# 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 Bellingham's eight-year tax exemption program had successfully generated 1,800 housing units since 1999 — a significant achievement concentrated primarily in urban villages — the 12-year program requiring affordability commitments had attracted zero developers. "That's not the best," Petros acknowledged with characteristic understatement. ## Examining Three Paths Forward The consultant team had modeled three types of development — townhomes, mid-rise apartments, and podium apartments with ground-floor retail — across eight different areas of the city. Their analysis revealed that even modest improvements to market conditions could dramatically change the development landscape. Under improved market conditions — featuring a one-percentage-point drop in interest rates and slightly relaxed lending standards — the eight-year program would work across all development types and locations. More significantly, a recalibrated 12-year program that raised affordability requirements from 60% to 115% of area median income would become viable for higher-density projects. The contrast was striking. Current market conditions showed development budgets falling far short of land costs, with negative feasibility across nearly all scenarios. But the improved market modeling revealed land budgets climbing above acquisition costs, particularly for mid-rise and podium developments in higher-rent neighborhoods. ## Parking: The Unexpected Policy Lever One revelation that animated the discussion was parking's role as a development barrier. The analysis showed that reducing parking requirements in residential multi-family zones could increase development feasibility by $2 to $12 per square foot. Blake Lyon, the city's planning and community development director, illustrated this with a concrete example from Old Town, where eliminating parking requirements had transformed a proposal from 60 residential units across six stories to nearly 120 units across the same footprint. "It begs the question," Lyon said, "these are various different policy levers that we can think about and we can push." The mayor's executive order, issued that very day, had already signaled the city's intent to reduce parking minimums citywide, providing developers with immediate relief. ## Wrestling with Affordability Goals Commissioner Barbara Plaskett voiced frustration that many felt but few had articulated so directly. "I'm just tired of hearing we can't, we can't, we can't. There's got to be some ways that we can," she said, questioning why the city was essentially giving up on deeper affordability requirements that would serve teachers, firefighters, and service workers. Petros responded with professional empathy while maintaining analytical rigor. The multifamily tax exemption program, she explained, was never designed to solve the region's entire affordable housing challenge. "It is one of those lovely let's try and get some mixed income units in our neighborhoods, and it can do that to some degree if well calibrated, but it is not going to meet the need that Bellingham has." Lyon provided context that helped frame the discussion. The city had recently invested $32 million resulting in 771 affordable units, with approximately $15 million allocated annually to affordable housing programs. "To your point, it's not enough," he conceded to Plaskett, "but it is one more piece that if we can fine tune it through the results of like the study that Econorthwest did, that's would be a success we'd like to make happen." ## The Economics of Mixed-Income Development Commissioner Rose Lathrop, speaking both as a planning commissioner and as someone involved in affordable housing development, brought valuable perspective to the technical discussion. She emphasized the program's strength in creating mixed-income developments rather than concentrating affordable housing in separate buildings. "What I love about this is that we're really incenting our for profit developers," Lathrop said. "We can talk about how to create more subsidized and how to bolster our affordable housing providers. And a lot of that is going to be looking at the state legislature because we need massive amounts of money in order to move those projects forward." The commission learned that building subsidized affordable housing costs between $400,000 and $500,000 per unit — far exceeding what property tax exemptions could provide. This economic reality underscored why the multifamily tax exemption program needed to focus on moderate affordability levels to remain viable. ## Expanding Beyond Urban Villages The consultant analysis had examined potential expansion areas including King Mountain, Roosevelt, and Sehome — neighborhoods with significant development capacity but different market characteristics than the existing urban villages. Commissioner Russell Whidbee asked about the notable absence of Birchwood, a diverse neighborhood that seemed like a natural fit for the program. Chris Behee, long-range division manager, explained that Birchwood lacked the vacant land and development capacity that characterized the studied expansion areas. "There wasn't in the Birchwood neighborhood the multifamily development, if you can think about going out Maplewood Avenue, there are not you don't see the variety of vacant properties that you do when you drive around King Mountain and some of those other areas." Legislative considerations had also complicated the analysis. House Bill 1110's middle housing requirements were still evolving, creating uncertainty about how lot configurations and affordability requirements might interact. ## Building for the Future While Managing Present Challenges The discussion revealed a city attempting to balance multiple, sometimes conflicting objectives. Staff recommended continuing the successful eight-year program while recalibrating the dormant 12-year program to attract developer interest. The key question was finding the affordability sweet spot between the current 60% of area median income requirement — which had proven unworkable — and the state maximum of 115% AMI. Commissioner Mike McAuley (Jed Ballew) asked about managing smaller-scale developments where the 20% affordability requirement could create odd ratios. With six townhomes, for instance, the requirement would mean two affordable units — actually 33% of the total rather than the intended 20%. Chris Koch explained that the multifamily threshold naturally limited the program to larger developments where the percentages would work more cleanly. "When you start talking about the infill or the real smaller scale, you don't necessarily hit that kind of multifamily trigger point or threshold," he said. ## Waterfront Complexities and Opportunity Zones The commission also explored why certain areas like the waterfront had been excluded from analysis despite their significant residential development. Lyon explained that the waterfront operated under a specific development agreement with the port requiring 10% affordable units, creating a different regulatory framework that would require amendments to multiple governing documents. Commissioner Ballew raised an intriguing question about the interaction between multifamily tax exemptions and federal opportunity zones, noting that areas like Samish Way had seen significant development where both incentives overlapped. Petros acknowledged that while different tools sometimes complement each other, ECOnorthwest hadn't specifically studied this interaction, though the city didn't control opportunity zone designations anyway. ## The Path Forward As the meeting progressed toward its conclusion, the commissioners grappled with timing and sequencing. The city was simultaneously working on its comprehensive plan update, responding to new state housing legislation, and trying to position itself for eventual market recovery. Lyon emphasized the importance of preparation: "We know that when we look at again, we heard it earlier tonight, but the eight year is the only one that's been utilized. The 12 year hasn't... but we want to be poised and ready. We think that's the appropriate thing to do." The commission learned that staff planned to return to city council before adopting the Bellingham Plan, with specific recommendations for recalibrating the affordability requirements somewhere between the current 60% and maximum 115% of area median income. ## Anti-Displacement Measures and Administrative Support The consultant recommendations included important considerations beyond simple economic feasibility. The current one-year vacancy requirement for redevelopment projects, intended to prevent displacement, was actually creating the "worst of all worlds" by failing to prevent evictions while delaying new housing construction. Petros recommended replacing this requirement with more effective anti-displacement measures like relocation assistance for displaced tenants, ensuring that any displacement is quickly offset by new housing production. The consultants also suggested administrative support for the 12-year program, recognizing that smaller developers often lacked the capacity to navigate affordable housing compliance requirements. Many developers perceived the 12-year program as riskier and more complex than the eight-year alternative. ## Regular Recalibration as Market Conditions Change Perhaps most importantly, the consultant team recommended regular monitoring and recalibration every three to five years. Commissioner Lathrop emphasized this point: "markets change all the time. So even if we try and set it at the most, you know, we spend another six months studying it to try and find that perfect [AMI level], things could shift... because of some, you know, I don't know, a 2008 disaster or a pandemic or whatever." The commission appreciated this adaptive approach, recognizing that housing development operates in dynamic economic conditions that require responsive policy tools. ## Building the Airplane While Flying It As the discussion wound down, Commissioner Whidbee captured the challenge facing the city with a Boeing analogy: "it seems like you're building the plane and also flying the plane in this regard." The comment reflected how the city was implementing interim ordinances through the mayor's executive order while simultaneously developing long-term comprehensive plan updates. Lyon embraced this characterization, describing it as an opportunity for "bold actions to take steps to do some of the things that breathe life into these directives." The city could implement changes through interim ordinances while working through the longer public process required for permanent code amendments. ## Collaboration Across Jurisdictions The evening also revealed the extensive collaboration occurring across the region and state. Staff described monthly coordination meetings with other Whatcom County jurisdictions, participation in American Planning Association conferences, and regular communication with cities like Spokane that were facing similar housing challenges. Blake Lyon mentioned the city's participation in the Cascadia Innovation Corridor, a megaregion extending from Vancouver, BC to Portland that addresses housing and other regional challenges. This broader perspective helped contextualize Bellingham's housing pressures within larger Pacific Northwest dynamics. ## Looking Ahead The commission concluded with Chris Behee outlining the winter and spring timeline for the comprehensive plan update. The land use and housing chapters would come before the commission first, closely linked to the House Bill 1110 compliance work that must be completed within six months of plan adoption. Behee encouraged public participation in the ongoing engagement process through the city's website, where residents could review draft chapters and provide feedback through December 1st. The extensive public input would inform the first comprehensive plan draft that commissioners would review early in the new year. ## A Tool in the Toolkit As commissioners prepared to adjourn at 8:00 PM, the evening's discussion had illuminated both the possibilities and limitations of using tax policy to address housing affordability. The multifamily tax exemption program had proven remarkably successful in its original goal of spurring urban village development, but current market conditions had revealed the need for recalibration. The path forward would require balancing the program's role as one tool among many with realistic expectations about what property tax incentives could achieve. Whether the city chose to prioritize broad housing production, concentrate development in specific neighborhoods, or focus primarily on affordable housing would determine how the program evolved. What emerged clearly from the technical analysis and policy discussion was that housing development in Bellingham, like in communities across the Pacific Northwest, required multiple interventions working together. The multifamily tax exemption program could play an important role in that larger strategy, but only if calibrated carefully to both market realities and community needs. The commission's work would continue into the new year, with housing policy remaining central to both the comprehensive plan update and the city's broader response to the regional housing crisis. The November 21st discussion had provided the foundation for those decisions, grounding policy choices in economic analysis while maintaining focus on the human need for housing that working families could afford.