In an attempt to encourage developers to build more affordable housing for middle-income workers, Mayor Greg Nickels has released a revamped version of Seattle's tax exemption program, which builders say has never "penciled out."

The current program wasn't scheduled to sunset until 2009, but the rental market has changed drastically enough to render it practically useless, said Rick Hooper, policy director for the city's Office of Housing. It's had very limited success; only 11 projects have been developed under it since 2004 and very few developers use it now.

The goal of the new program is to meet a relatively new housing challenge in Seattle; the expulsion of middle-income wage earners through rising housing costs.

A new plan

"Seattle Homes Within Reach" is intended to allow developers to rent at a higher rate then under the current program, which is aimed at those making 60 percent to 70 percent of Seattle's median income.

But because of growing land prices, construction costs and rental rates, the program has been a negative incentive for developers, said Seattle City Council member Tom Rasmussen. He chairs the committee currently reviewing the mayor's proposal.

Leslie Williams, of Williams Marketing Inc., a group that examines land purchase feasibility for developers, said in some cases even if the land were free building would not be practical.

"The reality is it's very difficult to provide affordable housing," said Williams.

The high cost of building has cut the return rate for developers in half during the last few years. About half barely break even and she estimated that the other half make a profit of about 5 to 10 percent, significantly down from previous earnings.

The revised tax exemption program targets those making about 80 percent of median, or individuals earning up to $49,000 and families earning no more than $62,300. It would provide a 12-year tax exemption on the residential portion of any new apartment building in which 20 percent to 25 percent of the units are set aside for those income levels.

The monthly rent for an individual under the plan would be no more than about $1,170, between $50 and $250 below market rate, according to the city.

Condo developers can be eligible by offering units affordable to those earning up to $74,760 a year for a two-person household; the income limits vary according to household size. Median income in Seattle is about $54,000 for a single person household.

The program would also expand from 17 areas to all 39 urban villages, including Ballard and the West Seattle Junction.

Taxes not paid by developers shift to Seattle homeowners. Currently, that amounts to an annual impact of about $2.85 on a home worth $440,000. It could be up to $5 a year under the new plan, a "moderate impact" in terms of the benefits it would provide, said Hooper.

The Office of Housing has run it's own project modeling tests and now council staff will review it further, said Rasmussen.

"If (the new program) stimulates development of affordable housing for people of moderate-income levels, I think it's a good investment," Rasmussen said.

Program won't help everyone

The Seattle Displacement Coalition, a housing advocacy group, has been a major critic of the mayor's plan and maintains it will only exacerbate the affordable housing crisis in the city for those closer to the bottom.

"It represents a gross misdirection of the city's time and resources," said John Fox of the Displacement Coalition.

Nickels' plan promotes higher density, Fox said, which could generate development pressure and the displacement of more existing affordable units. Adrienne Quinn, director of the Office of Housing, said there are safeguards in place to discourage that.

If a building is being converted, existing tenants cannot be displaced. An existing rental building cannot have been demolished on the site within 18 months prior to the application for the exemption.

If a developer does wait 18 months, the owner must replace any units lost at a rate affordable to 50 percent or below median income.

But Fox said the program isn't even targeting the income bracket where the need is the greatest.

He referenced a 2006 King County housing report that showed a shortfall of 70,000 rentals affordable to those at or below 40 percent of median. Many have no choice but to move as rents increase and some are forced to become homeless.

"When there is a tidal wave breaking over the heads for those at the bottom and all the way up to 40 (and) 50 percent of median, our mayor spends his time promoting one more giveaway to developers," said Fox.

Rasmussen said the program is just one way to construct affordable housing in the city and isn't expected to meet everyone's housing needs. He said Seattle is considered ahead of the curb statewide when it comes to creating affordable housing and has filled in a lot of the need with eviction prevention programs, first time buyer assistance and the housing levy, which has created more than 1,000 units of rental units for the homeless and low-to-moderate-income people.

Hooper also stressed that the incentive is meant to address a new area of need that the city had not projected, but it doesn't mean less will be done for lower income brackets.

"We acknowledge that there are needs all across the income spectrum, particularly at low levels (and) we track that need," Hooper said. "We are constantly trying to do more with out current resources and seek other resources."

Growing demand,

shrinking supply

The housing department has helped create 762 affordable units in the city since 2004, but the demand is growing.

Rents are up 14 percent since 2005 and that trend is expected to continue. The rental supply is shrinking, largely due to apartment-to-condominium conversions. The vacancy rate is down to 2.7 percent citywide and condo prices have increased by 15 to 17 percent just since the beginning of the year.

The median price of new condos is more than $350,000, requiring an income of at least $74,000. Median-priced single-family homes now require an income of more than $100,000.

The city projects that the cost of renting a new construction studio in 2008-2009 will be about $1,000 to $1,250 a month. One-bedroom rentals will probably be around $1,600 to $1,800 and two bedrooms up to $2,000 a month.

A 160-unit development in Ballard has projected rents of 105 percent to140 percent of area median income by the time it's completed, said Quinn.

"If we delay this, we miss the developments that are coming on line now," she said.

Paul Guppy, vice president for research at the Washington Policy Center headquartered in West Seattle, said city policies and programs, such as rising property taxes and tax levies, have "artificially" increased the cost of housing.

Seattle has increased it's property taxes by the maximum allowed by state law, 6 percent, for the last several years, and the city collects about $800 million a year in property taxes, Guppy said. He said it's ironic that public officials support programs like the mayor's but are "blind to their own policies" that drive housing costs.

"They tend to focus only on natural forces like a strong job market (as the cause) and ignore the accumulation of the burden of taxes," Guppy said. "It's the cumulative effect over many years that's important."

Fox plans to call on city leaders to steer growth away from existing low-income housing to save lower priced buildings, like the Lock Vista in Ballard, from being converted to condominiums.

The coalition is pushing a proposal that would require owners of low-income units to first offer them for sale to non-profits before selling to developers for conversion or demolition. It would give non-profits, which often have a difficult time competing with developers, a chance to outbid converters, Fox said.

Sarah Lewontin, executive director of the Seattle Housing Resources Group, supports the mayor's plan. Her group works with non-profits to create housing for those earning between 50 percent and 60 percent of median.

She said there's a "need for a variety of different tools to create affordability across a broad spectrum."

"The huge need in our community cannot be met by non-profits alone," Lewontin said.

Rebekah Schilperoort may be reached at 783.1244 or rebekahs@robinsonnews.com