which acknowledges the public health impacts associated with housing instability and includes several strategies to increase the supply of affordable housing in Olympia.
The proposed ordinance defines affordable housing as housing which cost a household no more than 30% of its gross income. Staff is proposing the strategies apply to housing for which the following eligibility criteria has or will be met upon the development of housing units:
• All units produced are affordable to households whose income does not exceed 80% of the Olympia-Tumwater Metropolitan Statistical Area Median Income, adjusted for household size and updated annually by the U.S. Department of Housing and Urban Development.
• A Restrictive Covenant pursuant to the property’s use is executed between the property owner and City of Olympia outlining that all housing units developed are subject to a 25- year period in which the units must remain affordable to households with incomes at or below 80% of area median income.
The proposed strategies are detailed below and are intended to address the insufficient supply of affordable housing by 1) reducing development hard costs, 2) reducing development soft costs by decreasing the amount of time a developer is holding property before a project breaks ground, 3) fostering an environment in which affordable housing is prioritized and open communication thrives.
1. Prioritize affordable and middle housing projects in City permitting process
Community Planning and Development staff will prioritize affordable housing and middle housing projects meeting the eligibility criteria above in the permitting process by moving these projects to the front of the permitting que. Stating this as a Council priority gives staff clear directive and positions staff to effectively and consistently communicate to the public that affordable housing is a City priority. This strategy decreases the soft costs associated with holding property over time.
2. Specialized CP&D staff dedicated to affordable & middle housing projects
A Principal Planner in Community Planning and Development will act as an ombudsperson to projects meeting the eligibility criteria. This staff person will work collaboratively and creatively with other Community Planning and Development staff, Housing staff, Public Works staff, City Manager’s office, and the developer to problem-solve barriers to proposed projects and guide projects through the permitting process in a timely manner. This strategy decreases the soft costs associated with holding property over time. It may also decrease development hard costs associated with a project.
3. Give City Manager or City Manager’s designee authority to waive, postpone, or exempt City processes for affordable housing as described below
The City Manager is authorized and empowered to carry out those powers and duties as are reasonable and necessary to mitigate the effects of the emergency on a case-by-case basis and is authorized and empowered, among other things, to do the following:
• Obligate funds for emergency expenditures as directed by the City Council;
• Enter into contracts and incur obligations in excess of those outlined in OMC 3.16.020 necessary to increase the supply of affordable housing;
• Exempt or postpone any Engineering Design and Development Standards (EDDS) which are under the City’s control;
• Take other actions, as appropriate, in response to such emergency.
City Manager is authorized to exercise these powers in the light of these exigencies of an emergency situation without regard to time consuming procedures and formalities prescribed by law (with the exception of mandatory constitutional requirements). Depending on a project’s needs, this strategy may decrease the soft costs associated with holding property over time. It may also decrease development hard costs associated with a project.
4. Participate in 1033 Tax Exchange transactions with willing property owners
The City will participate in a 1033 Tax Exchange transaction when the transaction is agreed upon by the current property owner and the City, a future property owner has been identified, and the transaction will permit the property in question to remain affordable. This type of transaction requires the City to issue a threat of eminent domain. Additionally, if so desired by the City Council staff will explore city provided funding resources that would be available to assist developers in acquiring property under this strategy. This strategy decreases development hard costs associated with a project and encourages property owners to sell their property to organizations willing to operate the property as affordable housing.
5. Grant Program for Infrastructure Improvements
Implement a grant program which makes funding available for off-site infrastructure improvements necessitated by affordable housing projects. Seed funding for the program shall originate from a 0.5% drinking water utility rate increase and a 1% wastewater utility rate increase effective January 1, 2025. Funding originating from the drinking water utility will be applied toward drinking water infrastructure improvements. Funding originating from the wastewater utility will fund wastewater infrastructure improvements. The program is proposed on a first-come basis. This strategy decreases development hard costs associated with a project.
6. Grant Program to Exempt Permit and Other Fees
Develop a grant program which exempts in full or in part permit and development fees for affordable housing projects. In developing such a program staff shall identify a funding strategy and implementation plan. Funding would be provided on a first-come basis as to not cause increased undo burden on the general fund, unless staff is otherwise directed by City Council. This strategy decreases development hard costs associated with a project and keeps development timely.
Increasing the supply of affordable housing aligns with several local plans, studies, initiatives, and state requirements. 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 and on the brink of homelessness.
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. The strategies presented in the emergency ordinance will help the City meet this goal. Other efforts will assist as well.
Companion Efforts
Community Planning and Development staff is currently working on other companion efforts anticipated to further encourage affordable housing and middle housing. CP&D is actively working on revised Unified Development Code regulations and standards. Revisions will be considered with the City’s Phase 2 Middle Housing Implementation project to comply with House Bill 1110 (Middle Housing). Building setbacks, building coverage, building heights for accessory structures, residential story limits, and wall heights are examples of standards that may be adjusted to encourage affordable and middle housing projects. The draft ordinance will be ready for a Planning Commission public hearing in the second quarter of 2025. Revisions are anticipated to fall into the below categories:
• Title 18 zoning and design review
• Title 17 subdivisions
CP&D staff are also working to reduce permitting times for a variety of project types. This work is also state mandated and is anticipated to be brought forward to Council in mid-2025.
Lastly, Engineering Design and Development Standards (EDDS) which have been waived, postponed, or exempted by the City Manager or the City Manager’s designee under the proposed ordinance will be considered for inclusion in the City’s EDDS update process, which occurs annually.
Climate Analysis:
Affordable housing and middle housing create density and better utilize the limited availability of land. These housing types also tend to increase the use of public transit. Lastly, developers of these types of housing often make efforts to reduce energy use in new construction and implement Evergreen Sustainable Development Standards (ESDS).
Many affordable housing projects that are constructed in Washington state are partially financed with state and/or federal financing, such as through the Housing Trust Fund program. 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 ordinance declaring a public health emergency related to the insufficient supply of affordable housing will 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 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, 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.
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 explores 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%.
The Fair Housing Assessment was produced in 2022 in partnership with Thurston County and Housing Authority of Thurston County. The Assessment evaluates housing discrimination and fair housing planning efforts as well as identifies outstanding fair housing needs in Thurston County. The assessment is used to inform spending of federal funds, create goals and strategies to advance fair housing in Thurston County, and inform program areas and policies that involve housing efforts. 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 priority 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 ordinance are a result of feedback provided from several local developers of affordable housing and middle housing and private property owners who desire to construct affordable housing on their land. Stakeholders communicated the challenges and barriers they face in constructing these types 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 0.5% drinking water utility rate increase and a 1% wastewater utility rate increase has been approved by the City Council as part of the 2025 budget proceedings and are proposed as seed funding for a grant program which makes funding available for off-site infrastructure improvements necessitated by housing projects meeting the definition of affordable and satisfying the proposed eligibility criteria.
There will likely be additional financial impacts associated with a permit fee reduction grant program. Financial impacts associated with the program will be presented at such time that staff presents a funding strategy and implementation plan for this program.
Options:
1. Approve the ordinance declaring a public health emergency related to insufficient supply of affordable housing as presented.
2. Approve a modified version of the ordinance declaring a public health emergency related to insufficient supply of affordable housing.
3. Do not approve the ordinance declaring a public health emergency related to insufficient supply of affordable housing.
Attachments:
Ordinance