The Port Orchard Land Use Committee resumed discussion on the city’s former Multifamily Tax Exemption program, reviewing past implementation issues and exploring options for future housing incentives June 18.

Community development director Nick Bond outlined the evolution of the program, which the City Council repealed in 2023. At that time, a staff report had identified several issues and recommendations, including expanding the program’s eligibility to projects with fewer units and targeting redevelopment efforts.

Bond explained that the city’s original MFTE included two types of exemptions: an eight-year version focused solely on increasing supply, and a 12-year version that required affordability provisions.

“The 8-year was all about just encouraging the increase of supply and did not come with any strings attached in terms of affordable housing requirements,” Bond said. “The city has very little administrative work to do because we don’t have to follow up and audit to make sure that units are being rented affordably.”

In contrast, the 12-year exemption required that 20% of the units be rented at 10% below fair market value, with tenant income qualifications. However, Bond said the cost-benefit to tenants was limited when compared to the tax relief developers received.

“The very first MFTE project that we did was the Overlook Apartments, it was a 40-unit apartment complex up behind the movie theater,” Bond said. “What we determined was that the total savings over the life of the project for a 12-year abatement was $800,000 in benefit to the owner and the amount of savings on rent to tenants was significantly less than that, like less than $100,000.”

Bond also noted new provisions in state law that now allow for a 20-year MFTE for projects that offer permanently subsidized units, an option that wasn’t available when the city created its original program.

“We repealed our program around the time that it became available,” he said. “That’s something we can study going forward if we want to reactivate this program.”

Bond presented current housing and population data to frame the discussion. Since 2020, Port Orchard has added 3,675 residents toward its 2044 target of 10,500. Housing unit growth has kept pace, with 1,856 units added between 2020 and 2025. Vacancy rates, which were at their lowest during the pandemic, have climbed from 6% to over 10%.

“We had an appraisal for one of our apartment projects. The appraisal actually indicated that for the first time in a decade, rents went down in Port Orchard in Q4 of 2022,” Bond said.

While he said it’s unclear whether the increased supply has driven down rents, Bond believes it has helped stabilize the market.

“I don’t think it’s driven rent down, but I do think it has stabilized rent,” he said. “Incomes are continuing to rise, inflation is maybe cooling off a little bit, but I do think that adding supply at the rate that we have over the past few years has been the right medicine.”

Bond said the City Council asked that the MFTE topic be revisited after completing other state-mandated housing work. The discussion was intended to pick up where the 2023 report left off.

“There wasn’t a consensus on how to use MFTE going forward and the council ultimately decided to pull the plug,” Bond said.

Also on the agenda, city staff shared an update on Port Orchard’s new Accessory Dwelling Unit program, which now offers four pre-approved building plans available to the public at no cost.

An ADU is a smaller, independent residential unit located on the same lot as a single-family home. The city’s goal is to reduce barriers to housing construction and provide more affordable options for residents.

“The things that can be changed by the owner are limited and pretty well defined,” Bond said. “It’s going to be the same for each jurisdiction that you get to pick your doors, your windows, your siding, the colors,but you can’t move structural elements without hiring an architect.”

Bond also noted that the city’s plan reviewers flagged some building code issues that were missed by other jurisdictions using the same plan set.

“Our reviewers caught things that the Thurston County group did not,” he said. “To some extent, our building plan reviewers caught some building code issues that needed to be flagged.”

He added that the city sees the ADU rollout as a slow but meaningful step toward greater housing flexibility.

“I think if we got maybe 50 of these in the entire county in the next five years, that would be a pretty big success,” Bond said.