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Executive Summary <br />As part of Rethink Housing, the City of Everett is coordinating a review of its housing policies to change current <br />incentives to support long-term housing needs. As part of this effort, this report looks at how current and future <br />housing incentives could change housing yields and encourage private, for -profit developers to build new housing. <br />This effort is intended to build upon and update Appendix G of the 2021 Rethink Housing Everett Housing Action <br />Plan. <br />This work examines the following incentives: <br />■ Height incentives for affordable housing and in -lieu payments (EMC 19.22.080). <br />■ Parking reductions (EMC 19.34.025(B)). <br />■ The Multifamily Housing Tax Exemption (MFTE) program (Chapter 3.78 EMC). <br />■ Transportation and school impact fee waivers (EMC 19.50.065, 19.51.145, and 19.52.060). <br />The analysis reviews how changes to these incentives might affect the financial feasibility of new multifamily <br />residential projects and consequently, the likelihood that development will occur. To this end, this assessment <br />specifically focuses on how the financial returns of prototypical projects might change under different policy <br />options. A pro forma/discounted cash flow model evaluates development based on different construction and <br />parking types and calculates how rates of return -on -investment equity would change according to different types <br />of incentives, regulations, and requirements. <br />Based on these evaluations, the following conclusions can be reached: <br />■ Current economic conditions do not provide strong support market -rate multifamily development. As the <br />market assessment included as Attachment 1.1.1 B discusses, current rents, building costs, and interest rates in <br />the Everett market do not support building new multi -family housing projects considered in this study. This does <br />not mean that projects will not be built at all, especially if they would have higher rents or lower building costs <br />than represented in this assessment. It does, however, indicate that projects in the 75-to-150-unit size will be <br />low. <br />■ Available programs do not provide sufficient incentives to address this gap. Under current market <br />conditions, the incentives available to developers in Everett may not be enough to make up for this gap in <br />development feasibility. While the earlier 2021 assessment included in Appendix G of the Housing Action <br />Plan noted that some projects could be conducted with incentives, construction costs and interest rates have <br />increased. In combination with other market changes, this has made it less likely that even these incentives can <br />promote development in the short-term <br />■ The MFTE program should be maintained for the short-term, but changes should be explored as market <br />conditions become more favorable. The largest incentive for development provided by the City is the MFTE <br />program, especially the eight -year program that does not include affordability requirements. This program <br />should be maintained with the current eight -year option to incentivize development in broader areas and in <br />more challenging conditions. The City would need to monitor the market conditions so that the 8-year program <br />could be adjusted to include affordability requirements or be sunsetted as conditions improve. This should <br />ensure that both the eight- and 1 2-year programs are performing similarly under positive market conditions. <br />■ Development incentives such as parking reductions and height increases can be effective in increasing <br />residential densities and housing yields. The parking reduction and height incentives available do not <br />provide enough of an increase in the rates of return on equity to make new projects more likely to be built in <br />general. These incentives could under more favorable market conditions make it easier for developers and <br />