Tax break for new housing may be hurting, some fear

Beth Fell, a member of the now defunct all-girl band Vandemonium, was one of many artists and musicians who lived in the South Lake Union area's inexpensive Lillian apartments until the building was bought and demolished by Paul Allen's development company, Vulcan, in 2002.

Vulcan is building 172 apartments at the site at John Street and Pontius Avenue North and today will seek a property-tax exemption from the City Council because 35 of those apartments are considered affordable to moderate-income residents under a city policy. The cheapest of those apartments are 396-square-foot studios that will rent for $738 a month. The 10-year tax exemption is worth $309,670 in the first year.

Fell, who rented a one-bedroom unit at the Lillian for $400, says she couldn't afford to live in Vulcan's new affordable units, never mind its more expensive ones, which top out at $2,510 a month.

"I don't make anywhere near median income," says Fell, 36, who returned to college to get a degree in media studies.

Nor does she think most of the Lillian's former tenants — who were drawn to the building's 33 apartments by its proximity to downtown, funky sense of community and monthly rents that ranged from $250 to $500 — could afford to live in the new project called Alley24.

"It's very sad. I hate it. But it's progress I suppose," she said.

The transformation of the old Lillian site to more-upscale housing is an illustration of South Lake Union's sweeping makeover. The area, which until recently was characterized by low-slung warehouses and pockets of inexpensive housing, is now an emerging biotech hub where city officials hope to see 10,000 new apartments and condos developed in the next two decades.

The changes at the apartment site also raise questions about the city's policy of granting tax breaks in exchange for so-called "work-force" housing, or housing that fills the gap between deeply subsidized low-income housing and more expensive units aimed at affluent people.

City Councilman Tom Rasmussen, chairman of the council's housing committee, is reconsidering the tax-exemption program he voted to approve last year. Rasmussen said he doesn't want developers to receive an "incentive for tearing down affordable housing."

"I have concerns about gentrification, you bet. We can't be bulldozing our neighborhoods to support infill development. That is not how I define progress," Rasmussen said.

3 opposed policy

The City Council approved the tax-exemption policy last March after contentious debate that saw three members — David Della, Nick Licata and Richard McIver — vote against the program. Proposed by Mayor Greg Nickels, it applies to 17 neighborhoods where the city wants to stimulate housing construction and provide apartments for people earning $32,000 to $40,000 a year. That salary range amounts to 60 percent to 70 percent of median income for single working Seattle residents.

Under the program, developers can get a 10-year exemption on property taxes if they set aside at least 20 percent of a project's units for such tenants. City officials estimated that the program might save developers citywide $20 million to $30 million in property taxes over the next decade.

Both nonprofit and for-profit developers are eligible for exemptions, which apply only to residential structures and not underlying land or commercial development.

Since the program was adopted, the council has approved three projects and is likely to bless two more today. In all, the five projects would produce 506 housing units, with 271 of those considered affordable.

Total tax exemptions for the five projects are estimated at just over $800,000 in the first year, or roughly $8 million over 10 years. The city's share of those exempted taxes is roughly $270,000 in the first year.

The Vulcan project would receive the largest tax exemption of the five developments. It seeks a tax break five times bigger than the other project before the council today, a 40-apartment proposal for the Chinatown International District.

In the case of Alley24, the city, in effect, would subsidize the rent on each of the 35 units by about $242 a month in the first year.

Of the five projects, one is in Rainier Valley, one in the Central Area, one in the Chinatown International District, and two would be in the South Lake Union area.

The Alley24 project calls for Vulcan to build 137 market-rate apartments and 35 affordable units:

• Market-rate studios would rent for $738-$1,432; affordable studios, $738-$746.

• Market-rate one-bedrooms would rent for $1,021-$2,379; affordable one-bedrooms, $782.

• Market-rate two-bedrooms would rent for $1,745-$2,510; affordable two-bedrooms, $916.

Vulcan executives say that without the tax break they would not have offered the more-affordable apartments.

"I think private developers are not in the business of providing below-market or affordable housing without subsidies or incentives," said Lyn Tangen, Vulcan's director of government and community relations.

Tangen said the tax exemptions are part of a "fabulous program" that will help ensure that people with a mix of incomes will live in the neighborhood.

Maintaining a mix

Adrienne Quinn, the city's housing director, disputed a charge levied by housing activist John Fox last week that the tax-exemption program gives Vulcan a reward or incentive for demolishing the Lillian, which provided unsubsidized affordable housing in a taxable building.

"The incentive was not available in South Lake Union at the time the Lillian was demolished, so it could not be an incentive. The correlation is not there," Quinn said.

Quinn said the city was trying to maintain a mix of housing prices in the South Lake Union area. She noted the city recently helped fund 55 affordable units at the Denny Park Apartments, which are under construction. Forty-five of those apartments will have lower rents than those at the Vulcan project, Quinn said.

But to former tenants of the Lillian such as Fell, Todd Kephart and Garth Reeves, the changes look like gentrification.

"The Lillian was really unique. It wasn't just a low-income building. It was a hub of cultural activity. People who lived there weren't just neighbors but friends who supported one another's artistic endeavors," said Kephart, 31, who made a documentary video about the Lillian's last days.

Reeves, who played guitar with Seattle singer Carrie Akre and the band Goodness, said the Lillian was unlike any other building where he has lived because apartments were passed down from friend to friend. He said gentrification now seems inevitable.

"The question is how to manage it to protect ethnic, racial and class strata from getting pushed around," said Reeves, 36, who lives in the Fremont neighborhood and is working on a solo record and a teaching degree.

Councilman Rasmussen said one solution might be stricter safeguards so developers don't demolish affordable housing and replace it with tax-exempt, less-affordable projects.

City rules currently do not allow developers to receive a tax break if housing was demolished on the same property in the past 12 months. Rasmussen said he would consider extending that ban for two or three years.

"I like new tall, shiny buildings. But it makes for a more livable community when there's a variety of styles and eras in neighborhoods," he said.

Bob Young: 206-464-2174 or byoung@seattletimes.com