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Planning Commission

BEL-PLN-2024-11-21 November 21, 2024 Planning Commission Meeting City of Bellingham

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Executive summary

The Bellingham Planning Commission held a comprehensive work session focused entirely on evaluating the city's Multi-Family Tax Exemption (MFTE) program. The meeting featured a detailed presentation by ECOnorthwest consultants who analyzed the effectiveness of Bellingham's current MFTE program and provided recommendations for improvements. The study, funded by a Washington State Department of Commerce grant secured by Sustainable Connections, revealed that while the city's 8-year MFTE program has been highly successful — generating 1,800 units that likely wouldn't have been built otherwise — the 12-year affordable housing component has never been used due to overly restrictive affordability requirements. Current market conditions make all multifamily development financially unfeasible, even with tax exemptions, due to high interest rates, construction costs, and financing challenges. However, the analysis modeled improved market scenarios and found that adjusting the 12-year program's affordability threshold from 60% to 115% of Area Median Income (AMI) could make it viable while still providing workforce housing. The presentation sparked vigorous discussion about the city's broader housing toolkit, with Planning Commissioner Barbara Plaskett expressing frustration that the analysis didn't address other potential tools for creating deeply affordable housing that the city desperately needs for teachers, firefighters, and other essential workers.

Key decisions

No formal votes were taken as this was an informational work session. However, staff received clear direction from the commission to move forward with recommended MFTE program modifications before the Bellingham Plan adoption. The commission generally supported staff's proposal to continue the successful 8-year program while recalibrating the unused 12-year program to state minimum affordability standards (115% AMI instead of 60% AMI). There was consensus on explo…

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Policy discussion

The central policy tension emerged around balancing housing supply with housing affordability. The MFTE program represents one tool in what multiple speakers described as a broader "toolkit" needed to address Bellingham's housing crisis. The current 12-year program requires 20% of units to be affordable at 60% AMI ($52,900 for a 4-person household), significantly below the state's minimum requirement of 115% AMI ($122,200). This local restriction has rendered the program completely unused. ECOnorthwest's Cadence Petros explained that MFTE works by allowing developers to absorb reduced rents through tax savings, but only if the affordability requirements are calibrated to market conditions. The 60% threshold creates too large a gap between market rents and affordable rents for the tax benefit to bridge. Raising to 115% AMI would create "workforce housing…

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Stakeholder positions

**Daniel Blemker (Strong Towns Bellingham, Birchwood neighborhood):** Expressed support for Mayor Lund's executive order to expedite housing development and reduce parking minimums, urging the commission and council to support making Bellingham more walkable. **Cadence Petros (ECOnorthwest consultant):** Presented data showing current market conditions make all multifamily development infeasible. Recommended keeping the successful 8-year program while recalibrating the 12-year program to 115% AMI. Emphasized that MFTE is "not a silver bullet" and other tools are needed for deeply affordable housing. **Planning Commissioner Barbara Plaskett:** Forcefully argued that the city needs housing for workers earning 60% AMI or below, n…

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Notable quotes

**Cadence Petros, on MFTE limitations:** "MFT can play a part, and in better conditions, it can play a more significant part than it can today. But it will never... be the answer for deeply affordable housing. Other tools are going to be needed for that." **Barbara Plaskett, on housing needs:** "We don't need any more market rate housing. We've got plenty of 115% market housing around the city. We have empty housing sitting around the city at market rate, but our waitresses and our teachers a…

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What’s next

Staff will conduct additional market analysis to determine the optimal AMI threshold between 60% and 115% for the recalibrated 12-year program. This analysis is currently underway using CoStar data and local rent information. Staff plans to return to both the Planning Commission and City Council before the Bellingham Plan adoption in 2025 with specific program modifications. The Planning Commission will see the land use and housing chapters of the Bellingham Plan in early 2024, likely February through May, with the housing chapter closely tied to MFTE prog…

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What changed

The Planning Commission gained its first comprehensive understanding of MFTE program performance since the program's 1999 adoption. The commission now has data showing the 12-year program has never been used and specific recommendations for making it viable. There's now clear direction for staff to proceed with program modifications calibrated to current market conditions. The commission established that MFTE program changes will be closely coordinated with Bellingham Plan adoption and House Bill 111…

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Full meeting narrative

# Real Briefings: City of Bellingham Planning Commission Examines Multifamily Tax Exemption Program The City of Bellingham Planning Commission gathered on November 21, 2024, for a focused work session that would delve into one of the city's key housing development tools — the multifamily tax exemption program. With housing affordability continuing to strain residents across the region, the evening's discussion carried the weight of decisions that could shape Bellingham's housing landscape for years to come. ## Setting the Stage for Housing Policy Chair Mike Estes called the meeting to order at 6:00 PM with a full complement of commissioners present, including Jerry Richmond joining virtually as the commission's newest member. After a brief introduction where Richmond shared his 35 years in Bellingham and his excitement to contribute to civic duty, the commission moved to what many considered the evening's central challenge: how to make housing development both economically viable for developers and affordable for residents. Before diving into the technical analysis, the commission heard from Daniel Blemker of the Birchwood neighborhood and Strong Towns Bellingham, who drew attention to Mayor Lund's recent executive order aimed at expediting housing development and reducing parking minimums. "I hope this commission and council at large supports these changes from the mayor, and I hope we try to build a more livable Bellingham," Blemker said, setting a tone of urgency around housing policy. ## The Reality of Current Market Conditions Scott Pelton of the Whatcom Housing Alliance introduced the evening's presentation by explaining how his organization had received Department of Commerce funding for a countywide multifamily tax exemption analysis. The study, conducted by ECOnorthwest consultants, would reveal sobering truths about housing development in Bellingham's current economic climate. Cadence Petros, project director at ECOnorthwest, led the commission through a comprehensive analysis that began with unwelcome news: "Under current market conditions, multi-unit development is not currently feasible," even with existing tax exemption incentives. The culprits, she explained, were high interest rates, construction costs, and restrictive lending practices that had essentially frozen new housing development. The numbers painted a stark picture. While Be…

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Study guide

### Meeting Overview The Bellingham Planning Commission met on November 21, 2024, for a work session focused entirely on evaluating the city's Multifamily Tax Exemption (MFTE) program. The session featured a comprehensive presentation from ECONorthwest consultants analyzing how to recalibrate the program to better incentivize both market-rate and affordable housing development under current market conditions. ### Key Terms and Concepts **Multifamily Tax Exemption (MFTE):** A state-authorized program allowing local jurisdictions to provide property tax exemptions for 8, 12, or 20 years to incentivize multifamily housing development in targeted areas. **Area Median Income (AMI):** The middle income level for households in a region, used by HUD to set affordability thresholds. In Bellingham, 100% AMI for a four-person household is $106,300. **Residual Land Value Analysis:** A financial method that calculates what developers can afford to pay for land after accounting for construction costs, operating expenses, and required investment returns. **Urban Villages:** Designated mixed-use areas in Bellingham's comprehensive plan designed for higher-density development, including Downtown/Old Town, Samish Way, Fountain District, Fairhaven, and Barkley Village. **Workforce Housing:** Housing affordable to middle-income earners like teachers, firefighters, and service workers who are essential to the city's functioning but priced out of the market. **Debt Service Coverage Ratio:** A lending metric measuring a project's ability to cover debt payments with projected income. Banks currently require 130%, up from the more typical 125%. ### Key People at This Meeting | Name | Role / Affiliation | |---|---| | Cadence Petros | Project Director, ECONorthwest | | Scott Pelton | Manager, Whatcom Housing Alliance | | Chris Behee | Long Range Division Manager, City of Bellingham | | Blake Lyon | Planning & Community Development Director | | Mike Estes | Planning Commission Chair | | Barbara Plaskett | Planning Commissioner | | Rose Lathrop | Planning Commissioner | | Jerry Richmond | New Planning Commission member | ### Background Context Bellingham's MFTE program has been highly successful in one respect but completely unused in another. The 8-year program (no affordability requirements) has prod…

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Housing Budget & Finance Government Operations HB 1110 HB 1220 Econorthwest Planning Commission Strong Towns Bellingham Sustainable Connections Washington State Department Of Commerce Whatcom Housing Alliance Barbara Plaskett Blake Lyon Cadence Petros Chris Behee Daniel Blemker Jerry Richmond Mike Estes Rose Lathrop Scott Jones Scott Pelton Affordable Housing Area Median Income Bellingham Plan Development Feasibility Displacement Prevention Housing Levy Housing Policy Middle Housing Multifamily Tax Exemption Parking Minimums Rent Stabilization Urban Villages Workforce Housing