Perspective on Multi-Family Tax Exemption Program

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There has been a bit of controversy recently about the City's Multi-Family Tax Exemption (MFTE) program, a fancy name for a stimulus program intended to spur construction of affordable, workforce housing in certain sections of Seattle. This stimulus effort is part of the City's larger efforts around affordable housing.  I summarized those efforts back in 2008 in this post.

So, let's get the facts about this particular program after the jump.

The original MFTE program was authorized by the Washington legislature 13 years ago to stimulate construction of affordable housing across the state.  Tacoma's Hilltop neighborhood, an economically-depressed area at the time, was used as the primary example of the need for temporary tax relief for builders.

Over the past 13 years, in Seattle, the MFTE program has contributed to the development of nearly 7,300 housing units, including approximately 2,500 that are "affordable." Of the 2,500 affordable units created, about 1,500 are affordable at or below 80% of area median income (AMI) and 1,000 are affordable at 80-90% of AMI.

The MFTE program has three goals:

  1. To help make residential projects feasible in transitional urban villages with low development activity and no recent market rate housing development.
  2. To help produce affordable units in market rate, mixed-use projects in urban centers and villages with more robust developer interest and activity.
  3. To assist with project economics for nonprofit housing that serves low-and moderate-wage working people but does not qualify for the State's low-income housing property tax exemption.

In a sense, the MFTE program is one of a handful of tools the City has to encourage development of housing for those "in between households" that make too much to be served by low-income housing programs and too little to be served by market rate housing. This is precisely the point some observers use to criticize the program: "You're helping people who make too much money!"

What these observers miss is that healthy, vibrant neighborhoods have housing options at all points along the affordability spectrum.

The property tax exemption that is offered is limited to 12 years, assuming the property stays in compliance with the rules of the program, and applies to the residential improvements only.  The full property tax remains in place for the land and any non-residential parts of the building, including retail or office space.

If a temporary property tax exemption is granted, at least 20% of the units in a qualifying building must be set aside and rented at the following maximum rental thresholds. 2011 06 16 MFTE Table

Councilmember Nick Licata has asked the City Auditor to review the MFTE program to make certain the residential units that are constructed meet the requirements of the program.  I've joined my colleague in this request and asked the Auditor to develop an "exchange of values" measure so we can factually determine whether waiving these taxes is returning the benefits we desire.  I've also asked the Auditor to evaluate the claim that is sometimes made by developers that the affordable housing built with help from the MFTE would not be constructed otherwise.  This is the kind of evaluation that we should be doing more of as we attempt to wisely and effectively invest the public's money.

Over the years, the City Council has adjusted the terms of the MFTE program five times, the most recent earlier this year when we reduced the targeted income percentage from 80-90% of AMI to 65-85% depending on the unit size.

I have been a strong and consistent supporter of the MFTE program because housing diversification throughout the city is important.  Economic diversity strengthens neighborhoods.