Once again the Seattle City Council has ignored the math and concerns from builders and is ready to substantially chance the voluntary Multifamily Tax Exemption program in a way that will reduce participation. Councilmember Sally Clark will propose legislation to the full Council later this morning that will lower the threshold for affordability to 40 percent of Area Median Income (AMI) and expand the percentage of units required to participate to 25 percent. Taken together, these new requirements will mean that the rent concessions from builders of Small Efficiency Dwelling Units (SEDUs) will exceed the tax benefit. In other words, Council’s changes will mean that the rent lost won’t equal the tax break; participating in the program will mean losing money, something any viable business can’t afford to do.

We explained the math in a letter to the Council:

There you have it. After Councilmember Clark’s changes, why would a builder participate in the program? The answer is they won’t. But the Council grinds on because they believe that the rents are lower than what builders know they are. Why are rents for SEDUs higher. Well, because Councilmember O’Brien’s legislation changes the rules, eliminating the old microhousing code and replacing it with the SEDU code. That means bigger units, more requirements, and higher rents. The Office of Housing staff continues to use old microhousing legislation to argue that builders will still play because the rents for a microunit are around $900, which is already around 60 percent AMI, the current threshold. But SEDUs are different and have higher rents. We told them this would be the case.

So to sum up, the Council passed legislation that eliminated microhousing, created a higher priced SEDU product, and now is imposing changes to increase the costs of the MFTE based on the old microhousing prices. This will mean most builders won’t participate in the program and fewer renters will get the savings. And this is the Council that claims its concerned about creating affordable housing.

Somehow the Council believes that it can, by fiat, make developers lower prices. This appears to the Council’s first foray in to trying rent control. I’m sure if they could, they’d mandate lower rents and force builders to build at a loss. But they can’t, since rent control is currently not legal. And even if they could, such a mandate would all but assure the projects wouldn’t be built at all, meaning less housing supply, fewer choices for lower income people and, you guessed it, higher prices. All of which would fuel more demand for rules and regulation. As we enter the San Francisco Death Spiral, you can thank the City Council for taking the easy way out for them that will make the way harder for people trying to find a place to live in the city.