Housing prices rose by double digits across Washington in 2020 – a continuation of past year-over-year price hike patterns, and the market continues to suffer from a serious obstacle: a limited inventory of homes.
In 2020, the number of listings across Northwest Multiple Listing Service (NWMLS) fell 42.8 percent. Low inventory and high demand due to low interest rates mean prices will only continue to rise across the state, which means more and more families will be priced out of the housing market.
The solution seems simple – make it easier for developers to build more housing units. This seems the obvious solution for increasingly unaffordable areas like the Eastside. Dave Main, owner of Creative Home Partners LLC, builds homes primarily on the Eastside and, most recently, the Eagle Cove Estates in Issaquah said the remedy is straightforward: “We need increased land supply, increased lot supply, and better density.”
Yet it appears state lawmakers may be poised to make developing homes more difficult given new proposed regulations to the Washington State Growth Management Act (GMA).
During the 2020 legislative session, State Rep. Debra Lekanoff (D-La Conner) introduced legislation – HB 2549 – that would add more regulations to GMA. This year, Lekanoff re-introduced the legislation as HB 1117. The bill pushes unprecedented new salmon recovery responsibilities on local governments. Rather than requiring “not net loss,” the bill would require cities to enforce planning and development regulations that achieve “net ecological gain.” The bill defined “net ecological gain” as the following,
“Net ecological gain” means a standard for a development project, policy, plan, development regulation, or activity in which the impacts on the ecological integrity caused by the development are outweighed by measures taken consistent with the mitigation hierarchy to avoid and minimize the impacts, undertake site restoration, and to compensate for any remaining impacts in an amount sufficient for the gain to exceed the loss.
In other words, HB 1117 would require developers to not only take measures to preserve the environment but to leave the environment better than they first found it. That burden would lead to serious implications.
“Local jurisdictions would fear getting sued, so they are far more likely to clamp down on developers. The bill would increase permit costs for developers which leads to houses becoming even more expensive or no development at all,” said Building Industry Association of Washington Government Affairs Director Jan Himebaugh.
Main sees the rising costs of homes as a result of new regulations as contrary to the goal of affordable housing. Main said, “Anything that adds a dollar to the cost of a home—impact fees, taxes, layers of environmental rules—is something that keeps the cost of housing high and keeps communities exclusive to those who can afford it. This flies in the face of the idea of making housing affordable for families, and nothing comes out of it except more people having to move further and further away.”
But HB 1117 is not the only bill seeking to add heavier regulations to GMA under consideration by lawmakers this year. State Rep. Davina Duerr (D-Bothell) introduced HB 1099, a bill that would expand certain climate change regulations. Among other restrictions, HB 1099 would force local jurisdictions and developers to “support state greenhouse gas emissions reduction requirements and state vehicle miles traveled goals, prepare for climate impact scenarios, foster resiliency to climate impacts and natural hazards, and protect environmental, economic, human health, and safety.”
HB 1117 adds more environmental regulations to existing restrictions that drive up the cost of homes – especially for high-cost areas like the Eastside. Main explains, “Right now, home builders are very environmental. We have to be, but there are all kinds of ways these environmental rules are being used to keep costs high and keep neighborhoods exclusive. Eventually the Eastside will only be home to millionaires.”
The end result of the proposal is the expansion of regulatory overreach, some stakeholders say, making it more costly for builders to build and hopeful homeowners to buy: a problem that often disproportionately impacts the Eastside.
“Back when I started, I sold homes to young working families—teachers, firefighters, etc. Now it’s impossible to build homes for young, new homeowners like that on the Eastside,” said Main.
With timelines already as high as 45 weeks just to receive a decision, HB 1099 would force builders to wait even longer to obtain the correct permits. Costs to build would skyrocket, impacting home prices.
“Affordability is already non-existent on Washington. These regulations add an additional $15,000 to $20,000 to the price of homes,” said Himebaugh.
The increase in home prices also has implications for the state’s least affordable areas like the Eastside. The National Association of Home Builders (NAHB) released a 2021 analysis of the results of a $1,000 increase to the median price of homes that paints a concerning picture for the Seattle-Tacoma-Bellevue area. According to NAHB, the median price of a new home in the metropolitan area is $542,762; an income of $116,574 is needed to qualify for a home loan. With a total of 1,571,761 households in the area, only 639,320 can afford that price range, and a total of 932,441 cannot afford it; a $1,000 increase in the cost of a home prices out an additional 1,557 households.
According to these estimates, thousands of people in the Seattle-Tacoma-Bellevue area will be priced out of homes as a result of HB 1117 and HB 1099. A cost increase of $15,000 to the median price of homes would price out 23,335 households, while a cost increase of $20,000 prices out 31,140 households. As NAHB explains,
“When government-imposed fees, changes in regulations, or other factors increase costs for a builder or developer, the final price of the home to the buyers will usually go up by more than the increase in the costs, as related costs, such as financing, broker commissions and margins required to get construction loans underwritten also rise.”
Whatever the intent of the bills, the consequences of more regulations most impacts perspective home buyers who are most disenfranchised. “They are trying to reduce the state’s carbon footprint with fees, regulations, and taxes on the backs of new homes and apartments. New homeowners are some of the more disenfranchised because they are usually younger and less likely to be established voters,” said Main.
Both HB 1117 and HB 1099 also threaten to add more uncertainty to an already insecure dispute process. Currently, the Growth Management Hearings Board’s dispute resolution process means significant uncertainty for local jurisdictions and developers. GMA states that, “only an aggrieved person, organization, or government who has ‘standing’ may file a Petition for Review with the Board.” It identifies four types of standing, including participation standing, governmental standing, Governor-certified standing, and Administrative Procedures Act (APA) standing.
GMA allows for a broad definition of what “participation standing” means. According to GMA, “a person has participation standing if he or she has participated orally or in writing in the public participation process for the adoption of the challenged action. The testimony or written comments must have raised the disputed issues in sufficient detail to provide the local government with the opportunity to consider these concerns.”
As Himebaugh explains: “All you have to do is make any comment, so people in Seattle can challenge a project in Spokane and they don’t have to show any harm.” That broad definition of “standing” creates great uncertainty because from the time an appeal is filed to the time the Growth Management Hearings Board makes a decision is unknown. This adds unnecessary costs to development projects and – ultimately – increases costs for everyone.
“Fixing standing would be a really great way to ensure that people who appeal are actually impacted by the plan,” said Himebaugh.
Adding additional regulations to GMA during COVID-19 also only burdens economic recovery, stakeholders say, as construction businesses hit by COVID-19 would take another blow just as they begin to recover, and hopeful homebuyers would face higher prices and even lower inventory.
“I do hope legislators take a pause on new regulatory schemes given the amount of challenges the industry faced last year,” said Himebaugh, “We need to let businesses recover. It feels tone deaf to talk about new regulations given the hardships everyday people are experiencing.”
HB 1117 cleared the House on March 2, while HB 1099 is currently in the Rules Committee.