Title
Approval of a Resolution Authorizing a 12-Year Multi-Family Tax Exemption Agreement Between City of Olympia and 505 Union Avenue LLC for an Affordable Housing Development Project
Recommended Action
Committee Recommendation:
Not referred to a committee
City Manager Recommendation:
Move to approve a Resolution authorizing a 12-Year Multi-Family Tax Exemption Agreement between the City of Olympia and 505 Union Avenue LLC.
Report
Issue:
Whether to approve a Resolution authorizing a 12-Year Multi-Family Tax Exemption Agreement between the City of Olympia and 505 Union Avenue LLC.
Staff Contact:
Jacinda Steltjes, Housing Manager, Community Planning and Economic Development, 360.790.5224
Presenter(s):
None - Consent Calendar Item
Background and Analysis:
Multi-Family Tax Exemption Program
In accordance with state legislation (RCW 84.14) the City of Olympia has established a Multi-Family Tax Exemption (MFTE) program (OMC 5.86) to encourage the production of housing within certain residential target areas. The MFTE program provides a property tax exemption for new residential construction. The tax exemption applies to the value of new or improved residential construction only, meaning projects benefitting from the City’s MFTE program must still pay property taxes on the assessed value of the land and any commercial aspects of the development.
State law requires that a development project meet the following criteria to be eligible for the MFTE program:
• The development must include new or rehabilitated housing intended for permanent residential occupancy;
• Four or more new housing units must be created;
• 50% or more of the space must be for permanent residential occupancy;
• The housing must be located in a residential target area identified by the participating municipality;
• The project must comply with the municipality’s comprehensive plan, building codes and zoning codes;
• The construction/rehabilitation must be completed within three years of approval of an applicant’s MFTE application;
• The property where development occurs must be vacant at least 12 months prior to application to the MFTE program; and
• No tenant displacement may be caused by the development.
State law allows for an eight-year multi-family tax exemption, a 12-year multi-family tax exemption, and a 20-year multi-family tax exemption. Olympia offers all three options. The eight-year exemption is intended for multi-family, market rate rental housing. The 12-year exemption is intended for multi-family, affordable rental housing. The 20-year exemption applies to units that will be sold at affordable rates to homeowners. Rental and mortgage rates are considered affordable when no more than 30% of a household’s gross annual income is spent on housing costs.
Recent MFTE Program Changes
In December 2023, after significant research and public engagement, the City updated Olympia Municipal Code 5.86 to expand its residential target areas and to position the MFTE program as an affordable housing incentive. Code revisions increased the number of residential target areas from three to seven, to include four neighborhood centers, and expanded the geographic boundaries of the Westside Residential Target Area and the Eastside Residential Target Area. Code revisions also added a fee in lieu of developing affordable units to the eight-year exemption; the fee applies to the Westside, Eastside, and Downtown residential target areas. Changes to the 12-year tax exemption further incentivize development of affordable housing by increasing the percentage of units that must be affordable to qualify for the program from the state mandated minimum of 20% of units up to 100% of units and adjusting the annual household income level the units must be affordable to from the state-mandated maximum of 115% of Median Family Income down to 80% of Median Family Income.
The project occurring at 505 Union Avenue SE is the second project to apply for the 12-year exemption since changes took effect. The first project is occurring on property previously owned by the City of Olympia at 306 4th Ave. E.
Project Summary
505 Union Avenue LLC is requesting a 12-year multi-family tax exemption for a housing project known as The Gibson, which is being developed in the Downtown Residential Target Area at 505 Union Ave. SE. The project consists of adaptive re-use of an existing commercial office building situated on .48 acres and zoned downtown business into 64 units of studio, and 1-bedroom housing units. Conversion to residential use is allowed within downtown business zoning. The project will not include commercial uses. An existing adjacent parking lot will be utilized and will offer approximately 55 parking spaces.
All units will be rented to households whose annual gross income does not exceed 80% of the Median Family Income, adjusted for household size and determined by the U.S. Department of Housing and Urban Development. Rental rates, including utilities, for studio units within the project are anticipated not to exceed $1,400. One-bedroom units are anticipated to rent for between $1,595 and $1,699, including utility costs. For reference, a two-person household in the Olympia-Tumwater Metropolitan Statistical Area whose annual gross income is 80% of Median Family Income earns $72,150. A monthly rental rate, including utilities, that is considered affordable (not more than 30% of the household’s gross income) to a low-income household this size would not exceed $1,804.
The project is currently in the permitting process and complies with the City’s comprehensive plan, building codes and zoning codes. Additionally, the nature of the project as adaptive re-use is a strategy that is gaining national attention as a method for increasing housing availability and addressing economic development concerns around under-utilized commercial office space following the COVID-19 pandemic.
In addition to affordable rates, the project will provide access to transportation, amenities, public services, and employment found in Olympia’s downtown while also activating an underutilized property.
Climate Analysis:
This is an adaptive re-use project that will convert an existing office space to residential use. This project is consistent with City goals to encourage residential infill and increase urban densities in areas served by existing or planned transportation and utility systems (key climate mitigation strategies). The Olympia Transit Center is three-quarters of a mile away and within a 16-minute walk of the property. The property is along Intercity Transit bus line #14 and #94. A bus stop for line #94 is directly in front of the property and two more are within one-half mile. A bus stop for line #14 is also located one-half mile away.
Equity Analysis:
In 2021, the Washington State Legislature passed HB 1220 which requires cities, towns and counties to plan to accommodate future housing affordable to a range of incomes and to document the projected housing need each jurisdiction is planning to accommodate in its Comprehensive Plan. Jurisdictions of Thurston County contracted with Thurston Regional Planning Council (TRPC) to determine that Thurston County will need about 54,350 new housing units by 2045 to accommodate projected population growth. Of those,14,295 new units are needed in Olympia and its urban growth area. Of the 14,295, TRPC has determined Olympia will need 264 new units for households earning between 50% and 80% area median income.
A Housing Needs Assessment done by TRPC in 2021 found that over 34,650 Thurston County households are cost burdened, meaning they spend more than 30 percent of their income on rent, mortgage payments, and other housing expenses. Of these, 13,900 are severely cost burdened, spending more than half of their income on housing expense. In Olympia, 1,955 Olympia households earning between 50% and 80% of area median income are housing cost burdened. The assessment found that many housing cost burdened households spend more than 30% of their income on housing because there is not enough affordable housing supply for those who need it.
Additionally, the project offers studio and 1-bedroom units. According to TRPC’s Housing Needs Assessment, there are 32,900 one- or two-person households in Lacey, Olympia, and Tumwater. However, only 22,200 housing units have two or fewer bedrooms. The problem is more pronounced for one person households, with only 7,200 units with two or fewer bedrooms for 15,800 one and two-person households.
Neighborhood/Community Interests (if known):
Affordable housing is an interest to the community as is the Multi-Family Tax Exemption program. Changes to the City’s MFTE programs in 2023 were closely followed by several community members and organizations working in and adjacent to housing.
Financial Impact:
The agreement will exempt 505 Union Avenue LLC from property taxes associated with the residential improvements made to the property for a duration of 12 years. The applicant will still pay property taxes associated with the land. At the end of the initial 12-year period, the property’s ownership may apply for one additional term of 12-years of property tax exemptions.
Options:
1. Move to approve a Resolution authorizing a 12-Year Multi-Family Tax Exemption Agreement between the City of Olympia and 505 Union Avenue LLC.
2. Move to approve a Resolution authorizing a 12-Year Multi-Family Tax Exemption Agreement between the City of Olympia and 505 Union Avenue LLC with amendments.
3. Do not approve the Resolution authorizing the execution of a 12-Year Multi-Family Tax Exemption Agreement between the City of Olympia and 505 Union Avenue LLC.
Attachments:
Resolution
Agreement