Washington is working to facilitate faster construction of more homes, and now is the best time for a while to lock in construction pricing.

These were two main messages coming out of a ULI Northwest Multifamily Product Council meeting on Tuesday, Aug. 27, at The Ayer, Holland Residential’s stunning new apartment tower in Denny Triangle. Red Propeller Partner Jim Goldberg was there, so we thought we’d share some key takeaways, plus our thoughts about The Ayer (spoiler – Holland did it again!).

Getting more homes

All metro areas in Washington, Oregon, and Idaho are short of housing. Meanwhile, the Washington Department of Commerce projects that the state will need 1.1 million new homes over the next two decades. That’s 55,000 per year.

Last year, the state Legislature took several steps aimed at boosting housing construction, land-use lawyer Ian Morrison, a partner at McCullough Hill PLLC, noted at the ULI meeting. This includes measures that:

• Require many cities to allow a broader range of housing types in areas traditionally zoned for single-family homes;
• Require many cities to allow at least two accessory dwelling units per lot while also restricting limits on and reviews of ADUs;
• Establish standards designed to streamline design review;
• Exempt urban housing developments from state environmental review;
• Set new time limits for reviews of proposed developments; and
• Promote conversion of existing commercial and mixed-use buildings to housing.

The 2024 session, in contrast, was more defined by what didn’t pass, including rent control, a tax on real estate sales over $3 million to fund affordable housing, and repeal of the state capital gains tax (this is on the November ballot), according to Morrison. One new measure of note allows cities to defer (and eventually waive) sales and use taxes for conversion of commercial buildings into housing (at least 10% of it affordable to low-income households) in targeted areas.

Seattle is now working to update its comprehensive plan to, among other things, implement the new state laws noted above and allow for up to 120,000 new homes over the next two decades (up to 40,000 above the status quo approach, depending on how ambitious the city gets), largely by adding homes in urban and neighborhood centers close to shopping and services. Separately, the city recently enacted a permanent design-review exemption for projects that meet certain affordability thresholds and a 24-month exemption for projects in the city’s Mandatory Housing Affordability program.

Time to lock in construction pricing?

The other notable news from the ULI meeting is that construction pricing is likely the best it’s going to be for a while. According to Compass Construction, pricing has dropped 10-15% from its peak. This presents an opportunity for permitted, funded projects looking to start soon.

Compass expects pricing to hold through the end of the year. After that, pricing could start to rise quickly if the Federal Reserve cuts interest rates (as expected) and project starts resume. Compass noted that contractor estimating departments are now very busy, which could portend increasing starts.

Tour The Ayer

On a final note, we were happy to have the opportunity to check out The Ayer, Holland Residential’s new apartment tower in Denny Triangle. The Ayer is a beautiful building, as we have come to expect from our friends at Holland. Beyond that, it’s a great example of what’s possible when a project is executed well, including clear and comprehensive implementation of a strong vision that distinguishes a community from competitors in the market.

The Ayer is named for Elizabeth Ayer, who was Washington’s first registered female architect, and “inspired by natural rock elements and textures of the Pacific Northwest.” The vision clearly carries through every aspect of the community, including rich dark wood, metal, and stone elements. One of our favorite spaces is a double-height rooftop lounge with stunning views and an interior stair climb that leads to two separate lookout nooks. A mountain motif inscribed on the adjacent walls enhances the effect.

Well done!