What will 2020 bring for the apartment tax exemption in Tacoma? Wait and see.
So much for rapid reform of Tacoma’s multifamily property tax exemption for developers.
The program, which in 2019 came under city scrutiny, was on track by the end of the year to gain new rules emphasizing affordability in the eight-year version.
That didn’t happen.
The current structure of the program, meant to encourage development in Tacoma’s 17 mixed-use centers, allows for either 8-year or 12-year property tax exemption on projects that create four or more additional housing units. The 12-year version calls for at least 20 percent of the units to be affordable to renters with household incomes no greater than 80 percent of the area median income (AMI), or homebuyers with housing incomes no greater than 115 percent of AMI.
The 8-year version has no such affordability requirements. That’s what’s come under review amid rising rents.
General mention of changes became an actual goal for the city after September 2018 as part of Tacoma’s Affordable Housing Action Strategy, appearing among the four “priorities among the technical advisory group ... to be pursued in the next 1-2 years.”
A proposed ordinance to introduce affordable units as a requirement in the eight-year version set for final reading and passage Dec. 17 seemed like an early Christmas present to housing advocates.
Until it wasn’t.
During the Dec. 10 council meeting, a local developer spoke of his concerns about the seemingly swift approval of the ordinance, and council members also raised concerns that needed review, such as design and parking.
A Dec. 17 study session focused solely on discussing the ordinance and possible amendments quickly became a long list of items the council wanted addressed.
“I know that there are a lot of amendments floating around. ... I also understand there’s a lot of concern about whether this is the right thing to do,” Mayor Victoria Woodards said in remarks at the start of the study session.
It was a striking momentum shift away from the Dec. 10 council meeting when the mayor called for swift action, emphasizing that by saying, “Tacoma can’t wait.”
“There have been quite a few amendments — things to make it better,” Woodards explained at the Dec. 17 council meeting as the ordinance was continued to a future date.
“We will be bringing this back. ... We’re not going to let perfect be the enemy of good.”
Amendments under consideration
Some of the proposed amendments include:
▪ Adding language to remove the new affordable housing requirement if the number of applications for the 8-year version fall below a percentage of the average number of applications for the past five years.
▪ Broadening the AHAS technical advisory group to include “members from the development and finance community, and research shall also include comparative community analyses on how other cities in the region are using the MFTE.”
▪ Displacement monitoring.
▪ Adding language to benefit the city’s housing trust fund: “At the end of the 8- or 12-year property tax exemption granted to the developers, those formerly exempt property taxes not otherwise dedicated shall be, until otherwise directed by the City Council, collected and deposited into the City’s Housing Trust Fund for use and support of the purposes of said fund.”
One proposed amendment also begins to address design standards and review, parking and minimum density requirements, an issue that has become more fraught between council members and their constituents amid the influx this year of new apartment development.
“City Manager is directed to develop proposals for Multi-Family Tax Exemption (MFTE) projects and provide recommendations to the Council Committee of the Whole on or before July 1, 2020, related to the following: minimum design standards and review; parking requirements that account for maximum parking capacity (saturation) and access/accessibility to services and transportation for residents; and minimum density requirements,” according to the amendment.
Analysis and outreach
In addition to the ordinance and amendments, a 2-page analysis was submitted in early December from a representative of the National Development Council to Jeff Robinson, the city’s director of Community and Economic Development.
It found that the exemption was “still needed to make market-rate development feasible. The analysis shows that there is potentially some room to add in an affordability requirement to the 8-year” version, but, it added, “it could pose challenges to development feasibility depending on the affordability requirements selected.”
A table provided in the report showed the effects per square foot on land value with no MFTE, MFTE with all market rate units, MFTE with 20 percent of the total units at 100 percent AMI and MFTE with 20 percent of the total units at 80 percent AMI.
The scenario that played out best in terms of land value for developers was a straight-up MFTE program at all market rate. The second-best option in terms of land value was the one with 20 percent of the total units at 100 percent AMI, while the 80 percent AMI version, according to the report, was a money loser for the developers, as was the no-MFTE-at-all option.
The report makes clear this is a simplified analysis looking at “one metric to determine development feasibility at a single point in time, and does not account for annual returns over time, or future returns from building sale. The assumptions used in the analysis were developed by interviewing local developers and reviewing recent projects. However, development costs, rental rates, and returns vary widely by project — and changes to the assumptions significantly alter the results.”
The report submitted to the city listed top themes that emerged among its conversations with developers:
▪ Construction costs in Tacoma are rising at rates higher than the increase in market rents.
▪ Costs are comparable to those found in Seattle, but market rents are much lower, resulting in a difficult development environment.
▪ Land zoned for high density housing is expensive, though costs vary throughout the city.
Debbie Bingham, project manager for the Community and Economic Development Department, recounted the stages of outreach during the Dec. 17 study session.
A list of developers who’ve used either the 8-or 12-year versions was drawn up, and from there the city began seeking feedback, according to Bingham.
“We had our first meeting in June with the developers to talk to them about the fact we were looking at how to change the program and were pretty clear up front there would be changes of some sort, but we wanted to get their input on what changes they thought we could make as well as make sure we were including them in the conversation,” Bingham said at the study session.
On July 11, city staff met with the external advisory group to hear feedback, and preliminary recommendations were discussed at the July 30 council study session.
A summary of feedback was emailed to developers Aug. 9, and on Aug. 13 an exploration on ways that the MFTE or other incentives could encourage development of more affordable units was presented to the council’s committee of the whole. That presentation offered one of the deeper dives for the year in looking at the program and ways to change it.
Another meeting happened Aug. 29 with developers to discuss other incentives, such as a streamlined permitting.
In October developers were contacted again, Bingham said, to gain input for the MFTE analysis. The topic once again was reviewed at the Nov. 12 study session, in which that presentation stated that the financial and policy analysis was being completed, with recommendations coming to council for vote in December.
An email then was sent to the developers a week before the first reading of the proposed ordinance in early December.
Kurt Wilson, chief operating officer of SoundBuilt Homes, earlier this month favored a slower pace rather than “pushing through a ‘wish list’ without proper vetting of stakeholders.”
“It is imperative that government think through these efforts collaboratively with those they expect to use the program to assure it is feasible and makes sense,” he told The News Tribune via email in response to questions.
Jessica Gamble, government affairs manager for MBA Pierce, described input from Master Builders Association of Pierce County as limited at best.
“As far as our input, there was a meeting in summer about different facets of the Affordable Housing Action Strategy plan with the stakeholder group attended by phone, and MFTE was a sliver of what they talked about,” she recalled. “And that was pretty much the last we heard until it appeared on the council agenda.”
MBA Pierce now expects it will be meeting with the city sometime after the new year.
“Hopefully we can have more of a working dialogue with a bit more time and a bit more collaboration,” Gamble added.
This story was originally published January 1, 2020 at 5:30 AM.
