Seattle City Council member Richard McIver's proposed changes to a tax exemption plan aimed to increase the amount of affordable housing in the city would reach lower income earners than the version released by Mayor Greg Nickels last year.

But developers told council members at a recent Housing and Economic Development Committee meeting that income requirements needed to be closer to the mayor's plan in order for projects to financially work.

The current program ends next year, but a changing rental market and increasing costs for new construction has rendered it useless for most developers. It's aimed at creating some housing within new development affordable to those earning between 60 percent and 70 percent of Seattle's median income in exchange for a 10-year tax exemption on the residential portion of a project.

Both Nickels and McIver's new plan extends the tax exemption to 12 years and would make it available to developers in all 39 urban villages, including Ballard and the West Seattle Junction.

Under Nickels' plan, 20 to 25 percent of the units within a participating development would be set aside for individuals who earn up to $49,000 or families making up to $62,300, or about 90 percent to 100 percent area median.

Condo developers could also opt into the program by offering units affordable to people who earn up to $74,760 a year for a two-person household. The monthly rent for an individual under Nickels' plan would be between $50 and $250 below market rate, according to the city.

Depending on the size of a unit, McIver's version lowers the income requirements to between 60 percent and 80 percent of median for new rentals, which doesn't sit well with some developers who still need to turn a profit.

Martha Barkman of Harbor Properties, a development company planning three West Seattle apartment buildings, said developers wouldn't be able to participate unless the income limits were increased to at least 90 percent to 100 percent of median incomes.

Christopher Meyer's company, Legacy Partners Residential, a commercial and residential real estate firm, has more than 800 units in the Puget Sound area currently under construction or in permitting stages. He said increasing income limitations for the affordable housing requirement would bring the program "back into economic relevance" as a tool to create cheaper housing within the private development sector.

Apartment vacancies have increased compared to this time last year but are still lower than they've been in years. Vacancy rates are below 5 percent in most neighborhoods and more and more moderate-income workers are being squeezed out.

Rents are steadily rising, too. According to a report by Dupre and Scott Apartment Advisors, a Seattle company that tracks the rental market, rents are up by about 9 percent from 2007.

Several housing advocates said they thought the program was the only option the city had as a way to generate housing for moderate-wage earners.

Eric Pravitz, director of real estate development for Homesight, a non-profit community development organization focusing on helping low-income families become first-time homeowners, said the incentive is especially important as median home prices in Seattle have doubled in the last decade.

Many of his clients are immigrant families in South and West Seattle. The program would support an additional $10,000 to $20,000 of a first mortgage loan, he said.

"That little extra amount can be the difference that makes buying their first home a reality," said Pravitz.

Brain Lloyd of Beacon Development Group, an affordable housing consultant firm, urged the council to move the program off the drawing board so developers building now could participate.

"We have a critical housing situation and we need more partners to address the problem," said Lloyd. "Let's take a risk - let's expand the program and see if we can get the housing your goal has set."

City officials hope to see at least 500 affordable units created with the program in the next two years.

Seattle has used the tax exemption program since 1998, when it was authorized to do so by the Legislature. From 1998 to 2004, the program was allowed in nine areas of the city where growth targets weren't being met. Income limits were around 80 percent of median and of 474 units built under the plan, a little more than half were affordable to that income bracket.

In 2004, it was expanded to more areas and the income limits dropped to between 60 percent and 70 percent. Just 11 projects have been developed since then, creating 762 "affordable" units. Few developers have used the program to build for-sale homes.

The housing committee is still reviewing the plan and could change the income limits before it goes to full council early this summer.

One of the mayor's most vocal critics of his housing plans, John Fox, coordinator for the Seattle Displacement Coalition, said the new plan doesn't reach the population of people who are really in trouble. Fox believes the shortfall of housing options is for those earning much less than the program targets.

He said the council should focus on saving older units that have disappeared by the hundreds due to apartment to condominium conversions in neighborhoods like Ballard.

Adrienne Quinn, director of the city's Office of Housing, said based on studies, moderate wage earners like teachers, nurses and fire fighters, are the ones being priced out of neighborhoods.

The city calculates its median income levels on based on information published annually by the U.S. Department of Housing and Urban Development. Quinn said truck dispatchers make about 99 percent of median, dental assistants about 82 percent and elementary school teachers here earn about 106 percent of median.

"We would strongly urge the council to look at a proposal that will provide housing opportunities for people who are at that income level and not cap the tax exemption program below 80 percent when we already have programs meeting those needs," said Quinn.

Median income will increase by 4.5 percent this year and another 6 percent in 2009, the city projects. But new apartments coming online will continue to be "very expensive," said Quinn.

"... If you want to make sure that we can have working people living in them, then we do need some kind of incentive," the housing director said. "One of the realities is that construction costs continue to escalate because of the global market, yet our wages are really not growing."

Rebekah Schilperoort may be reached at 783.1244 or rebekahs@robinsonnews.com