After years of critiques, Tacoma’s tax breaks for apartment developers get a makeover
Tacoma City Council on Tuesday approved changes to a property tax exemption program used to promote multifamily housing development.
The changes have been in the works for months, following a proposal in June to limit use of the eight-year exemption in certain parts of the city.
Calls for changes to the program, which exempts property taxes for eight or 12 years on the assessed improvements that create four or more additional housing units, have been ongoing for years.
Tacoma uses both versions of the multifamily tax exemption, with the 12-year version offering an affordability component and the eight-year strictly market rate.
In the slate of proposals approved Nov. 2 by a council committee, it became clear to committee members that if all were eventually adopted, the package would deliver a landmark set of affordable housing incentives.
“I’ve heard often in some of our discussion is, ‘What’s the city doing to actually get affordable housing built?” council member John Hines, who led work on the changes, said at the Nov. 2 study session.
“And what I would say: This package ... is the city taking a pretty clear step forward to build more affordable housing in our city.”
All told, the package “stands to do as much to move the needle on affordable housing as anything that we have done,” said council member Lillian Hunter earlier this month.
WHAT’S CHANGING
The MFTE package approved Tuesday expands the geographic area for financial incentives in new multifamily housing projects that provide affordable units.
Among the items approved in the resolution, sponsored by council members Hines, Hunter, Robert Thoms and Kristina Walker:
▪ Expand the 12-year MFTE along key corridors to areas already zoned as commercial and those areas included as “neighborhood nodes” as defined through the Home in Tacoma process where multifamily housing is currently allowed.
This item was in response to areas that did not have the 12-year option already and does not change current zoning, city officials explained.
“There are commercial nodes throughout the different neighborhoods,” said Debbie Bingham, project manager with the city of Tacoma’s Economic Development Services Department, at an Nov. 2 committee meeting. “... You might think of like 26th and Stevens, where there’s a lock shop and a gas station, those kind of four-corner areas.”
▪ Expand 12-year and 20-year MFTE to areas rezoned as “mid-scale” through the Home in Tacoma process. Mid-scale in Home in Tacoma is defined as including small multifamily units generally near shopping, transit and other services, and a way to add transition between low-scale (single-family residential) and mixed-use.
▪ Implement elements of Senate Bill 5287 required in order to take action. Those include additional time to complete projects because of COVID-19, an additional 12-year option for expiring exemptions, and a 20-year exemption for permanently affordable projects, with at least a quarter of those units built by or sold to a qualified nonprofit or local government to ensure permanent affordable housing.
▪ Eliminating the eight-year MFTE in mixed-use centers designated “very high” opportunity based on the City’s Equity Index (for now those are Proctor and Point Ruston).
▪ Extend use of Development Regulation Agreement for parcels one acre or larger throughout the city. That is a tool currently used for downtown projects, with the idea to expand its use to have more influence on projects. While approved at GPFC as part of the MFTE resolution, details of what the actual agreement would entail are being worked out with the Infrastructure, Planning and Sustainability Committee.
As Hines explained it during the Nov. 2 study session, the goal is “to have a little bit more of oversight on those big projects to kind of make sure that those projects reflect some of our bigger goals for development.”
▪ Include requirement for council to revisit changes to the MFTE program in three years.
▪ Apply 70 percent of the median family income adjusted for family size for Pierce County as reported by the Department of Housing and Urban Development for affordable housing units (with the percentage to be revisited yearly), to affordable housing in the 12-year exemption program.
Tacoma currently uses 80 percent AMI applied to rents for at least 20 percent of the new units in projects to qualify for the 12-year exemption.
An amendment was added Tuesday to the resolution of proposals by Council member Catherine Ushka to require some kind of commercial activity in the first floor of developments that use the 12- or 20-year exemption.
“The concept really is generally to make sure that there’s a continued sense of neighborhood walkability and access as well as services,” she said.
Items up for further review and included as direction to the city manager:
▪ Explore a requirement for a minimum number of units for developers to use the eight-year MFTE. Also explore requiring affordable rents to be lower than market rate rents (an element inspired by Bellingham’s city code), continuing support for fast-tracking the permit process for affordable housing; explore a program to help local businesses get access to new commercial spaces in buildings utilizing the MFTE; and requiring a minimum size, including a minimum height, on MFTE projects.
HOW WE GOT HERE
Use of MFTEs started gaining more attention as the city’s market for apartments started to take off a few years ago, and what was deemed “affordable” by the program became more aptly described as “rent restrictive,” as rents soared upward.
As more projects started coming to the council for approval, more questions were raised about the use of MFTEs particularly as certain areas outpaced others in the city in attracting projects.
That same year, the city tabled a measure in December that sought to add an affordability requirement to the 8-year version, lower the percentage of area median income to more reflect Tacoma’s median income, and add employment, apprenticeship and equity in contracting guidelines to help give back more to the local economy.
In June a proposal co-sponsored by council members Hines and Walker that would have ended use of the 8-year multifamily tax exemption in two mixed-use centers, Proctor District and Point Ruston, was put on hold.
The decision was delayed until more information was gathered by the Government Performance and Finance Committee, which included meeting with developers and other stakeholders.
The ordinance was on Tuesday’s agenda as the second piece of the MFTE changes, and despite the previous GPFC outreach, it still had its critics at Tuesday’s council session.
“Restricting the full potential of the MFTE eight-year option is counterproductive ... The city’s needs all housing types,” said Kamber Good, government affairs manager with the Master Builders Association of Pierce County.
“The eight-year option has produced thousands of housing units,” she added. “We understand that there have been concerns for quite some time in Tacoma with not enough affordable units 80% AMI or below. However, it is important to acknowledge that new market rate units do alleviate existing rent and housing costs.”
Council member Chris Beale acknowledged there was “a lot of really good stuff” for the council to support but said the eight-year MFTE could have used further refinement.
He ultimately would vote no on the measures.
“I’m still a little bit challenged with the concept of not getting rid of the eight year in other areas of the city,” he said. “Perhaps having a system where that eight-year program perhaps is modulated based on market conditions like a an annual CPI almost like interest rates.
“I think there are a few things that maybe we’ve left off the table,” he added, including a thorough financial analysis of the 12-year program.
Hines, while acknowledging those critical of restricting the eight-year use, cited the fact that the program would have a three-year check-in for review. He noted that putting a limit on the 8-year use in areas deemed “very high” opportunity based on the City’s Equity Index, which for now are Proctor and Point Ruston, would not diminish the potential for new projects.
“There’s going to be building in those mixed-use centers,” he said. “They’re highly sought. They’re seeing a lot of investment already.
“It’s not a lot of real estate that’s being impacted by this,” he noted at Tuesday’s council session. “But I do think an ordinance like this communicates clear to the public that ... there should be some affordable or rent restricted units in every neighborhood in the city.”
WHAT’S NEXT
Following Tuesday’s vote, the legislative wheels swing into motion with the following actions to make the MFTE changes official:
▪ Nov. 16: Resolution to set public hearing to expand residential target areas and amend the municipal code.
▪ Nov. 30: Public hearing.
▪ Dec. 7: First reading of ordinance to amend the municipal code.
▪ Dec. 14: Second Reading of ordinance to amend the municipal code.
This story was originally published November 10, 2021 at 8:50 AM.
