Cathy Moore Wants to Make it More Expensive to Build Middle Housing

Moore says imposing fees on small developments in former single-family areas would not depress new housing development, contradicting the city's own analysis

By Erica C. Barnett

In a recent meeting of the Seattle City Council's special committee on the comprehensive plan, Councilmember Cathy Moore laid out her case for imposing fees on new housing in the city's traditional single-family areas, where—under a state law passed two years ago, HB 1110—the city is required to allow up to four units on each lot (or six within a quarter-mile of frequent transit stops or when two of the units are affordable.)

The council is gearing up to adopt "interim" zoning changes to comply with HB 1110, which Seattle must do by June; ordinarily, the city would have adopted the new rules as part of the city's overall comprehensive plan update, but Mayor Bruce Harrell introduced his legislation far behind schedule, leaving the council with little time to consider the plan.

A half-dozen homeowner groups have appealed the plan, arguing that specific new "neighborhood centers"—commercial areas near transit where the proposed plan would allow apartment building—will harm the character of their historically single-family areas.

Simultaneously, the city is considering changes to its Mandatory Housing Affordability (MHA) legislation that would expand MHA to the new neighborhood centers, adding 21 percent to the area of the city that's subject to MHA, while continuing to exempt the new "neighborhood residential" zones—the new name for the city's former single-family areas—from the fees.

Moore's objections boiled down to two main points. First, she argued against the concept of neighborhood centers, noting that the city is already increasing the amount of housing that can be built "throughout the city," by allowing up to four units on every single-family lot. (Moore specifically opposes a new neighborhood center in Maple Leaf, which she argued would amount to "sacrificing" the entire neighborhood to density.)

Second, and more vociferously, she argued that the city should impose Mandatory Housing Affordability (MHA) requirements on all new housing in former single-family areas, effectively mandating that developers build or fund the construction of at least one affordable unit for every three to five market-rate units they build.

MHA, which has been in place since 2019, allows developers to build more housing in certain parts of the city; in exchange, they agree to build affordable housing on site or pay the city's Office of Housing, which funds housing elsewhere. The size of the fee varies depending on where in the city the new housing is located, and by how much of a height bonus developers receive. As housing construction slows, so do MHA revenues; currently, the City Budget Office projects that MHA will bring in $22 million in both 2025 and 2026, down from $68 million in 2022 and $59 million in 2023.

"We're going to open up the city to tremendous development and density, which is good, but we need to make sure that we're utilizing all our tools," Moore said, "and MHA is a powerful tool. It can be tweaked, but to simply say it shouldn't apply across the board, I think, is a missed opportunity. And again, it's a calibration of, what are the costs that we consider valuable in this society?"

Representatives from the mayor's office, the Office of Planning and Community Development, and two consultants that looked at the impact of the MHA program on housing in Seattle, BERK and Heartland pointed to 2024 BERK/Heartland study showing that developers of low-rise housing—the townhouses, fourplexes, and other low-density housing types that will be allowed in single-family zones under 1110—opted to build these units outside MHA areas because the additional height bonus didn't benefit low-rise developers enough to make up for the large fees they would have to pay to build in those areas.

A separate study, from ECONorthwest, showed that "middle housing" developments are extremely sensitive to cost increases, falling off dramatically as the cost to develop each unit increases. That same study found that middle housing is currently feasible in only 19 percent of the proposed new neighborhood residential (former single-family areas), and most of those won't be redeveloped; imposing new fees on new housing in those areas would make it far less likely that developers would choose to build new housing there.

OPCD planning manager Geoff Wentlandt noted that by adding new neighborhood centers to the city's zoning maps, the city will be increasing the areas of the city subject to MHA requirements by 21 percent. But imposing MHA fees on small developments in former single-family areas, Wentlandt said, would reduce the amount developers would make on projects below levels that most developers would be willing to accept. "We really want to prioritize seeing the production of middle housing in the new neighborhood residential zones. Everyone agrees that middle housing is a high priority, and want to make sure it comes to fruition," Wentlandt said.

Moore pushed back on this, arguing that developers should be willing to accept lower profit margins in exchange for the ability to build in new areas. "My understanding is, in the past, when they were building, they expected 15 to 20 percent return on investment, and they're still seeking those kinds of high level [returns]," Moore said.

"If you talk to some of the smaller for-profit developers... they're not looking to make more than 10 percent return on investment. And so things do actually pencil out. When we talk about penciling out, are we talking about we're penciling out at 15 percent profit, or are we talking about penciling out at 10 percent profit? Nobody's really answered that question, what does it truly mean to pencil?"

Moore also suggested that OPCD was arguing that "six dollars"—the difference between a typical $22-per-square-foot MHA fee when the program was introduced and the $28 it costs today—is making it so that projects don't pencil out. "I think we need a policy discussion about whether we think $6 to ensure that we continue to have affordable housing in the city is a cost that we think is appropriate for our developers to absorb and reduce their return on investment a little bit," Moore said. "I guess I'm unconvinced that the $6 is really, across the board, going to be the thing that prevents affordable housing." (The $6 change reflects an annual inflation adjustment, not an increase in real terms.)

Christa Valles, a senior advisor in the mayor's office, pushed back on this, saying, "I would just like to be really clear we do not consider our position on this as backing away from MHA. ... This is a really difficult environment right now for housing development, and we want to make sure that the infill that we hope to see under HB 1110 has the support that it needs to happen."

According to the BERK study, the MHA fee itself makes up a small percentage of overall development costs; but, as costs for other elements of development increase, the fee can be a deciding factor in whether a project gets built. In real dollars, building four 1,250-square-foot units would add $140,000 to the cost to develop a property, using the current $28 "typical" fee. Even if a developer decided it was worth it to pay an extra $140,000 to build those four units, the fee would get passed on to future renters or buyers, making the housing less affordable.

Moore also suggested "carving out an exemption" to MHA requirements "for people, families, who are wanting to develop their lot," as opposed to developers building the same type of housing for new residents.

Implementing the changes Moore suggested—that is, eliminating at least some neighborhood centers and imposing fees on all new development in the city's traditional single-family neighborhoods—would make it far more expensive, less feasible, and less likely that middle housing would be built in neighborhoods across Seattle. Developers would reasonably opt out of building in places where they would make less money, choosing either not to build in Seattle or to concentrate new housing in areas where it has always been allowed—along large, busy arterial roads where Seattle's renter majority is currently concentrated.