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Spokane, Washington  Est. May 19, 1883

Downtown apartment project gets $2.7 million tax break as city looks to boost building

Teri Stripes can’t prove Spokane’s multifamily tax exemption is an effective tool for encouraging developers to construct dense and affordable housing in a city that badly needs it.

But she can point to some 1,720 new residential units that qualify for the exemption and that were built in Spokane between 2008, when the program started, and 2019, when the city last took tabs on the program and City Council voted to expand its boundaries.

“It’s anecdotal,” she acknowledged. “But it is true.”

At last week’s City Council meeting, more of this anecdotal evidence was presented, when council members considered and approved multifamily tax exemptions for four new projects.

Julie Hartling and her husband, Steven, were behind the smallest of the developments, the four-unit Hamilton Townhomes slated to be built north of Foothills Drive on Hamilton Street.

While the couple operates some rental properties, the townhouse development will be their first new-construction project. Hartling said the tax exemption was a factor “that helped us decide that we did want to purchase that lot,” which falls just within the recently expanded boundaries of the tax-exemption zone.

The terms of the exemption also motivated the Hartlings to include at least one affordable housing unit among the four.

To meet the definition of “affordable,” rent can’t cost more than 30% of the income of a household making 115% or less than the area median income. Developments set to make at least 20% of units affordable qualify for a 12-year exemption, while developments without an affordable component can only be exempt for eight years.

With some $6,500 in property-tax exemptions on the table each year, those extra four years were enough to motivate the Hartlings to include an affordable unit.

“It’s quite a bit of savings,” Hartling said.

Those savings add up when you look at the largest project to receive an exemption.

The proposed 138-unit Riverside Apartments project will save more than $2.7 million over the 12-year life of its exemption, according to City Council documents.

While the city will only lose out on about $1 million of those taxes, with the rest of the balance coming out of its share of state and federal taxes, it’s a significant share of what the developer has estimated will be a $22 million project.

Kevin Edwards has been pushing to develop the Riverside Apartments site at the corner of Browne Street and Riverside Avenue since purchasing it for just less than $1.5 million with a group of partners in May 2019.

Edwards, a broker with Hawkins Edwards Commercial Real Estate, said he and his fellow developers were “hell-bent on not doing a 2,500-square-foot McDonald’s” or some other single-story, parking-lot-encircled project like the Umpqua Bank branch that has long occupied the lot. But getting a developer to pursue that vision, he said, required some assistance from the city.

He said the multifamily tax exemption “for sure helps” and is the kind of incentive “that helps push a project over the goal line for sure.”

Edwards initially pursued a proposal that would have built 104 residential units in a six-story building devoted to graduate students.

After those plans fell through, the Seattle-based architecture and design firm GGLO filed a preliminary application with the city for a somewhat different and slightly larger $22 million project. It will include 138 one- and two-bedroom units, a 63-space parking structure and 1,250 square feet of lobby and commercial space in a six-floor building.

Because the project is receiving the 12-year exemption, at least 28 of the apartments will have to meet the criteria for affordable housing.

But the project – construction of which could begin as soon as next month – is being aided by more than just the multifamily tax exemption.

It is also eligible to be reimbursed for public right-of-way construction costs up to $106,865 as part of a now-defunct Projects of Citywide Significance program. The project has also qualified for a waiver of an undetermined portion of its general facilities charge, which is based on the services it receives, such as sewer, water and fire, and on the pipe size of those services.

Stripes said the developers of the Riverside Apartments have also indicated they will be taking advantage of its location within a federal Opportunity Zone, where new investments are eligible for capital gains tax benefits.

Councilwoman Lori Kinnear said she believes the city should do more to promote housing development with these kinds of incentives.

While she acknowledged that “some people are not happy” that developers can get a lengthy property tax exemption despite including little or no affordable housing, Kinnear said the 20% rule for the 12-year exemption is an effective tool for mixing market-rate and affordable housing.

She said she believes City Council can and should look for other ways to encourage developers to help solve the city’s housing crisis.

Kinnear said she would like to “aggregate” the city’s existing incentives and “perhaps add others to create incentives for builders.”

“And I don’t know what those are,” she added, “but we have to be creative to activate our centers and corridors more than we have already.”

But Kate Burke, Kinnear’s colleague on City Council, is among those unhappy with how the city’s current multifamily tax exemption is set up, and with how the city uses incentives to drive construction.

“I don’t oppose development,” Burke said. “I think building housing is a really good thing.”

She questions, though, whether the current multifamily tax exemption does enough to provide housing for those priced out of what she calls Spokane’s “really hot housing market.”

“We have to be incentivizing affordability, not just building,” Burke said.

Instead of requiring builders to reserve a share of their units for people making up to 115% of the median income, Burke believes the threshold should be 30-80% of that metric.

The city does have a track record with setting a higher bar for developers to meet in order to qualify for the 12-year exemption. In 2012, the city required that 20% of units be set aside for those earning just 50% of the area median income in order to receive the lengthier tax break. But when no developer applied for the 12-year exemption under that standard, council imposed the looser one.

Burke, however, believes the circumstances have changed, with Spokane now “one of the hottest cities in America to move to.” As the law stands, she said, developers are getting tax breaks to build housing they already have a huge a incentive to build, due to skyrocketing demand driven by the influx of newcomers.

“We’re basically giving money to developers to build housing that they’re going to get rich from,” Burke said.

The cost of lost property tax revenue, she said, comes out of the city’s general fund and reduces the money available to assist residents at risk of being priced out completely.

The way to increase the supply of affordable housing, Burke said, is to “build more affordable housing and permanent affordable housing.”

To achieve that, all new developments should be required to include housing that’s affordable for people who make less than the average median income in Spokane, Burke said.

Such inclusionary zoning would spread out the benefits that come with the city’s growth, such as increased density, walkability and connectivity in its centers and corridors.

“We make these great things for rich white people and then we keep them rich and white by not putting in” mechanisms that mandate affordability, Burke said.