‘Renting down.’ One local city is pursuing market-rate apartments to ease housing crunch
As University Place is considering expanding use of a tax break for multifamily apartment developers, Tacoma is seeing the first of what it hopes to be more rent-restricted units created in its “high opportunity” districts.
Two cities with two different problems: Tacoma has many market-rate units created years ago, and it would like to see a portion of those eventually convert into rent-restricted units.
University Place contends it doesn’t even have enough market-rate units to ease its own housing crunch.
The two municipalities are essentially growing their multifamily tax-exemption programs for developers at the same time but are at different stages of making the incentives reach lower incomes.
Tacoma has added extensions that allow developers to convert 8-year MFTEs, a tax incentive for the creation of market-rate units, to 12-year MFTEs. That allows developers to continue enjoying the tax break for an additional 12 years at the end of the 8-year cycle.
The incentive exempts qualifying projects from property taxes on the assessed improvement value for 8 or 12 years, depending on whether rent-restricted units are included, which the 12-year version requires.
The change, adopted by City Council among a slate of MFTE changes in December 2021, has led to conversions of just three developed sites so far: one in Tacoma Mall Mixed Use Center, one in the Stadium District area and a third in Proctor.
In University Place, the City Council is considering expanded use of its 8-year MFTE program to include new apartments in the works at 27th Street West and Morrison Road West. A public hearing and council decision are still to come.
For that city, the 8-year MFTE remains its primary tax-exemption tool for apartment developers, as it faces a “renting down” problem documented by the city in its housing needs assessment report from 2021.
In that situation, higher-income renters are inhabiting the bulk of available units.
“These higher-income households occupying lower-income units are diminishing the supply available to lower income households,” Kevin Briske, director of the city’s Community and Economic Development Department, told The News Tribune in response to questions via email.
“Construction of new market-rate units will increase the supply of existing units available to lower income households,” he added.
Tacoma’s MFTE program evolves
Proctor Station, 3910 N. 28th St., was Tacoma’s first project in that neighborhood approved for the 8-year MFTE version in 2014. Construction was completed in 2016.
On April 9, Tacoma City Council approved the site’s application for a new 12-year MFTE. The change converts 31 of its 154 units to rent-restricted, utilities included, for 12 years.
Deputy Mayor John Hines, whose district includes Proctor Station, noted the extension in this case had added meaning.
Hines noted during the April 9 council meeting that the extension’s effect on rents is seen more dramatically in “very high opportunity” sites such as Proctor, which shares that distinction with Point Ruston.
In both areas, developers can no longer use the 8-year version for market-rate unit creation, another change that came the same time as the extension measure.
“Here’s a clear example where we’re seeing almost $1,000 a month less per two-bedroom, two-bath unit in a very high opportunity part of our city. I think this is one of the things we were hoping for when we made that change in 2021,” he said at the April 9 council meeting.
On May 7, another extension for a 12-year MFTE following an 8-year MFTE was approved by City Council for Stadium Vue35 near Wright Park.
The extension converts seven of the site’s 35 units to rent-restricted. Those rents would range from $1,379 for a 513-square-foot studio, to $1,773 for a two bedroom/two bath at 926 square feet. The rents include utilities. That’s compared to the site’s market-rate units, which range from $1,645 for a studio to $2,265 for a two-bedroom unit comparable in size to the rent-restricted version. It also features larger three-bed/two-bath units for $2,425.
“All we have now are 8-year (MFTEs) ending, but to in order to extend they have to choose 12 years, there’s no market rate extension option,” said Debbie Bingham, project manager for the city’s Economic Development Services Department during the meeting.
University Place and growth
While Tacoma is seeing its MFTE program evolve, University Place is using the same framework adopted for its MFTE program in 2013.
It provides for an 8-year property-tax exemption for qualified projects within Residential Target Areas, the first one being Town Center.
The exemption applies to the value of the residential portion of a project and begins the year after project completion. The exemption does not apply to the land or a commercial portion of a new development, and allows for all market-rate residential units.
Since its adoption, five properties have been approved for the city’s MFTE incentive: Latitude 47 (3633 Market Place); Larson Apartments (3706 Larson Lane); Bridgeview 125 (3610 Bridgeport Way); The Duo (4201 Bridgeport Way) and Alta at University Place, (2211 68th Ave. Ct. W.)
Briske told The News Tribune on Wednesday in response to questions regarding its use of the 8-year MFTE, “There have not been any groups that have requested the City to consider the 12-year program or the extensions.”
As for discussions of making any rent-restricted units in the 27th Street Apartments project, he noted, “The property owner is not a governmental nonprofit or rent-restricted developer. There were not any discussions on rent-restricted units.”
Briske wrote that the city’s 2021 housing needs assessment noted that “66% of higher-income households are ‘renting down,’ likely due to an undersupply of new units at higher affordability levels.”
The assessment explained “renting down” as units occupied by households earning more than 80% area median income, which using figures from 2020, the report listed “80-100% of AMI as moderate income ($69,858-$87,322), 100 to 120% of AMI as middle income ($87,322-$104,786), and above 120% AMI as high income (above $104,786).”
The 2021 report also noted in its summary of key findings the need to support the production “of more affordable housing including moderate and middle income options.”
It listed the “need to add more housing at lower cost points (50% AMI or lower) since most households are cost burdened at lower income levels.”
To get a handle on the estimated amount of shortage in its area, one analysis in the report noted that “over 4 times more housing units would need to be built per year than has been built between 2010 and 2019.”
New project
Last spring, the University Place City Council was presented with the news that University Place was gaining more than 1,000 new apartment units, including new senior housing, in the coming years.
One year later, council is faced with the decision to expand the area where MFTEs are approved.
Plans call for amending the city’s Northeast Residential Target Area map to include some parcels along 27th Street West, which would make additional sites eligible for the Multifamily Tax Exemption program.
The primary site would be a new development planned for property that includes the Willow Tree Garden & Interiors location in the 7200 block of 27th Street and along Morrison Road West.
27th Street Apartments LLC, led by local developer Mark Carpenter, has owned the parcels since 2022.
Carpenter did not respond to a request for comment from The News Tribune. Last spring, he told The News Tribune via email that the project at the time was moving through its design phase and would offer “Energy efficient units using the latest technology available.”
Briske told The News Tribune via email this week, “The developer has applied for several permits including their Design Standard approval. A construction timeline has not been provided to the city.”
The plans call for 201 units and 3,000 square feet of commercial space.
“The developable land on the site is little under six acres,” Briske told council at the May 6 session, “and there will be a total of four buildings. One on Morrison, one on 27th, and two internal to the site.”
The property also includes “a large wetland in buffer on the back portion of the site that abuts up to city owned property,” Briske added. “With their proposal, they would also be having to do a major wetland buffer restoration program including planting well over 600 trees and 2,700 shrubs.
Briske emphasized the plans offered “design elements that they’re proposing that are above our standard design requirements.”
According to a slide in the presentation, those include black window frames instead of white for a “higher quality look” along public street frontages. It also calls for 116% more plaza/courtyard areas than required.
Other upgrades include a rooftop amenity deck and higher quality exterior finishes including brick extending two to three stories on portions of the buildings, among other items.
The presentation slide notes that “The corner of 27th and Morrison is being treated as a significant corner with additional design details, while not required.”
Briske added that the property owner also is in talks with the city “about a possible trail connection” around the Adrianna Hess wetland.
“These additional design features will add approximately close to a million dollars of additional costs,” he noted, “and that doesn’t include the wetland mitigation costs associated with the project.”
News Tribune archives contributed to this report.
This story was originally published May 10, 2024 at 5:00 AM.
