Olympia has several tax incentive tools to encourage development of multi-family housing in Downtown Olympia. 

What Are the Tax Incentives?

The Historic Properties incentive provides a 10 year tax exemption on improvements to historic properties when the cost of the improvements is equal to at least 25% of the property’s current assessed valuation.  The incentives apply to both residential and commercial space.  The owner must make a written commitment to preserve the historic nature of the building.

The Non-Profit Housing incentive provides an ongoing exemption for properties owned by non-profits dedicated to housing or serving the poor, disabled, aged or veterans.   The non-profit owner must apply for the exemption each year.  The Boardwalk Apartments are an example of housing developed using this incentive.

The Targeted Multi-family Housing incentive it provides 8 or 12 year tax exemptions to rental or condominium housing projects in designated redevelopment areas.  The exemption applies to new construction as well as substantial remodels.  Twelve year exemptions are available for projects with an on or off-site low cost housing component.  Eight year exemptions are available for projects without the low cost component.   In many communities, the first downtown housing projects use these incentives to encourage people to move to relatively compact housing in the urban core.  Typically the cost of developing this housing is much higher per square foot than typical single family housing.

Why Are there So Many Contradictory Stories On How The Incentives Work? Cities around the state have been actively using this program for over a decade.  Because of the lack of development in Olympia’s downtown, there is little local awareness of this program.  In some cities with mature downtown housing markets the incentives come with relatively elaborate local strings attached.   Developers in these markets accept requirements to contribute to low income housing projects as part of their permit because there is great demand for their relatively high priced condos in places like downtown Seattle and Tacoma.  Because of the volume of activity, low income housing advocates are strong supporters of this program in the Legislature.  This, in part explains the Legislature’s decision to change the old ten year exemption to a program offering 12 year exemptions for projects with a low income contribution and 8 years for projects aimed solely at downtown redevelopment.   Olympia’s current ordinance was adopted under the old 10 year program and must be updated to conform to the new state law.

Who Gets the Tax Break?  Typically in the case of a development like Larida Passage the developer will obtain certificates for each of the housing units exempting it from property tax for the abatement period.  The new homeowner would use the certificate for 8 years of abatement.  If the unit is resold the new owner could continue to use the certificate for the remainder of the abatement period.  This is different than a rental property, such as the Colpitts project, where the landlord retains the certificate for the abatement period.

Are the Commercial Spaces in these Housing Projects Taxed?  In the commercial portion of mixed use projects, the tax exemption does not apply, unless the property is a renovation of a qualifying historic property.  In the case of the developments like the Colpitts and Larida Passage projects, the new commercial space will provide a significant increase in local property tax revenues

What Are the Short and Long Term Revenues From Larida Passage? The construction, sale and furnishing of the Larida Passage condos will generate sales, B&O and real estate excise tax revenue for state and local governments.  These revenues will total more than the revenue lost during the 8 year abatement period.

After the 8 year abatement expires on the new Larida Passage condos, tax revenue would increase from $254,000 to about $1.5 million per year.  The ultimate annual property tax revenue for 5 of the 8 taxing districts is shown below:

o       $566,000 to Olympia School district

o       $294,000 to the State school levy

o       $292,000 to the City of Olympia

o       $50,000 to the Timberland Regional Library

o       $159,000 to the County

Can New Construction Help Reduce Taxes on Existing Homes?  With the 1% limit on revenue increases from existing property, the only way to raise more revenue is new construction or voter approved tax increases on existing property.  Most voters would prefer new construction to increased tax bills for their homes and other property.