Spokane City Council to consider expanding tax incentive zone for multifamily homes

The city was not slated to review its tax incentive program for developers of apartments until 2022.

But those looking for an apartment to rent in Spokane don’t have that long.

Amid an ongoing housing shortage, Spokane leaders will consider expanding the city’s multifamily tax exemption zone to spur development of more apartments and townhomes.

Given the well-documented shortage of housing in Spokane, the council will take up a proposal to grow the boundaries of the zone from 3,338 acres to 4,927 acres, or slightly more than 11% of the total land area in the city.

The new areas encompassed by the zone would include a stretch along Sprague Avenue in East Central, east along both sides of the Spokane River stretching from Mission Park to just east of Market Street, and an area north of Kendall Yards in West Central.

The most recent proposed expansion of the zone began last December with city staff sitting down and “drawing on maps trying to figure out what areas would have the most impact,” said City Council President Ben Stuckart.

Stuckart believes the program is the “the most powerful incentive we have and it can make or break” a housing project.

The revised boundary includes areas where there is a lack of density in housing despite an opportunity for it, Stuckart said, including the city’s centers and corridors near neighborhood business districts.

Teri Stripes, an assistant planner with the city, said the city does not expect neighborhood opposition to the program because it aligns with existing zoning in areas the city already has identified as prime for increased density.

“We’re not asking them to change any of their plans, we’re just incentivizing the housing in those locations. Utilities are already there, transit is already there,” Stripes said.

The proposal is slated for a public hearing at the Spokane City Council meeting on Aug. 12.

The multifamily tax exemption program launched in Spokane in 2000 and has been revised several times since, but essentially results in the city trading tax revenue in the short term for a long-term increase in housing stock.

In the 2020 tax year, the tax-exempt property attributed to the program was valued at $205.7 million, resulting in a loss of $586,000 in tax revenue to the city. There are 1,720 units of housing on the books for 2020, comprising 1,488 rental units and 232 townhomes and condominiums.

Under the program, a property owner can expect to save approximately $1,600 in taxes for every $120,000 exempt assessed value annually, according to the city.

Property owners continue to be taxed on their land, but value added due to improvements to the housing is exempt for either eight or 12 years, depending on the project. Once the term expires, the entire property – land and housing – is taxed at full value.

In a briefing paper submitted to the council ahead of Monday’s meeting, the city’s planning department included testimonials from developers who have utilized the program and suggested anecdotally that the program is “often a contributing factor in their decision to move forward with a project.”

When the city expanded the zone to the lower South Hill in 2016, it saw immediate results, Stuckart said. A total of 44 units have been built in the roughly three years since the zone was expanded there, including 36 new 12-year units and six eight-year units. An additional 59 units are slated to be constructed and join the program this year.

To qualify, a project must be a construction or rehabilitation of at least four units of housing. Market rate housing is eligible for an eight-year exemption, but the term is extended to 12 years if at least 20 percent of units are set aside for residents with an income of 115% of the median area income or lower.

The developer is required to apply for the program before receiving a building permit. After the project is complete, the developer submits a final application.