Housing Nonprofits Grapple with Fiscal Crisis and Federal Threats

view original post

Issues with vacancies, rising operating costs, and federal funding cuts are hitting affordable housing providers hard.

In recent years, nonprofit housing providers in King County have confronted a variety of challenges, including climbing vacancy rates, widening wealth inequality, an uptick in the number of residents not paying rent, and steep cuts to federal programs that fund operating expenses. A recent King County report highlighted some of those challenges, as organizations move to adapt and head off what could be a perfect storm facing nonprofit housing providers.

The vacancy issue is connected to rising incomes in King County, which also causes rents in subsidized housing to climb, since those rents are typically capped at a set percentage of area median income or AMI.

“The increase in AMI has caused an increase in income-restricted rents to the point where a large chunk of income-restricted affordable housing actually rents higher than market rate housing,” said King County council member Claudia Balducci, who chairs the Affordable Housing Committee (ACH) of the Growth Management Advisory Council, a regional, multi-government advisory board. 

In September, the ACH released a report looking at trends in multifamily and affordable housing across King County, and found that increased production of studio and one-bedroom apartments over the past decade has caused rent increases for these smaller units to slow. Combined with a steeply rising median family income (which is now at $157,000 countywide), the report observed that “unrestricted studio, one-, and two-bedroom units in much of King County rent at rates affordable to households with incomes between 60 and 70 percent of AMI. This means that many income-restricted units at 60 percent AMI and higher are meeting the same needs as the private market.”

Sharon Lee, executive director of the Low Income Housing Institute (LIHI), a nonprofit which manages and builds affordable housing, said the lack of affordable two- and three-bedroom units is due in part to a focus on small units in both market-rate and subsidized housing development. 

“One of the failed policies that we have is that there’s been this really big push to produce as many units with the lowest amount of subsidies,” Lee said. “And so essentially, developers were incentivized to do as many studios and one-bedroom units as possible, and then it looks much better because the per-unit cost is less.”

The ACH report observed that between 2014 and 2023, when multifamily housing production increased to at least 7,500 new units each year, 59% of all apartments built in King County were studios and 32% were one-bedroom units. Because of low production of larger units, combined with the loss of some existing multi-bedroom units, units with three or more bedrooms currently account for only 18% of apartments in King County.

Organizations like LIHI and Southeast Effective Development (SEED) have begun to address that need with a handful of new developments that include more multi-bedroom units, but those developments are a fraction of what’s needed, especially for multi-generational households. 

Another trend the ACH report observed was a huge surge in AMI, led by the booming tech industry. Between 2017 and 2025, AMI rose 64% in King County — nearly double the rate of inflation. Relatedly, the income gap between homeowners and renters continued to widen over that time period. Households that own homes earned a median income of $156,765 while renters had a median income of nearly half that — $82,818, the report found.

Because AMI is used to determine eligibility for income-restricted housing, rising median incomes, combined with flattening rents for studios and one-bedroom apartments in King County have led to a situation where many market-rate apartments are actually less expensive than income-restricted affordable housing, especially units priced at 80% AMI.

The ACH report notes that in 2023, the median rent for a market-rate studio apartment in the Seattle metropolitan area was $1,646, below the maximum allowable rent for an 80% AMI rent-restricted studio. Moreover, the median market-rate rent for studio apartments in King, Snohomish and Pierce counties was $1,565 in 2025, which is competitive with the maximum rent for 50% AMI rent-restricted studios ($1,375).

Balducci said this has made rent-restricted affordable housing less competitive over the past two years. 

“If I’m applying for an apartment and I have 80% or 70% area median income, I can walk into a private apartment building, and if I can put together the first-and-last security deposit, I can sign a lease and then walk in,” she said. “Or, I’ve got to go through all these hoops it takes to qualify for and get placed in affordable housing, and then keep on qualifying for it, doing all the hassle of that. Who’s going to do that?”

The report notes this issue is particularly prevalent in South King County, where median rent for market-rate one-bedroom apartments in 2023 was 67% of AMI. This compares with 77% in Seattle, and 88% in Bellevue.

This lack of competitiveness has increased vacancies at various affordable housing buildings across the county. An analysis by the Seattle Times in August found that vacancy rates in Seattle’s income-restricted housing climbed fivefold from 2017, hitting 11% in 2024.

Susan Boyd, chief executive officer of Bellwether Housing, the largest nonprofit provider of affordable housing in the Puget Sound region, said that 2024 was especially challenging, though the situation has improved in 2025. “We definitely felt the challenges of adapting to the softening rental market that really hit in 2024, especially for our studio units with shallower subsidies,” Boyd said.

Bellwether responded by lowering some rents slightly and working to leverage as much rental assistance as it could for tenants. She said the average vacancy rate at all Bellwether properties is now at 6% and only about 1 in 10 buildings have a vacancy rate over 10%, noting that many of those properties are dealing with “overcoming broader neighborhood safety concerns.”

Nona Raybern, a spokesperson for the Seattle Office of Housing (OH), took issue with the Seattle Times’ claim that vacancy rates are currently rising in affordable housing buildings in Seattle. “Vacancy rates in affordable housing are not increasing and are operating very much in line with the overall citywide vacancy rates,” Raybern said.

Raybern provided OH data from the six largest income-restricted housing providers in Seattle over the first three quarters of 2025, and those figures show a mean average vacancy consistently hovering at just under 6%.

Most of those vacancies, Raybern observed, were in studio and one-bedroom units. “OH is responding to this changing market by emphasizing family-sized housing and extremely low-income housing below 50% AMI as priorities for applications received through the 2025 Rental Housing NOFA [notice of funding availability].” In this year’s funding cycle, OH has $170 million available to providers, supported by the 2023 housing levy and a portion of the JumpStart payroll tax.

In response to the issue of vacancies in affordable housing, Mayor-elect Katie Wilson, during the campaign, floated the idea of opening some workforce affordable housing (which generally ranges from 50% to 80% AMI) to “low-acuity” lower income people. In an article published at PubliCola, Wilson said the city should do more to serve people below 50% AMI who don’t require the full range of services that accompany permanent supportive housing. Mayor Bruce Harrell and several nonprofit housing providers criticized the proposal.

Lauren Fay, senior business manager at Downtown Emergency Service Center (DESC), which focuses on permanent supportive housing, said making vacant workforce housing available to people earning below 50% AMI could work, but offered some caveats. 

“Anything that we can do to get people into homes urgently is a great idea,” Fay said. “I just think we need to do it with eyes wide open and not underestimate the full range of supports that folks will need beyond just the subsidy to afford the rent.”

She noted that someone coming out of homelessness into supportive housing often needs a wide range of services related to health, job skills, substance use, and mental health, and that can cost upwards of $35,000 per year for each person.

Sage Wilson, a spokesperson for Mayor-elect Wilson’s transition team, declined to comment on Wilson’s proposal to open workforce housing to lower income residents. 

“The transition team has a whole group working on housing affordability and community needs and is doing very broad outreach and consultation in that area, and that work is going to inform how the mayor-elect advances her vision. No specific details until that process is complete,” Sage Wilson said in an email.

Lee said that there are plenty of workers in the 30% to 50% AMI range – particularly young workers making minimum wage – that aren’t served by either supportive housing or workforce housing. Preventing displacement from historically diverse neighborhoods will require targeting the needs of these residents, she said.

“If you want to keep residents in the community, you need units that are 30% or 40% AMI. A full-time minimum wage worker in Seattle is at 40%,” Lee said. “When they try to apply for housing, and all the units are at 50 and 60, they’ll probably get denied for lack of income.”

Another problem facing affordable housing providers is the tricky issue of a small population of tenants who have exploited winter eviction moratorium rules to avoid paying rent, even if they may have the ability to pay. It’s a controversial issue – Lee and other housing providers have argued that the rules should be modified or provide some exceptions for income-limited housing. 

“We have people who could pay but won’t,” Lee said, “They’ll actually turn down a payment plan. We offer some very generous payment plans to help them catch up.”

Lee and Emily Thompson, an affordable housing developer, wrote an op-ed for the Seattle Times last November urging Mayor Harrell and the city council to revise the winter eviction moratorium, claiming that about 70% of Seattle’s affordable housing residents behind in rent were not cost-burdened, suggesting they may be able but are not willing to pay rent.

Seattle’s tenant protections prevent eviction of people with school-aged children or those who are employed by schools during the school year, from September to June. Seattle also limits evictions of people earning at or below 80% AMI during winter months, from December 1 to March 1.

Former city council member Cathy Moore proposed changing some of those tenant protection rules, but did not pass the legislation before resigning her seat in June.

Because evictions are a leading cause of homelessness, changing the protections has faced sharp criticism from advocates for unsheltered people.

Fay, at DESC, is happy the council didn’t change the eviction limits. 

“They really did stand to create more homelessness,” she said. “We are in a situation now where, between making evictions easier and all of the funding cuts that we are feeling from the federal government, we are creating a potentially nightmare scenario for ourselves. We don’t even have enough shelter space to handle these scenarios, let alone what this would do to our social service system.”

In Tacoma, affordable housing providers asked the city council for exemptions from school year and cold weather winter eviction bans, and last week the council passed several of those changes. The legislation exempts the Tacoma Housing Authority and other nonprofit affordable housing providers from the winter and school-year eviction moratorium in of the city’s Landlord Fairness Code Initiative, passed by voters in 2023.

Perhaps the biggest challenge of 2025 for housing organizations has been evisceration of federal funding for a range of health, childcare, and housing programs. In particular, proposed new rules for the Department of Housing & Urban Development (HUD) Continuum of Care program, which funds permanent supportive housing, may be cut by more than half in 2026. PubliCola first reported last month that proposed federal cuts could reduce federal permanent supportive housing programs in Seattle from a current level of $60 million per year to around $20 million. 

“The federal issues are pretty dire at the moment, Fay said. “DESC stands to lose about $16 million in operating funds through these HUD cuts.”

“We have 1,776 tenants that we’re providing supportive services to currently, and it’s our responsibility to continue that work, regardless of what HUD does,” she said. “We’re going to need to figure out something as a community to make it possible to ensure that those folks don’t end up experiencing homelessness again.”

Raybern said the Office of Housing is scrambling to figure out ways to backfill some of those lost funds.

“The HUD CoC funding threats are significant, potentially impacting between $40 million and $60 million of ongoing annual service and operating costs for permanent supportive housing,” Raybern said.

After some delay, the Office of Housing is offering a second round of “urgent operating support” (UOS) to nonprofit affordable housing providers to help these organizations shore up operations. This year, $27.8 million is available to help housing providers in “managing rising operational costs and maintaining the financial well-being of their properties,” Raybern said. In 2024, the Office of Housing awarded $14.2 million in UOS grants to 24 organizations, which ranged from $177,000 to $900,000.

Fay said DESC is applying for the UOS grants, and was grateful for the support in 2024, which helped the organization balance its budget. 

“Last year, it was really helpful with starting a cool, innovative program within our housing portfolio, where we were able to help tenants who had fallen behind on rent get back up to speed by helping to essentially wipe out a portion of their past due rent.”

Though Lee said her organization is grateful for the support, she said it falls short of what organizations will need to weather the current crisis. 

“The city had some funds available last year, and a lot of nonprofits and for-profits applied, and the funds were spread really thin,” Lee said. “Then, for some reason, the Office of Housing didn’t have any funds available this year. It made no sense. Why would you skip a year?”

Without the boost of operating support, some nonprofits warned that they’d be forced to sell off some of their buildings or default on loans. The UOS grants helped them avoid that fate, but potentially only temporarily if their financial outlook does not improve. The federal government is likely to exacerbate the problem rather than help, in the near-term.

On the other hand, if the Office of Housing continues to dole out a high level of operational subsidies, it would eat into its ability to fund the construction of new affordable housing.