Lacey staff proposes 4-unit cap in draft middle-housing code, offers optional deeper-affordability pathway

Lacey city staff on Jan. 15 presented a first draft of a middle-housing code that would align the city with state requirements while preserving an optional pathway to encourage deeper affordability.

Jennifer (City staff, Community and Economic Development) told the Planning Commission the draft is a ‘‘rough draft’’ but recommended the city adopt a cap of four dwelling units per lot to meet the state minimum and remain compliant. "We propose a cap of 4 dwelling units per lot," she said, adding that the draft would include an optional affordability-based pathway that could allow additional units in exchange for stronger affordability commitments.

Nut graf: The proposal responds to a state mandate affecting "tier 2" cities that requires jurisdictions to allow certain middle-housing types and to permit up to four units per lot when affordability thresholds are met. Staff framed the recommended cap as a compliance measure that also preserves flexibility to revisit higher unit counts later if market conditions or incentives make projects feasible.

Staff summarized three core points: what has been done (grant-funded planning and public engagement), where the project is now (the draft code and internal coordination with public works), and what remains (public hearing schedule, code refinement, and implementation details). The timeline staff proposed includes a planning commission public hearing in late February, a council recommendation in March, a final public hearing in May and adoption in early to mid-summer.

Stakeholders’ feedback shaped much of the staff analysis. Staff relayed comments from the Olympia Master Builders Association that affordability requirements ‘‘do not pencil’’ for many small developers, and said the housing authority and local nonprofit Homes First reported that small-scale projects are often too small to stack the layered financing nonprofit projects require. Jennifer said some nonprofit funding sources apply prevailing-wage or reporting requirements that increase project costs and make small affordable projects infeasible without substantial incentives.

Staff also explained ownership pathways: unit-lot subdivision rules that would allow ownership of individual units by assigning land rights are on the horizon but are not expected to be available until about 2027; until then, many middle-housing units are likely to be rental models. Jennifer summarized the ownership option: unit lot subdivision would allow individual ownership of a unit and the land beneath it in some building types, but not stacked flats.

Commissioners asked for clarification on several points, including how the state’s 4-unit requirement interacts with optional guidance to allow more units, whether units must be self-contained, and how the city would monitor market uptake. Staff said units must be "fully livable" and "self-sustained," distinguishing these units from the co-living models previously discussed. "So self sustained," Jennifer said. Staff noted uptake of ADUs, duplexes and triplexes since 2022 has been modest — around ten ADUs — and argued adopting the four-unit cap now would achieve compliance while allowing the city to monitor market response before considering higher caps.

The commission gave staff a general thumbs-up to continue refining the draft and to bring follow-up materials (including ADU examples at a future meeting). Staff said they will return with more detail and visuals, and the commission will hold an official public hearing before forwarding a recommendation to council.

What’s next: staff expects to schedule a planning commission public hearing in late February and to bring the item to city council with a recommendation in March; final adoption was targeted for early–mid summer, subject to further edits and hearings.