Spokane’s housing crisis has the council questioning whether tax breaks for developers really help

A new downtown Spokane apartment complex offers “boutique-style living” and is billed as being “where luxury meets location.”

After Monday, its owner is in line for a property tax break.

The Spokane City Council narrowly approved an eight-year tax exemption for the Imperial Apartments on Third Avenue on Monday. Plans submitted to the city call for the former Days Inn Hotel to be converted into 92 studio apartments.

There was nothing unusual about the approval, a routine matter for the City Council in recent years that appeared on its “consent agenda.”

But what was atypical Monday was the vote, as the tax exemption request narrowly passed by a 4 to 3 margin.

Councilwoman Kate Burke has long railed against the multifamily tax exemption, and on this occasion two colleagues – council members Karen Stratton and Betsy Wilkerson – joined her.

It could mark the beginning of a change in how the council weighs the benefits of providing for-profit developers incentives for building desperately needed housing.

Wilkerson questioned the program’s utility, given the city’s current red-hot housing market.

“The owners are benefiting, and does that really trickle down to the people we are trying to help? Yes, we need housing, that’s a given, but do they need tax exemptions to build in the current market?” Wilkerson asked, adding “it’s a conversation we need to have.”

Burke has argued the program does not do enough to spur development of affordable housing.

“We’re not focused on building affordable housing, so if we don’t add this component to the puzzle we’re trying to create, we will fail and not have a successful city in the future,” Burke said.

The exemption is available only within the borders set by the City Council, not citywide. It is not applied to the property’s entire value; rather, it is applied to the new value added by the developer. Commercial portions of the property are not eligible.

For example, if a developer builds a multifamily apartment complex that brings a property’s value from $500,000 to $750,000, the tax exemption would apply only to that $250,000 of new value.

The city offers multifamily property tax exemptions in two ways. Property owners receive an eight-year exemption if their apartments are priced simply at the market rate.

They are eligible for a 12-year exemption if at least 20% of the units are occupied by people who earn 115% or less of the area median income. Rent must be no more than 30% of median household income.

The Imperial Apartments will be rented between $900 and $1,100 per month, according to its application to the city, making it a market-rate project.

The taxpayer saves about $1,600 per $120,000 of property value eligible under the program, according to the city.

The City Council last adjusted the program in 2019, expanding its boundaries by almost 50%.

The city’s program falls within the broader regulations set by the state. Spokane City Council President Breean Beggs noted the Washington Legislature extended the multifamily tax exemption program, with several modifications, by 12 years earlier this year.

As the ramifications of those changes become clear, Beggs said he is looking forward to a “robust conversation about the city’s program.”