Business Community Government

City adopts tax incentive program to encourage affordable housing

The Gig Harbor City Council voted 5-1 on Sept. 14 to adopt a development incentive called a Multi-Family Tax Exemption that could increase housing diversity in the city.

Councilmember Ben Coronado voted against the ordinance and Councilmember Emily Stone was absent.

The next step will be to set boundaries determining where in the city the exemption will be available. The council will set those boundaries at a future meeting.

Mitigating the housing shortage

In 2023, the state required jurisdictions to increase their stock of affordable housing to help mitigate the burgeoning housing crisis. Since then, Gig Harbor has been looking at ways to boost its few affordable housing options. One of those ways is the Multi-Family Tax Exemption program. The city is also in the midst of overhauling its housing code to comply with state law.

According to a 2023 housing study, Gig Harbor must increase its total housing stock by 892 units by 2044. More than 500 of those must be affordable housing.

The tax exemption program offers developers tax incentives to build a percentage of housing units that they will offer at rental rates capped at a certain percentage below area median income. This would qualify as affordable housing. Developers are not forced to opt into the tax exemption program. 

Following a staff recommendation, the council chose a 12-year program that would require participating developers to offer 20% of any units built under the program at a capped rental rate. The council chose to cap rents under the tax exemption program at 70% area median income, which stands at $118,000 per year in Gig Harbor.

This means that developers who build under the tax exemption program must offer 20% of units at rental rates capped to fit the budget of an individual or family making $82,600 per year. For example, if a developer builds a 10-unit apartment complex, it must offer two of those units at the capped rate for at least 12 years.

The city may opt to withdraw from the program at any time, but housing created or in progress would not lose program status. That housing would also stay below market rate until the program would have otherwise ended.

But what happens after 12 years?

However, it is unclear what will happen to families and those units once the 12-year program expires.

Washington offers few protections for people living in units rented under the state’s 12-year and 20-year tax exemption programs, and no protections for people living in units rented under shorter-duration tax exemption programs. Developers can choose to increase the price of those units after the programs expire.

The state offers relocation assistance for renters in housing built under the 12- and 20-year exemptions, but only under very limited terms. Jurisdictions may offer developers a program extension with all the associated benefits, but developers do not have to accept.

Jurisdictions may also adopt ordinances to slow rent increases after the tax exemption program ends. For instance, an ordinance in the southwest Washington city of Vancouver capped yearly rent increases for five years on units previously included in the tax exemption program. That cap disappears and the unit returns to market-rate value if the family living in the unit moves out before the five years are up.

The council has not substantially discussed what happens to renters after the 12-year program expires. The ordinance the council approved Monday does not contain a clause similar to Vancouver’s ordinance. But Community Development Director Eric Baker briefly highlighted during a council discussion of the tax exemption program on July 30 that the city could extend unit affordability.

The only discussion of tenants within the ordinance concerns displacing existing residents in places targeted for redevelopment: “If the property proposed to be rehabilitated is not vacant, an applicant shall provide each existing tenant housing of comparable size, quality, and price and a reasonable opportunity to relocate.”