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Originally published September 16, 2014 at 9:31 PM | Page modified September 17, 2014 at 6:27 PM

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Seattle weighing new tax on builders for affordable housing

The Seattle City Council could consider a tax on new commercial and residential projects to create more affordable housing.

Seattle Times staff reporters

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Frustrated with skyrocketing rents that price out modest-wage workers, the Seattle City Council could consider a tax on all new commercial and apartment projects in the city’s denser areas to pay for more affordable housing.

The so-called “linkage fees” would apply to all new offices, hotels, retail stores and labs, as well as apartment projects in areas zoned low-rise and denser. The fees would be phased in over three years.

“I want to make sure this is a city for everyone, from the Ph.D. at the Fred Hutch to the immigrant janitor in an Amazon building,” said Seattle City Councilmember Mike O’Brien, chair of the land-use committee that heard a consultant’s recommendations on Tuesday. “The market is just not producing that level of affordability anymore.”

The average rent in Seattle in the second quarter of 2014 was $1,441, according to Apartment Insights Washington.

Currently, the city’s main tool to force developers to create affordable housing — incentive zoning — applies only to projects seeking bonus square footage, and has resulted in just 56 housing units since 2001, according to the consultant’s study.

Nearly all developers have chosen to pay a fee rather than build affordable housing into their projects; the city has raised about $32 million in bonus fees. That money helps pay for affordable housing elsewhere.

O’Brien hopes to fast-track a proposal for a committee vote next month. But representatives from the Downtown Seattle Association and Vulcan spoke against his plan Tuesday.

“This proposal comes in absence of a comprehensive housing strategy, a plan, a set of targets for the number of units we wish to create and it’s really nothing more than an additional cost on the production of housing,” said Jon Scholes, vice president of advocacy at the association.

“We know when we make housing more expensive to produce it’s more expensive to consume. So the cost will be pushed straight onto renters, both commercial and residential renters in our city,” Scholes added.

Linkage fees are designed to tax a wider array of development and could raise up to 10 times more money for affordable-housing projects than Seattle’s existing incentive zoning program, said California-based consultant Rick Jacobus of the Cornerstone Partnership.

“The cost is spread more equitably across the city,” he said.

An analysis shows the fees wouldn’t render economically feasible projects unfeasible, Jacobus said, but developer returns might decrease.

Linkage fees could also, over time, reduce how much developers are willing to pay for land, he acknowledged.

Linkage fees have helped other cities, such as San Francisco, pay for additional affordable housing. But Seattle developers say anything that raises their costs will result in less construction and higher rents for market-rate homes, which account for the bulk of the housing market.

“San Francisco’s program was a big success for the people who got an affordable-housing unit but it’s really terrible for everyone else,” said A-P Hurd, a vice president at Touchstone Corp., which has hotel, office and mixed-use projects under way in downtown and South Lake Union.

“If you care about affordability, your job is not just to build affordable housing; your job is to keep housing affordable for all the people who are in market-rate housing,” she said.

So in a new downtown high-rise apartment complex, for example, a developer who pays $3.2 million in bonus fees under the current incentive zoning would pay $6.8 million in linkage fees instead, according to an analysis commissioned by the city. In a South Lake Union apartment high-rise, a developer who pays $2.96 million now in in-lieu fees would pay $4.5 million in linkage fees instead.

Linkage fees are one of several tools Seattle is looking at to boost private-sector production of affordable housing.

For rentals, the city wants to help families with incomes up to 80 percent of the area median, which in 2014 is $63,900 for a family of four, according to the city. For homebuyers, it’s targeting those earning between 80 and 100 percent of median income.

In addition to linkage fees, the council is considering a $1 million investment toward a new regional transit-oriented development fund. The fund, part of an initiative led by the Puget Sound Regional Council, would make loans to affordable-housing developers and enable them to quickly tie up sites near transit hubs. The fund is patterned after a successful one in Denver.

But Tuesday’s committee hearing was primarily devoted to linkage fees, which are based on the net square footage of a project and vary based on the type of project and where it’s located.

Under a baseline option, the fees would range from $7 to $22 per square foot. Under a less-strenuous option, the lowest fee would be $5 per square foot in the lowest-cost neighborhoods, while the highest fee would be $16 per square foot.

Jacobus said the city could allow developers to build affordable housing on-site as a way of satisfying their linkage fees.

Sanjay Bhatt: 206-464-3103 or On Twitter @sbhatt

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