As the first legislative cutoff looms at midnight on February 15, we review the status of the housing incentive bills AWC is tracking and collaborating on. AWC is looking to cities to tell us which incentives are most attractive to your communities. We need to communicate to legislative leaders which specific incentives you prefer, of those listed below, as it is unlikely they will all be adopted. Overall, these bills are on the move and undergoing positive changes as they proceed through their house of origin committees.

AWC is looking to cities to tell us which incentives are most attractive to your communities.

Expansion of Affordable Housing and Related Services Tax

HB 1070 expands authority granted for the use of the optional housing sales tax to acquire affordable housing in addition to previous authority to construct such housing. It also provides that such housing can be geared towards homeless individuals, an expansion from an earlier focus on homeless families with children. The substitute version passed out of committee and now includes:

• The additional option to acquire land for housing;
• A requirement for a county-owned, city-sited facility to serve at least 15% of those who reside in the city; and
• A requirement that the county must consult with the city where an acquired property is located.

Creating optional housing benefit districts (HBDs)

HB 1128 creates an optional funding mechanism modeled after special purpose districts, such as a transportation benefit district. The bill allows a city or county to create an HBD via ballot or councilmanic vote to levy a sales and use tax. In addition, the district could levy a property tax by ballot measure. The revenue must be used to create affordable low-income and middle-income housing and community development projects within the district. The substitute version passed out of committee. The bill:

• Adds a requirement to conduct an audit of the HBD to determine compliance with affordable housing requirements.
• Adds members to the HBD advisory board.
• Specifies that HBDs may retain ownership of an underlying parcel within a district when leasing the development parcel is financially feasible.
• Reduces the rate of tax authorized for HBDs of a certain population from .5 percent to .3 percent.
• Addresses boundaries of HBDs with more than one participating jurisdiction.
• Provides that land within the HBD may not be leased or sold at a discounted rate unless affordable housing comprises more than 40 percent of the units.
• Limits a housing benefit district's authority to impose an additional .1 percent sales and use tax to a one-time imposition and permits subsequent increases only upon voter approval.
• Limits the tax to 20 years.

REET incentive zone

The original version of HB 1157 contained a combination of mandates and incentives. The minimum density mandate and planning requirements were struck in committee, leaving an incentive-only bill. The incentive provision gives cities the authority to designate one or more real estate excise tax (REET) density incentive zones. Zones must newly authorize missing middle housing, including ADUs, or have done so since January 2017. Dwelling units that are constructed within the zone provide for a remittance to the city of a share of the state REET on the unit. The substitute version, voted out of committee, also amended the incentive provision as follows:

• Provides that additional dwelling units within the zone must be in addition to the baseline density allowed under existing zoning.
• Restricts dwelling units from being offered as short-term rentals for more than 30 days a year for the first 15 years after construction and directs the Department of Revenue to determine implementation of that restriction.
• Changes the percentage of revenue collected from the incentive zone to favor development closer to transit.
• Requires revenue from the REET zone to be used for planning to implement moderate, low, very low, and extremely low-income housing; long-range planning; reducing permit timelines; or code or regulations to increase affordable housing.

SB 5390, companion to HB 1157, also passed out of committee but has diverged from the House version. The substitute version of SB 5390 is like the original in that it still contains both planning mandates and the REET incentive zone. The Senate committee only struck the provisions requiring cities to meet urban densities of at least six dwelling units per acre and housing targets in Buildable Lands areas. The committee made no other changes.

ADUs

HB 1337 proposed that cities that adopt an extensive list of accessory dwelling unit (ADU) policies would qualify for access to a first-come, first-served ADU incentive fund, seeded at one million dollars for the first year. Cities who demonstrate that they have adopted the policies and have seen ADU construction “above the baseline” would be eligible for $10,000 per ADU. This bill received a public hearing but has not been scheduled for executive session and is not likely to advance this year.

New local option tax on short-term rentals

SB 5012 provides a new local option, short-term rental tax with revenues authorized for operating and capital costs of affordable housing programs. The substitute version passed out of committee with these changes:

• Removes the reference to “internet- based” as a description of short-term rentals.
• Specifies that the tax may be imposed in unincorporated areas of the county for the county tax and in the corporate limits of the city for the city tax.
• Authorizes local governments to develop criteria to exempt up to one short-term rental per person based on a person’s age or income or both.

Incentivizing construction of “American Dream Homes”

SB 5189 creates an optional program to encourage construction of low-income owner-occupied single-family homes of 1,700 square feet or less. In exchange for the state taxes charged during construction, a city exempts each eligible home from impact fees and cap permit fees at $1,250. This is the only bill that provides an incentive to builders, who would receive a business and occupation tax credit of 4% of the selling price. The substitute passed out of committee with these changes:

• Authorizes a person to apply for an American Dream Home permit through December 31, 2031.
• Provides that if an American Dream Home is re-sold the price must be affordable for low-income households.
• Requires that an American Dream Home conform to local residential building codes.
• Specifies that a covenant must provide that an American Dream Home be owner-occupied and affordable for low-income families earning 80 percent of area median income.

Increase in property tax limit

The original version of SB 5269 was introduced with a significant drafting error that inadvertently turned an optional incentive into a mandate. The substitute version corrects this error and makes additional improvements to the incentive. The substitute bill that passed out of committee makes the following changes:

• Cities that allow duplexes on all parcels, triplexes through sixplexes, townhomes, and cottage clusters on a range of 50-80% of parcels, and make several changes to parking and design standards will have access to an exemption from the 1% property tax limit on any increase within the zones these changes are made.
• Non-buildable lands areas are exempted from new zoning and parking requirements if they adopt findings providing evidence that current infrastructure is not capable of supporting such development or that there is little likelihood that infrastructure will be built to support such development within the 20-year planning period.

Grants for pre-development environmental review

SB 5312 is the only bill on this list that did not change in committee. It aims to provide competitive grant funding for cities to support a variety of pre-development environmental analysis. The upfront review and cost—borne by the state—is intended to provide an incentive to, and facilitate, housing development by saving developers time and money and increasing certainty.

Grant awards must prioritize applications that facilitate transit-oriented development, the total number of housing units authorized, proximity and quality of transit access, building height allowance, parking requirements, and other features. Unique to this bill, transit access includes walkable access to park-and-ride lots, the more traditional light rail and high frequency bus service.

Besides HB 1337, all the above bills have met the first cut-off deadline. They now await a floor vote or a fiscal committee hearing.