Even as building industry leaders in the Seattle metro area are highlighting the need for land-use reform to reduce housing costs, many small builders say regulations and extended permitting may drive them out of the city if those issues aren’t addressed.
“There is a calamity coming to the city of Seattle,” said Erich Armbruster, a licensed civil engineer and owner of Ashworth Homes, speaking about the red tape and project delays many small builders encounter. “I truly believe the city of Seattle is broken.”
Small builders are those who build 25 or fewer homes per year.
Despite the perception by some that private developers have borne little of the costs associated with regional growth, the reality is quite the opposite. Seattle Times Columnist Jon Talton recently noted that they “already pay a variety of taxes and fees, including new construction sales taxes, excise taxes, increased property taxes from turning a parking lot to a hotel or apartment building, and affordable housing fees in HALA rezoning. Office building developers pay a per-square-foot fee to fund child-care, preschools and day care centers, as well as a similar fee to create public open spaces downtown.”
Also eating into their business profits are delayed projects, such as when they wade through the city’s permit review process, Armbruster said. “We used to be able to get a project from inception to permit in four-and-a-half months, with the city review being three months of that. Right now, we’re at least nine months, and in some cases 12, so we’re double the time frame.”
Although Seattle is one of the hottest real estate markets in the nation, his most profitable year was in 2013, he said. “It’s gone down every year since then.”
It wasn’t always this way, writes Gary Cobb, owner of GNC LLC. In a recent blog post, he said that during previous mayoral administrations, “we had to wait 4 months for a permit, far, far less time than we are facing today. With Mayor Nickels, I was able to see permits in 2 weeks for 2 multifamily projects. Yes, it can be done in 2 weeks, believe it or not.”
“I think this administration wants us gone, leaving only the very big builders that focus on high-rise apartments,” he added. “This is the future that the city wants for generations to come, or so it seems.”
Data from the U.S. Department of Housing and Urban Development show a sharp drop in the number of single-family home permits issued in Seattle metro between 2014-15, albeit the trend first started in 2005.
Small builders such as Anthony Maschmedt with Dwell Development LLC cite more practical reasons that may be causing the longer permit process. The city’s Department of Construction and Inspection derives most of its budget from permit fees. When the Great Recession hit and the number of permit applications plummeted, the staff was reduced.
Now, the department has roughly the same number of full-time permit review staff as 2007, according to Customer Service Manager Bryan Stevens. However, the number of construction permit applications has increased by nearly 20 percent. Though the number of permits doesn’t reflect the complexity of the construction projects, their total value this year through August represented an eight percent increase over the same eight-month period in 2007.
In an email, Stevens wrote that new staff hired late last year “will dramatically decrease our permit backlog.” He added that the department aims to hire six more review staff, but “the current construction climate has made it more challenging…as the private sector competes for the same talent and can often pay more through premium pay or overtime…the process tends to take a little longer when competing for recruits.”
The department is also focused on improving the review process with new permit tracking software, he said. This year, they switched to electronic permit applications rather than paper documents.
Armbruster says much of the hassle stems from anxiety among city residents regarding increased density. “Part of this might be perception, but I’m unaccustomed to being the enemy, especially in regard to neighborhood groups because we are agents of change, and change is hard for a lot of people.”
When the permit process gets drawn out, it can put a financial strain on small builders that already have to cover other required fees, as well as the construction loan and the subsequent interest. Because of this cost, they usually need three to four ongoing projects, Maschmedt said.
However, land-use regulations can make that hard, he added. Recently he scrapped plans to build six new homes on two parcels when it was demanded he add a new water main that would have cost hundreds of thousands of dollars. “You get two $1 million homes instead of five to six $600,000 homes,” he said.
Other requirements such as the design review for projects over a certain number of units can reduce potential residential inventory, he added. “I think the city is trying desperately to figure out how do we control affordability, how do we create density, how do we keep neighborhoods happy? Nobody wants it in their neighborhood. We want density, but not on our block. Go do it elsewhere. There’s all these people in the city council who have to listen to the people in their district if they want to get reelected. It just kills the momentum they could create in this vastly growing city.”
Armbruster says a longer permit process isn’t the primary cause of Seattle’s expensive housing costs, but that it’s definitely a contributing factor. “It’s just economics, if it’s a cost of a project, I have to recuperate those costs.
“The reason I have historically worked exclusively in Seattle is because of the strength of its permit process,” he added. “That is largely going away.”
Now he’s turning to other nearby cities such as Shoreline and Kirkland. “Both of those jurisdictions have reached out to me and said ‘Listen, we need to be able to house the coming population especially around these transit corridors,’ and they’ve sought my input. All the while, the city of Seattle is going in the opposite direction.”
Maschmedt said: “The city needs to “bring stakeholders into the conversation and say, ‘Hey guys how do we grow inventory and affordability in the city?’ They need to keep in mind that the builders have to be at the table to help solve that question. And they don’t. They don’t really reach out and engage.”