Bellevue's expanded MFTE program yields early results, but gaps remain

For many of Bellevue’s teachers, first responders and medical professionals, living close to their job is out of the question.

The area median income (AMI) in the city of Bellevue is nearly $103,000 a year, which is nearly twice that of the state of Washington — and rental costs have the price tag to match. Bellevue’s median rental cost is $3,400 a month, according to Zillow. That works out to $40,800 a year and means even those making 100% of the AMI are likely housing-cost burdened.

The problem is expected to worsen over the next 20 years. The city’s Bellevue Housing Needs report, released in December 2022, shows another 30,000 housing units will be needed by 2044.

But affordable housing projects often come with lower returns for developers, which in turn forces city officials to create incentives that make these projects viable.

Bellevue has attempted to do just that, launching several initiatives in an effort to boost the city’s housing stock. One of its most successful and popular efforts has been the geographic expansion of its Multifamily Tax Exemption (MFTE) program.

The MFTE policy allows for a 12-year tax exemption for multifamily projects in which 20% of the units are affordable to moderate- and low-income residents. That includes those making less than 80% of the AMI, or less than $82,000 a year.

While the city of Bellevue had approved the use of its MFTE program in 2017, program’s geographic footprint was so narrow that it was rarely used. At the urging of representatives from Microsoft and other large employers, the Bellevue City Council expanded the program in June 2021 to all areas where multifamily development is allowed.

Hundreds of affordable units are now in the production pipeline or have been completed.

There are currently 84 affordable units that have been completed, 275 units that have been approved for development, and developers have expressed interest in building at least 300 more, said James Chow, city of Bellevue’s MFTE lead.

That is just the tip of the housing development iceberg.

The MFTE program not only creates more affordable units, it also prompts the development of associated market-rate units. Typically, 80% of a development using the MFTE incentive is made up of market-rate units.

While there are 659 MFTE-related affordable units completed or in Bellevue’s construction pipeline, another 3,295 units of market-rate housing units are either completed or in the development pipeline, thanks to the program.

“Most, if not all, of those developing multifamily projects in Bellevue are interested in this program,” Chow said.

Bellevue stands alone in the Puget Sound region when it comes to creating a viable affordable housing policy that results in an increase in housing production, said Kevin Wallace, president of Wallace Properties.

“Basing its policies on 80% AMI has led to development of a greater number of apartment homes, both affordable and market-rate, and affordable homes are available to a greater range of incomes than in other cities,” he said.

Still, the Bellevue Housing Needs report shows the city has too little housing for those making less than 50% of the AMI, but more than enough for those making 50% to 80%. The surplus, however, is not expected to last. The city currently lacks about 4,000 units for those at the 0% to 30% AMI and about 950 in the 31% to 51% AMI level.

Mandates or incentives at less than 80% AMI may look good on paper, but in reality, they stifle development and deny access to many middle-income earners, Wallace said.

Wallace is developing a 466-unit high-rise mixed-use complex in downtown Bellevue that will take advantage of the MFTE program. The plans are in design review.

“The MFTE is the only reason we are able to provide affordable housing in this development,” Wallace told the Business Journal in May. “Before they fixed the incentive, no one was using the MFTE. Now they have about 4,000 units in the pipeline. The MFTE program is also enabling the production of workforce housing and market-rate housing. It makes it more affordable to build the high-rises.”

While Bellevue’s amended MFTE policy is driving more housing development, the city has taken other measures to stimulate the process including reducing permit fees, easing parking requirements and removing barriers to build micro-units, detached and attached additional dwelling units, said Linda Abe, Bellevue’s affordable housing manager.

In 2017, the city set a goal to create 2,500 more affordable housing units by 2027. It has already reached about 85% of that goal, Abe said.

The city is also partnering with some of its largest employers, Amazon, Microsoft and Sound Transit. So far, about 780 units have been created thanks to public-private partnerships with these organizations. Amazon and Microsoft have pledged money to help develop and retain naturally affordable housing. The city is also working with Sound Transit to acquire surplus land that was used for staging during the development of its East Link Extension that can be sold to developers to create more affordable transit-oriented development.


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