Using Surplus Public Property to Create New Affordable Housing
One challenge for affordable housing developers in Washington is the rising cost of land. Public and nonprofit housing developers have a difficult time acquiring land because they are often outbid by a private sector developer looking for the same type of property. Public entities (e.g., local government and state agencies) can reduce the cost of land acquisition for affordable housing developers by designating surplus properties for new affordable housing construction.
This blog provides an introduction to the concept of using surplus public land for affordable housing and identifies the steps and issues involved in implementing this approach.
What Is Surplus Public Property?
What is surplus public property, you may ask. In general, it is equipment or property that is no longer needed for agency purposes. Specific to affordable housing, it is defined by state law (RCW 39.33.015) as meaning “excess real property that is not required for the needs of or the discharge of the responsibilities of the state agency, municipality, or political subdivision.”
If a municipality or public agency no longer needs a publicly owned piece of property, then it dispose of that property to another entity that would presumably have a good use for it. The list of public entities dealing with surplus public property is a long and varied one, and it includes local governments (i.e., cities, towns, and counties), special purpose districts, and state agencies (e.g., WA DNR), to name just a few.
Washington State Law
There are several state statutes addressing processes and procedures public agencies must follow to dispose of surplus property.
Disposing of public property at/below market rates or via donation is generally considered to be a “gifting of public funds,” which is prohibited under the Washington State Constitution. Article 8, Section 7 of the constitution, however, does allow public funds to be used in providing “the necessary support for the poor and infirm...” MRSC’s blog, Donations and Local Governments: The Basics of Giving and Receiving, provides more details on when and how local governments can make donations.
RCW 39.33.015 explicitly allows public agencies to transfer, lease, or dispose of surplus real property to a public, private, or nongovernmental entity at low or no cost, if such action is for a public benefit. RCW 39.33.015 (8)(b) further defines this:
Public benefit means affordable housing, which can be rental housing or permanently affordable homeownership for low-income and very low-income households as defined in RCW 43.63A.510, and related facilities that support the goals of affordable housing development in providing economic and social stability for low-income persons.
It should be noted that for the purposes of this statutory exception, low income means a household making more than 50% but less than 80% of the median income where the affordable housing is located; very low income is defined as less than 50% of low income.
RCW 39.33.015 (8)(a) also explicitly states:
a) Affordable housing means:
i) For rental housing, 30 percent of the household's monthly income for rent and utilities, other than telephone; or
ii) For permanently affordable homeownership, 38 percent of the household's monthly income for mortgage principal, interest, property taxes, homeowner's insurance, homeowner's association fees, and land lease fees, as applicable. In addition, total household debt is no more than 45 percent of the monthly household income;
General Surplus Property Process
Public agencies often need to dispose of surplus property, and here is a basic overview of how to accomplish this.
- Identify unused/unneeded public properties and determine which are truly surplus;
- Determine fair market value;
- Publish notice (and hold a public hearing) when required;
- Adopt a ‘surplus public property’ resolution (unless authority is delegated); and
- Proceed with disposition of the specific surplus property.
More details on how to dispose of many types of surplus property may be found in MRSC’s webpages: Surplus City or Town Property, Surplus County Property, and Surplus Property for Special Purpose Districts.
Setting Up an Affordable Housing-Oriented Surplus Public Property Program
While there is a wide variety of property that public entities may want to dispose of (from office chairs and file cabinets to heavy equipment), this blog focuses on local government efforts related to affordable housing.
The City of Bellingham has established a thoughtful process for identifying surplus city property that might be used for affordable housing purposes. The 2020 Surplus Land Assessment Report describes the steps that Bellingham takes to end up with eligible sites:
- Review all city-owned land to determine if there are general conditions that could limit their ability to be designated surplus and used for affordable housing (Tier 1 assessment). Bellingham city staff used its GIS system to make this effort easier and more efficient than doing it manually.
- Develop a detailed assessment of the individual sites (Tier 2 assessment) that made it through the initial review. Those remaining properties’ specific impediments characteristics (such as size, shape, location, environmental restrictions, and deed restrictions) were then reviewed on a site-by-site basis.
- Classify individual sites that made it through the Tier 2 assessment. Those sites that did not show any obstacles to surplus/affordable housing development were then put into the following categories: (a) in process; (b) short term; (c) long term; and (d) use or maintenance agreements.
While some public entities may have a more informal process with fewer steps than those taken by Bellingham, once some version of those steps have been taken, then a public entity can determine the best way to dispose of the identified surplus property with immediate or short-term use for the construction of new affordable housing, such as issuing a semi-formal request for letters of interest (LOI) or formal request for proposals (RFP).
Surplus property will likely be transferred to a public or nonprofit agency experienced in affordable housing projects. As a result, it is important to build strong partnerships with local affordable housing organizations. One example is the City of Spokane, which partners with its three public development authorities. Spokane is currently working with the Northeast Public Development Authority on a mixed-use development with a significant affordable housing component.
Other examples of collaboration/partnerships include Bellingham and the Kulshan Community Land Trust; and the cities of Ellensburg and Tacoma, both of which have partnered with local chapters of Habitat for Humanity.
There may be legitimate (and sometimes competing) demands for the identified “surplus” public properties from one or more public agencies situated within your municipality (and/or agency departments) that would preclude a property's use as affordable housing. As a result, be sure to share a preliminary list of potential surplus properties with all agency departments and with partner agencies as early as possible to confirm that a specific site isn’t needed for a different public purpose (for example, a vacant parcel that the public works department has been considering for a new maintenance shop location).
To increase the potential for success, communicate often with your affordable housing partners (both existing and potential) and be knowledgeable about what they need to achieve your community’s affordable housing goals. For example, a small surplus parcel that can only accommodate a small number of housing units on it will not work for a housing developer that only builds 45+ unit projects and needs larger sites.
Be clear and upfront about what you expect to accomplish with a surplus public property program that has an affordable housing focus. Is there a target or minimum number of affordable units that you expect to be produced on each specific land parcel? Are there any geographic locations that are more preferred than others for these developments?
Be sure to set realistic objectives and manage expectations. Setting up this type of program will likely take more time than might initially be expected and may not meet all of your objectives. Most people will accept those possibilities when they come up as long as some positive end result is achievable and that you are transparent, communicating often about your progress.
The positive action of providing low/no cost land may not be enough, by itself, for your collaborating organizations to push their affordable housing projects “over the finish line.” Be prepared for those housing partners to ask if there is any possibility of some additional level of financial assistance. Of course, your answer can be ‘Yes,’ ‘No,’ or ‘Possibly,’ or you may have knowledge of other potential funding sources.
To help address our state’s affordable housing crisis, it is important for local governments and state agencies to consider using as many tools and approaches as possible. Disposing of surplus public property for affordable housing is one such tool. The concept has been around for many years, but it has not yet been widely implemented in Washington. While a community should carefully ponder its reasons for undertaking such an effort before moving forward, using surplus public property to encourage the construction of new affordable housing is an option worth considering.
To learn more about local surplus public land programs, register for MRSC’s Using Surplus Public Property for Affordable Housing webinar, scheduled for February 20, 2024, 11:00 am-12:30 p.m. It will feature speakers from the cities of Bellingham and Spokane, the Northeast Public Development Authority (Spokane), and the Washington Department of Natural Resources (WA DNR).
The author wants to thank A Samya Lutz (City of Bellingham); Dan Carlson, Lily Frey, and Jeremy Johnston (City of Ellensburg); and Amanda Beck (City of Spokane) for their assistance with this blog.
MRSC is a private nonprofit organization serving local governments in Washington State. Eligible government agencies in Washington State may use our free, one-on-one Ask MRSC service to get answers to legal, policy, or financial questions.