Title
Discuss City Housing Incentives to Encourage Affordable Housing Projects in Olympia
Recommended Action
Committee Recommendation:
Not referred to a Committee
City Manager Recommendation:
Discuss city housing incentives to encourage affordable housing projects in Olympia.
Report
Issue:
Whether to discuss city housing incentives to encourage affordable housing projects in Olympia.
Staff Contact:
Jacinda Steltjes, Housing Manager, Community Development, 360.753.8482
Presenter(s):
Jacinda Steltjes, Housing Manager, Community Development
Background and Analysis:
The City of Olympia has taken several actions intended to expand affordable housing options, increase the supply of permanently affordable housing, and reduce barriers to build housing.
Over the past five years, affordable housing development incentives have helped the City make substantial progress toward expanding housing opportunities. These incentives are one tool the City uses to support adopted plans, including the One Community Plan (2019), Housing Action Plan (2021), and Olympia 2045 Comprehensive Plan (2025).
The City's Comprehensive Plan calls for the development of 14,295 new housing units by 2045, including 7,616 units affordable to low-income households. Since 2022, development incentives have supported and helped encourage 1,318 housing units which have been fully constructed or are currently in the permitting phase. Of those units, 947 are affordable and 371 are market rate, spread across 18 development projects.
More information about these projects can be found in the attachments titled Affordable Housing Project Summary, Affordable Housing Project Flip Book, and Multi Family Tax Exemption (MFTE) Project Summary.
Goals of Affordable Housing Incentives
The City’s housing incentives encourage increased supply of affordable housing by accomplishing three primary goals:
• Reduce the up-front cost of developing affordable housing;
• Reduce the amount of time it takes a project to be permitted; and
• Reduce the ongoing operating costs.
Reducing development and operating costs and decreasing the amount of time it takes to bring a project through permitting decreases the amount of revenue a housing developer or operator must make from rents to service the project’s debt and sustain the project’s operations. By reducing these costs, housing incentives help make it more possible for affordable housing developers to offer and maintain rents that remain affordable to tenants over time.
Eligibility Criteria
A low-income household is defined as one with an annual gross income at or below 80% of the area median family income, adjusted for household size. Housing is considered affordable when a household spends no more than 30% of its income on housing costs, including rent or mortgage payments and utilities.
In 2026, the area median family income in Thurston County is $122,800. Under this standard, a household of four with an annual gross income of $98,250 or less, or a household of two with an annual gross income of $78,600 or less, is considered low-income.
To be eligible for most of the City’s affordable housing development incentives, all units in a project must be affordable to low-income households. Developers must also enter into a restrictive covenant that maintains affordability for a minimum of 25 years. Many projects receiving the City’s affordable housing incentives also receive state and/or federal funding, which may include additional affordability requirements that extend beyond the 25-year period required by the City.
The most notable exception to these eligibility criteria is the MFTE program, which is discussed later in this report.
Partial Impact Fee Exemptions
An 80% exemption of park, transportation and school impact fees were some of the first affordable housing development incentives enacted by the City. These incentives have been frequently applied in the last five years.
Partial impact fee exemptions are permitted by OMC 15.04.060.C. These exemptions reduce the up-front construction cost of development. Oftentimes, they also lower operating costs by decreasing the amount of debt a housing developer must take on to build the project. The amount of fees being exempted is heavily dependent upon the type and size of the housing being created and its geographic location.
Partial Water Connection Fee Exemptions
Other commonly applied incentives include fee exemptions for connections to local water, sewer, and stormwater systems. The City provides an 80% exemption of eligible development and capacity fees, including City general facility charges (GFCs), established through OMC 13.08.025, OMC 13.16.080.D, and OMC 13.04.375.E and enacted in 2024. LOTT’s Affordable Housing Support Program provides a 50% exemption of LOTT capacity development charges (CDCs). The LOTT program began as a pilot in 2023 and continues to support affordable housing development.
These exemptions reduce upfront construction costs and can also lower long-term operating costs by reducing the amount of debt needed to finance a project. The amount of GFC and CDC fees exempted varies depending on the type and size of housing being developed and its location.
Affordable Housing Emergency Declaration
In December 2024, the Olympia City Council adopted Ordinance 7414, declaring the insufficient supply of affordable housing a public health emergency. The declaration established six strategies aimed at increasing the supply of affordable housing. These strategies address multiple barriers to affordable housing development, including reducing the upfront construction costs, lowering operating costs, and streamlining the permitting process.
The strategies are:
• Prioritize affordable housing projects in the permitting queue.
• Provide dedicated staff support to help affordable housing projects move efficiently through the permitting process.
• Authorize the City Manager to defer or waive certain City requirements for qualifying affordable housing projects.
• Create a permit fee grant program for affordable housing developments.
• Establish an infrastructure assistance grant to support affordable housing projects.
• Participate in 1033 tax exchange transactions with willing property owners to preserve affordability in projects at risk of conversion.
Other Affordable Housing Development Incentives
There are a handful of other affordable housing incentives accessible to developers constructing housing in Olympia. Staff regularly share information on how to access regional grant funds, including Olympia’s 1/10th of 1% sales and use tax, distributed through the Regional Housing Council.
Olympia staff also assist, as needed, with efforts to secure state and federal funding for affordable housing projects. Staff have successfully supported housing developers in obtaining Connecting Housing to Infrastructure Program (CHIP) grants from the state, which can be used for drinking water, sewer, and wastewater infrastructure costs. Staff have also assisted with successful applications to other state funding programs, including the Housing Trust Fund, 4% Low Income Housing Tax Credit Program, and 9% Low Income Housing Tax Credit Program.
On several occasions, the City has also offered City-owned property at a discounted price in exchange for its use as permanently affordable housing.
Multi-Family Property Tax Exemption
The MFTE program reduces the ongoing cost of operating affordable housing. The program is authorized through RCW 84.14 and OMC 3.57. It exempts property taxes associated with residential improvements to a property for a period of 8, 12, or 20 years.
The 8-year exemption can be utilized for market-rate housing. The 12-year exemption can be used for affordable housing. The 20-year exemption is reserved for non-profit developers of affordable homeownership units. Land and non-residential portions of a property are not exempted from property taxes.
The City revised its MFTE program in late 2023 to better position it as an affordable housing program.
Revisions included:
• Expanding the existing eastside and westside residential target areas.
• Designating four neighborhood centers as new residential target areas.
• Adding a 20-year exemption option for nonprofit developers of affordable homeownership units.
• Establishing a fee-in-lieu option for projects developed as market-rate housing with an 8-year exemption. The fee is 5% ad valorem in the eastside and downtown areas, 25% in the westside area, and neighborhood centers are exempt.
• Requiring projects receiving a 12-year exemption to provide all units, rather than the state minimum of 20% of units, as affordable to households with incomes at or below 80% of area median income.
Since 2022, nine housing projects have been approved for a Multifamily Tax Exemption (MFTE) property tax exemption. Three projects were approved following the program changes.
Of the nine projects, six are market-rate developments receiving an 8-year exemption, two are affordable housing projects receiving a 12-year exemption, and one is a mixed-income project approved by the City Council for a 12-year exemption prior to the 2023 program changes.
Together, these projects represent 468 new housing units, including 371 market-rate units and 97 affordable units. The majority of projects are located within the downtown residential target area. See the MFTE Project Summary for additional information.
Next Steps
Beginning in late summer 2026, staff will work with the City’s Strategic Communications team to launch a second education campaign to increase awareness of the City’s affordable housing development incentives. Specific strategies for distributing information about incentives will be identified as part of this effort. T The goal is to make it easier for both new and experienced affordable housing developers to understand the tools and resources available through the City to support housing development.
The Thurston Regional Housing Council (RHC) is also interested in this work. RHC’s 2026 workplan calls for the identification of strategies to attract affordable housing developers to Thurston County.
Beginning in the third quarter of 2026, staff will also identify additional performance metrics to better evaluate the effectiveness of Olympia’s affordable housing development incentives, including the MFTE program. These metrics will help the City measure outcomes, identify successes, and share the impact of these incentives with the community. Additional information about regional collaboration and next steps is included in the attachment titled Next Steps.
Climate Analysis:
Discussing housing incentives has no impact on reducing greenhouse gas emissions. However, development of affordable housing projects do impact the climate. These projects are often funded by and rely upon state and federal resources.
These resources require projects to comply with development standards that safeguard health and safety, increase durability, promote sustainable living, preserve the environment, and increase energy and water efficiency. Additionally, affordable housing projects are commonly located along frequent transportation routes and thereby help to decrease greenhouse gas emissions.
Equity Analysis:
Affordable housing development incentives are intended to reduce the cost of developing affordable housing and increase the supply of housing affordable to low-income households. Low-income residents and people of color are disproportionately impacted by the limited availability of affordable housing. The Thurston Regional Planning Council’s 2021 Housing Needs Assessment found that approximately 7,600 Olympia households are cost burdened, meaning they spend more than 30% of their income on housing costs. Lower-income households are generally more likely to experience housing cost burden.
Neighborhood/Community Interests (if known):
Affordable housing has ranked as a top priority among Olympia community members in recent years. Respondents to a May 2023 City of Olympia public opinion survey overwhelmingly (74%) indicated housing and homelessness were concerns. Only 11% of the 531 respondents felt residents could access affordable and stable housing in Olympia.
Financial Impact:
Discussing housing incentives has no financial impact.
Options:
1. Discuss city housing incentives to encourage affordable housing projects in Olympia.
2. Do not discuss the City’s housing incentives to encourage affordable housing projects in Olympia.
3. Provide other direction to staff.
Attachments:
Affordable Housing Project Summary
Affordable Housing Flip Book
MFTE Project Summary
Next Steps