JLARC recommends modification of the Multifamily Housing Tax Exemption program

The Joint Legislative Audit and Review Committee (JLARC) was directed to study the use and reporting of the Multifamily Housing Tax Exemption (MFTE).

The MFTE is a property tax exemption program that allows eligible cities to target specific areas for multifamily housing development. The tax preference was intended to stimulate development of new and rehabilitated multifamily housing – including affordable housing – in cities that plan under the Growth Management Act. It also aimed to allow unincorporated areas within urban growth areas to stimulate housing development near college campuses.

Under the MFTE program, property owners may apply for an 8-year or 12-year property tax exemption for building or rehabilitating multifamily housing. The 12-year exemption requires owners to offer at least 20% of their units as affordable housing, as defined by statute. Cities have the authority to approve and reject individual projects. Projects have been approved in 26 of 102 eligible cities.

After analyzing the use of MFTE, JLARC made the following summary conclusions:

• Developers have created housing using the MFTE
• It is inconclusive whether this use represents a net increase in development
• Cities have opportunities to maximize the impact of the exemption and improve reporting on results

Cities have opportunities to maximize the impact of the exemption and improve reporting on results.

JLARC’s report also stated that in numerous cases, the MFTE is not necessarily making multifamily units affordable. JLARC also critiqued how cities were using the program (noting it appeared cities had applied MFTE exemptions toward what could be considered outside the statutory intent of the program) and highlighted some reporting gaps (“At least 11 cities failed to report”). Forty-two percent of cities approving projects under the MFTE are out of compliance with reporting requirements.

JLARC’s recommendations to the Legislature reflect these compliance and reporting gaps:

• The Legislature should modify the preference to direct cities to include analysis of profitability as a consideration in offering or approving exemptions.

• The Department of Commerce should report annually to JLARC and the relevant policy committees on city compliance with the requirements, as well as the metrics in statute and affordability measures.
• The Department of Revenue should report to JLARC and the relevant policy committees on which statutory ambiguities can be resolved through guidance and which require statutory changes.

The Legislature should modify the preference to direct cities to include analysis of profitability as a consideration in offering or approving exemptions.

More information on JLARCs’ recommendations are available on their website.

JLARC detailed the results of its study and recommendations in a one-page summary, preliminary report, and a video summary—all available on its website.