Seattle’s Micro-Housing Movement: A Developer’s Take

Housing Diversity Corp.’s Brad Padden makes the case for small-footprint apartments to accommodate the pressing demand for more affordable housing options closer to the city center.
Brad Padden, CEO, Housing Diversity Corp. Image courtesy of Housing Diversity Corp.
Brad Padden, CEO, Housing Diversity Corp. Image courtesy of Housing Diversity Corp.

With some of the largest tech players such as Facebook, Google and Microsoft bolstering their presence in Seattle, the city’s affordable and workforce housing inventory has always been tight. When we add coronavirus-induced unemployment to the mix, this segment of the housing market is definitely under a lot of pressure, particularly since the majority of the supply added during the past few years has catered to high-income residents.

Housing Diversity Corp. CEO Brad Padden expects some contraction in terms of pricing, but believes more affordable housing options will still be needed. Micro apartments have been viewed as a solution to the housing crisis. The trend has been gaining traction in Seattle in the past few years due to skyrocketing living costs and pressing demand for more affordable housing near the city center. In the interview below, Padden explains why the micro-unit trend is bound to continue in the new economic context and also talks about his projects across the Puget Sound area.

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Please share a few details about the affordable and workforce housing projects you are currently working on.

Padden: We are currently working on a number of projects across Seattle, where the supply of attainable and workforce housing is extremely constrained. Our most recent projects are an 84-unit adaptive reuse through Anew Apartments at 510 Broadway in First Hill, completed just this month, and a 107-unit ground-up project next door at 500 Broadway, scheduled to be completed in early 2022.

Rendering of 500 Broadway. Image courtesy of Housing Diversity Corp.
Rendering of 500 Broadway. Image courtesy of Housing Diversity Corp.

Additionally, in our pipeline, we have a 131-unit project in West Seattle in the final stage of permitting, a 396-unit ground-up development in the Rainier neighborhood adjacent to the Judkins Park Light Rail Station that will open in 2023, and we are closing on an additional property in Othello where we plan to develop 164 units. Our Rainier and Othello projects are sponsored by OZ Navigator, a collaboration between Housing Diversity and Seattle’s Nitze-Stagen. Both companies share our commitment to providing attainable housing.

In keeping with our mission to provide communities with more attainable and abundant housing, all of our 882 new apartments in Seattle are projected to be market-rate affordable for moderate-income earners—between 80 percent and 120 percent of the area median income. We will earmark 136 apartments for those earning 70 percent of AMI, 10 for those earning 60 percent of AMI and 33 for those earning 40 percent of AMI, through the Multifamily Property Tax Exemption and Mandatory Housing Affordability programs.

Washington was among the few states in the country that defined residential construction as nonessential during the pandemic, forcing developers to cease activity until the beginning of May. How did this affect your projects?

Padden: Our construction partner, STS Construction Services, has been incredibly proactive at ensuring the health and well-being of our construction workers and residents. We scaled back crews and discontinued planned renovations on our stabilized buildings before the government put formal restrictions in place.

We experienced a minimal delay in construction at 510 Broadway while the stay-at-home orders were in place, but the team at STS gathered personal protective equipment and implemented health and safety measures during their downtime and were able to hit the ground running the day the orders were lifted. All other projects in our Seattle portfolio are either stabilized or are in permitting, so their timelines remain on track.

Why are micro units an attractive option for both renters and investors in the new economic context?

Interior of 510 Broadway. Image courtesy of Housing Diversity Corp.
Interior of 510 Broadway. Image courtesy of Housing Diversity Corp.

Padden: Micro apartments are a successful way of addressing the housing crisis, as they offer residents a private, healthy and hygienic environment. The micro apartments we build feature dedicated HVAC units, and most of them have balconies. They have large outdoor amenities, and community-building initiatives are promoted for residents—virtually if necessary—through our property management partner, Common Living. 

For investors, micro apartments are an attractive investment option in tough economic times, when affordability is at the top of everyone’s mind. Our developments are strategically located in walkable communities, close to employment and neighborhood hubs. Housing Diversity micro apartments are intentionally designed for livability and feature Class A finishes.

What sustainability features do you usually integrate into the communities you build?

Padden: Through their inherent design, our micro apartments are sustainable. Energy consumption is reduced due to the small footprint of living spaces, combined with retained heating and cooling within the building. When possible, we integrate solar energy, utilize heat pumps and look for other strategies to maximize the efficiency of utilities. We are also building to Seattle’s energy code, which is one of the most stringent in the nation. Additionally, our residents tend to live a lifestyle with fewer possessions, and, generally, without cars. This reduces carbon footprint while simultaneously stimulating local neighborhood growth and utilization as residents will spend more time near their home.

You are involved with the Seattle 2030 District, an initiative intended to foster deep energy retrofits of existing buildings. To what extent has the pandemic impacted your activity within this project? 

Padden: Unfortunately, all activities with Seattle 2030 have been sidelined as we deal with the COVID-19 crisis.

READ ALSO: Housing Diversity Corp. Brings Micro-Housing to Hollywood

You have many projects across Opportunity Zones. Do you expect the COVID-19 outbreak to push more investors to build in such areas? 

Padden: The volatility of the post-COVID-19 economy makes the stock market riskier, while continued low-interest rates make bonds and other fixed-income investments less attractive. This drives the demand for real estate. Opportunity Zone incentives offer people a discount on the qualified capital gains they invest, and allow their investment to grow tax-free as long as their money remains in an Opportunity Zone deal for at least 10 years. These advantages should help get money off the sidelines and into projects that promote attainable housing and neighborhood investment in the spirit of the Opportunity Zone legislation.

People who are looking for a place to put their money for a longer hold will know this investment can keep pace with inflation and provide a solid return. Investors should always look for value creation, so whether a deal is in an Opportunity Zone or not, the fundamentals have to be strong.

Rendering of the Rainier project. Image courtesy of Housing Diversity Corp.
Rendering of the Rainier project. Image courtesy of Housing Diversity Corp.

How hard is it to build affordable and workforce units in Seattle?

Padden: While we have experienced some challenges along the way, having delivered hundreds of affordable units, we feel that we are no longer “learning the ropes” and have developed a successful model to guide our future projects. Being able to think outside the box has allowed the Housing Diversity Corp. team to secure great locations and design highly livable, small-footprint apartments. We aim to maximize what we can do with urban infill lots in order to deliver homes for the growing workforce. 

What are your expectations for the Seattle multifamily market, considering the current economic situation?

Padden: We expect to see some contraction in terms of pricing as people pull back from city life, opting to work remotely where there is more access to open space and the cost of living is less. In the immediate future, there will be less competition for rentals, with some price softening, and more concessions. We believe that cities will regain their appeal once people are able to participate in their neighborhoods again, and we expect we could even see a surge in people seeking the community that city living provides.