Affordable Housing Incentive Programs

The Multi-Family Housing Property Tax Exemption (MFTE) program provides a property tax exemption in exchange for the development of multifamily and affordable housing in designated “residential targeted areas.” The MFTE program is authorized by RCW 84.14. It authorizes eight-year exemptions of property tax on residential improvements to encourage the development of multifamily housing, and 12- and 20-year exemptions to encourage the development of affordable multifamily housing. More details, including annual reports and guidance, can be found at Commerce’s MFTE homepage.

Who’s eligible?

All cities, many towns, and unincorporated urban growth areas of Clark, King, Kitsap, Pierce and Snohomish counties are eligible to offer an MFTE program. Over 50 Washington jurisdictions currently participate. You can find the latest eligibility information on the table on page 5 of the 2025 MFTE Legislative Updates Fact Sheet (PDF).

Guidance and annual reporting

More details, including annual reports and guidance, can be found at Commerce’s MFTE homepage.

By June 30, 2026, cities and code cities must allow conversion of commercial buildings in commercial, mixed-use or residential zones to residential uses.  (RCW 35A.21.440, RCW 35.21.990.) This part is required, but the next part is optional.

Any city or town may adopt a sales and use tax deferral program for new housing construction if the city finds that there are significant areas of underused commercial property and a lack of affordable housing in areas around the property. Once a local government has adopted a program, an owner of underused commercial property seeking to convert it to housing must complete the procedures in RCW 85.59.030.  This includes a statement that the applicant would not have built in this location but for the availability of the tax deferral.

Program requirements

The investment project must be completed within three years of local government approval of the application unless an extension is granted by the city or town. 
The investment project must be primarily for multifamily housing units,
At least 10% of the units must be affordable housing for low-income households (<80% AMI) for ten years..
 
“Underused commercial property” means an entire property, or portion thereof, currently used or intended to be used by a business for retail, office-related, or administrative activities.

“Multifamily housing” is defined as a building or a group of buildings having four or more dwelling units not designed or used as transient accommodations and not including hotels and motels. Multifamily units may result from rehabilitation or conversion of vacant, underutilized, or substandard buildings to multifamily housing.

Process

• A qualifying city must adopt the program, as described by RCW 82.59.020.
• Property owner applies to the city for a conditional certificate of approval for an eligible project.
• After receiving the conditional certificate, the applicant must submit the certificate and an application to the Department of Revenue (DOR) before initiation of construction.
• DOR then issues a sales and use tax deferral certificate for state and local sales and use taxes due under chapters 82.08, 82.12, and 82.14 RCW on each. (RCW 82.59.100)
• Applicants must complete the investment project within three years of the application’s approval.
• Applicant must report to the city for a determination, and then to DOR for an audit of deferred taxes. (RCW 82.59.070). If all program requirements have been met, the deferred sales/use tax is waived by the department after the tenth year.

Applications will not be accepted after June 30, 2034.

You can find more details and guidance about this program on the Department of Revenue’s tax incentives program page. The program will sunset on June 30, 2034.

Guidance and annual reporting

The Department of Revenue has a webpage with guidance on using the Conversion of Underutilized Commercial Property tax deferral.

Beginning in 2025, Commerce produces an annual report on this tax deferral:

• 2024 Conversion of Underutilized Commercial Property annual report (PDF)

“Parking to People,” or the sales and use tax deferral for underdeveloped urban land redevelopment (RCW 82.92), is a pilot tax deferral program available to owners of underdeveloped land interested in building affordable housing in Bellevue, Kent, Spokane, Tacoma and Vancouver (RCW 82.92.020).

“Underdeveloped property” means land used as a surface parking lot for parking motor vehicles off the street or highway that is open to public use with or without charge. “Affordable housing” is defined as affordable homeownership housing at RCW 82.92.010(1) and affordable rental housing at RCW 82.92.010(2).

Process:

1. A qualifying city must adopt the program, as described by RCW 82.92.020.
2. Property owner applies to the city for a conditional certificate of approval for an eligible project.
3. After receiving the conditional certificate, the applicant must provide the certificate and an application to the Department of Revenue (DOR).
4. DOR then issues a sales and use tax deferral certificate for state and local sales and use taxes due under chapters 82.08, 82.12, and 82.14 RCW on each. (RCW 82.92.100)
5. Applicants must complete the investment project within three years of the application’s approval.
6. Applicant must report to the city for a determination, and then to DOR for an audit of deferred taxes. (RCW 82.92.070).

After receiving a conditional certificate of approval from a qualifying city, an application must be submitted to the Department of Revenue before initiation of construction.

If all program requirements have been met, the deferred sales/use tax is waived by the department after the tenth year. Applications will not be accepted after June 30, 2032.

Guidance and annual reporting

The Department of Revenue has a web page with guidance on using the Parking to People tax deferral.

Beginning in 2025, Commerce produces an annual report on this tax deferral:

• 2024 Parking to People annual report (PDF)

Local governments fully planning under the Growth Management Act may impose [AF1] impact fees for fire protection facilities, parks, schools, and transportation facilities. Local governments can choose to charge different rates for different classes of construction, such as residential, commercial and retail. Local governments can also choose to collect impact fees on only a single type of construction. Except under specific circumstances, a local government must refund fees not expended or dedicated within 10 years of collection. 

Local governments may choose to offer the following incentives:

Under RCW 82.02.060, local governments have the authority to adjust impact fees for “low-income housing, and other development activities with broad public purposes,” including early learning facilities. RCW 82.02.060(2) and RCW 82.02.060(4) outline the extent to which jurisdictions may modify impact fees for affordable housing and the specific requirements that must be outlined in the jurisdictions’ impact fee ordinance.
 
Jurisdictions may grant partial exemptions to developers of low-income housing from impact fees, reducing the impact fee obligation of the proposed development project by as much as 80% without necessitating the use of other public funds to compensate for the reduction. However, when jurisdictions choose to fully exempt a development project and waive the full impact fee, the remaining 20% of the waived impact fee must be covered by public funds from sources other than the impact fee account.

See Residential Proportional Impact Fees and System Development Charges Guidebook (PDF).

Who’s eligible?

Any city or county, as authorized by RCW 82.02.060(2) and (4).

Guidance on this incentive is also included in Commerce’s Guidance for Developing a Housing Action Plan (PDF), page 133. MRSC has also published information on impact fee reduction.

If impact fees are collected, local governments MUST provide for the following, which are not considered incentives:

• Proportional impact fees: Residential Proportional Impact Fees and System Development Charges Guidebook.
  
• Impact fee deferrals: Read the 2024 impact fee deferral report or find past reports on Commerce’s legislative reports page.
  
• Reduce impact fees for ADUs (RCW 36.70A.681(1)(a)): The city or county may not assess impact fees on the construction of accessory dwelling units that are greater than 50 percent of the impact fees that would be imposed on the principal unit.

Annual reporting

Beginning in 2018, Commerce produces an annual legislative report on the deferral, which can be found on the Legislative Reports web page.

Guidance

Waivers and exemptions are discussed in Section 10 of Commerce’s Residential Proportional Impact Fees and System Development Charges Guidebook (PDF).

Any city or county planning under the Growth Management Act may enact or expand affordable housing incentive programs providing for the development of low-income housing units through development regulations or conditions on rezoning or permit decisions, or both. These affordable housing incentive programs can apply to residential or mixed-use development. An affordable housing incentive program may include, but is not limited to, one or more of the following:

• Density bonuses within the urban growth area, co-living, transit-oriented development or other law.
• Height and bulk bonuses;
• Fee waivers or exemptions;
• Parking reductions, unless already limited by state law, or
• Expedited permitting.

Rental housing units to be developed shall be affordable to and occupied by households with an income of fifty percent or less of the county median family income, adjusted for family size;

Owner occupancy housing units shall be affordable to and occupied by households with an income of eighty percent or less of the county median family income, adjusted for family size.

The legislative authority of a jurisdiction, after holding a public hearing, may change the income levels.

Low-income housing units developed under an affordable housing incentive program shall be committed to continuing affordability for at least fifty years. A local government, however, may accept payments in lieu of continuing affordability.

Who’s eligible?

Any city or county planning under the Growth Management Act.

Guidance

MRSC has published information, including examples from both Washington and other states, on the use of inclusionary zoning and other incentives, and an overview is in Commerce’s Guidance for Developing a Housing Action Plan (PDF), page 130.

RCW 36.70A.545 requires that properties owned by religious organizations be eligible for increased density bonuses if they provide affordable housing for 50 years.

While this program previously required all units to be set aside for low-income tenants, HB 1859 (2026) changed the requirements. Now, the building must set aside either: 

• 50% of units for low-income households (<80% AMI), or 

• 20% of units for very low-income households (<50% AMI).

Jurisdictions may develop policies based on the level of need for the proposed housing and the ability of infrastructure to handle increased density, with the religious organization required to pay any fees and other costs required for development. 

Who’s eligible?

This law applies to any city or county fully planning under the Growth Management Act.

Guidance

MRSC has information on application of the religious density bonus.

A jurisdiction can adopt an exemption from State Environmental Policy Act (SEPA) review if its comprehensive plan was already subject to environmental analysis through an environmental impact statement (EIS). Any residential, mixed-use or smaller scale commercial development that is roughly equal to or lower than the density goals of the comprehensive plan is exempt from further review. The local government must consider the specific probable adverse environmental impacts of the proposed action and determine that these specific impacts are adequately addressed by the development regulations or other applicable requirements of the comprehensive plan; subarea plan element of the comprehensive plan; planned action ordinance; or other local, state or federal rules or laws. By removing an extra layer of review and potential risk, a SEPA infill exemption can encourage development within the designated area. These exemptions are authorized by WAC 197-11-800 and WAC 197-11-305.

Who’s eligible?

Any city or county fully planning under the Growth Management Act can offer SEPA infill exemptions, as authorized by RCW 43.21C.229.

Guidance

The Department of Ecology has created a matrix summarizing the SEPA exemptions (PDF) available to jurisdictions and the criteria and requirements for each, and additionally publishes a webpage for detailed information on SEPA infill exemptions. Additionally, MRSC has published information on exemptions.

Under RCW 39.33.105, public agencies (local governments or utilities) can discount or gift land they own for “public benefit,” defined as affordable housing (up to 80% AMI). These agencies must adopt rules to regulate the transfer of property. Staff should inventory publicly owned available lands that may meet criteria for donation and assess environmental or other constraints that may inhibit project suitability prior to site selection. Consider the broad range of public agencies that may be willing to sell, trade, or donate land for a public purpose. Land purchased as staging areas for major construction that may be turned toward housing at the end of the project are a good candidate for programs like this.

Who’s eligible?

Any state agency, municipality, or political subdivision, including counties and utility districts, are eligible to provide low- or no-cost leases or transfers of surplus public property for affordable housing projects, as authorized in RCW 39.33.105.

Guidance

For affordable housing on state-owned land, Commerce publishes a State Surplus Program webpage, including an annual report and interactive map of identified surplus land, suitability reports, and contact information for the agency which owns the property. The map also shows which parcels are eligible for low-income housing tax credits and Opportunity Zone programs. 

Additionally, MRSC has published information, including RFP examples, on the use of surplus public property for affordable housing, and an overview and examples of surplus public property is included in Commerce’s Guidance for Developing a Housing Action Plan (PDF), page 139-141.

Parking requirements can be a major factor impacting housing development feasibility and affordability. Both surface and structured parking add significant costs to new development, which gets passed on in the rental rate or sales price of each housing unit. 

New state laws including RCW 36.70A.817 and the Parking Reform and Modernization Act (RCW 35.21.994, RCW 35A.21.445, RCW 36.01.397) limit minimum parking requirements for a variety of housing types in subject jurisdictions including market rate single and multifamily development, affordable housing, and housing using specified construction methods, among others. See the Planning for Middle Housing page for guidance on state parking requirements.

Jurisdictions may choose to adopt additional parking reductions or incentives, including full flexibility in parking provision (removing minimum parking requirements). Allowing parking provision to be driven by the market, rather than local regulation, gives developers the freedom to provide only the parking needed for the specific use and site, potentially freeing up land for productive use that might otherwise be developed as unneeded parking spaces.

Guidance

MRSC has published a guide to parking regulations. An overview of tools local governments can use to reduce overparking is included on Commerce’s Planning for Middle Housing web page.

Providing an efficient, predictable and user-friendly permitting process can encourage new housing construction by reducing potential confusion or perception of risk among developers as well as lowering their administrative carrying costs. For jurisdictions planning under the GMA, review must meet the requirements in RCW 36.70B.

Who’s eligible?

Any jurisdiction can evaluate their permitting processes to increase usability and consistency. These improvements can apply to more than just affordable housing, though many jurisdictions provide additional expedited processing to projects including affordable housing.

Guidance

MRSC has published a guide to streamlining local permit review procedures, and an overview is included in Commerce’s Guidance for Developing a Housing Action Plan (PDF), page 125. Commerce has more information on our Local Project Review page and in the Local Project Review Guidebook (PDF).

The Governor’s Office for Regulatory Innovation and Assistance (ORIA) has a project questionnaire which can help identify what permits, approvals, and licenses are needed. Their regulatory handbook has more information on laws and decision trees.

Communities can identify priorities for investment in sewer or water extensions or sidewalks to support upzones, or to catalyze development around new amenities such as transit hubs or community centers. Strategic selection of infrastructure priorities in the capital facilities element can help support development of housing in a jurisdiction.

Jurisdictions can utilize latecomer agreements to leverage private investment to create infrastructure. These agreements ensure that early investors are compensated by property owners who later utilize their infrastructural investments to create new developments, creating a greater incentive to develop property. These agreements are authorized by RCW 35.72 (street projects), RCW 35.91 (municipalities contracting for water and sewer projects), and RCW 57.22 (water-sewer districts).

Guidance

MRSC has published a guide to latecomer agreements in Washington.

Local governments can use multiple programs to fund infrastructure in targeted areas to incentivize development. Two similar programs created by the legislature are tax increment financing (TIF) and community revitalization financing (CRF).

Who’s eligible?

The TIF and CRF programs are available to all cities, towns, counties, port districts, or any combination of these working together. (RCW 39.89.020 and RCW 39.114.010)

In 2026, RCW 84.14.020 was changed (HB 2451) so that the 20-year rental and 20-year transit oriented development category of the multifamily tax exemption (MFTE) cannot be used in TIF or CRF increment areas designated prior to June 2, 2026.

Tax Increment Financing (RCW 39.114)

Tax increment financing (TIF) is a method for jurisdictions to repay bonds used for infrastructure investments. To repay bondholders, the jurisdiction can draw from increased tax revenue in areas it invested in the infrastructure in, receiving all of the increase in property taxes. To use this incentive:

• A local government must adopt an ordinance designating a specific increment area and specify the public improvements that are to be financed with the use of TIF.
• The assessed value limit within a TIF area (or the combined total value if two TIF areas are designated) is $200 million or not more than 20% of the jurisdiction’s total assessed value, whichever is less.

The local government designating the increment area is entitled to receive the increase in property tax from growing value from the public investments. The additional amount must be spent only to finance the cost of public improvements for the TIF area. E2SHB 2451 (2026) required consultation and negotiations with other taxing districts impacted by the designation in certain circumstances and an analysis prior to designating a TIF, and prevented a TIF from being established in areas where a private building or structure is currently under construction or under environmental review unless certain exceptions are met.

Community Revitalization Financing (RCW 39.89)

Community revitalization financing (CRF) is a method, created in 2001 in RCW 39.89, for jurisdictions to raise funds for infrastructure improvements, permanently affordable housing, historic preservation and other uses from the increase in tax value.

The program authorizes cities, towns, counties and port districts to create a tax “increment area” and finance public improvements within the area by using increased revenues from local property taxes generated within the area (RCW 39.89). The program requires written agreement with taxing districts that levy at least 75% of the combined value of property taxes in the area. The best locations for a community revitalization financing (CRF) program are undeveloped and underdeveloped areas because this program depends on an increase in property value.

A change to the law in 2026 (HB 2451) made several changes to the program for new increment areas designated after June 1, 2026:

• Adopting a CRF is now restricted where an area already has the necessary improvements or has a building under construction or under environmental review.
• The limit on total valuation of the increment area is now increased annually to match the consumer price index.
• The increment area now sunsets when the amount raised matches the amount expended on public improvements, or after 25 years, whichever is sooner.
• Public improvement construction must begin within 5 years, with possible extensions of 2 additional years.
• Additional findings and analysis are required, including a detailed list of public improvements in order of completion. This assessment must be conducted in conjunction with other impacted taxing districts.
• A mediation process was created and changes were made to the agreement process between taxing districts, allowing for mitigations in cases of disagreement. Additionally, the notice period for taxing districts was increased to 180 days, from 90.
• Private developers are now eligible to construct the required public improvements and be reimbursed as part of an agreement with the local government.
• Changes were made to how the CRF process intersects with voter-approved levy lid lifts.

Guidance

MRSC has published a guide to tax increment financing (TIF) in Washington. The Department of Revenue has also provided an overview of tax increment financing, community revitalization financing, and other tools. An overview is included in Commerce’s Guidance for Developing a Housing Action Plan, page 144.

Opportunity Zones (OZs) are federally designated tracts meant to spur investment in undercapitalized communities. A revised program is being rolled out designating new opportunity zones referred to as Opportunity Zones 2.0 (OZ 2.0). 

The changes to the program have more tightly targeted eligibility to areas of underinvestment and have multiplied the impact of the investment on rural areas. Housing is an eligible use for investment under the OZ program, and workforce housing is prioritized by Washington’s scoring framework. 

Applications are available for Opportunity Zone designations, which will begin on Jan. 1, 2027. 

Who’s eligible? 

Eligible census tracts are highlighted on Commerce’s Washington Opportunity Zones 2.0 interactive map and dashboard. 

Guidance 

Commerce’s Washington Opportunity Zones webpage is the central location for guidance on OZs, including the nomination form, FAQs, and other resources.