Spokane City Council mulls tax incentive to turn downtown parking into housing

Spokane needs more housing, especially affordable units. Could encouraging developers to convert downtown parking lots into new homes fill some of that need?

The Spokane City Council is considering a tax incentive program authorized by the state Legislature in 2022 to encourage the building of housing on underdeveloped land in urban areas.

Specifically, an ordinance sponsored by council members Zack Zappone and Lori Kinnear would defer both state and local sales and use taxes – a total of 9% – for developers who turn downtown parking lots into housing, at least 50% of which must be affordable to low- and very low-income households.

If the development maintains those affordable units for at least 10 years, the taxes would not need to be paid. Developers who receive the waiver but later renege on the requirements would be required to pay back the deferred taxes.

The ordinance came before the City Council Monday for a first reading. A vote on the measure is expected Feb. 27 .

There is more than enough parking in the downtown Spokane area, and much of it doesn’t get used frequently, according to a 2019 study conducted by the city.

That study found 37,000 parking spaces in downtown Spokane, 85% of which were off-street, including in both parking lots and garages. Nearly a third of the “downtown study area,” which includes the downtown core and surrounding areas, was dedicated in some way to parking.

That same study found that off-street parking in the downtown core was typically never more than 65% occupied, except for during large events such as the Lilac Parade, when up to 100% of off-street parking was occupied. Certain areas, however, such as the Main Avenue corridor, were frequently at or near capacity during the busiest times of day.

While the city of Spokane manages around 15% of parking spaces in the downtown area, almost all city-run parking is on-street. The vast majority of off-street parking is managed by private property owners and for-profit companies, such as Diamond Parking, which manages 16% of all downtown parking, according to the study.

Dan Geiger, vice president of the Spokane Region for Diamond Parking, said that the company is not against the notion of redeveloping parking lots to housing units.

“We realize (parking lots) are not the highest and best use for that land, so we’re not averse to developing. If these incentives make sense, then it’s something we would be interested in pursuing,” Geiger said.

If passed, the legislation could be one more step toward building affordable housing in Spokane, Kinnear told her City Council colleagues in January, with at least one Tacoma-based developer already expressing some interest in making use of the tax credit.

But others are skeptical.

“When the state came out with that (program) initially, my thoughts were that it was well-intended but it’s going to miss the mark,” said Chris Batten, the principal of RenCorp Realty and board chair of the Downtown Spokane Partnership.

Batten doubts that the math would pencil out for downtown developments that have to make 50% of their units affordable.

“We’ve ran some numbers on a specific project downtown on a parking lot, and at 50% it just doesn’t make sense mathematically,” he said.

A lower affordability threshold, coupled with other incentives, would be more likely to lead to additional development, Batten said.