### 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 produced 1,800 market-rate units since 1999, primarily in urban villages. However, the 12-year program requiring 20% of units at 60% AMI has never been used by developers, indicating the affordability threshold is too restrictive for market conditions. Current economic conditions make multifamily development extremely challenging. High interest rates (8% construction loans, 7% permanent financing), inflated construction costs, and tight lending standards mean no multifamily development is currently feasible without significant subsidies. This creates a housing shortage precisely when the city needs more units for its growing workforce. The study's timing is critical as the city updates its comprehensive plan (The Bellingham Plan) and faces new state mandates for housing production under House Bill 1220 and middle housing requirements under House Bill 1110. ### What Happened — The Short Version ECONorthwest presented their analysis showing that under current market conditions, no multifamily development is feasible, even with MFTE incentives. However, under improved market conditions (modest reductions in interest rates and lending requirements), both the 8-year program and a reformed 12-year program could work effectively. The consultants recommended keeping the successful 8-year program while reforming the 12-year program by raising the affordability threshold from 60% AMI to closer to the state minimum of 115% AMI. They also suggested expanding eligible areas beyond urban villages and reducing parking requirements to further boost feasibility. Commissioners engaged in extensive discussion about the need for workforce housing, concerns about property tax revenue loss, and frustration that the study didn't provide broader affordable housing solutions. Staff indicated they plan to return to City Council with specific AMI recommendations soon, ideally before adopting The Bellingham Plan. ### What to Watch Next • Staff will return to City Council with refined 12-year program recommendations, including specific AMI thresholds between 60% and 115% • Planning Commission will review The Bellingham Plan chapters starting in February 2025, when MFTE changes will be integrated into housing strategies • Implementation of Mayor Lund's recent executive order on parking minimums and expedited housing permits ---