Tax exemptions for apartment developers under scrutiny in Tacoma. Will they change?
A tax exemption that developers have turned to for apartment projects is about to change, in some form, in Tacoma.
To critics, the multifamily tax exemption program has done little outside of enriching developers and fueling a rise in rents.
To developers, it’s a worthwhile incentive to build in an area where it can cost just as much to build as it does in Seattle.
For Tacoma, the optics of the tax break have become increasingly awkward as the city this year entered the top tier of hottest real estate markets in the nation while at the same time pushing forward with an Affordable Housing Action Strategy amid a shortage of affordable units.
That’s an issue not lost on city officials. In opening remarks in the housing presentation at Tuesday’s council meeting, the city’s strategic manager Jacques Colon told the council, “We’re talking about housing tonight but really what we’re talking about is people.”
Proposed MFTE revisions in Tacoma
Residents got to see for themselves at the Dec. 10 City Council meeting the plan thus far to bring change to the tax exemption program.
The proposed ordinance’s stated goal is to “update affordability and equity in contracting requirements” and would take effect March 1.
The ultimate goal is to encourage more use of the exemptions in creating affordable housing at all income levels.
As the program works now, the two versions, 8-year and 12-year, offer property tax exemptions to developers. Currently, only the 12-year version requires a percentage of units in a project to be affordable. The eight-year is simply for market-rate development.
Vastly more market-rate units have been created than those deemed affordable. In numbers provided at Tuesday’s meeting, 75 percent of all multifamily housing in the city uses the MFTE program.
Of all the projects currently under the exemption, 2,034 units have been created, but only 59 are affordable.
In the new proposal, the eight-year version would gain an affordability requirement. That new requirement would be for 20 percent of the units in a project to be rented to households “earning no more than 100 percent of the Pierce County median income,” according to information provided at Tuesday’s presentation.
Maximum allowable household income for one person renting a studio would be $61,754, $70,576 for two people in a one-bedroom, $79,398 for three in a two-bedroom and $95,278 for five a three-bedroom.
The 12-year version also would be tweaked. In it, the affordability limit of 80 percent Pierce County area median income would be lowered to 70 percent.
That translates to $39,298 for one person in a studio, $44,912 for two people in a one-bedroom, $50,526 for three people in a two-bedroom and $60,631 for five in a three-bedroom.
Next steps
The measure could be finalized at the City Council’s Dec. 17 meeting.
Developer Eric Cederstrand spoke about the propose changes during Tuesday’s public comment period.
“We are not opposed to it. We have a serious, serious issue with low-income housing and a serious issue with affordable housing,” Cederstrand said.
At the same time, he noted, developers “have literally had 10 to 12 percent annual year-over-year increases on our construction costs.”
“Myself and other developers, we’re just saying, if we could just take some time to hold back, we’re not against it, but we would like to have some more involvement from the lending community because it has serious impacts to how these projects are financed,” Cederstrand said.
Some council members also called for considerations, such as design and neighborhood impacts.
One example offered by council member Lillian Hunter: “If a project is only going to have one parking spot, .... where are those cars going to go in the neighborhood?”
“I think out of fairness we have an obligation to address the needs and the concerns of our constituents who want to be supportive but who have voiced ... legitimate concerns,” she said.
Council member Robert Thoms said there needs to be a clear distinction in how the exemptions are used.
“I separate the use of this as an economic development tool and an affordable housing tool,” he said at Tuesday’s meeting.
Thoms noted while city has a long history in creating different types of housing, including the Salishan mixed-income development, none of it ultimately was enough to significantly move the needle for affordable units. He urged caution in changes that could slow the momentum of what is happening now.
“So, if the goal is to provide an avenue to affordable housing, we’re going to have to roll up our sleeves and redouble our efforts to figure what that tool is. I’m not convinced any tweaking of the multifamily tax credit is going to get us where we need to on that front.”
Others, including Mayor Victoria Woodards, insisted the forward momentum needed to be maintained for the city to effectively make a change. While noting she was open to revisions, more delays, she emphasized, were not the answer.
“If it doesn’t work, guess what, we can change it back, or we can make other tweaks,” Woodards said. “But we’ve got to get to taking some risks and putting some things out there and taking some chances to see if we can solve this issue.
“Tacoma can’t wait, our residents can’t wait any longer and we’ve got to do something.”
