Seattle, WA—The rise of micro apartments in urban America’s strongest real estate markets is often branded as a hot new trend. But really, it is a reenactment of the way U.S. cities have long worked. Multiple income groups, preferring solo living and centralized locations, will accept smaller accommodations at higher per-square-foot prices. Seattle has recently become America’s flagship city both for this regrowth of micro apartments, and their temporary decline via regulation. The city thus provides lessons for developers, from both inside and outside of the Low Income Housing Tax Credit vortex, who are interested in building this smaller-scale model.
While the definition of microunits can differ, they are generally thought to be studio apartments of 300 square feet or less. Some of these apartments have their own kitchens and bathrooms; others are congregate units where these features are shared among tenants. Because of their proximity within dense urban cores, micro apartment projects also generally have less on-site parking, meaning they cater to tenants who use alternative transportation modes.
This housing concept, while getting much recent press, is not new. Early in the 20th century, writes Alan Durning at Slate.com, such units were commonly filled by rich and poor alike, and were known as single-room occupancies (SROs). Migratory workers, in particular, could be found “living in residential hotels, which once ranged from live-in palace hotels for the business elite to bunkhouses for day laborers. Working-class rooming houses, with small private bedrooms and shared bathrooms down the hall, were particularly numerous, forming the foundation of affordable housing in North American cities.”
In the second half of the 20th century, Durning continues, these units grew more stigmatized as they became the housing of last resort for the homeless and mentally ill, who had been deinstitutionalized throughout the 1960s and 1970s. Laws were eventually passed to make many SROs illegal.
Fast forward to today, and these new microunit projects are just a slicker version of the old SROs, appealing largely to young, single professionals of moderate to high incomes. Given that such demographics are a mainstay within America’s biggest cities, this new housing style will remain in demand, a fact made evident both in market analyses, and my conversations with industry leaders.
The Urban Land Institute, for example, published a research project in 2014 which found that housing units of under 600 feet commanded higher per-square-foot prices, and had higher occupancy rates. And micro apartments are viewed as a scalable model, at least for a handful of dense cities, with Ikea even basing its furniture-design ideas on their inevitable rise. New York City, San Francisco, Chicago and Washington, DC have all seen significant microunit projects, and would see far more of them if regulations were loosened. To name one extreme example, Patrick Kennedy, a developer of micro apartments in the Bay Area, told me that he would construct 100,000 more units metro-wide if regulations allowed it. But, in an echo of the old biases against SROs, the regulations in many cities, which range from minimum parking requirements, to minimum allowable unit sizes, to strict building code enforcements, generally discourage microunits.
Seattle presents the ultimate example in this market versus government battle. Micro housing began to appear in the interior neighborhoods here in 2009, and the concept soon shot off. In 2013, developers produced 1,800 microunits, encompassing nearly a quarter of the city’s housing growth. By 2015, according to the Seattle Times, the city led the nation in microunit construction. Many of these were congregate units, and were spread throughout the city, although there is a particular concentration near the University of Washington campus.
But the more units that were built, the more resistance they received from neighborhood groups, who felt that they harmed community character and provided, because of their small size, inhumane living conditions. The city responded by passing regulations that effectively outlawed microunits in many locations and contexts, a process covered in detail for The Sightline Institute by local architect David Neiman. Among the city’s measures were strengthening minimum parking requirements, enforcing a longer design review process and discouraging congregate housing. The effects, he estimates, will be to prevent 3,450 microunits from being built in the next ten years.
And yet demand remains high, says Neiman, who himself is building a 33-unit micro project near the downtown sports stadiums. He suspects that in an open market, Seattle would, based on population growth figures, double annually the number of microunits it was building in 2013, to about 3,600. According to older figures, the average rents during that period for units between 100-185 square feet were $660/month.
Such market trends should be notable to developers, namely those seeking the next affordable housing trend. Microunit development— and studio apartments in general—are commonly funded by LIHTCs. But according to Vic Agusta, Jr., vice president of Bellwether Enterprise Real Estate Capital, these units generally surface in two ways: via newlyconstructed projects for the chronically homeless, and renovated old SROs that house the sporadically homeless.
Microunits that are not frequently built using LIHTCs, says Agusta, are those for the “urban working poor.” Although working for a company that finances LIHTC projects, he has encountered only one such project, called the Pacific Inn. It was in Bellevue, WA—a suburb of Seattle—and provided units of 300-350 square feet, with an 80-20 split between market-rate and affordable units. The latter units were meant to house some of downtown Bellevue’s service workers. Agusta said that such projects would be viable in certain other transit-intensive cities. “Seattle’s kind of proving that market out right now.”
Specifically, Seattle has proven that there is a contingent of the workforce that is young, single, of varying income ranges and urban-oriented. This demographic today must live in larger apartments that have multiple rooms and roommates, and thus offer limited privacy. What the demographic actually wants is to live alone in studio apartments, even if those apartments are really small. But those units aren’t available because, just like in the past, cities make them illegal.
[This article was originally published by HousingOnline.com]