Want More Affordable Housing? Reducing Infrastructure Costs Could Help

According to a 2024 report from the University of Washington’s Center for Real Estate Research, Washington will need more than 1.1 million additional housing units over the next 20 years to keep up with anticipated population growth and the demand for housing. A majority (59%) of the new units will need to be affordable to very and extremely low-income households, or those earning less than 50% of the area median income. It is highly unlikely that the private sector can produce these units, and significant action by local governments and nonprofit developers will be necessary.

While many local governments have taken actions to encourage the production of housing affordable for low-income households, one of the most significant costs faced by such projects — the cost of required infrastructure and related fees — may not be among the actions addressed.

This blog discusses how local governments can review and adjust their infrastructure fees and requirements to increase construction of housing that is affordable and attainable to households at all income levels.

Why Is This So Important?

The American Planning Association and National League of Cities recently published the Housing Supply Accelerator, a playbook of strategies for communities to address their housing needs. One approach is to:

Strategically coordinate subdivision regulations, engineering standards, development impact fees, building codes and environmental regulations to reduce the time, cost and unpredictability of housing project approval.

The impact of not coordinating infrastructure requirements and fees with housing goals is substantial. Affordable housing projects often need assistance in paying for infrastructure fees and construction — some simply cannot move forward without it.

A stark illustration of this is the Washington State Department of Commerce’s (Commerce) Connecting Housing to Infrastructure Program (CHIP), which has $12.7 million in the 2023-2025 biennium to assist affordable housing projects with utility connection costs. CHIP received 62 applications requesting over $48 million in 2024, with $40 million specifically for utility service connections (approximately $11 million for water, $12 million for sewer, and $17 million for stormwater). Over $8 million was requested to pay for system development charges (which fund a project’s impact on the overall utility systems).

In addition to the cost of utility connections, a housing project may be required to pay impact fees for transportation, schools, parks, or fire services, as well as construct street frontage and on-site improvements per locally-adopted engineering standards. Off-site improvements may be required if identified through a SEPA analysis.

The combined costs of these requirements can often be tens of thousands of dollars per housing unit — which can increase the rent or purchase price for residents, especially for small-scale housing projects that have fewer units to which the costs can be distributed.

A Few Infrastructure Requirements for Local Governments to Consider Reviewing

Local governments can reexamine these requirements for potential ways to address housing costs:

• Utility connection fees and system development charges,
• Impact fees, and
• Requirements and standards for constructing on- and off-site infrastructure improvements.

Note that there are good reasons for these infrastructure requirements and fees. Since they are generally based on an assessment of the actual impacts of new development on public infrastructure systems, reassessing such requirements involve difficult policy choices for local elected officials.

Below are examples of how local governments are reducing costs to affordable housing projects while still meeting infrastructure system costs. (Some may even decrease long-term utility costs by reducing impervious surfaces.) Typically, these examples involve:

• Adjusting infrastructure requirements to reflect documented lower impacts of smaller affordable housing units, or
• Choosing to pay for infrastructure impacts using other funding sources (as authorized in RCW 35.21.685).

MRSC’s Affordable Housing Techniques and Incentives and Commerce’s guidance documents on middle housing and accessory dwelling units (ADUs) are great sources for more information.

Utility Connection Fees and System Development Charges

Under RCW 35.92.380, RCW 35.92.385, RCW 35.21.305, and RCW 36.94.370, cities and counties are authorized to waive utility connection charges for affordable housing (see the 2023 blog, New Bills Address Utility Connection Charges, Service Disconnection for Non-Payment for more details).

Local governments that offer reduced or waived fees for low-income housing projects include Concrete, Ephrata, and Langley. Some local governments, such as Kirkland, Pierce County and Snohomish, have included utility connection fee waivers and other infrastructure fee reductions as part of a comprehensive program of affordable housing incentives (RCW 36.70A.540).

Local governments can also offer reduced connection fees to encourage market-rate housing in priority areas identified in their comprehensive plans. A good example of this is Bellingham’s infill incentive program.

Inside urban growth areas (UGAs), cities and counties can adjust fees to be proportional to dwelling unit size, based on findings that smaller units have less impact on utility systems. For example, King County has a detailed system capacity charge with varied charges based on the size and form of the housing unit, with additional discounts for affordable units. Lake Stevens reduces utility connection fees for ADUs based their size. Additionally, RCW 36.70A.535(8) specifically limits sewer connection fees for ‘co-living housing’ within UGAs.

Chelan, La Center, and Yakima County allow ADUs to share utility connections with the primary house, avoiding charges for an additional connection. Some jurisdictions also offer utility rate reductions for smaller units.

Impact Fees

Impact fees must be based on the proportionate impact of the housing unit, to produce a lower fee for smaller housing units (RCW 82.020.060(1)). In addition, impact fees for ADUs may be no more than 50% of those for the primary home (RCW 36.70A.681 (1)(a)). To help with these requirements, Commerce is developing guidance on proportionate impact fees.

Cities and counties can also waive or reduce impact fees as authorized under RCW 82.02.060. Subsection (2) states that exempted impact fees must be repaid from other public funds, while subsection (4) has less stringent repayment standards but more requirements under which low-income housing qualifies. Bellingham, Ellensburg, Issaquah, King County, Kirkland, Kitsap County, Olympia and Vancouver are a few examples of local governments that have adopted impact fee exemptions for low-income housing or smaller units such as ADUs.

Impact fees may be reduced in certain geographic areas, like downtowns, upon a formal finding that the actual impacts of housing units in those areas are lower than elsewhere in the community. Bellingham, Ellensburg, and Olympia have taken this approach.

Infrastructure Construction Requirements

Most cities and counties require a new development project to construct or repair public facilities along the street frontage of its property, which can include water, sewer, and stormwater facilities; streets, sidewalks, and bicycle lanes; street lighting and trees; and more. Typically, construction must meet adopted engineering design standards. Local governments generally have authority to adjust these standards, with some exceptions (see MRSC’s City Street and Road Standards).

Commerce’s User Guide for Middle Housing Model Ordinances contains numerous recommendations for reassessing infrastructure and development standards due to a smaller impact on infrastructure facilities, and some may also be applicable to all types of housing. For example, RCW 36.70A.681(1)(i) specifically forbids public street improvements as a condition of permitting ADUs.

There are also other ways local governments can reduce infrastructure costs for housing projects. For example:

• Comprehensive plan policies and zoning to promote infill housing in areas that already have adequate existing infrastructure capacity.
• Capital facilities plan (CFP) policies that prioritize public infrastructure investments supporting housing. For example, see the Housing, Economic Development and the Environment chapter in Port Townsend’s CFP (2024) and policies 1.7, 2.5, and 3.7 in Olympia's CFP (2024).
• Shared-cost approaches to infrastructure, such as public/private partnerships and regional approaches (see Puget Sound Regional Council’s Guidance on Integrating Stormwater Solutions into Comprehensive Plans).
• Development agreements that identify specific cost-sharing approaches with developers of low-income housing projects.

Conclusion

Requirements for new housing development to construct or improve public facilities and charges for utility connections or impact fees can significantly increase rents and home purchasing costs. Reviewing and adjusting infrastructure requirements and fees can advance a community’s housing goals, while still meeting its essential infrastructure needs.