Barriers hinder middle housing development in Olympia

The City of Olympia allows four to six homes per lot in designated low-density residential zones, plus up to two accessory dwelling units (ADUs) as a means to increase housing totals.

But Olympia Planning Director Nicole Floyd said the city has received only one application for a property with two ADUs.

She made her remarks during a presentation on middle housing infrastructure policy to the Olympia Planning Commission at a meeting on Monday, Nov. 2.

Olympia’s comprehensive plan sets a target of 14,295 housing units by 2045, or approximately 715 units annually.  

Floyd said the city recorded 555 housing units in 2018, the strongest year in the historical data presented at the meeting. The city has recorded 341 units as of September in 2026.  

Middle housing includes developments, such as duplexes, triplexes, and other small-scale multifamily homes.  

Despite rules intended to allow more housing types in residential neighborhoods, Floyd said high land costs, limited developable land and financing challenges continue to hinder construction.  

“The amount of land available that is developable is finite … and the (cost) of that land … is high, and then the financing that is available is complicated,” she told commissioners.  

Floyd said financing can be more difficult for developers without experience building multifamily housing projects.

She said lenders tend to favor developers with established portfolios and experience in the type of housing they are proposing.  

“When you are not already in the multifamily game, which banks would probably call three, four, five and six units … this would be your first time doing that, so it sort of sets you at a slight disadvantage,” said Floyd adding developers may need to finance a project themselves or assemble financing from multiple sources.  

Infrastructure expenses, including water and sewer connections, can also raise project costs. City planners are considering a requirement to separate water and sewer connections for each unit, which would add upfront cost but could help avoid expensive retrofits later.  

Floyd said retrofitting connections later can be “incredibly cost prohibitive.” She said water meters can leave multiple households vulnerable if one owner fails to pay the bill, and staff is considering separate water and sewer connections for each unit.  

Reviewing development rules 

Some existing codes allow smaller developments to bypass requirements for frontage improvements, such as sidewalks and curbs.

Floyd said those exemptions could discourage property owners from building additional homes on their lots because larger projects may trigger more infrastructure requirements.  

Some provisions in the city’s development and engineering standards allow smaller projects to avoid frontage improvements. Floyd recommended reviewing the exemptions because they may favor single-family construction over middle housing.  

Possible code changes 

Over the past seven years, the Washington Legislature has adopted 76 housing-related bills. The measures include changes involving middle housing, ADUs, co-living housing and unit lot subdivisions.  

State law also limits impact fees for ADUs to no more than 50 percent of the fee charged for the principal unit.  

In response to the changing requirements, city staffers are coordinating across departments on a draft proposal that could lead to changes to the Olympia Municipal Code and engineering standards. 

Topics under consideration include water and sewer connections, fire sprinklers, utility billing and subdivisions.  

The proposed amendments could come before the planning commission in 2027, but staffers were still evaluating the issues, and no finalized proposal had been presented.  

During the discussion, Commissioner Raphael Garcia suggested targeted outreach to homeowners, small developers and builders to better understand what is preventing more middle-housing projects.