Final November, Seattle voters accredited the historic $970 million housing levy renewal. What voters didn’t get to resolve is a stealth housing tax they’re already paying due to 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 not an efficient solution to meet precedence housing wants.
The exemption is meant to encourage the development of reasonably priced housing. Nevertheless, it permits market-rate housing homeowners and buyers to basically shift their property taxes onto the remainder of us — to the tune of over $80 million {dollars} in 2024 alone, in response to the Seattle Workplace of Housing. Final yr, that value the proprietor of a median-valued ($804,000) Seattle dwelling an additional $145 on high of the housing levy.
In change 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 homeowners; there’s 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 overall rental models within the metropolis, in response to the metropolis’s Complete Plan. The vast majority 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 — evaluate with the non-public advantages, such because the tax financial savings to constructing homeowners and lease discount for tenants?
The UW report concludes there isn’t any solution to show that the MFTE tax break was wanted to incentivize the development of latest housing. Current 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 isn’t thought of “metropolis funding.”
Over its historical past, MFTE has produced way more studio and one-bedroom models than bigger models — the Workplace of Housing experiences that simply 13% of them are two-bedroom, and fewer than 1% are three-bedroom. The town, nevertheless, has said a rising want for higher lease 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 targets as a result of their buyers and lenders gained’t “settle for a decrease yield … or surrender just a little bit in revenue.”
In accordance with the One Seattle Complete Plan, Seattle will want 62,740 internet new models of housing reasonably priced 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 degree of affordability.
In the meantime, nonprofit builders have already got methods to create this housing by tapping into Obligatory Housing Affordability program funds, the low-income housing levy, the payroll expense tax and funds from the State Housing Finance Fee.
State-mandated zoning modifications will quickly enable 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’s 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 lease and primary utilities.
It’s time to say goodbye to MFTE, give property homeowners just a little break and unlock that $9 million per yr in deferred taxes to assist cut back Seattle’s funds deficit. MFTE has outlived its usefulness.
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