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By City Councilmember Nick Licata.
With assistance from my L.A. Lisa Herbold on this issue
Urban Politics (UP) blends my insights and information on current public policy developments and personal experiences with the intent of helping citizens shape Seattle’s future.
Multi-Family Tax Exemption Ordinance
(see UP #52 and #44 for background: http://www.cityofseattle.net/council/licata/up00dex.htm#index_i)
Note: it may be helpful to refer to this link when reading some sections if you are interested in knowing what constitutes 80%, 60%, etc of median income, as well as what level rent is affordable for those households: http://www.seattle.gov/housing/12IncomesandRents/2004_Incomes_and_Rents.xls
History Of The Multifamily Tax Exemption
This program was created in 1998, during my first year on the Council. It was intended to be an experimental 4-year program providing a ten-year property tax exemption for new housing development located in specific neighborhoods that needed more housing.
The program has been popular with housing developers and has resulted in the development of 964 units of housing. 346 of those units are affordable to households making less than 80% of median income. 70 of those units are affordable to households making less than 60% of median income.
Although this program by itself is not likely to be a deal breaker for a developer, it has allowed non-profit developers to leverage private financing that otherwise would not be available. In the case of for-profit developers, it has provided a financial incentive to develop in neighborhoods that they might skip due to hurdles like high land costs.
What Neighborhoods Would Be Affected?
Mayor Nickel’S Proposal
The original tax exemption program was designed to target 9 neighborhoods that were lagging in meeting their housing production goals as identified in the Comprehensive Plan and their Neighborhood Plan.
Mayor Nickels has proposed that this experimental program continue and that the benefits that it provides be extended to additional neighborhoods, for a total of 17 neighborhoods. Under his proposal the policy goals include promotion of housing development in areas that are:
1) Not economically distressed and exceeding growth targets but identified by the Mayor as potential new job growth areas (South Lake Union, and the University District NW).
2) Not economically distressed and exceeding growth targets (Capitol Hill).
3) Not economically distressed, but slightly lagging in meeting their growth targets (Denny Triangle and First Hill).
4) Economically distressed and exceeding growth targets (Central Area, Chinatown-ID, MLK @ Holly, South Park).
5) Economically distressed and not meeting growth targets (Bitter Lake, Columbia City, Northgate, North Beacon Hill, North Rainier, Pioneer Square, Rainier Beach, Westwood-Highland Park).
A Council Proposal
I am supporting a Council Proposal that allows the tax exemption program to be used in a total of 12 neighborhoods, all neighborhoods that are economically distressed. At the Council’s first retreat this year, there was an overwhelming concern by the majority of Council Members to address the needs in our economically distressed neighborhoods.
This proposal does not include areas that are targeted by the Mayor for job growth or neighborhoods that are exceeding growth targets without being economically distressed. South Lake Union, the University District NW, and Capitol Hill are among the City’s best performing neighborhoods in relation to exceeding their housing growth targets.
At this time, it is not necessary to create an incentive for developers to build housing in these neighborhoods because housing is already being built at a sufficiently rapid rate. If the level of job creation that the Mayor predicts in South Lake Union and the University District occurs, creating a jobs-housing imbalance, we can include these neighborhoods at a later date. But let’s first see what the private market does before we subsidize it to achieve public policy goals.
Further, the Council Proposal I support does not include the two neighborhoods (Denny Triangle and First Hill) that are slightly lagging in meeting their growth targets and are not economically distressed because I want to minimize the cost of this program for other taxpayers. When a property is tax exempt under this program the tax burden is shifted to other taxpayers.
It’s not good public policy to shift the tax burden from properties in higher income neighborhoods to the rest of the city’s taxpayers, many of whom live in lower income neighborhoods.
What Do We Get?
In exchange for exempting a housing development from property taxes for a period of 10 years (the underlying land is still taxed) the developer agrees to build a certain number of housing units that are affordable. The original tax exemption program passed in 1998 required that 25% of the units be affordable to households with incomes at or below 80% of median income. The exception was the Pike-Pine neighborhood that instead required that 40% of the units be affordable to households with incomes at or below 60% of median income.
Although I did support the program I was concerned that we might end up subsidizing market-rate housing. In many neighborhoods, housing affordable at 80% of median income exceeds the rents of market rate housing.
Mayor Nickel’S Proposal
I believe that we now realize that the rental market in some targeted neighborhoods is already largely affordable to people making 80% median income and a requirement to develop these kinds of units means very little because developers don’t need an incentive to build market-rate housing. The Mayor’s proposal requires that in buildings that use the tax exemption program either 20% of the units be affordable to people making 65% of median income OR 30% of the units be available to households making 70% of median income.
A Council Proposal
Real Estate experts, developers, and policy analysts tell us that the City can ask for a little bit more from housing developers without hurting the bottom-line of the developers. For this reason, the Council proposal I’m supporting asks for a larger number of units at a slightly lower income level.
The requirement is:
Economically distressed neighborhoods not meeting growth targets-20% of units must be affordable at 60% of median income or 25% of the units affordable to 65% of median income.
Economically distressed neighborhoods that are exceeding their growth targets–either 25% of the units must be affordable to 60% of median income or 30% of units affordable to households making 65% of median income.
The slightly higher percentage of low income housing is required in recognition that these neighborhoods are experiencing comparatively rapid housing growth. By allowing a higher percentage of low income units, the city is providing a greater opportunity for the many existing lower income residents in these neighborhoods to buy into the housing units.
The Mayor’s proposal eliminates important anti-displacement provisions in the original ordinance that I championed in 1998. These protections discourage the use of this program to demolish existing housing by requiring a right of first refusal in cases where use of the program would result in demolition of existing housing. A right of first refusal requires the owner to offer the building for purchase to the City to maintain as housing.
These protections appear to be effective in that the program had not been used in housing development projects that required demolishing existing housing. Without these anti-displacement provisions it is more likely that an owner would demolish an existing structure and build a new one with higher rents. The Council proposal continues to discourage the demolition of housing by maintaining a right of first refusal.
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