A small construction company and two homeowners in Seattle are suing the city over its mandatory affordable housing program that requires developers either build or help pay for below-market-rate homes.

The lawsuit, brought by the libertarian-minded Institute for Justice, alleges the program fails to establish a nexus between new residential construction and the need for more affordable housing — arguing new construction in fact helps make the city more affordable — and therefore constitutes an illegal taking of private property and income by the city of Seattle.

This is the second lawsuit from the Institute for Justice against the city over its formally titled Mandatory Housing Affordability program. The first was brought in 2022 and dismissed on procedural grounds last year. It is currently under appeal in the federal Ninth Circuit, but lawyer Bill Maurer said they wanted to “keep up the pressure to try to get a resolution of this case.”

“They’re basically the same idea,” Maurer said of the two lawsuits, “which is the government can’t coerce money out of you as a condition of granting a permit to you.”

Seattle’s Mandatory Housing Affordability program was first proposed as a “grand bargain” among the city, affordable housing providers and developers in 2015. In exchange for higher and denser construction, developers agreed to either build affordable homes on site or pay into the city’s coffers to build them elsewhere. The city’s largest developers additionally agreed not to challenge the program in court.

The program was rolled out in stages and fully implemented in select residential and commercial zones across the city in 2019.

The lawsuits filed last week represent homeowners Mehrit Teshome and Rocco Volker, and Joey Vert and his company 10.23 Build LLC. It specifically targets the program’s effect on residential development, leaving behind the commercial side.

According to the filing, Teshome and Volker wanted to downsize their single-family home and add a rental unit on their property. They ended up building a duplex — rather than an accessory unit — meaning they were required to pay more than $36,000 in fees to the city.

Vert, meanwhile, took on a project to build four townhomes. Under the city’s rules, he’d have to either keep two of them affordable or pay more than $124,000. He chose the latter.

Although Vert, and Teshome and Volker, moved forward with their projects, the requirements changed their plans, they said. Teshome and Volker have opted to sell the rest of the developable land they own and Vert, in searching for new plots to build on, is avoiding the parts of the city with affordability requirements.

Charging fees for new construction should only be allowed to mitigate the effects of the development, the lawsuit contends, such as the need to add a new sewer line. That connection does not exist when it comes to the city’s housing program, the lawyers say.

“The City must show that adding to Seattle’s housing supply ‘would substantially impede’ a low-income person from accessing housing in Seattle,” the lawsuit says. “It cannot do that because — as the City has admitted — additional housing of all kinds results in lower housing costs generally.”

Because that connection does not exist, the suit argues, the program amounts to an unconstitutional taking of income from Teshome, Volker and Vert.

Additionally, to the extent there is a connection, the fees must be tailored to be proportional to the impact of development. The city’s program, though, instead reflects its assessment of the value of additional height and density, the case says.

“The City is making it more expensive for Plaintiffs and others to add housing to Seattle — during an ongoing housing shortage, within the very zones that the City has identified as particularly needing more housing supply,” the lawsuit argues.

The plaintiffs’ money should be returned and the law should be invalidated, it says.

A spokesperson for the City Attorney’s Office declined to comment, citing pending litigation.

When the Mandatory Housing Affordability program was passed, both residential and commercial development in Seattle was going through a bonanza — or what a recent analysis of the program called “unprecedented favorable conditions.” As a result, concerns about the program’s effect on the private development market were muted, eclipsed by the more immediate issues of displacement and the need for more subsidized housing.

By the end of 2023, the program had brought in more than $300 million for affordable housing, with most developers opting to pay rather than develop subsidized units.

However, now that the development market has slowed, its value has come under increased scrutiny. An analysis commissioned by the city last year said that while the program was indeed helping to build new affordable housing, it might also be suppressing new homes in certain parts of the city. The analysis suggested updating the regulations to better reflect current market conditions.

City Hall is in the process of mapping its growth strategy for the next 10 years. It recently passed temporary legislation allowing new density in neighborhoods across the city and is likely to pass permanent legislation this fall.

Signs so far do not suggest a feeding frenzy of development will follow, though there are many reasons for that unrelated to the program.

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