Olympia close to 50% short of housing development goals, investing in housing programs to close the gap

Concerns raised over taxation burden from development incentive program


Olympia Land Use and Environment Committee member and Mayor Pro Tem Clark Gilman expressed concerns over the Multi-Family Tax Exemption (MFTE), pointing out that the burden for this program is being shifted to property owners.

The MFTE program allows cities to incentivize residential development in urban centers by exempting new or renovated multifamily properties from tax payments for eight or 12 years under RCW 84.14.

Gilman cited the Department of Commerce guidance, stating that in many counties, the tax exemption shifts the tax burden to property owners.

"So rather than foregone revenue, the property is fully taxed from the beginning. For the eight years of the exemption, the burden is spread out among the remaining taxpayers," Gilman said.

Olympia Finance Director Aaron BeMiller confirmed there is a tax shift and explained that the taxable property value is reduced when exemption takes place. As a result, it increases the rate for the property owners.

“It is not a huge number, but an increase in the rate at which all the other tax property owners are paying,” BeMiller said.

Gilman pointed out that the shift in tax obligation is seldom calculated and seldom communicated to taxpayers.

Map showing the proposed neighborhood boundaries.
Map showing the proposed neighborhood boundaries.

"The assessor's office was able to help me with numbers about these properties. For the 2023 tax year, we are just about $2 million in exemptions that will be spread out across the property owners," Gilman said.

"That is roughly equivalent to the Home Fund, but without the oversight or scrutiny either in the project approval or in the public assent in paying that program," added Gilman.

Gilman suggested managing the MFTE the way they manage the Home Fund, including considering and approving these projects individually with analysis from the staff to aid the city council in making good decisions and for transparency.

According to Community Planning and Development Director Leonard Bauer, MFTE is a state program authorized under RCW 84.14 in 1995. It was a 10-year exemption to incentivize residential development in urban centers.

In 2007, it was reduced to eight years and added a 12-year low-moderate income housing option, with state legislature adding a 20-year program in 2021.

From 1997 through 2006, Olympia adopted the program. Seven projects and 384 units were developed on that tenure program, including boardwalk apartments.

After the legislature changed it to an eight- and a 12-year program in 2009, the city amended its code to adopt those programs, but there was no activity until 2014 due to the recession. "At that time, we didn't have development activity that took advantage of this."

Through MFTE, Bauer said the legislature intends to achieve multiple goals by:

  • Incentivizing the development of multi-unit housing, including creating additional affordable housing
  • Encouraging urban development density
  • Increasing market-rate workforce housing
  • Developing permanent supportive housing opportunities, promoting investment and recovery
  • Creating family-wage jobs

12,000 housing units needed

City Manager Jay Burney said that the U.S. Department of Commerce has indicated that Olympia needs to plan for 12,000 housing units over the next 20 years and incentivize housing development to meet that goal.

Burney claimed the MFTE is one of the incentive tools for creating some of the types of housing that the city needs.

Table showing the breakdown of housing units needed in Olympia.
Table showing the breakdown of housing units needed in Olympia.

Housing and Homeless Response Director Darian Lightfoot said the city permits approximately 350 units annually, about 50% short of the goal. She said the city needs to elevate that to more than 600 to meet development goals.

Lightfoot showed a graph reflecting the breakdown of housing units needed across area median income to see how the city can develop housing at every income level.

She said the city invested in projects for various area median income (AMI):

  • Landing for 30% AMI. A full package of $5 million was funded through impact fees exemption, Home Fund, Commerce award, and Community Development Block Grant (CDBG) award to develop 62 units of permanent supportive housing.
  • Unity Commons, 30-50% AMI. The city has invested over $2 million, including land, Home Fund, and impact fee exemptions, to build 65 units of permanent supportive housing for previously homeless people.
  • Landsdale apartments, 60% AMI. The city has invested $1.3 million through the Home Fund and Regional Housing Council for 162 units of low-income housing for families.
  • Griswold, 60-100% AMI. The city has invested approximately $650,000, including purchase, demolition, and blight removal, to build 48 units of varied AMI. The project will be using the 12-year MFTE program.

When MFTE started again in 2014, Lightfoot said there had been 15 completed MFTE projects, 13 were on an eight-year program, and two were from a 12-year program. Seven different developers developed a total of 704 total units.

Lightfoot said the city is looking at expanding the MFTE program geographically.

In coming up with recommendations, Lightfoot said the city commissioned EcoNorthwest to study the program. The study was completed in December 2022. There were interviews with developers and feasibility evaluations in different geographic areas. The city staff evaluated the recommendations to fit Olympia.

Preparing recommendations also involved participation in a state-wide MFTE focus group in 2022, which was also participated by planners and policy experts from across the state.

The staff also researched other city programs, particularly in Tacoma, Vancouver, and Redmond.

City staff gave the following recommendations for the program:

  • Expanding the boundary. The current MFTE program boundary includes a part of the west side downtown and extends to the east side.
  • The proposed boundary expansion includes the full Capitol Mall triangle area on the west side and the six neighborhood centers – Division and 20th Street (Handy Pantry), Kaiser Road and Harrison Avenue (Kellerman's Corner), San Francisco and Bethel Streets, Fones Road and 18th Avenue, Boulevard Road and 18th Avenue, 3900 Boulevard Road – will serve the pilot to the program to see how they would fit the requirements of the MFTE code.
  • Expanded requirements. In promoting the MFTE program, the city looks at 100% of the units at or below 80% AMI for a 12-year program.
  • For market-rate development, the city staff proposed a 5% fee in lieu of developing affordable units.

Lightfoot said the fee in lieu depends on the feasibility of each geographic area. A 5% fee in lieu of downtown and the east side, and a 25% fee in lieu of the west side.

The city is considering increasing the application fee from $100 to $1,000 with an additional $75 per unit, up to $5,000.

"We are looking to increase oversight and monitoring of the program," Lightfoot said, adding that they want to improve its communications and marketing.


The city staff recommended a five-year extended contract on 12-year projects and limiting rent increases to address displacement concerns.

"As the 12-year exemption is gone, the 80% AMI will not be there too. We want to add a five-year extended contract, which cannot increase rent more than 7% a year," Lightfoot added.

Lightfoot also recommended exploring the 'tenant opportunities to purchase' element for all Phase 2 Housing Study projects.

The city is currently working on a Phase 2 Housing Study that looks at permanent affordable housing.

Another recommendation is establishing clear performance measures for the program and checking every five years to evaluate its performance. 

CORRECTION, May 29, 2023: The story was corrected to reflect that the Capital Mall area is on the west side of Olympia. 


9 comments on this item Please log in to comment by clicking here

  • Larry Dzieza

    This is a big story.

    The City Council is providing tax breaks for wealthy investors who are getting rich by building downtown at the expense of the everyone else. This is literally a system where every dollar of tax exemption the City Council provides to these investors is replaced by higher charges to everyone else’s tax bill. The city and schools come out fine, the big investors come out fine, only the regular people get stuck with a higher tax bill exactly equal to the amount of the gift to the investors.

    But unlike the Home Fund or other programs that Olympian’s willingly voted to provide for low and affordable housing, NONE of these 8-year tax shifts pays for that kind of social benefit. These are market rate housing – some are at the very, very high end of the market. And we didn't get to vote for these.

    Why should everyone have to pay more so that the rich get richer?

    Fun fact for you to ponder. The eight buildings that have received the 8-year tax breaks from 2021 to 2023 have increased in value by 124% or $97 million, based on the Thurston County Assessor’s market valuation website. Is that a return on investment that requires we subsidize them? To build market-rate housing?

    Want an example? Check out the increase in valuation of this property at 321 Legion Way SE, that more than doubled (+154%) in value making millions for the investor. (see https://tcproperty.co.thurston.wa.us/propsql/value.asp?fe=&pn=78503600300). But we are stuck with paying $137,771 in 2023 more in our property tax bills so they wouldn't have to.

    So far, a typical homeowner in Olympia is paying about $80 a year in EXTRA taxes so that these investors can get away with paying no taxes on their apartments or condos. But the city wants to do more of this in other parts of the city so if they triple it that too will come out of your pocket whether you are a property owner or renter who is not well-off enough to live in these high rent, tax exempt buildings.

    The City needs to stop doing this to us.

    Saturday, May 27 Report this

  • jimlazar

    The MFTE is an abomination. It subsidizes millionaire developers at the expense of every person who owns a home or rents an house or apartment. A classic case of "they get the gold mine, and we get the shaft."

    This development then increases congestion on our streets, requires additional police and fire services, and otherwise increases the cost of government. But it pays no property tax towards that for eight years.

    Building market rate housing is something that markets do. If it's more expensive to build downtown, that is offset by the proximity to workplaces, and access to transit. People are willing to, and do, pay a premium to live downtown already. Even if 100% of this tax subsidy flowed through to the renters of these apartments, that would only take $100/month off of a $2,000/month apartment rent (rents at 123 4th Avenue range from $1,375/month for a 434 square foot studio up to $2,200/month for a 927 square foot unit).

    More likely, however, this $100 mostly flows directly to the bottom line of the investor, real estate investment trust, or corporate apartment investor.

    This subsidy works out to about $50/year for every person in Olympia. Why should we be raising property taxes on working families and retirees on limited incomes to subsidize the millionaire investors?

    Clark Gilman seems to be the only member of the City Council with an understanding of this issue. The other Council members should defer to him.

    Saturday, May 27 Report this

  • BobJacobs

    I agree with Larry Dzieza and Jim Lazar on this issue. The Multi-Family Tax Exemption for market-rate housing is a "reverse Robinhood" program. All of us ordinary taxpayers are required to subsidize rich developers and land speculators. It is unconscionable.

    Note that staff and consultants spoke with real estate developers for this proposal, not with ordinary people. The whole city operation has gotten too close to real estate and business interests. Those people have a different bottom line from that of the general public.

    Bob Jacobs

    Saturday, May 27 Report this

  • Southsoundguy

    Eliminate zoning, eliminate governments ability to dictate the value of land, and let property owners ACTUALLY own their property and be responsible for its value.

    Sunday, May 28 Report this

  • WayTooOld

    I agree with Larry, Jim, and Bob.

    Larry, thank you for yet another in-depth analysis. I appreciate all the work you did about the RFD, too.

    Sunday, May 28 Report this

  • Yeti1981

    NEWSFLASH! Tax payers pay for it regardless of what you call it. The most important need in our community right now is housing. Development costs are through the roof (pun intended). Regulation discards sustainable development in favor of putting people on the streets. And those who were here "first" (the tribes were here long before the old white guys complaining about the MFTE) like to put all the blame on those moving here to make a life for themselves. Yet the anti-growth bullies are actually the main problem. Olympia needs 700 doors added per year to accommodate growth. Either they get with it, or they leave people to die in the streets. It's really that clear of a choice. Growth is coming, regardless of how you feel about it.

    Tuesday, May 30 Report this

  • KarenM

    From what I can see the people who are commenting on the MFTE are asking for better policy. The '700 doors' are not going to house those who do not have the means to pay for housing. The city has limited ability and funding to influence the private sector housing market. So they should make sure that what they do will have the intended outcome. And, they should be transparent about who is paying and how much, and who is benefiting.

    You make a pretty big leap to contend that the 'anti-growth bullies' are intending to have people 'die in the streets.' Housing for anyone and everyone is one thing. Housing for those who are on the streets with no ability to pay is a very different thing.

    Wednesday, May 31 Report this

  • Yeti1981

    KarenM, it is simply untrue that the city has limited ability to impact the private sector when it comes to building. Per the National Association of Homebuilders, development costs are on average about 21% to 23% of the final cost of a home. Olympia is one of the most egregious when it comes to the costs associated with development. I have received reports (I work in the building industry) of projects spending over a $100k per home in Thurston and in Olympia before ever breaking ground. There are people on the streets for a variety of reasons, but one of those reasons is that anti-growth policies are pricing them out. The irony in the arguments against the MFTE and other policies, by these same people, is that they don't realize who they're actually hurting (at least I hope they don't). By eliminating the MFTE, which IS argued here, it would take away a way to mitigate costs to builders. That is true. However, it won't hurt the big corporate developers. They'll either not build (which hurts our community) or they will throw as much money as they have to at the problem until they overcome it. Eliminating incentives like an MFTE will only hurt the smaller local builders who live, work, and play in our community and provide a true service. They will be priced out. Then, so will their neighbors who are with or without a home. You want to stop "gentrification" by big developers? Make it a priority to give local builders projects and leave incentives for them in place. And if they help us get to the goal of fulfilling the need for houses, then they absolutely deserve to be paid for it. Not to mention, they are skilled craftsmen and deserve to be paid for that skill. The government doesn't build houses. We need to make it easier for our local builders to build. That's how we meet the need for affordable housing for all (not just subsidized housing).

    Thursday, June 1 Report this

  • Yeti1981


    also, I said the city will leave people to die in the streets if they do not get with the program of making it easier to build homes. I never said it was the anti-growth bullies. And it's not a leap. It's already happening.

    Thursday, June 1 Report this