Mayor Ed Murray wants to expand a program that gives tax breaks to Seattle developers in exchange for setting aside some rent-restricted apartments affordable to low- and moderate-wage earners.
Mayor Ed Murray is proposing to expand a program that gives developers tax breaks in Seattle for setting aside some rent-restricted apartments for low- and moderate-wage earners.
Murray said his plan to extend the program into more areas of Seattle, along with a slight increase in its demands for apartments with restricted rents, will add more affordable housing in the city.
“This is a program that saves families hundreds of dollars each month and brings us closer to creating 20,000 more affordable units in Seattle over the next decade,” Murray said in a statement Thursday.
Called the Multifamily Tax Exemption (MFTE), the program has a tarnished history and its future costs are difficult to pinpoint.
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The City Auditor reported in 2012 that program oversight was lax and some developers skirted rules. The auditor recommended 19 improvements to address findings that some developers weren’t setting aside the required number of rent-restricted apartments, some rents were too high, and some tenants in subsidized apartments earned more than they should to qualify.
Office of Housing officials say a new team is running the program, standards are stricter and oversight stronger. They point to follow-up by the auditor that shows the city has implemented 14 of the 19 audit recommendations. The ones that haven’t been involve policy changes that require City Council approval, said Miriam Roskin, the Office of Housing’s deputy director.
Murray said the improvements, including a new staff member dedicated to compliance, ensure that the program “consistently delivers real results.”
The mayor’s proposal would mark another expansion of the MFTE. It started in 1998 with the hope of stimulating apartment construction in parts of Seattle, such as Rainier Valley, where little occurred.
The program was then used mostly by nonprofit developers as one of several subsidies that financed affordable-housing projects. Then it marched into other, more in vogue neighborhoods under former Mayor Greg Nickels, with surprising results.
For-profit developers found the program worthwhile as the tax breaks more than offset what they lost in rent. Between 2008 and 2014, 157 apartment projects were approved for the subsidies; 150 were for-profit ventures.
To date, the program has created about 2,000 affordable apartments in market-rate buildings. An additional 1,900 apartments are in the development pipeline, according to the city.
MFTE gives developers a 12-year break on property taxes — for new or rehabbed buildings, not the underlying land. In exchange they agree to set aside 20 percent of their apartments for tenants who make about 75 percent of Seattle-area median income. For a single person that’s about $45,000 a year; for a two-person household about $50,000.
Rents are controlled so eligible tenants don’t pay more than one-third of their gross income for housing and utilities. That translates to studio-apartment rents of $1,004 and one-bedroom rents of $1,323.
When the 12-year tax breaks expire so do the rent restrictions.
Murray wants to increase the share of rent-restricted units from one-fifth to one-quarter of all apartments in a building. He wants to encourage more family-sized units by leaving the one-fifth requirement in place for developers who include four or more two-bedroom apartments in a building.
He would also make the program permanent instead of requiring periodic review and renewal, which has been the city’s practice.
The program now operates in 39 targeted areas, which tend to be urban centers and villages. The mayor would extend it to all zones where multifamily buildings are allowed.
His recommendation comes from the 28-member Housing Affordability and Livability Agenda (HALA) committee.
City officials say MFTE is most valuable at times when apartment vacancies are low and rents are climbing. The program now “buys down” or saves about $400 a month for a studio and $500 a month for a one-bedroom, Murray said.
Program costs are harder to nail down. Until 2012, city officials insisted the program didn’t siphon money from the general fund budget that pays for public safety and other basic city services. Instead, they said, it shifted tax breaks onto all other property owners in King County.
But after the audit, housing officials began investigating the way tax breaks are handled by the King County Assessor’s Office. They found that not all tax breaks were shifted. Depending on the timing of the assessor’s appraisal and the speed of construction, some tax revenue was not captured or foregone.
For 2015, the Office of Housing reports that program will cost $12 million in shifted and foregone taxes, with Seattle taking a $1.9 million hit in lost tax revenues. It will return about $10.5 million in rent discounts.
The owner of a $500,000 home in King County will pay an extra $8 in property taxes this year because of the program, according to city officials.
It’s hard to pinpoint what the costs might be in the future, but the foregone revenues are expected to grow because of the increasing number of projects using the tax breaks, said Emily Alvarado, manager of Policy and Equitable Development for the Office of Housing.
The program is worthy, Murray said, because it provides not just rent savings but also “ more stability in the rent so families are not worried about dramatic spikes in their future rents.”
Councilmember Mike O’Brien, the council’s land-use chair, said he’s confident the city can get an accurate read on the program’s costs. He also believes the program has better oversight of issues such as income-verification and qualifying appropriate tenants.
“I’m going to look at it through a variety of different lenses and see if we’re getting good return,” O’Brien said.
Nick Licata, the council member who has been most skeptical of MFTE, said it’s not the most cost-effective way to secure affordable housing.
“I’d rather see the for-profit housing developers contribute through inclusionary zoning and linkage fees than MFTE because those alternatives result in more permanent housing,” Licata said.
Affordable-housing advocate John Fox wants the program to serve tenants with incomes of roughly $30,000 or less. Fox is also concerned that expanding it will accelerate demolition of older apartments. And the council should maintain periodic review and renewal of the program, he said.
Another problem for the program arose earlier this year. Some MFTE buildings appeared to discriminate against minorities in fair-housing tests by the Seattle Office of Civil Rights.
Using testers posing as renters, the city found evidence in five MFTE buildings, chosen randomly, that minorities were offered fewer apartments with higher rents. At one building, AVA Ballard, a white tester was told about two rent-restricted apartments, but an African-American tester was not.
All five buildings agreed to settlements calling for their owners to reimburse the testing costs and contribute to funds for further education. The owners did not admit to any wrongdoing in the settlements.
By law, the current MFTE sunsets in 2016 and needs to be renewed by the council. The program is scheduled to be discussed at the 9:30 a.m. Sept. 17 meeting of the council’s Housing Affordability, Human Services and Economic Resiliency Committee.