Preserving Affordability Through Acquisition: King County’s Site-Based Strategies

Preserving Affordability Through Acquisition: King County's Site-Based Strategies

By Brian Knudsen, Social Science Analyst, Office of Policy Development and Research

KCHA acquired Henry House in 2024 from a family that had owned the site for over 50 years. The acquisition will help keep rents affordable in the desirable Richmond Beach area of Shoreline, which has been experiencing rising rental costs. Photo credit: William Wright for the King County Housing Authority

Many U.S. cities, counties, and states are pursuing innovative approaches to preserve existing subsidized and naturally occurring affordable housing in their communities. Preservation often costs less and offers a shorter timeline than new construction, permits low- to moderate-income residents to remain in their homes and neighborhoods, and may conform to existing land use patterns. Acquisition models are preservation strategies in which affordable housing providers "purchase existing low-cost housing units and add them to the stock of long-term affordable rental housing." This approach is especially important in neighborhoods where obstacles to new construction are highest, such as in high-opportunity areas with restrictive land-use regulations that make building multifamily housing a complex and expensive process. Opportunity acquisition models preserve below-market units in mixed income, well-resourced neighborhoods that are close to jobs, transportation options, and high-performing schools. Research has shown enduring benefits for low-income families that can access these neighborhoods, including higher expected adult incomes for the children in these families.

Local opportunity acquisition models employ diverse and innovative approaches, including differences in their financing methods, in determining whether acquired properties preserve subsidized or naturally occurring affordable units as well as the length and depth of their affordability guarantees. In this article, the first in a two-part series, we examine one example of a publicly initiated effort to acquire and preserve affordable housing in opportunity neighborhoods: King County Housing Authority's (KCHA's) site-based affordability strategies. KCHA employs tax-exempt bonds and other financing approaches to acquire and preserve a portfolio of workforce housing as well as purchase small apartments for conversion to public housing.

King County Housing Authority: Regional Context 

Created by the state of Washington in 1939 and a participant in the Moving to Work (MTW) program since 2003, KCHA's service area includes all of King County outside of the cities of Seattle and Renton, encompassing more than 1.4 million of the county's roughly 2.2 million population. Between 2010 and 2020, the service area's population grew by approximately 16 percent compared with an increase of approximately 7 percent for the nation as a whole. In 2022, the county's estimated median household income was more than $116,000, higher than that of the largest comparable counties by employment, the state of Washington (at more than $91,000), and the nation as a whole (at approximately $75,000). Adjusting for inflation, King County's median household income has increased by 30 percent since 2010. Despite these increases, disparities exist. Incomes of White and Asian households exceed those of Black and Hispanic households, and income inequality has increased in recent years. These disparities are particularly evident in the higher-opportunity and lower-poverty areas to the north and east of the county's urban and suburban core, including locations implicated in recent technology industry booms.

In 2023, KCHA served slightly less than 43,000 individuals in 19,250 households through federal subsidy programs, including tenant-based vouchers (13,926), project-based vouchers (2,799), and public housing units (2,525). The median household income in 2023 among these federally supported households was $14,491, and these units housed 14,990 children. KCHA has successfully helped federally supported families with children access housing in higher-opportunity neighborhoods. In 2023, 30 percent of KCHA voucher families with children lived in opportunity areas, as defined by researchers at Harvard University's Opportunity Insights.

Site-Based Affordability Strategies, Definitions and Rationales

KCHA's site-based affordability strategies involve a set of approaches that enhance access to existing and emerging opportunity neighborhoods, mostly by preserving affordable housing through the acquisition of hard units in these areas. These strategies, which KCHA's MTW status has facilitated, have preserved or made available thousands of additional affordable units in high-resource sections of KCHA's service area over the past three decades. KCHA distinguishes these strategies from placed-based approaches that describe efforts to improve housing or neighborhood conditions in high-poverty areas and from project-based strategies that refer to a single subsidy type.

These approaches are an outgrowth of KCHA's evaluation of current and evolving attributes of the regional economy, including demographic patterns, housing market characteristics, and neighborhood resources. Between 2010 and 2020, King County lost 112,000 housing units affordable to households earning less than 80 percent of the area median income (AMI). Despite regional efforts during this period to expand the housing stock at all income levels, demand fueled by population and job growth outpaced supply, triggering significant increases in market-rate rents. KCHA's preservation strategies arise partly out of an understanding that the number of affordable units in the county lost through rising rents outstrip the number of newly constructed affordable units, including in its own development pipeline. Rental units that are affordable to low-income families already exist throughout the region, and KCHA's site-based strategies reflect the agency's intention to maintain affordability by acquiring units from the private market and shifting them to public ownership. Andrew Calkins, former vice president of policy and intergovernmental affairs at KHCA, notes that these policies have enabled them to "have some control of where the rents go over the long term" and have "paid dividends over the decades we've been doing it [insofar as] some of the properties we've owned for many years are now extremely affordable."

Furthermore, considering growing evidence that neighborhood quality affects health, employment, education, and other outcomes, KCHA's site-based affordability strategies endeavor to expand housing choice for low-income families by expanding access to, and the ability to stay in, higher-opportunity areas in the county, including areas such as Bellevue, Kirkland, and Redmond. Calkins explains that "it's important for us as a regional entity to be thinking about how can we be making sure that folks have access to all parts of our jurisdiction, [so that if] they want to live in Bellevue, that there are affordable units there so that they have an opportunity to do so, [and] if they want to live near transit in South King County, there's an opportunity for them to do that as well." KCHA also seeks to prevent economic displacement by prioritizing acquisitions in neighborhoods expected to become opportunity areas through gentrification and other processes, such as along transit corridors.

Site-based affordability strategy 1: Acquisition and preservation of workforce housing

Since the early 1990s, KCHA has acquired and preserved approximately 8,000 units of naturally occurring affordable workforce housing in King County that it now owns or controls, with most of these properties renting at rates affordable to households earning between 50 percent and 80 percent of AMI. Nearly 7,400 homes in KCHA's affordable workforce housing portfolio are in multifamily developments, and approximately 650 more are in manufactured housing communities that KCHA owns. Of the multifamily workforce units, 52 percent are in high-opportunity neighborhoods within KCHA's service area. Since 2010 alone, KCHA has acquired more than 3,400 units of existing rental housing through this strategy. These properties are not subsidized through the public housing, Multifamily Section 8, or Section 202 programs, but some units do have vouchers layered in. For example, 18 out of 47 workforce housing properties include project-based vouchers, totaling nearly 400 units (5 percent of all workforce units in King County). Similarly, approximately 1,000 tenant-based housing choice voucher households are living in workforce affordable properties. KCHA's acquisition strategy preserves permanent affordability for workforce housing in a very challenging market, combating displacement and saving thousands of units of existing affordable housing from being lost to market-rate housing.

The primary source of financing for KCHA's affordable workforce housing acquisitions is tax-exempt bonds issued by the agency. In cases where a substantial rehabilitation is needed, low-income housing tax credits (LIHTCs) are used. Of the multifamily developments, more than 5,000 units have been financed by traditional tax-exempt bonds, and approximately 2,400 homes have been rehabilitated through LIHTCs. As of 2022, the average affordability level for bond-financed properties is 61 percent of AMI, whereas the average affordability level for LIHTC properties is 47 percent of AMI.

KCHA acquired the Newporter, a 120-unit workforce housing development, in 1991 and preserves affordability by basing rent increases on operating costs and not on market-driven demand. By 2020, rents were over $500 lower than comparable, market-rate units. Photo credit: William Wright for the King County Housing Authority

After purchasing a property, KCHA works to keep rents below 80 percent of AMI by raising rents only as operating costs rise. Workforce properties acquired in the 1990s, and even some that KCHA has owned for 10 years, rent at rates $300 to $600 per month less than comparable rentals in the surrounding market. At the Newporter, a 120-unit KCHA workforce housing complex acquired in 1991 in Bellevue, rents for two-bedroom units in 2020 were $569 per month lower than they were for comparable units in the neighborhood. Rents based on operating costs become more affordable over time as they lag market rents, relieving the need for increasing subsidy expenditures to maintain affordability.

Among the properties that KCHA has sought to acquire for its workforce portfolio are privately owned properties subsidized through the U.S. Department of Agriculture and HUD with affordability covenants on the brink of expiration, especially Section 8 rental assistance contracts. By acquiring and assuming ownership of these properties, KCHA can ensure that rents for these units remain affordable and that low- and moderate-income households are not displaced. In March 2024, KCHA closed on the $9.95 million acquisition of the 54-unit Henry House multifamily rental apartment community in the Richmond Beach neighborhood of Shoreline. This property, which had been owned by the same family for more than 50 years, was on the market in a desirable area with rising rents and included 39 rental units subsidized under a HUD project-based rental assistance contract expiring at the end of June 2024. KCHA's purchase of the property preserves affordability and access to federal support for current and future residents amid concerns that new private ownership would price out low- and moderate-income households.

Because properties in the county with expiring affordability covenants are becoming increasingly scarce, KCHA also prioritizes the acquisition of properties whose owners have a history of renting to families with housing choice vouchers but may now want to sell their property. For example, in November 2023, KCHA completed the $28 million purchase of the 116-unit Sterling Ridge multifamily apartment complex in the East Hill neighborhood of Kent. Sterling Ridge's 50 two-bedroom and 50 three-bedroom apartments accommodate families, and more than 30 percent of its units historically have rented to housing choice voucher holders. The property, owned by the same family for nearly 30 years, was on the market, and KCHA purchased the property amid concern that escalating rents would force out lower-income renters. By acquiring such properties, KCHA prevents displacement by maintaining rents at levels affordable to working families and households with tenant-based vouchers. As the owner, KCHA also ensures that tenant-based voucher holders retain access to these properties by continuing to accept vouchers at their workforce properties and by calibrating rental criteria standards to keep these units available to low- and moderate-income families. KCHA benefits from renting units in workforce properties to voucher households because the affordable rents based on operating costs mean that the vouchers are less expensive for the agency.

KCHA also pursues acquisitions in neighborhoods that are evolving into high-opportunity areas, where market rents are increasingly at risk of becoming out of reach for many households. KCHA has made transit-oriented development a central element of its workforce affordable housing strategy and is prioritizing the acquisition and preservation of existing affordable housing along emerging high-capacity transit corridors and near light-rail stations, neighborhoods that often experience gentrification and increasing rents. For example, in 2015 KCHA purchased two apartment communities directly adjacent to the Tukwila light rail station totaling 286 units: The Villages at South Station in Tukwila (191 units) and the Corinthian Apartments in SeaTac (95 units). These purchases preserve naturally occurring affordable rents for the long term in areas with rising rents and existing transit to job and education centers.

Site-based affordability strategy 2: Purchasing smaller apartment complexes to convert to public housing

KCHA's demolition of obsolete public housing in high-poverty areas as part of several HOPE VI redevelopments has placed the agency below its federal allocation of public housing subsidies (known as the Faircloth Limit). A second site-based affordability strategy involves KCHA's redeployment of public housing operating subsidies that are banked and currently unused because of the previous demolitions. Specifically, KCHA purchases small apartment complexes (typically 30 or fewer units) in high-opportunity areas and reactivates banked public housing subsidies for the operations of those units. This approach has generated at least 90 units. More than 20,000 households are on KCHA's waiting lists for public housing, and, given the general shortage of housing affordable to extremely low-income households, this strategy increases the inventory of these units by acquiring existing private-market properties and activating the banked subsidies. KCHA's acquisition of smaller properties reflects the cost-prohibitive nature of acquiring large developments in high-cost King County and the inability of the public housing program to support debt. As a result, KCHA takes advantage of available funding opportunities to essentially pay off these acquisitions instead of assuming debt. KCHA can use its reserves to buy these properties. In some instances, a city uses local money to put up most of the acquisition funds, and KCHA will then bring in the public housing operating subsidy. For instance, a city may make use of funds accumulated from the fees paid by developers to the city in lieu of meeting housing affordability requirements. State and county public entities have financed portions of acquisitions, as has the online retailer and technology firm Amazon, which is headquartered in Seattle.

Several examples illustrate the advantages afforded by this strategy. When KCHA began searching for smaller apartment properties in the private market to acquire, it initially investigated developments near existing KCHA-owned properties. In 2009, KCHA acquired Pepper Tree, a 30-unit, private-market complex next door to KCHA's Ballinger Homes public housing development in the high-opportunity area of Shoreline. The agency activated 30 banked public housing subsidy units and operated the properties as a single combined site. As Calkins says, "[T]here was an opportunity there to literally move the fence — they're adjacent properties — and operate them as a single portfolio…. These days, they're not really even talked about as two different properties. It's all just one, Ballinger homes, the 140-unit development that we operate in our traditional subsidized housing portfolio." These small, collocated properties also offer cost-efficiency gains, such as avoiding the need for additional property management staff or other overhead expenses. KCHA's Property Management Department manages properties after the agency activates the public housing operating subsidies.

In the high-cost and high-opportunity city of Kirkland, KCHA purchased Village Plaza Apartments in 2021 (6 units) and Houghton Court (15 units) in 2008 and turned on banked public housing subsidies to expand affordable housing to this expensive community. Similarly, KCHA acquired Island Quest (30 units) in high-opportunity Mercer Island in 2011 and brought public housing subsidies to those units as well.

Site-based affordability strategy 3: Layering of project-based voucher subsidies onto regional nonprofit development

In a third approach to increasing affordability, KCHA, rather than directly acquiring properties, instead assumes a funder/support role by matching project-based vouchers to a pipeline of nonprofit-sponsored affordable housing in opportunity areas. KCHA has 1,062 active project-based subsidies at nonprofit-owned sites across King County. In terms of financing, the nonprofit spearheads the acquisition and completes all the development work, including finding a tax credit investor and lining up different financing sources to build the property. KCHA contributes one component of the deal by providing the project-based vouchers. One primary benefit of vouchers is that they provide a predictable revenue stream to make debt payments. The vouchers provide net operating income that can be used in the acquisition to leverage further debt and debt service payments. At some of the sites for which KCHA has provided project-based vouchers, nearly every unit is subsidized with a voucher. For example, in 2023, Plymouth Housing developed Plymouth Crossing, a new 92-unit permanent supportive housing project in Bellevue for residents who have formerly experienced homelessness — the first such property in East King County — and where 87 units are subsidized with a KCHA project-based voucher. Project-based vouchers make up a small portion of other nonprofit developments.

The second article in this series will highlight another example of a local opportunity acquisition model: the Washington Housing Initiative (WHI) in Washington, D.C. WHI consists of a mission-driven nonprofit organization and a social-impact investment fund raised from private investors. It uses a market-based approach to acquiring naturally occurring affordable housing in the Washington, D.C. region and preserving it for households with incomes at or below 80 percent of AMI. Along with preserving affordable housing, these two innovative local endeavors ensure continued access for low- and moderate-income families to well-resourced, mixed-income neighborhoods.