HIGH-END EASTSIDE HOME BUILDERS

Terrene Homes is a family-owned, Bellevue-based company specializing in residential building, specifically single-family and multifamily construction. Most of the 13-employee firm’s projects are on the Eastside and include both spec and design/build projects, at the higher end of quality and price. Terrene designs homes that “emphasize livability without sacrificing style, power, luxury, or comfort.” Danielle wears lots of financial and administrative hats at Terrene. “I’ve been with the company for eight years. My official title is accountant, but I also handle HR and I’m the liaison between employees and EPK Benefits, which administers our MBA Health Trust plan.”

THE MBA HEALTH TRUST PROVIDES AFFORDABLE RATES FOR SMALL FIRMS

Danielle says that it is tough for small businesses to maintain affordable health insurance. “As a company with a small number of employees, it’s hard to find coverage with affordable rates. We joined the MBA Health Trust eight years ago,” says Danielle. “We had just four employees when we first got health insurance and we now have 13 who are currently enrolled. And while remaining a relatively small firm, we’ve been able to keep insurance affordable during that whole period.”

Terrene is now enrolled in a Regence BlueShield PPO plan that provides competitive premiums. “We looked at other options,” Danielle says, “but it was most affordable through the MBA. Our monthly premium is significantly lower—around 10% savings.”

REGENCE BLUE SHIELD EXCELLENT FOR PREVENTIVE CARE

Terrene’s coverage includes Delta Dental of Washington, along with Regence, and Danielle says employees couldn’t be more pleased. “They are very happy with the Regence coverage and the flexibility and ability to see doctors they need to see, particularly in the preventive care area. We’ve had instances where employees were pleasantly surprised at what they had initially thought would be expensive out-of-pocket fees for preventive care, but they didn’t have to pay much at all.”

RESPONSIVE ADMINISTRATORS

EPK is the third-party organization that administers the plans for the MBA Health Trust. “They are extremely helpful and responsive,” says Danielle. “If there is a question of coverage, they are very quick to solve the issue.They are a great middleman for us and our employees to use as a resource.”

TERRENE ALSO PARTICIPATES IN THE MBA GRIP PROGRAM

The MBA also provides access to the GRIP program, which helps improve safety and reduces the overall cost of workers’ compensation for MBA members. “It’s a great program for loss prevention,” says Danielle. “And the GRIP safety team was just out here to do an overhaul of our current safety procedures. It’s a fantastic resource for safety and injuries, though we have never had to make that call.”

Forget your favorite tiny home hunter show for a minute—this is real life. Despite what the media tells us, homeowners and homebuilders, have only very recently begun to shrink their standards in favor of more compact confines.

In the 1990s, if you can remember back that far, about 23.2 percent of homes built were 3,000 square feet or more according to a builderonline.com article based on data taken from the Census Bureau American Housing Survey (AHS). But after the recession, square footage dropped, right? Not so much. The study, which looked at the years between 1990 and 2015, saw the number of 3,000-plus square foot homes built actually increase to 28.6 percent from 2010 to 2015. In fact, the tiny trend didn't really start picking up steam until mid-2016, when millennials and other such first-time buyers became a big enough segment to affect census numbers.

What's interesting is that the minor dent young folks and first-timers are putting in the overall evolution of expanse isn't enough yet to pull builders off course. As labor and land costs expand with our house sizes, builders are less likely to put themselves at risk, opting to operate in the higher-end housing market boasting secure returns, as opposed to taking a less calculated dip into the lower-end income pool and the smaller—dare we say ‘tiny'—household segment.

Does that mean lower-end shoppers are out of luck?

Not necessarily. Townhouse construction is on the rise, accounting for 9 percent of single-family homes from 2010-2015 (up from 6 percent during the ‘90s), and, according to the Builder article, recent data reports show townhouse construction making upwards of 12 percent of total construction in current quarters.

Will townhomes and tiny houses continue to creep into the bigger picture? Time will tell, but it's safe to say as costs continue to rise and people continue coming to hotspots like Seattle and the Puget Sound region, both builders and buyers will continue to push traditional housing boundaries and seek out less expensive, more practical means of housing.

Should be an interesting evolutionary ride.

Craving more on less? Check out Seattle's tiny home revolution.

By MBAKS Content Strategist James Slone

What happens when inclusionary zoning works against affordability? Just ask Seattle.

Like many urban areas in the United States, the Puget Sound region has become unaffordable for many new and existing residents, especially in Seattle, where high land value, lack of supply, cumbersome permitting, and restrictive zoning have sent prices skyrocketing.

One approach some U.S. cities have pursued to address affordability issues is inclusionary zoning (IZ). IZ policies utilize municipal or county planning ordinances to mandate that a given portion of new construction be affordable for low- to moderate-income households.

These mandated units are generally paid for with subsidies. For example, the builder can subsidize affordable housing by eating the building cost, or the government can subsidize it by providing an incentive to the builder in the form of an offset or by setting up an affordable housing fund.

MBAKS does not advocate for IZ policies, having long argued that the additional costs to the builder will ultimately be passed on to the new homeowner or renter, driving up the cost of market-rate housing. Despite these concerns, inclusionary zoning has become a popular approach in cities across the West Coast—including Los Angeles, Portland, and Auburn, Washington.

In 2006, Washington state passed House Bill 2984, opening the door for jurisdictions to “enact affordable housing incentive programs… for the development of low-income housing units.” This cleared the way for Seattle to pass its own IZ program, Mandatory Housing Affordability (MHA), in spring 2019.

The MHA imposed affordable housing requirements in 27 urban villages—neighborhoods across the city designated to absorb the bulk of Seattle’s population and job growth—with the goal of creating 6,000 homes affordable to households making 60% of area median income (AMI). The MHA is just one part of Seattle’s Housing Affordability and Living Agenda (HALA), which aims to create 20,000 affordable homes by 2025.

Overpromising and Underdelivering

In a 2007 report on inclusionary zoning by the Housing Partnership, the authors point out that IZ is politically attractive because it offers a one-size-fits-all solution to affordability with little up-front cost to voters. But it’s only a partial solution. Subsidies alone are insufficient to build enough housing for everyone, especially in hot markets and space-constrained cities.

Supporters of IZ say these policies can play a useful supplemental role provided they strike the right balance. But when poorly designed, IZ leads to fewer affordable homes. Take Portland. After establishing an IZ program in 2017, housing permits plummeted. By exempting projects with 20 or fewer units, they perversely incentivized smaller projects.

The result was a mind-bending 43% drop-off in new home permitting in 2020, with just 2,000 new units coming online. With so few new homes in the pipeline, Portland is underproducing the housing they need to meet demand.

Portland’s woes are a cautionary tale of what happens when an IZ program is designed without carefully considering how different types of housing may be affected or what kinds of builder incentives can balance out the cost of including affordable units.

Seattle’s own MHA is a case study of both the potential and pitfalls of IZ. Zoning requirements were lifted in all 27 urban villages with the proviso that developers either include affordable units in their own projects or pay in-lieu fees. (It’s worth noting here that the MHA only affects 6% of single-family zones, which still comprise about 75% of residential land in Seattle.)

If developers choose to provide the affordable units onsite, 2% to 11% of their projects’ square footage must meet the AMI criteria. Those who choose not to provide the units must pay a fee—ranging between $5.00 and $32.75 per square foot—to the Seattle Office of Housing’s affordable housing fund.

Thus far, the Urbanist has reported, “developers have overwhelmingly chosen the in-lieu fee option,” netting the program $68 million that could fund 850 affordable units. While these are considerable sums, the MHA’s one-size-fits-all design has discouraged certain types of more affordable “missing middle” housing by constraining supply and driving up costs.

The Trouble With Townhomes

A relatively affordable, market-rate family housing option, townhomes fill a vital niche in healthy housing markets. But the MHA’s square footage requirements and in-lieu fees have added significant costs to townhomes, making them less attractive to homebuilders.

In April 2019, 60 townhome projects were fast-tracked to beat the MHA deadline, a record number of permits in a single month. After the rush, townhome permits dropped to 33 per month. In October 2021, townhomes hit their nadir with just one application for the entire 31-day period.

The problem is that the majority of townhome projects average just three to four units. Because builders can’t subdivide square footage in a single unit, they have to round up to one or two AMI-restricted units to avoid the in-lieu fee—potentially half or more of their total units. The result is an effective 25–66% affordability requirement imposed on townhomes even though the MHA calls for just 2.1–11%.

Faced with this, builders end up paying the fee. According to a member survey conducted by MBAKS in 2021, the average fee per four-unit project is now $130,972, essentially doubling predevelopment costs. And because the fees are due early in development, construction loans won’t cover the added expense.

The MHA does provide development incentives like increased floor area ratio (FAR), modified density limits, or an extra story intended to offset MHA fees, but they don’t pencil out in practice. Townhomes usually have three floors and adding a fourth is a liability for both buyers and builders. An extra floor means higher square footage fees, stricter codes, and a four-story home buyers don’t want.

Because of all this, it’s now simply too expensive to build townhomes, and many developers have pulled back from initiating such projects. In 2018, townhome permit applications were set to accommodate 4,647 residents; in 2021, townhome projects had dropped to accommodating just 1,437.

It’s difficult to make housing more affordable when mandates and fees make it more expensive. As Alan Durning of the Sightline Institute put it, “The very notion of imposing fees on homebuilding to pay for affordable housing is facepalmingly wrongheaded.”

Escaping the Twilight Zone

A poorly designed inclusionary zoning program that doesn’t take all types of housing options into full consideration will not only fail to deliver significant affordable housing but will actively discourage the construction of proven housing types that more families can afford.

While MBAKS would prefer to exempt townhomes from MHA altogether, the association and other housing advocates have proposed a few reforms that could make a significant difference. These include allowing MHA fees to be paid in installments and letting builders of small infill projects pay fees only on floor area that exceeds pre-MHA FAR limits.

For MHA housing in general, there are incentive carrots that would balance out the stick of fees, including multifamily tax exemptions for MHA projects, a 50% waiver in costly off-street parking requirements, and opening the door to micro units that offer naturally affordable market-rate rents.

Of course, the real solution to our housing shortage is building a lot more homes. Most of the city is still restricted to single-family zones.

We must open the door to more housing types, lower construction hurdles like onerous permit timelines, and let homebuilders build. With significant zoning changes, Seattle could encourage more missing middle housing—such as townhomes, rowhouses, duplexes, and fourplexes—across the entire city.

Without incentivizing these housing options, inclusionary zoning will simply become exclusionary zoning by another name. We need a lot less stick, and a lot more carrot.