How many units in that microhousing project? It depends on

Whether or not the project developer is trying to qualify for a multifamily tax exemption from the Seattle Office of Housing.

Unit count has been subject to different counting practices depending on whether the DPD is permitting projects or whether it is trying to qualify them for the multifamily tax exemption. Since this issue will be discussed more in depth elsewhere, I will just provide a couple of examples here. For purposes of permitting a project, the DPD, will list a project as having 7 dwelling units, when in fact, it has 56-64 separately leasable units. So a developer feels justified in telling project neighbors that he is only adding 7 dwelling units to the neighborhood’s residential stock, when in fact he is adding 56-64 separately leasable units. These actions led one neighborhood to organize a group to address the difference between permitting language and residential realities. Its website can be found here. In the Capitol Hill neighborhood, a  group also established a website to publish information on these issues.

On September 14, 2012, these conflicting classifications became subject to greater scrutiny when an aide to Councilmember Tim Burgess observed  that the Office of Housing counts each bathroom as a unit, and asked if this concept had been questioned. He asked the Office of Housing to check with the DPD on its interpretation of dwelling unit as it related to aPODments. The answer that the DPD provided to the Office of Housing was that since each living space has its own bathroom, sink, refrigerator and microwave, each living space was considered a unit. This DPD statement was in direct conflict with its usual practice of classifying multiple separate living spaces as a single dwelling unit, as evidenced by the number of dwelling units listed on numerous microhousing project permits.

Seattle Office of Housing Truth and Consequences

The Office of Housing also questioned whether developers were representing units to it in a manner different from the way the same developers were representing units to the DPD. Rick Hooper, Director of the Office of Housing, to his credit, stated in a memo to the Mayor’s Office, dated December 13, 2012:

Microhousing developments generally present fewer than 8 ‘dwelling units’ when entering the DPD permitting system. However, when seeking approval for MFTE, the same developers present OH with the total number of subdivided microunits that house individual tenants. As a result, under current practice it would be possible for a building permit that has seven dwelling units to obtain a tax exemption by capping income-eligibility and rents for 20% of  50 microunits. Were the building to present the same number of units to OH as to DPD, it is likely the combined income of all the tenants occupying one permitted dwelling unit would exceed MFTE standards.

Approximately two years before the email from Burgess’s aide, on September 22, 2010, Amy Gray of the Seattle Office of Housing sent an email to Rick Lupton, Engineering & Technical Codes Manager at the DPD re the Solana aPODments project of the Mulhairs. She told Lupton that the developer, on its application for the Multifamily Property Tax Exemption had represented to the Office of Housing that it intended to develop 34 units, but that when Gray had checked the permit status she had found the work following work description: “construct one structure with 4 boarding house units separated by fire wall….” She asked Lupton to confirm that Mulhair “can do the 34 boarding house type units under this permit.” Lupton’s reply follows immediately below. Amy’s question and Lupton’s reply are good examples of how confused discussions around these units had become:

I’m sorry the answer is not so simple. For building code purposes, we treated this as a boarding house. However, for land-use purposes, this is treated as a four unit apartment. For land use, a boarding house is considered lodging which may not be allowed in the zone. And generally (though I don’t currently have plans available) 34 bedrooms (or sleeping units for bldg code) would be considered as exceeding (by 2) the allowable number of unrelated persons within a dwelling unit (for land use). I know this is likely confusing-so please let me know what further information you need.

In the end, it was determined the project had only 32 sleeping units, but the incident is nonetheless useful in illustrating the confusion engendered by the DPD’s approach – a confusion that has been long running.

On November 29, 2012, Amy Gray, Seattle Office of Housing, wrote to Mike Podowski, DPD again seeking clarification on how the units were being presented to Office of Housing and the DPD:

Is there any way you can check on the attached list of micro-unit projects to see if they were permitted as ‘dwelling units’ and not ‘sleeping units’? We are trying to get a handle on whether or not any represented the projects to DPD the same way it was represented to OH.

The DPD responded the next day that they were pretty sure they had obtained the known micro unit count from a list of microhousing units provided to the Office of Housing. They stated:

so they are sleeping rooms, not dwelling units. I added the column to reflect the dwelling units, and they are consistent with our microhousing list.

This statement is not credible: in DPD documents, microhousing projects are typically represented as creating a smaller number of dwelling units than the number of units that house individual tenants, and they are permitted on that basis, not on the basis of being sleeping units. Indeed, it appears that the Office of Housing had a list showing that the number of units represented to them by project developers consistently exceeded, by a large margin, the number of dwelling units presented to the DPD. Ultimately, in a memorandum from the Office of Housing to Mayor McGinn, the Office of Housing recommended “to allow the tax exemption only when a developer presented the same number of units to the DPD and OH, and to disallow future tax year exemptions for existing MFTE projects in cases where the number of units presented to OH substantially exceeds the number of units presented to DPD.” Councilmember Richard Conlin stated at the meeting with irate Capitol Hill residents that he did not believe these projects qualified for the MFTE, and that he was going to stop the practice.

Other Tax Issues: Low Income Tax Credit and Tax Exempt Bond Financing

A similar issue came up regarding the definition of a unit for purposes of the low income tax credit and tax-exempt bond financing. It was noted that a complete and separate unit was required in order to obtain tax-exempt bond financing, and a dwelling unit for purposes of the low income tax credit or bond program needed a kitchen sink, refrigerator and microwave. If the bathroom was not in the unit, the unit would not be able to be deemed an SRO. The commentor noted that the Washington State Housing Finance Commission had not made any determination, and that the property owner was on the hook if the Department was wrong. This raises the issue of whether the separate kitchens would keep microhousing units from qualifying for this type of financing.