Tacoma tries out new tax break meant to create lower rents. Will it work going forward?
The city of Tacoma for the first time has made use of a code change that allows for extending development tax breaks on property tied to affordable housing.
On Dec. 5, the City Council approved adding 12-year multifamily property tax exemptions at two properties as the clock runs out on their current 8-year exemptions.
Sound Heights Townhomes, LLC, received an extension for its sites at 4031-4033 S. Puget Sound Ave. and 4001-4003 S. Puget Sound Ave.
The 8-year exemptions were to expire this year.
The change in the MFTE program, initially made at the state level, was approved by the City Council in December 2021 among a slate of changes aimed at improving and expanding the use of the development incentive.
The extension allows for an additional 12-year incentive for expiring exemptions to add or maintain rent-restricted units, and was part of Senate Bill 5287, which was signed into law earlier that year.
In Tacoma, the 12-year exemption calls for 20% of the units to be rent-restricted at 70% Pierce County Area Median Income (AMI) for 12 years, with rent capped at 30% of income levels, adjusted annually. The 8-year version does not include any rent-restricted units.
Applying 70 percent to the formula, rather than a previous 80 percent AMI threshold, was another change approved in the 2021 council package. The following table from the city shows a comparison with income limits and maximum rent rates:
For Tacoma’s first use of the extension, the number of rent-restricted units created was 5 out of 22 total units.
For the units at 4031-4033 S. Puget Sound Ave., the 12-year MFTE covers 10 units, with two rent restricted. All of the units are two-bedroom, two and a half-bath, averaging 1,078 square feet. The market-rate units, according to a council action memorandum, have expected rents of $1,895, while the rent-restricted expected rents were listed at up to $1,770, including utility allowance.
For the units at 4001-4003 S. Puget Sound Ave., the 12 units were the same average size as the other grouping, with nine market-rate at $1,795 and three rent restricted up to $1,770, including utility allowance.
The measures Dec. 5 received criticism from some residents during public comment. They cited lost tax revenue and the small number of rent-restricted units created, among other issues.
Council member John Hines, who led the council’s work on the revised MFTE changes in 2021, noted use of the extension tool as time goes on would prove valuable, even though the first application didn’t involve many units.
“It is creating more affordable units where they wouldn’t exist,” he said.
Hines noted, “We have some really large projects that got 8-year tax exemptions, and very, very high opportunity in parts of the city that could potentially be coming back and asking for these, at which point we would get affordable rates in parts of our city where they’re currently unavailable.”
