Final November, Seattle voters permitted the historic $970 million housing levy renewal. What voters didn’t get to resolve is a stealth housing tax they’re already paying because of the Multifamily Tax Exemption, or MFTE. The Metropolis Council will quickly be deciding whether or not to resume this tax exemption for builders, however a latest University of Washington study means that MFTE is now not an efficient option to meet precedence housing wants.
The exemption is meant to encourage the development of inexpensive housing. Nonetheless, it permits market-rate housing house owners and buyers to primarily shift their property taxes onto the remainder of us — to the tune of over $80 million {dollars} in 2024 alone, in accordance with the Seattle Workplace of Housing. Final 12 months, that value the proprietor of a median-valued ($804,000) Seattle residence an additional $145 on high of the housing levy.
In trade for setting apart 20% of the models in new multifamily developments for income-qualified tenants, the MFTE permits the constructing proprietor to forgo property tax on all of the residential models for 12 years or longer. These taxes are shifted to different property house owners; there may be additionally a lack of income as a result of in some MFTE buildings, taxes are deferred till the exemption interval ends. In 2024, that translated right into a $9 million loss to Seattle coffers and $35 million countywide, per the UW research.
The Seattle Office of Housing reports there are 6,636 income-restricted MFTE models throughout 286 buildings in Seattle. That is lower than 3% of the whole rental models within the metropolis, in accordance with the metropolis’s Complete Plan. Nearly all of these are for renters making between 75% and 90% of the Space Median Revenue. For a two-person family, that’s between $82,786 and $99,343.
The UW research addresses two questions: Is MFTE a growth incentive, and the way do the general public prices — the shift of the tax burden to different taxpayers — examine with the non-public advantages, such because the tax financial savings to constructing house owners and hire discount for tenants?
The UW report concludes there is no such thing as a option to show that the MFTE tax break was wanted to incentivize the development of latest housing. Latest motion by the Metropolis Council to approve housing within the stadium district appears to show the other. In that case, the developer accepted the requirement to put aside 50% of housing models for income-qualified renters with out utilizing any “city funding.” Right here’s the wrinkle: This housing can be eligible for a property tax exemption on all 990 models so long as 198 of them meet MFTE earnings restrictions, as a result of the tax shift will not be thought of “metropolis funding.”
Over its historical past, MFTE has produced much more studio and one-bedroom models than bigger models — the Workplace of Housing reviews that simply 13% of them are two-bedroom, and fewer than 1% are three-bedroom. Town, nonetheless, has said a rising want for larger hire reductions and extra two- and three-bedroom models for households. Builders interviewed for the UW research say that the tax breaks don’t justify these objectives as a result of their buyers and lenders received’t “settle for a decrease yield … or quit a bit of bit in revenue.”
In line with the One Seattle Complete Plan, Seattle will want 62,740 internet new models of housing inexpensive to households incomes lower than 50% Space Median Revenue over the following 20 years. (Seattle AMI was $121,608 in 2023.) Market-rate builders say MFTE can’t produce housing at this stage of affordability.
In the meantime, nonprofit builders have already got methods to create this housing by tapping into Necessary Housing Affordability program funds, the low-income housing levy, the payroll expense tax and funds from the State Housing Finance Fee.
State-mandated zoning adjustments will quickly permit between 4 and 6 models of housing on each former single-family lot in Seattle and extra accent dwelling models to incentivize the development of “lacking center” housing. Then there may be the brand new Seattle Public Housing Developer, with a voter-approved $50 million (estimated) annual income stream to amass or assemble housing the place nobody pays greater than 30% of their earnings for hire and primary utilities.
It’s time to say goodbye to MFTE, give property house owners a bit of break and unlock that $9 million per 12 months in deferred taxes to assist scale back Seattle’s finances deficit. MFTE has outlived its usefulness.
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