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 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 current University of Washington study means that MFTE is now not an efficient method to meet precedence housing wants.
The exemption is meant to encourage the development of reasonably priced housing. Nonetheless, it permits market-rate housing homeowners and traders to primarily shift their property taxes onto the remainder of us — to the tune of over $80 million {dollars} in 2024 alone, in keeping with the Seattle Workplace of Housing. Final yr, that value the proprietor of a median-valued ($804,000) Seattle house an additional $145 on high of the housing levy.
In alternate for setting apart 20% of the items in new multifamily developments for income-qualified tenants, the MFTE permits the constructing proprietor to forgo property tax on all of the residential items 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 examine.
The Seattle Office of Housing reports there are 6,636 income-restricted MFTE items throughout 286 buildings in Seattle. That is lower than 3% of the full rental items within the metropolis, in keeping with the metropolis’s Complete Plan. Nearly all of these are for renters making between 75% and 90% of the Space Median Earnings. For a two-person family, that’s between $82,786 and $99,343.
The UW examine 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 homeowners and lease discount for tenants?
The UW report concludes there isn’t a method 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 alternative. In that case, the developer accepted the requirement to put aside 50% of housing items for income-qualified renters with out utilizing any “city funding.” Right here’s the wrinkle: This housing could be eligible for a property tax exemption on all 990 items so long as 198 of them meet MFTE earnings restrictions, as a result of the tax shift just isn’t thought of “metropolis funding.”
Over its historical past, MFTE has produced much more studio and one-bedroom items than bigger items — the Workplace of Housing stories that simply 13% of them are two-bedroom, and fewer than 1% are three-bedroom. The town, nevertheless, has said a rising want for better lease reductions and extra two- and three-bedroom items for households. Builders interviewed for the UW examine say that the tax breaks don’t justify these objectives as a result of their traders and lenders gained’t “settle for a decrease yield … or surrender somewhat bit in revenue.”
In line with the One Seattle Complete Plan, Seattle will want 62,740 web new items of housing reasonably priced to households incomes lower than 50% Space Median Earnings 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 modifications will quickly enable between 4 and 6 items of housing on each former single-family lot in Seattle and extra accent dwelling items 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 somewhat break and unlock that $9 million per yr in deferred taxes to assist cut back Seattle’s price range deficit. MFTE has outlived its usefulness.
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