Covington is trying to make it more attractive to build apartments in the city.
At its Feb. 28 meeting the Covington City Council adopted a multi-family property tax exemption which will give property owners an eight-year or 12-year break on paying taxes on structures — the longer exemption applies to residences that meet what staff members described as a generous definition of affordable housing — if they are built in one of three specific areas downtown.
This tax exemption ordinance was developed following what Community Development Director Richard Hart called a “proscriptive process” as outlined by state law.
“Cities can only do this if you follow the specifics of the state law,” Hart said. “The city must target specific zones where it’s allowed.”
Ann Mueller, senior planner for Covington, said City Council members asked staff to investigate the possibility of adopting the tax exemption in August.
Mueller stated other cities such as Seattle, Tacoma, Federal Way among others have adopted this tax exemption and the exemption is only applied to the structures on property but land owners still pay taxes on the dirt itself.
“We identified three zones in Covington where we think that can take place,” Hart said. “The town center zone, the mixed housing and office zone then the new high density residential zone we created called R18… (were areas) where we thought the tax exemption was reasonable.”
Some cities have adopted the code, Mueller said, but projects have not been proposed or built yet while Seattle and Tacoma, explained Hart, have developments which have received the tax exemption.
Once the eight or 12-year exemption period ends, the city would begin receiving tax on the structures, as well as the tax on the land.
Developers who apply for the exemption can be required, according to the state law, by the city to add amenities within those zones.
And in the town center zone, Mueller said, the residential units must be combined in a mixed-use project which also has commercial and office space. Typically those are in three or four story buildings with the businesses on the ground floor while apartments or condos would be located above.
In the town center zone, Mueller added, there has to be at least four residential units for it to be considered multi-family while there must be a diversity of offerings. In other words, there can’t just be a building with nothing but studio apartments, there must be different floor plans available for the residential units.
And it’s important, Mueller said, to clarify what definition the city is using for “affordable housing.”
Based on a definition laid out by King County, the ordinance allows property owners to apply for a 12 year exemption for affordable housing if at least 20 percent of the units built are rented to low or moderate income households.
A low income household is defined having an income at or below 100 percent of the median family income adjusted for family size in King County as reported by HUD, Mueller explained in a follow up email. A moderate income household is defined as a household having an income at or below 150 percent of the median family income adjusted for family size in King County.
Affordable rent, then, is defined as households whose monthly housing costs, including utilities do not exceed 30 percent of the household’s monthly income.
“A three person household making at or below 150 percent of King County’s median income could make up to $117,300,” Mueller wrote. “So, an affordable unit could be rented to a three-person household making 150 percent of median income for as much as $2,932.50 per month (assumes rent includes utilities); likewise it could be rented to a three person family making 100 percent of median Income ($78,200) for $1,955 per month (including utilities).”
According to 2010 Census data, the average household size in Covington is 3.02 people, Mueller said, while the 2006-2010 American Community Survey estimates the median household income in the city as $84,323.
King County’s 2011 median income for a three person household is $78,200.
Developers won’t be required to apply for the tax exemption, but, it’s available if they want to, Hart said.
And community development staff only see upside to offering the exemption.
“The city isn’t up front losing tax money,” Mueller said. “We’re still receiving the same tax money we’re getting before. We’re incentivizing people building residential development.”
Hart added that the city is offering the exemption “to add to the economic development toolbox to encourage residential development in one of those three zones.”