Urban Politics #259: Multi-Family Tax Exemption Program


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By City Councilmember Nick Licata.

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.

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CONTENTS:

  • Growth, Affordability, and the Multi-Family Tax Exemption Program Issue in Brief
  • Upcoming Committee Vote
  • Background
  • What’s New?
  • What Neighborhoods Are Not Meeting Their Housing Goals?
  • Would the Housing Built Under the Mayor’s Plan Be Affordable to People Who Need It?
  • Summary

GROWTH, AFFORDABILITY, AND THE MULTI-FAMILY TAX EXEMPTION PROGRAM ISSUE IN BRIEF

The Mayor has recently proposed changes to an important affordable housing program that would greatly undermine its effectiveness. This program, the Multi-Family Tax Exemption (MFTE) has helped produce 763 units of long-term, low-income housing since 2004. Under the new proposal, this program will 1) subsidize private developers to build units at essentially market rents, 2) expand the program to build units in neighborhoods that have already met growth targets and 3) raise rents and taxes for the rest of us to pay for it.

UPCOMING COMMITTEE VOTE

The Housing and Economic Development Committee is prepared to vote on the MFTE legislation, Council Bill 116245, at their next meeting on June 18th at 9:30 a. m. Council Member Richard McIver chairs the committee and Council Members Jan Drago and Bruce Harrell are fellow committee members. I serve as an Alternate, but any Council Member can attend and vote at a committee meeting.

The vote will be on whether to endorse the Mayor’s proposal or to keep it closer to the 2004 expiring MFTE program. I will be voting to keep the subsidy levels and the neighborhoods served as close as possible to those set in the 2004 program.

BACKGROUND

In 1998, Seattle passed a Multi-Family Tax Exemption Program (MFTE) program. Two of the goals were 1) to promote development in areas not meeting growth targets and/or on transit lines and 2) to get more low and moderate income housing built. Developers building particular kinds of housing in targeted neighborhoods got a 10 year property tax exemption. The tax reduction developers receive increases property tax for all other property owners.

You can read which 9 neighborhoods the program originally targeted and the requirements of the 1998 program that I ended up supporting. I wrote about both the proposal and the Council’s changes in Urban Politics #44 and #45.

In 2004, the Council made important changes to the program. The 2004 changes expanded the program to 8 new areas (bringing the total to 17 areas) and required lower rents in order for developers to get the subsidy. I argued then the 1998 program gave a subsidy to developers to build new units with rents that were too high because they were at or above market rate rents.

In my view, the change to require lower rents is what has made the 2004 program successful. My goals for the program were realized by the truly low and moderate income housing that was made less costly for non-profits developers to build long term (40 years) affordable housing. Yet, even with the changes made in 2004, the Council approved some projects that didn’t deserve your subsidy. In Urban Politics 192, I wrote about a Vulcan development in South Lake Union that didn’t have sufficient public benefit as well as eliminating low-income units with much lower rents.

The Seattle Office of Housing says that since the new MFTE program was implemented in 2004, developers who took advantage of the program produced 1278 units. Even though they were required to set aside only 305 of those units at rents affordable to those making 60% of median income or less, they instead set aside 762 units at that income level.

Why did we end up with all the extra low income rentals units over what the program required? The reason is when non-profit developers use the MFTE they combine this indirect tax subsidy with other direct subsidies such as city Housing Levy funds that require them to build only low and moderate income housing. Rather than setting aside a handful of units at rent levels close to market rate, the current MFTE exemption helps these non-profits bring the rents of the units all the way down to $100 to $650/month below market rate rents. In this way, the return on the public investment is maximized – which rarely happens when for-profit developers use the program because they don’t access the funds from most of these other housing programs.

The fact that mostly non-profit housing builders use MFTE is what gives taxpayers the highest return; subsidizing more for-profit housing developers would make the program less successful because fewer affordable units will be produced and they will rent at higher rents than the housing that nonprofits build under MFTE, and the units only have to stay affordable for a much shorter time.

WHAT’S NEW?

The Mayor’s proposed new amendments add 22 new areas. If passed, a total of 39 neighborhoods would be included in the program. The other change proposed is to allow higher rents to be subsidized. The Mayor’s proposal would require that one in every five of the units built be affordable to renters at 90% or 100% of median income. This would mean rent for a one bedroom unit would have rents up to $1,668. Read specifics about which neighborhoods are included in the Mayor’s proposal and the rent requirements.

I support new development incentives for the right kind of development and in the neighborhoods that need it. If those incentives are too generous then homeowners pay higher property taxes and renters living in non-MFTE buildings pay more rent (landlords often increase rents to offset their increased property taxes) to support the new higher rent development that is making Seattle less affordable.

WHAT NEIGHBORHOODS ARE NOT MEETING THEIR HOUSING GOALS?

The Washington State Growth Management Act requires cities to set ‘growth goals. ‘In 1994 to meet these goals Seattle enacted a Comprehensive Plan (CompPlan) setting housing targets for the next 20 years in Seattle’s 37 urban centers, hubs, and villages.

The 2004 MFTE ordinance says the goal of the program is to focus on neighborhoods that are not meeting their growth goals for new housing which is defined as those neighborhoods that are below 25% of their 20 year plan goals for new housing.

Last year, the Council revised the CompPlan. Today we have a new 20 year plan (2004-2024). We are 4 years, or 25%, into this 20 year plan. So again, to target neighborhoods that are falling short of their goals, MFTE should only be in neighborhoods are under 25% of their goals.

It will not come as a surprise to many of you to learn that citywide we have already met 50% of our 20 year housing goals. Of course, performance varies widely. For instance, Ballard will not only surpass the number of new housing units the City expects to be built 4 years into a 20 year plan, but in 4 years they’ll almost double a 20 year plan goal that isn’t expected to be met until 2024!On the other hand, Rainier Beach has only added 7% of the housing units they want to add by 2024. Here is a breakdown of progress to the housing unit growth goals for the neighborhoods and City as a whole.

Scroll 2/3 down the page to the text ‘Neighborhood Data Sources’ and click on ‘New Units Built by Urban Village’

The growth shown in this chart leads me to a question that I hope you have too; why should taxpayers pay to build more housing in the name of meeting neighborhood growth goals that have already been surpassed?

WOULD THE HOUSING BUILT UNDER THE MAYOR’S PLAN BE AFFORDABLE TO PEOPLE WHO NEED IT?

Our housing unit goals in the CompPlan as explained above are NOT goals for ‘affordable’ housing. These CompPlan goals include all new housing, but that doesn’t help us figure out the kind of housing people need in our neighborhoods. Let’s look at the 2004 program affordability requirements and the housing that could be built in the future under the same model.

The 2004 program model forgives developers from paying their property tax on buildings that have set rent on 20 – 30% of all the units, at levels affordable to people earning between 60 – 70% of median income. This model results in rents significantly lower than the Mayor’s proposal.  If the 2004 model was maintained studios would rent for between $823 – $969/mo., single bedroom units for $929 – $1096/mo., and 2 bedroom units for $1,041 – $1229/mo.

I support a program that helps non-profits beat rising land costs and construction costs so they can build units for truly low and moderate income people that will stay affordable in the long term. The review of the 2004 MFTE supports the conclusion that the 2004 model makes slim the likelihood that it’ll be used to subsidize high cost units built by for-profit developers.

How do we decide whether we need the expensive apartments that the Mayor wants to help for-profit developers build? We need to consider real unmet need of renters who live here now and who don’t have affordable housing, not some planners goals based on predicted future needs.

The 2006 King County Housing Benchmarks report is a good snapshot of who doesn’t have affordable housing in King County, including Seattle. In all of King County, including Seattle, there are only 30,730 units affordable to the 99,500 renters earning 40% of median income or less, resulting in no affordable rentals for 2/3 of these renters. Seattle’s need isn’t identical to the County-wide need, but many of the conclusions here are mirrored in Seattle reports.

SUMMARY

Do you want to pay an extra property tax each year to help a for-profit developer realize more profit while 1) only requiring that those developers build a handful of essentially market-rate rental units and 2) encourage them to do so in neighborhoods that are already experiencing runaway growth?

If this doesn’t sound like a good deal, would you be willing instead to help build apartments that are truly affordable in neighborhoods that are experiencing less growth?

That is my goal. Look around your neighborhood and then check the reports I’ve linked here and let the Mayor and Council know whether you think your neighborhood needs you to subsidize more rental and condominium developments renting at higher than market prices.

These reports show us that the lowest income renters are least likely to find housing that they can afford, simply because there aren’t enough of those units. Both also conclude that higher income people pay a smaller percentage of their income for housing and have many more rental units from which to choose.

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