MHA 2.0: A better way to fund affordable homes in Seattle
Seattle can fund affordable homes without slowing housing down.
Seattle has stopped adding homes, and rents are next
If you’ve been with us, you know what we keep coming back to: Seattle has a housing shortage, rents are headed up, and city government has more levers to pull than we’re pulling. We made the case in our first big post on the Housing Opportunities legislation and again when our HOP op-ed ran in The Seattle Times earlier this week. Today, one of those levers is on Mayor Wilson’s desk. It’s called Mandatory Housing Affordability, or MHA for short.
The shortage isn’t theoretical. Applications to add new homes in Seattle fell from more than 17,400 in 2020 to under 2,000 last year, about a 90% drop.
A wave of pre-MHA homebuilding has kept rents in Seattle relatively flat for now, especially for studios and small apartments. That cushion is running out. The ICU nurse at Harborview already drives in from Marysville before dawn because First Hill priced her out years ago. The line cook at a Capitol Hill restaurant, who used to walk to work, already commutes up from Federal Way. As the pre-MHA surge runs out, fewer new homes will mean tighter competition and higher rents.
Some of that pressure is national: interest rates, tariffs on construction materials, an immigration crackdown hitting the workforce. Seattle can’t fix any of those overnight. But MHA, our city government fully controls. What it does with MHA over the next few days will shape how many new apartment homes go in for years to come, and how Seattle funds permanently affordable housing for the long haul.
What MHA is, in plain English
If you haven’t been following this debate, here’s how MHA works.
When a homebuilder wants to add new apartment homes in Seattle, down to small townhome projects, city government requires them to either set aside a percentage of the homes as below-market affordable, or pay a fee into a public affordable housing fund. (Policies like this are called “inclusionary zoning” in housing-policy circles.)
The requirement came as part of a 2019 deal: city government opened up many neighborhoods to more homes, and in exchange, new development in those zones has to contribute to affordability. In practice, the fee applies broadly, even to small townhome projects that can’t use the extra capacity they were granted. In San Francisco, this kind of fee doesn’t kick in until a project has 10 or more homes. Here in Seattle, it applies down to projects of two.
The fund pays for permanently affordable apartment homes, the kind nonprofit housing providers operate for working families, seniors on fixed incomes, and people leaving homelessness.
The intuition behind MHA is good. The prosperity a growing city generates should help pay for the cost-of-living pressures growth creates, including making sure there’s enough affordable housing. We agree.
The problem is what happens when the math goes sideways.
A tax on the thing we need more of
MHA fees are essentially a tax to fund affordable housing. Which could be great. We believe in taxes that go towards making our city affordable. The problem is that the thing being taxed is the thing Seattle most desperately needs: new homes. And the tax comes on top of the staggering costs already in the way of adding housing here, including land, labor, materials, permits, and a long list of other fees, regulations, and requirements.
When a project barely “pencils” (homebuilder speak for “the financials work well enough that banks and investors will put up the money to actually build it; without their backing, the project dies on the drawing board”), and right now almost none of them do, the MHA fee is one of the line items that pushes it from “go” to “stalled.” The Seattle Housing Roundtable identified 29 stalled apartment projects that, if the MHA fee were waived, would likely move forward and yield roughly 5,000 new homes. If these five thousand apartment homes don’t happen, that’s five thousand families not housed.
And because the projects aren’t moving, they aren’t generating MHA fees anyway. The fund is shrinking with the pipeline. Five years ago, MHA brought in about $74 million a year for affordable housing. This year, city government projects it will collect closer to $22 million. That’s per the city’s five-year MHA evaluation.
So we are taxing the thing we want more of, getting less of it, and watching the affordable housing fund shrink at the same time.
There’s one more wrinkle. Whether a project pays the MHA fee or sets aside affordable homes, those costs don’t disappear. Homebuilders bake them into the rents and prices of the market-rate homes that do get added. Some economists have started calling MHA, in effect, a tax on renters.
This isn’t a Seattle-specific challenge, and we don’t have to guess at the fix. Oregon just learned this lesson the hard way.
Portland tried the same approach as MHA, requiring new homebuilders to either set aside affordable homes or pay a fee, with no other source of funding behind the requirement. Homebuilding slowed for years. At the end of March, the Oregon Legislature passed SB 1521, the first law of its kind in the country. It says if a city wants to require below-market apartment homes from new projects, the city has to help pay for them, through cash payments, property tax breaks, or fee waivers, instead of putting the entire cost on homebuilders. Asking builders to absorb that cost while the math is already brittle is what slows homebuilding down. Help cover the cost, and projects move. Our friends at Sightline (yes, the same Sightline pushing for action in Seattle this week) drove the effort. The principle Oregon adopted is the same principle behind MHA 2.0.
What’s happening this week, and why it isn’t enough
We’re not the only people raising the alarm. Sightline, Seattle YIMBY, Tech 4 Housing, and the Housing Roundtable have all been pressing the Mayor and Council to reduce MHA fees temporarily so projects can move. They are advocating for a decision to be made by the end of this week. We share their goal of getting Seattle adding homes again, quickly.
A temporary fee holiday is only a stopgap, and an important, needed one at that. But when the holiday ends, the same structural problem returns: a tax on adding the homes Seattle most needs, in a city that already isn’t adding enough of them.
For Seattle wants to put a bigger idea on the table.
MHA 2.0: fund affordable homes from the homes we add, not from fees on them
The idea is simple.
New homes already generate real revenue for city government. Sales tax on construction materials. Utility tax on new commercial buildings. Real Estate Excise Tax (REET, Washington’s tax on property sales) when properties change hands. Property tax on the new buildings, year after year, for decades. Construction jobs and the economic activity those workers and their employers add to Seattle. Sales tax and Business and Occupation tax (B&O, Washington’s tax on business revenue) from the people and companies that eventually move in.
Right now, city government raises money for affordable housing by taxing new homes, which suppresses the volume of homes added, which then shrinks the very fund we set up to support affordable housing. We want to flip it. Fund affordable housing from a portion of the revenue that new housing already generates. A virtuous cycle, instead of a self-defeating one.
We’re calling that idea MHA 2.0. Four revenue sources are worth real study:
A portion of city sales tax revenue from new construction materials, dedicated to affordable housing for a defined period.
Utility taxes from new commercial buildings, redirected to affordable housing while production rebuilds.
The city’s portion of Real Estate Excise Tax (REET), which today funds capital projects, and could backfill capital needs that the General Fund (Seattle’s main operating budget) currently covers.
A portion of the property tax generated by new commercial projects, dedicated to affordable housing.
These are starting points, not a finished bill. The exact mix and the exact percentages need work from the Office of Housing, the Office of Planning and Community Development (OPCD), the City Council, and the people who actually add housing in this city. But the principle is straightforward: when housing gets added, city government collects more revenue. Capture some of that. Put it back into permanently affordable homes.
If Seattle does this right, MHA 2.0 produces three things at once: more new homes of all shapes and sizes, more public revenue overall, and a more stable, more abundant funding stream for affordable apartment homes. None of those outcomes are in tension. They reinforce each other.
Why we’re putting this out there
For Seattle exists in part to focus on what city government promises and whether it follows through. Right now, the conversation is mostly about how big a temporary MHA cut should be, 60% or 90%, three years or two. That’s a worthwhile question to settle, and we’re glad others are leading it.
But the deeper question is how Seattle keeps funding affordable homes without working against the supply of homes overall. We think it’s possible to do both. Fund affordable housing and spur new homebuilding of every kind. That is the abundance frame: not less government, not less affordability, but city government playing enabler instead of obstacle so more homes actually get added.
The ask
If you want Seattle to add more homes for everyone, for the young teacher trying to stay, the retired neighbor downsizing, the family priced out of the suburbs, the 18-year-old aging out of foster care, here are three things you can do this week.
Email Mayor Wilson and the full City Council today. Tell them you want a long-term fix to MHA, not just a temporary pause. (mayor@seattle.gov, council@seattle.gov)
Subscribe to this Substack (below) and follow us elsewhere. We’ll keep tracking the MHA conversation happening now, and the broader housing pipeline over time. You can also find us on X and Bluesky.
Become a founding member. For Seattle is being built right now by neighbors and other community stakeholders who want a more affordable Seattle, and want city government playing enabler instead of obstacle when it comes to the homes that get us there. If you have time, money, expertise, or relationships to bring, reply to this email and we’ll be in touch.
Seattle has a problem it can solve. Not all problems are like that. Let’s not waste the moment.