Demand isn’t the problem, it’s the supply.
The Spokane City Council voted Monday to expand a program that aims to facilitate development of more housing in Spokane.
In a city where vacancy rates are low and the population is rising, the multifamily tax-exemption program offers developers a tax incentive if they renovate or build at least four units of housing.
On Monday, the boundaries of that program were expanded by nearly 50%.
Overall, the multifamily tax-exemption zone will expand from 3,338 acres to 4,927 acres, accounting for slightly more than 11% of the total land area in the city.
The city last expanded the zone to include a section of the South Hill in 2017.
“When we expanded it to the lower South Hill we actually saw a significant increase in apartments being built,” said City Council President Ben Stuckart.
The tax exemption applies only to the value added to the property through a renovation or construction, and the property owner continues to pay full taxes on the land. When the term of the exemption expires, the owner pays the full tax bill on the entire property.
The expansion includes new stretches along East Sprague Avenue and east along the north and south banks of the Spokane River. The zone also was broadened to include an area west of Market Street near Wellesley Avenue and the area north of Kendall Yards.
A development is eligible for an exemption of either eight or 12 years, depending on its level of affordability. Market-rate housing is exempt for eight years, while a 12-year exemption is awarded to developments that set aside at least 20% of units for residents with an income of 115% of the median area income or lower.
Councilwoman Kate Burke noted that she was not on the council when the program was adopted, but said she would have fought for exemptions to be allowed only if affordable and low-income housing was to be built.
“We’re going about it a backwards way,” Burke said. “We should be protecting people rather than investing in developers to do what they should already be doing in our community.”
Councilwoman Candace Mumm noted that the city had previously attempted to set a higher standard of affordable housing for a project to qualify for a 12-year exemption, but found developers weren’t taking advantage of it.
In 2012, the council revised the law to require 20% of units be set aside for those earning just 50% of the area median income to qualify for a 12-year exemption. Not a single developer applied.
“That was part of our decision, to open it up so that people would actually use it,” Mumm said.
Stuckart defended the program, saying the city has a “basic supply and demand problem” that the multifamily tax exemption helps to address by adding market rate housing, which accounts for about 80 percent of the housing stock.
When rents rise for market rate housing and it becomes “unaffordable for people,” it’s because there is not enough supply, Stuckart said. Though he acknowledged the importance of tenant protections, low-income housing and subsidies, Stuckart advocated for more market rate housing.
Since its adoption in 2000, the multifamily tax exemption zone has been redrawn several times, including expansions and contractions. This time around, city officials believe there is opportunity for housing density in the areas brought on board, and it won’t conflict with current zoning priorities.
In advocating for the expansion, city officials have cited the list of developments under the current zone.
There is currently $205.7 million in property value assigned to the program, adding up to a savings of $586,000 on the tax bills of property developers this year. In terms of housing, that accounts for 1,720 units, which comprise 1,488 rental units and 232 town houses and condominiums.
Per $120,000 of exempt assessed value, the property owner can expect to save about $1,600 under the program.
The expansion passed by a vote of 5 to 1, with Burke the only member to oppose it. Councilman Breean Beggs was absent.
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