Port Orchard explores multifamily tax exemption changes to boost housing development

In a recent City Council Work Study Session held on July 15, 2025, in Port Orchard, significant discussions centered around the Multifamily Tax Exemption (MFTE) program and its implications for housing development in the city. The meeting highlighted the evolving landscape of tax exemptions available to developers, particularly in response to the growing demand for affordable housing.

Historically, the MFTE program offered two primary tax exemptions: an 8-year and a 12-year exemption, with the latter requiring that 20% of units be affordable. However, recent amendments have introduced a 20-year exemption, which is contingent upon cities providing 15-minute transit service—something Port Orchard currently lacks. The council discussed the necessity of defining urban centers within the city to qualify for these exemptions, as the law mandates that designated areas must be considered urban centers.

A key point of discussion was the financial implications of the MFTE program. Developers benefit from not paying property tax on the value added to new residential units for the duration of the exemption, which can lead to significant savings. However, this tax relief is redistributed among existing property owners, resulting in a modest increase in their tax burden. For instance, a recent analysis indicated that the average cost to homeowners in Bremerton due to MFTE projects was approximately $80 per year, with Port Orchard's impact expected to be even lower.

The council also examined the effectiveness of the MFTE program in meeting housing targets outlined in the city’s comprehensive plan. With a goal of adding 10,500 residents by 2044, the city is currently on track to exceed this target. However, concerns were raised about the types of housing being developed, particularly the lack of affordable units for those earning below 50% of the area median income (AMI). The council acknowledged that while the MFTE program has facilitated the construction of higher-end units, it has not sufficiently addressed the needs of lower-income residents.

In addition to the MFTE discussions, the council reviewed the types of housing currently being developed in Port Orchard. The focus has largely been on garden apartments and detached homes, with limited progress on mixed-use developments or smaller-scale infill projects. The council expressed a desire to encourage more diverse housing options, including ownership opportunities and taller buildings, which could provide greater density and long-term financial benefits to the city.

As the meeting concluded, council members recognized the need for a more aggressive approach to affordability within the MFTE framework. They discussed potential revisions to the program that would better align with the city’s growth goals while ensuring that the benefits of tax exemptions are equitably distributed among residents. The council plans to continue exploring these options in future sessions, aiming to create a sustainable housing strategy that meets the diverse needs of the Port Orchard community.