As a firm with multifamily investment communities throughout the country, we need to stay informed about changes to both state and national legislation.
This is especially true when talking about Seattle, a city that is something of a media darling, engrossing and amusing the country with its quirky ways, gorgeous natural backdrop, and vibrant economy. If you’re an investor considering the opportunities there, you should be pleased with what you see, as this is one of the real estate development markets that is frequently described as “booming.”
That delight may be slightly mixed with bewilderment when you look closer though, as the city is in the midst of rezoning and the imposition of housing affordability requirements, and the boom is not consistent across the whole city. This is definitely a market with much to offer, but one that is best to enter with expert guidance.
New Policy in Seattle Mainly Affects New Developments
Rents in Seattle have been growing steadily as the city’s population has surged by over 15,000 people per year from 2011-2016. In response to this rapid growth, the city government created a program it calls Mandatory Housing Affordability (MHA) to create 6,000 new affordable apartments over 10 years.
MHA is a carrot-and-stick approach to city planning. Locations in neighborhoods around the city are being designated for “upzoning.” In these areas, developers are required to provide affordable housing—about 7 to 11% of units in areas where the program has been instituted so far—or pay fines based on the building’s area that go to the city’s affordable housing fund. The program is being written into new zoning laws that are gradually being introduced. In exchange for their cooperation, developers are being rewarded with a variance to zoned height restrictions.
This incentive allows residential developers to build an additional one-to-three floors per building and incorporate more income-generating units into their projects. This benefits the developer and accomplishes two things for the city: affordable housing is created and the density of city neighborhoods is increased. Seattle is already one of the more densely populated U.S. cities, ranking 10th in the country for this indicator, with almost 8,000 people per square mile. That’s up from 4,722 people and 24th place in 2010.
How MHA Could Affect Multifamily Investing in Seattle
MHA, conceived in 2015, has slowly been implemented in a patchwork manner. Only select spaces are affected and the conditions being imposed vary by neighborhood. Developers are responding to the new situation in a variety of ways.
Even though current projects are exempt from the program requirements, some may volunteer to participate for the sake of the height variance, allowing them to build more luxury upper-floor apartments. Realtors are promoting some sites as a location to develop before rezoning begins there, to avoid MHA, and others as a location where the likelihood of MHA implementation is seen as an opportunity.
The new program creates an additional layer of complexity in a task that was never simple. MHA will be a factor to consider when investing in the thriving Seattle market, but so far, all signs point to a continuation of the market’s positive trajectory for years to come. It is unlikely to put a damper on the secondary market, and it may give that market new impetus while developers sort out the implications of MHA. In any case, it highlights the need for experienced, professional advice when investing in this market.
CWS Capital Partners has a staff of real estate investment experts ready to assist you in the Seattle multifamily market and in cities throughout the country. We specialize in assisting investors with acquisitions, development, repositioning, and 1031 exchanges. Be sure to read our white paper on 1031 exchanges to learn more about these tax-deferred transactions.
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The information provided here is for your general informational purposes only. It should not be considered a recommendation or personalized advisory advice. CWS has made this third party information available from authors it believes are knowledgeable and reliable resources. However, its accuracy or completeness cannot be guaranteed and sentiment may change due to legal or economic conditions.
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