In what could signal the end of a requirement that developers include affordable housing in their projects, the Bainbridge Island City Council’s finance committee has recommended a plan to let builders buy their way out.

Affordable housing advocates endorse the plan, saying it would mean more money for the city’s Housing Trust Fund.

“The model we put together shows that the proposed plan would bring more money to the trust fund than the present plan, and would bring it sooner,” said HTF consultant Karen Monson.

Under the proposal, developers could make a payment to the trust fund of $34 per square foot, instead of the present requirement that 10 percent of the space in a subdivision be affordable housing.

The buyout option would apply only in the downtown core, but would apply retroactively to four projects now in various stages of planning or completion.

The immediately affected projects are the Ericksen Cottages on Ericksen Avenue, which are completed; the Winslow, under construction at the corner of Ericksen and Winslow Way; the Wood Avenue townhomes on the corner of Wood and Winslow, which are approved but not yet begun; and the proposed Garden Lofts at Wyatt Way and Madison Avenue.

At present, buyers of affordable units must repay a percentage of appreciation on resale, which money also goes to the trust fund. If the house is sold during the first year, the seller must pay the city 97 percent. After nine years – said to be the average length of time a house is held – the percentage is 67 percent of the gain.

Monson said that under a normal rate of appreciation, the HTF would almost always be better off with money up front than with its share of the appreciation – not least because it would have to wait to get the money from appreciation.

Under the proposal, the four projects immediately affected would pay some $230,000 into the HTF.

While the in-lieu payment would be strictly optional, planner Kathy Cook said the developers of the affected projects have all indicated they would elect that option because buyers have strongly resisted the percentage recapture provision.

“I have also talked to real-estate agents, and they confirm that people just aren’t interested in a program that makes them surrender so much of their equity,” she said.

Affordable-housing advocate Garnie Quitslund said the impact of that money could be increased by “leverage” – using it as seed money to spur state and federal grants and private donations.

“With this as the last dollar in the door, you can multiply the amount up to 20 times,” he said.

HTF would use the money in a variety of ways, including direct subsidies of down-payment or rent, and building projects that can offer low-cost rentals.

Developer Rod McKenzie, one of the proponents of the new plan, said the reality on Bainbridge is that affordable housing will probably have to come from public agencies rather than private developers.

“Public agencies don’t pay taxes, and they are eligible for low-interest loans that can contribute to lowering costs,” he said. “The development industry can’t do that.”

The city has a lot of land, he said, some of which could be leased for affordable projects.

The city has tried to induce developers to build smaller homes by requiring that one home in 10 be “affordable,” meaning that it can be purchased by households with average or below-average income measured against metropolitan Seattle standards.

In return for each “affordable” home, the developer is allowed to add an additional market-rate home to the project, meaning that in theory, the developer gets as many market-rate homes as would be the case without an affordable-home requirement.

But in practice, it doesn’t work that way, developers say. In order to make the designated affordable units fit with the project, they need to look the same from the outside. And because interior finishes can only be scaled back so much, developers complain that they lose money on the affordable units, and have to adjust the price of their other homes upwards.

Moreover, what qualifies as “affordable” under city code stretches the common understanding of the concept. Because of high costs on Bainbridge, largely stemming from the cost of land, developers have been labelling as “affordable” homes costing close to $300,000 or more, meaning the only buyers who can qualify are those with large down-payments but modest income.

“The program is not really helping the people it is supposed to help,” Cook said. “A better way is through the Housing Trust Fund.”

Council member Lois Curtis, who sits on the board of the Housing Trust Fund, said that the city needs to take a fresh approach.

“We need rental housing,” she said. “Building affordable homes one by one isn’t going to work.”

Finance committee member Bill Knobloch agreed.

“In theory, I love the idea of our present program. But we have to look at what is practical,” he said.