Mercer Island council approves up‑zone compliance strategy but shortfall for deepest affordability remains roughly $173 million

Mercer Island City Council voted unanimously Feb. 17 to direct staff to pursue a growth‑management compliance strategy that would up‑zone the city’s town center to eight stories and adjacent multifamily zones to six stories while opening a public feedback period on a draft station‑area boundary.

Consultants and city staff told the council the work responds to a Growth Management Hearings Board order reviewing the city’s November 2024 comprehensive plan update. CPD Director Jeff Thomas and consultant Mikaela Jellicoe walked council members through a land‑capacity analysis that compared Mercer Island’s allocated housing need to available capacity and modeled a Phase 1 up‑zone scenario to meet the Board’s requirements.

The consultant said Mercer Island’s adjusted housing need is 1,191 units and staff’s updated baseline capacity (including prior 2024 zoning changes and middle‑housing/ADU enabling actions) is 2,133 units — producing surpluses for higher income bands but a shortfall for lower‑income bands. Mikaela Jellicoe said the market data show “the units under 30% are not being delivered by the market,” and that the remaining shortfall would require direct subsidies or other adequate provisions.

Under the up‑zone Scenario 1 presented to the council, total modeled capacity rises to about 3,164 units and concentrates the remaining deficit at the 0–30% AMI band. Staff estimated the remaining units requiring new subsidies at roughly 510 units under that scenario. Using ARCH cost guidance, the consultant estimated direct delivery of those deeply affordable units would cost in the range of $264.7 million to $311.4 million. Assuming typical loan‑to‑cost leverage, staff said the city or its partners might need to provide roughly $66.2 million to $109 million in equity or equivalent subsidies to unlock the full development cost; under the assumptions presented, fee‑in‑lieu receipts from the up‑zone area were modeled at about $30.7 million and could, after leveraging, support roughly $102 million more — leaving a modeled remaining funding need in the order of $173 million to fully close the gap.

City Manager Jesse Bond framed the numbers as an initial, conservative estimate and urged the council to use the data to press for state and federal support. “We are going to need state and federal help,” he said, adding that infrastructure, land cost differences on Mercer Island, and other factors could change the totals.

Staff also warned that the modified station‑area boundary being advanced for public feedback will ultimately require Department of Commerce approval if the city seeks to use a modified boundary for TOD‑related zoning changes. The council voted to open a public feedback period on the draft station‑area boundary through March 13, 2026, with staff to report results at the March 17 council meeting; the council also approved a public engagement plan to present information in plain language and hold community information sessions.

What passed: the council moved to direct staff to pursue the Scenario 1 compliance strategy (up‑zones limited to the town center and adjacent multifamily zones) and to open the public comment period on the preliminary station‑area boundary. Both motions passed by unanimous roll call.

What happens next: staff will run a month of public outreach on the boundary, return to council on March 17 with public feedback, and work with the Planning Commission and, where necessary, the Department of Commerce to complete the remaining leg of GMHB compliance before the city’s stated July 31 deadline. Staff also said the city will analyze infrastructure impacts (sewer, water, storm, transportation and parks) and refine cost estimates before final legislative actions.

Votes at a glance: the motions to pursue Scenario 1 and to open the March‑13 public feedback period passed by unanimous roll call (all council members recorded “aye” in the transcript).

Sources and authorities: staff cited the Growth Management Hearings Board order arising from Mercer Island’s November 2024 comprehensive plan update and noted the statutory requirements tied to transit station area mapping and TOD implementation; the meeting also referenced RCW 42.30.110(1) for the executive session on litigation earlier in the meeting.

Council members and staff said many policy questions remain — from inclusionary or in‑lieu fee rates to potential partnerships with ARCH and the state — and that the cost estimates provided that evening represent a first, model‑based view rather than binding financial commitments.