Mercer Island to overhaul housing plan after state board orders fixes; staff outline upzones, inclusionary rule and large funding gap

The City of Mercer Island must revise its 2024 comprehensive plan to comply with a Growth Management Hearings Board (GMHB) order, city staff said during a public webinar. The city has until July 31, 2026, to make changes that address four issues the board identified: land-capacity analysis by affordability band, adequate provisions to increase affordable-housing supply, a station subarea plan for the new light-rail station, and anti-displacement measures.

Jeff Thomas, the city’s Community Planning and Development director, said the GMHB issued a final decision in an order dated 08/01/2025 after a June hearing. Thomas told viewers the board found Mercer Island’s 2024 update did not demonstrate sufficient capacity or ready-to-implement measures to meet the state’s housing assignments under House Bill 1220 and related guidance from the Washington State Department of Commerce.

The finding centers on assigned housing targets King County provided to Mercer Island. ‘‘We have a total housing target at 1,239 units,’’ Thomas said, and the county’s distribution skews heavily toward lower-area‑median‑income (AMI) bands. Thomas and the city’s consultant have modeled existing zoning capacity and concluded the market will not produce the very-low-income units the city was assigned. ‘‘Market-rate housing just simply does not provide for less than 30% AMI housing,’’ he said. The consultant’s analysis showed a deficit of 519 units below 50% AMI, including a 178-unit shortfall in permanent supportive housing.

To address the board’s direction, staff proposed a multi-part compliance strategy focused on the light-rail station area and a short time horizon for Phase 1. The city would: complete a disaggregated land-capacity analysis; establish a station subarea boundary and phase the area for rezone work; adopt ‘‘adequate provisions’’ such as inclusionary zoning and a fee‑in‑lieu; and develop anti‑displacement policies and permanent rules for step housing.

For Phase 1, staff recommend upzoning the town center to eight stories and adjoining MF‑2 (multifamily-2) zones to six stories. Thomas said that change would increase potential units in the Phase 1 area from about 667 to roughly 1,698—enough to eliminate most deficits at 50% AMI and above but not to produce the under‑30% AMI units the city lacks.

To fill the deepest affordability bands, the city plans two short-term adequate provisions. Thomas said the proposal includes a 10% inclusionary requirement for new development in Phase 1 (reduced from the code’s existing 15% based on consultant feasibility analysis) with affordability set between 30% and 80% AMI. The city would also establish a fee‑in‑lieu program that allows developers to pay into a dedicated fund instead of providing units on-site; modeled at scale, staff estimate those fees might generate about $30 million.

City Manager Jessie Baughn and Thomas described the financial challenge of delivering the units that remain the city’s responsibility. The staff presentation estimated construction costs to deliver roughly 510 low‑AMI units at about $265,000,000 to $311,000,000 (not including infrastructure or ongoing operating costs). If fee‑in‑lieu revenues produced an estimated $30 million and were leveraged with other sources, the consultant suggested direct delivery of roughly 170–200 of those units; that would leave an estimated gap of about 300–340 units. Staff gave a preliminary additional construction-cost range for that remaining gap of roughly $162,000,000 to $209,000,000, again excluding infrastructure and operating costs.

Baughn emphasized the city lacks the resources to close that gap alone. ‘‘The city is not going to solve for this without help from the county and the state,’’ she said during the webinar. Staff presented a range of possible implementation tools—partnerships with affordable‑housing providers, use of publicly owned land, land‑use regulatory agreements on existing units—and said no council decisions on land acquisition or eminent domain have been made.

The city will continue public engagement and technical work in the coming months. Staff opened a public feedback period on the draft station subarea boundary through March 13 and plan to return to council on March 17. The planning commission will review proposed code and comp-plan changes in April; staff expect council action in June and July to meet the GMHB compliance submittal deadline. The GMHB will hold a compliance hearing scheduled for Sept. 15.

Why this matters: The GMHB order requires Mercer Island to show both sufficient land capacity by AMI band and concrete, implementation-ready measures to produce deeply affordable housing. Achieving those outcomes on a built island with limited land and constrained infrastructure will require technical analysis, significant funding and intergovernmental partnership, staff said.

The city has posted the GMHB order, consultant datasets and the webinar slides on its Let’s Talk page and is accepting feedback through the same portal. Staff also pledged written follow-ups to several data questions raised during the webinar.