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Breakthroughs: Successful Local Strategies for Affordable Housing
Volume 4, Issue 2

Property Tax Exemptions Promote Affordable Rental and Homeownership Housing in Seattle

To jumpstart affordable development in the Emerald City, Seattle has created a property tax exemption for multifamily housing. The goals of the program include:

  • Encouraging the construction of multifamily buildings in selected target neighborhoods;
  • Increasing the supply of affordable housing in those areas;
  • Contributing to neighborhood development and community revitalization;
  • Encouraging the creation of rental and homeownership workforce housing; and
  • Developing mixed-income housing.

A project approved under this program would receive a certificate of tax exemption for residential improvements, while the value of land and any non-residential components (including retail, commercial, and office spaces) would not be eligible for the exemption. These elements would be taxed based on their full-assessed value.

Details of the Program

If a project is approved for the program and remains in compliance, the property tax exemption will remain in place for a maximum of 10 years. The tax exemption is transferable to a new property owner as long as the new purchaser continues to meet the compliance requirements. Before Seattle will grant a property tax exemption, the owner must apply to the program, demonstrate that the property falls within a target area, and agree that at least 50 percent of the development be residential. Under this program, the City established three choices of affordability requirements for rental projects. Builders can choose to make:

  • 30 percent of units affordable at 70 percent of Area Median Income (AMI);
  • 25 percent of units at 65 percent AMI; or
  • 20 percent of units at 60 percent AMI.

“Giving builders of rental housing the option to choose which set of affordability requirements to follow often increases that builder’s ability to participate in the program, and is often crucial to project feasibility,” said Rick Hooper of Seattle’s Office of Housing. The tax exemption is only available for homeownership if new units are sold to families with income at or below 80 percent of median income.
The program has designated 17 target neighborhoods where the City is interested in encouraging development. “These specific communities were chosen out of 33 identified in Seattle’s Comprehensive Plan as urban villages,” said Hooper. These communities include those which:

  • Are behind in meeting 20-year residential growth targets;
  • Need housing to stimulate economic growth, and to create a healthy jobs/housing balance; or
  • Are areas experiencing residential development, but need affordable units in the mix.

Photograph of three-storey apartment building with red and beige siding.
Since the program’s inception in 1998, Seattle has received applications for and approved 15 projects. Of the five projects currently in progress, three are with private developers and two are with non-profit organizations. “Developers support the program because it has a streamlined application process and is relatively easy to use,” said Hooper. Seattle realized that the project economics go a long way toward determining a developer’s interest. “If a project becomes feasible to a developer because of the tax exemption,” said Hooper, “they are more likely to create that development.” Developers often tell the Office of Housing that the program helped them decide to move forward with an otherwise marginally feasible project.

Maria Barrientos, a for-profit developer who has successfully used the program for three projects and is about to break ground on a fourth, speaks highly of Seattle’s tax exemption incentive. “Without this program, the projects I have developed just would not work. In these economically distressed areas, rents are not very high, but the cost to build is the same,” said Barrientos. Since her involvement with development in Seattle’s International District, there have been three new projects in the last six years; further evidence that economic opportunity and willingness to build are increasing.

Barrientos initially used the program because it enabled her to build in economically distressed areas. “[The projects] have been very easy,” said Barrientos, adding, “The application process has been very easy.” Barrientos concluded by saying, “This program is a fantastic idea to serve as a catalyst to get multi-family housing built, especially in certain areas with high need. Without this program, these projects just would not be feasible.”

Program Under Reform

The tax exemption program currently in use is a revised version of a program initiated in 1998, when Seattle enacted an ordinance that allowed a tax exemption on certain affordable residential units. The original ordinance included a four-year sunset clause that ended the initial program in 2002. After the original ordinance expired, Seattle began developing a revised ordinance to reinstate the tax exemption program; a process that took just over a year. The City increased the number of target neighborhoods from 11 to 17 and made several changes to the program based on its performance during the first four years. “What hampered interest in the past in certain areas was a more stringent affordability requirement,” said Hooper, “so in the revised 2004 ordinance, we eased back on some neighborhoods in terms of the affordability requirement, and increased it in other areas.”

In addition to changing the affordability requirements, Seattle now permits developers to apply for the program any time before picking up the first building permit. Previously, developers had to apply before beginning their land use permitting process. This change was made to increase the program’s flexibility. The ordinances that allow for this tax exemption include Chapter 84.14 of the Residential Code of Washington (RCW) and Chapter 5.73 of the Seattle Municipal Code.



Other Countries Experiencing Similar Barriers to Affordable Housing

Regulatory barriers to affordable housing can be found in many countries, as can debate about how to best address these potential obstacles to development. While the degree of regulation differs among countries as well as between local and national governments, it’s clear that many nations struggle with providing affordable housing. This article discusses three countries with similar economies, each facing housing challenges like those in the United States: Canada, the United Kingdom, and Australia.

Declining Housing Affordability Not a Unique Issue

The United States is not the only country where increasing housing costs are placing a growing burden on low- and moderate-income households. According to a 2001 report by RMIT University in Melbourne, Australia, no low-income households could afford to buy an average-priced three-bedroom home in any part of Sydney, Melbourne, or Adelaide in June 2000. An October 2002 report by the Canada Mortgage and Housing Corporation states that Canada has an estimated need for 45,000 new rental units each year from 2001 to 2010. The researchers found that half of those units need to be affordable units. The construction of new rental units decreased 67 percent from 1989 to 1993 compared to 1994 to 1998. Existing affordable housing is decreasing because of decay, conversion, and demolition.

Types of Barriers that Increase Housing Costs

Regulatory barriers can be found at the local level in other countries, just as in the United States. The main barriers fall into three categories: zoning and land use restrictions, fees, and administrative delays. Zoning restrictions often promote large lot development and larger, more expensive housing. Another common problem in these countries is that many communities charge impact or development fees on new construction that increase the cost and decrease housing affordability. Finally, developers in all of the countries discussed below are experiencing difficulties related to the administrative processing of development requests.

United Kingdom

Photograph of three two-storey English houses.
In the United Kingdom, affordable housing is of increasing interest because the cost of housing in some cities has begun to price out valuable members of local economies. According to research undertaken by the University of Sheffield and the University of Cambridge, one of the barriers is the result of Section 106 agreements. These binding agreements are between the local planning authority and a developer. They are required by the national government. These requirements attach conditions to the planning permission process as a means of ensuring an element of affordable housing in each development. Problems arise mainly from trying to determine the level of a developer’s contribution. The negotiation between the local government and the developer can last for six months, and can increase the cost of development.


In Australia, significant barriers to development are administrative delays, land use, and fees and tax policies that serve as financial disincentives. On Line Opinion (an Australian journal of social and political debate) argues that an administrative approval process fraught with delays frequently deters Australian developers. The article indicates that limited land use planning has caused housing development to outpace the creation of adequate infrastructure. As a result, developers are charged fees to create new units. These extra costs deter development and raise the cost of the units that do get built. The article suggested that the cost of infrastructure could be covered by bonds instead of development fees. As bonds are repaid over a longer period of time, this method of raising revenue more accurately reflects the long life of the infrastructure being created.


Barriers to affordable housing in Canada are related to the tax and zoning codes. A housing development analysis written by TD Bank Financial Group, a local economic development consultancy, finds that tax breaks are not an effective means of spurring development. They instead suggest that direct capital grants are a more effective means of encouraging such development, and the Group also notes that the Canadian tax code creates specific barriers to housing affordability. Higher property taxes on multiple-unit residential dwellings discourage the development of such higher-density (and often lower-cost) housing.

The report goes on to cite local development codes as a barrier to the development of affordable housing for very low-income families. The authors state that rooming houses and single-room-occupancy (SRO) units, often the most important source of housing for those with the lowest incomes, are often prohibited by municipal development codes.

Regulatory Barriers and Solutions Have No Boundaries

Housing developers, city planners, and politicians in these three countries face many of the same barriers encountered by their counterparts here in the United States. By reviewing problems identified and solutions proposed, policymakers in all of these countries may identify approaches that have applicability in their home countries.



Efforts to Reduce Regulatory Barriers Capture State Legislatures’ Attention

In response to growing public awareness and demand, state legislatures are attempting to reduce the impact of regulatory barriers on the cost of developing housing. In Texas, representatives have introduced legislation that would streamline the development process. In New York, lawmakers are considering legislation to exempt certain personal property from sales and use taxes if the property becomes part of the affordable housing.

Working to Streamline the Development Process

Currently, Texas’s municipalities and counties are not limited in the amount of time they can take to approve a building permit. According to Aubrey Colvard, who works for Texas Representative Wayne Smith, “Talking with consumers, counties, and municipalities revealed that the permitting processes were… lengthy, confusing, and often cause developers to lose money on projects, which in turn discourages development of much needed housing – particularly affordable housing.”

In an attempt to implement a consistent process and to minimize lengthy and costly delays, the Texas House of Representatives introduced House Bills 265 and 266. These Bills describe uniform timelines for processing building permits at the municipal and county levels, respectively. Both Bills would amend the local government code and would only apply to permits required by municipalities and counties to construct or improve a building or other structure. According to the Bills, a municipality or county will be required to do one of the following within 45 days after the permit is submitted:

  • Grant or deny the permit;
  • Provide written notice to the applicant explaining the reasons why the county or municipality has been unable to act on the permit application; or
  • Reach a written agreement with the applicant providing a deadline for granting or denying the permit.

If the county or municipality is unable to act on the permit application within the 45-day window, then it must grant or deny the permit within 30 days of the notice. If a municipality or county does not respond to an application within the additional 30 days, it cannot collect any permit fees related to the application and must refund any permit fees that have been collected. If enacted, this legislation would apply only to permit applications submitted on or after September 1, 2005. The Texas House of Representatives passed both bills on March 30, 2005. They have been referred to the Texas Senate Committee on Intergovernmental Relations, where they are currently being considered.

Attempting to Reduce Taxes to Aid Affordable Housing Development

Photograph of red brick five-storey apartment with commercial businesses on a New York City street.
If passed, State of New York Senate Bill S770 would exempt tangible personal property from sales and use taxes if that property is used to create affordable housing. The bill was created at the urging of State Senator Carl Marcellino in response to the statewide problem of available affordable housing. According to sponsors of the Bill, many families and individuals cannot find high-quality affordable housing in New York State, despite reasonable construction costs and historically low mortgage rates. This legislation would amend the real property tax law to provide tax incentives for the construction, rehabilitation and purchase of affordable housing. Senator Marcellino’s legislative director, Kirk Ives, commented that “To increase affordable housing, we were looking to incentivize involvement at a variety of levels, including the locality.”

This Bill creates incentives through tax exemptions for those involved in the process of building affordable housing. The tax exemption will apply to property sold to a contractor, subcontractor, or repairman for use in maintaining, servicing, or repairing property used to provide affordable housing. The Bill provides a sliding scale exemption, with a 100 percent tax exemption on the property for the first year of ownership, along with 20 percent decreasing exemptions for the next five years. If the exempted property were sold during those six years, owners would have to repay the taxes that were exempted. Before the tax exemption may be used through this program, each local government would have to enact local legislation authorizing such a program. Any contractor who fails to use this exempt tangible personal property to create affordable housing would be subject to a civil penalty.

As of early April 2005, this Bill is before the Senate Investigations and Government Operations Committee. According to Senator Marcellino’s office, the Bill has garnered strong political support.


These bills propose ways of eliminating regulatory barriers that reduce the growth and production of affordable housing. Each legislative effort emphasizes changing local ordinances in an effort to significantly increase the amount of affordable housing being produced. Texas lawmakers hope that by streamlining the development and permitting process, they will increase the density and quantity of development in communities with specific needs. Members of the New York Senate are targeting an increase in the production of affordable housing by reducing taxes on certain properties and reducing the overall cost of such development.


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