The City of Seattle has a mystifying but ultimately understandable attitude toward one of it’s most successful housing programs, the Multifamily Tax Exemption (MFTE) Program. The MFTE program has efficiently created thousands of units of rent restricted housing by reducing property taxes on a new housing project and that deferred tax is passed on to 20 percent of the renters in the participating project. When the Mayor touts the Grand Bargain as the first program that would create affordable housing along with market rate housing, he’s just plain wrong. The MFTE has been doing just that for years. But why would the City’s Miriam Roskin say, as she did at a presentation to the City Council on the program recently, that 100 percent participation is not desirable?

The reason is a profound resentment at all levels at the City (even, ironically among the people who manage the program) that the MFTE is a voluntary and incentive based program.

Yes, you can see it and hear it when the Council discusses the program. They wish that they could force builders to include housing in their projects at lower rent levels and at greater percentages of inclusion. They also want three bedroom apartments. But as we have pointed out before, dialing up inclusion and room sizes and income levels down does not mean a bunch more three bedroom apartments priced for families at 40 percent of Area Median Income (AMI) — it means fewer units of units at 60 percent of AMI or higher, the general level of income in the program because it is no longer an incentive to participate.

You can look at the math in a letter we sent to Council last year. So the City, through the Grand Bargain, is going to try and do this, force developers to include 7 percent set aside of their buildings for people earning 60 percent of Area Median Income. Obviously, if every building in town was built using MFTE, 100 percent participation, the program would produce lots more housing than through forcing (a legally questionable requirement) builders to set aside 7 percent. Rather that use a really successful program and expanding it, the City is embarking on a legally questionable and controversial and infeasible effort to force upzones with inclusion. We don’t need it. All we need is a wider use of MFTE.

Scott Shapiro who builds Small Efficiency Dwelling Units responded last week to a post written by Erica Barnett about the latest report on MFTE. In response, Shapiro hits some of these same points in order clarify some of these points. But if you want to understand why production is down, it’s simple: when the Council dials up inclusion rates, and lowers income levels they lower participation. But maybe that’s exactly what they want anyway.  

Pictured above is the Joule Apartments with 59 out of 295 units rent restricted thanks to the MFTE Program. Check out the City’s last report online to find the MFTE units near you. There are lots of them.

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Erica, I read your MFTE article and have a few comments:

1. Participation– It confounds me that the City doesn’t want 100% participation for the most successful and cost-effective program to create affordable housing.  Where did the Mayor and Council say they didn’t want 100% participation?  Where in the code is that?  Where in the Office of Housing’s policies does it say they don’t want 100% participation?  If not 100%, then what?  It appears from OH’s comments that they don’t want MFTE use and therefore the affordable units in the most expensive neighborhoods like downtown, SLU, and Capitol Hill where you find the “highest-end product” because land costs are higher there.  So is the City saying they want the affordable units in the middle-income and lower-income neighborhoods only?  How is that good public policy let alone fair and equitable?  Is that what the Mayor and Council wanted when they passed the MFTE renewal last year?  Does that align with their goal to create 6,000 new units of affordable housing over the next 10 years?
2. Tax Revenue– The MFTE forgoes future property tax revenue for new projects for 12 years.  The City is not giving up existing revenue.  That is an important distinction.  In addition, the City doesn’t collect the tax dollars if the project isn’t built anyway.  To get affordable units, the City will forgo future property tax revenue by reducing the tax bill during the period that the owner sets aside 20% of the units (or 25% in the case of SEDUs) as affordable.  Your statement that “Last year, they estimated, the city lost about $6.6 million in potential revenues to MFTE tax breaks, and shifted another $5.4 million from developers to the general taxpaying population…” is misleading.  It makes it sound like the developers are getting $5.4 million and the taxpayers are paying for it.  That is not correct.  The taxpayers are in effect subsidizing the market rents for the affordable units.  There is little or no financial benefit to the developer/owner.  The owner is giving up the revenue between market rents and the affordable rents.  In return, the owner reduces their expenses by having less property taxes.  Another way of looking at it is that the owner, instead of getting $500 more in rent per month and having $500 more per unit in taxes resulting in no new net income, the owner by having the affordable units doesn’t get the $500 more in rent for those units but also doesn’t have to pay the $500 more in property taxes, so the net effect is zero.  Simply put, the owner doesn’t get the financial benefit, the low-income tenants living in the affordable units do.  That is the point of this successful program.  The people who need lower rent get it by a successful City program that voluntary incentivizes property owners to set aside a certain percentage of their units at affordable levels in exchange for a similar reduction in property taxes.
3. Maximum MFTE SEDU Rent– It is $503 per month excluding utilities at 40% of AMI.  With utilities it is $628.  See the attached 2015 OH MFTE matrix.
4. Rent/Pricing Matrix– The matrix that the City put out has two errors that you can see when comparing to the MFTE attachment:
5. Studio 1 Person is $40,820 at 65% of AMI.  $46,605 is for two people.
6. 2-Bdr 3 Person is $68,595.

As always, let me know if you have any questions or would like to discuss further. Regards, Scott 2015_Income_and_Rents_MFTE