Why Tacoma Still Offers Tax Breaks For Market-Rate Apartments

Jan 11, 2018

Tacoma's city council this week approved a property tax break of about $250,000 a year for a developer of market-rate apartments that are expected to rent for $1,200 to $1,600 a month. 

It's a common practice in the city, despite a growing need for less expensive housing. Tacoma had among the nation's the fastest-rising rents last year, according to the listing service RENTCafe. 

In Seattle, developers of apartments can only get a tax break if at least a fifth of the units meet affordability requirements. 

But in Tacoma, developers can get an eight-year break on their property taxes for building any apartments at all in certain zones. Developers who receive the exemption still have to pay taxes on the land and any commercial space that is part of a development. 

"Every time you approve a tax break for a developer that is not including affordable housing, you are also eliminating the opportunity for that property to be used by someone who will add affordable housing," Tacoma resident Theresa Power-Drutis said Tuesday at a City Council meeting.

City officials say they need to offer such tax breaks in order to get developers to invest in Tacoma, where construction is just as expensive as it is in Seattle, but buildings make less money in rent. 

"So far, we really think that it is still important to have the eight-year [tax break] because that's what's bringing in the developers," said Debbie Bingham, an economic development specialist for the city. 

Bingham said city officials came to that conclusion late last year, after commissioning a study and focus group session with developers to determine if the tax break was still needed.

Developers said they would not see returns on their investments in Tacoma without the eight-year tax break, according to Bingham. 

"We kind of walked away thinking there is evidence to show that we need to still have the eight-year [tax break] in Tacoma," she said.

But Bingham said city officials are having greater success at convincing developers to meet certain affordability requirements in exchange for a longer tax break of 12 years. 

"We cleaned up our program so it was easier to understand what the requirements of the 12-year [tax break] were and we started actively promoting it more," she said. "And then a lot of developers started using it." 

Of the 30 tax-exempt projects underway right now, 17 are getting the longer tax break for affordable housing while 13 are receiving the shorter tax break for market-rate housing, according to figures provided by the city. 

Projects receiving the tax break for affordable housing include large-scale ones such as a 194-unit waterfront development called Point Ruston. 

Given such successes, and the region's construction boom, some residents wonder whether it's still necessary to give tax breaks for projects that don't meet affordability requirements. 

"Asking for 20 percent affordable housing is just not an unbearable bar to put on these people," Power-Drutis said in remarks to the City Council. "And it's something we desperately need."