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Washington State Needs the Private Sector to Meet Urgent Housing Needs

The Washington State Affordable Housing Advisory Board recently released a “Housing Advisory Plan” to address what it describes as an “urgent crisis” of needed affordable housing options in the state. According to the plan, there is only one affordable housing unit available for every five households in need (for those at or below 50-percent of median family income (MFI)).

To illustrate the scope of the problem, the plan notes that in 2023, there were 453,423 renter households in the 0-50% MFI bracket and a supply of only 155,214 subsidized units. Drawing on the additional need in higher MFI brackets and the expected population growth, the plan’s authors claim that Washington “needs to add more than a million new homes” in the next 20 years.

But how financially feasible is this goal? Within the development industry, public sector “affordable housing” is recognized to cost consistently 25 percent higher than private sector building. For example, in Seattle it costs approximately $450,000 for private developers to produce one unit of affordable housing, putting the cost of an equivalent publicly developed affordable housing unit at around $563,000 per unit. Meanwhile, in San Francisco, “affordable” housing units can cost $1.2 million!

Accepting the Housing Advisory Board’s data, the cost to create enough housing at the lower-income end of the market for Washington State is a minimum of $134 billion based on the private development cost per multifamily unit. To create one million homes in the next 20 years, will cost a minimum of $450 billion, assuming private development and a $450,000 cost per multifamily unit. The real cost, assuming public and nonprofit development costs, the need for single family units, and inflation over the next two decades, would be even more staggering.

In order to meet this vast need, the Advisory Plan recommends an increase in state funding to acquire units via the Washington Housing Trust Fund, which has been the source of $2 billion towards affordable housing in the 40 years since its creation. In the 2021-2023 budget cycle, $729 million was used from the fund for affordable housing projects. The 2023-2025 budget cycle total is nearing $478 million so far.

Clearly, the hit to taxpayers has been sizeable. But the numbers are nowhere near the scale needed to support the creation of more than one million new homes. In fact, in its four-decade lifetime, the Housing Trust Fund has supplied only around one percent of the capital needed to build several hundred thousand subsidized units, and a mere fraction of a percent of the funding needed to build one million homes.

In a New York Times op-ed on the impact of liberal leadership in West Coast cities, Nicholas Kristof highlights the necessity of the private sector, as “public sector efforts to build housing are often ruinously expensive.” Kristof describes the West Coast as “infected with an ideological purity that is focused more on intentions than on oversight and outcomes.” A consequence of this ideological purity, he argues, is “suspicion of the private sector” that “hobbles efforts to make businesses part of the solution.”

Clearly, the Washington State government, while already spending billions on housing and homelessness, does not have anywhere near the budget needed to address housing demands in the state. If Washington wants to drastically increase its housing supply, the state will need to lean heavily on private efforts, which means abandoning unwarranted “suspicion of the private sector” and welcoming business as the leading, cost-effective source of housing.

Championing the private sector to bolster the state housing supply will also require removing political barriers that disincentivize home building. According to a national report on housing out of Harvard, homebuilders cite high interest rates, rising inflation, cost of labor, price of building materials, availability of developed lots, and difficulties obtaining zoning or permit approvals as barriers to the creation of new housing. Legislation has also worked against existing property owners, arguably leading to a decline in “mom and pop” rental availability in the region.

It’s difficult to capture both the scale of need and the complexity of obstacles facing the housing market in Washington, and around the country. What should be clear is that a need for at least $450 billion worth of new housing has no chance at being met apart from the private sector. Yet the Housing Advisory Plan remains relatively silent on the role that private sector can play, instead focusing on untenable increases in funding capacity.

The private sector is a crucial stakeholder in building Washington out of its housing crisis. It’s time for West Coast cities and states to drop their “ideological purity” and embrace this truth.

Caitlyn McKenney

Program Coordinator, Center on Wealth and Poverty
Caitlyn (Axe) McKenney is program coordinator for Discovery Institute’s Center on Wealth & Poverty. Her work has centered on government fiscal accountability, political rhetoric, and addiction with a focus on human dignity ethics. Caitlyn is a graduate of the University of Washington, has interned for a political advocacy organization in Washington, D.C., and has participated in the Vita Institute at the University of Notre Dame. She is published in the British Journal of Psychiatry, has contributed at the Federalist, and has made local and national media appearances.