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Affordable Housing Funding Sources

This page provides an overview of many of the funding sources that cities and counties in Washington State can use to provide or incentivize the development of affordable housing.

It is part of MRSC's series on Affordable Housing.


Cities and counties of every size are grappling with a lack of affordable housing for low-wage workers and their families. Part of the reason for this is that the financial returns from low-income housing developments are not high enough to attract traditional banking institutions and developers. Housing developments are usually financed based on high market rents or sale prices that will guarantee the repayment of construction loans to banks and result in enough profit for developers to take on the many risks of development. As a result, most housing is constructed for residents at or above median income levels.

However, local governments can use certain public funding sources to encourage the construction of affordable housing for low-income populations. These funding sources include local taxes, tax incentive programs for developers, and state or federal grant programs. Some of the grant programs are “block grants” that are awarded based upon certain formulas, while other grants are awarded on a competitive basis.

For a listing of all available state grant programs for affordable housing, see the Office of the State Treasurer’s Washington Fund Directory: Housing, Infrastructure & Economic Development. Brief summaries of most of these grant programs are provided below.

Affordable Housing Sales Tax 

Any county may impose a sales and use tax up to 0.1% for affordable housing, and any city or town may impose the same sales tax if the county has not done so first (RCW 82.14.530). The total sales tax rate may not exceed 0.1% — if a city has already imposed this sales tax and the county imposes the same sales tax at a later date, the county must credit the city’s 0.1% back to the city.

This option originally required voter approval, but effective June 11, 2020, voter approval is optional, and this sales tax may now be approved by the legislative body with a simple majority vote.

At least 60% of the revenue must be used for constructing affordable housing, constructing mental and behavioral health-related facilities, or funding the operation and maintenance costs of new affordable housing units and facilities within which housing-related programs are provided. The housing and facilities may only be provided to the following population groups whose income is at or below 60% of the county median income:

  • People with disabilities or behavioral health disabilities,
  • Veterans,
  • Senior citizens,
  • Homeless, or at-risk of being homeless, families with children,
  • Unaccompanied homeless youth or young adult, or
  • Domestic violence survivors.

The remaining funds must be used for the operation, delivery, or evaluation of mental and behavioral health treatment programs and services or housing-related services. No more than 10% of the revenue may be used to supplant existing local funds.

Sample Sales Tax

  • Ellensburg Resolution No. 2017-23 (2017) — Submitting 0.1% affordable housing sales tax to voters
  • Issaquah Ordinance No. 2922 (2020) — Adopting 0.1% councilmanic (non-voted) affordable housing sales tax; will be repealed if city signs MOU with the county to provide $2 million for transit-oriented development tenant improvements within city or if county does not enact countywide sales tax by end of year
  • Olympia Resolution No. M-1912 (2017) — Submitting 0.1% affordable housing sales tax to voters; also see Ordinance No. 7127 implementing the sales tax and notifying the Department of Revenue following voter approval
  • Port Angeles Resolution No. 14-19 (2019) — Submitting 0.1% affordable housing sales tax to voters as a qualifying local tax under SHB 1406. Includes analysis of election timing and costs, concluding it is much less expensive to submit a measure at the November general election than at the February or April special election.

HB 1406 Affordable Housing Sales Tax Credit

From July 2019 to July 2020, cities and counties had the option to participate in the HB 1406 affordable housing sales tax revenue sharing program (RCW 82.14.540). Any jurisdiction that followed the required procedures before the July 2020 deadline will receive a share of the state’s portion of the sales tax for 20 years.

Participating counties will receive a “full share” credit of 0.0146% of taxable retail sales within the county, minus credits for those participating cities within the county. 

Most participating cities will receive a “half share” of 0.0073% of taxable retail sales. However, any city that had a “qualifying local tax” in place by July 27, 2020 — defined as an affordable housing sales tax (RCW 82.14.530), an affordable housing levy (RCW 84.52.105), a levy lid lift that is restricted solely to affordable housing, or a mental health and chemical dependency sales tax (RCW 82.14.460) — will receive a “full share” credit of 0.0146%.

However, each participating jurisdiction has an annual maximum distribution cap for each state fiscal year (July 1-June 30) within the 20-year shared period that is calculated based upon the jurisdiction’s taxable retail sales during state fiscal year 2019. If the jurisdiction hits its maximum cap during any state fiscal year, the state will cease distributions to that jurisdiction until the beginning of the next state fiscal year (July 1 of each year).

The revenues may be used for (a) acquiring, rehabilitating, or constructing affordable housing, which may include new units within an existing structure or facilities providing supportive housing services under RCW 71.24.385 (behavioral health organizations) or (b) operations and maintenance costs of new units of affordable or supportive housing. In addition, counties under 400,000 population and cities under 100,000 population may use the revenues to provide rental assistance to tenants who are at or below 60% of the median income of the county or city that is imposing the tax. The revenues may be used to finance loans or grants to nonprofit organizations or public housing authorities and may also be pledged toward the repayment of bonds. 

Administrative costs could be an allowed use of the funds, but costs would need to be specifically related to new units of affordable or supportive housing or the administration of a rental assistance program. A city or county would need to clearly show and document through their cost allocation plan that the administrative costs were specifically for affordable and supportive housing and not related to other unallowable purposes.

Affordable Housing Property Tax Levy

Counties and cities may impose additional regular property tax levies up to $0.50 per $1,000 assessed valuation (AV) each year for up to ten years to finance affordable housing for very low-income households (defined as 50% or less of the county's median income) when specifically authorized to do so by a majority of voters of the taxing district (RCW 84.52.105).

Effective October 1, 2020, the state legislature also authorized the revenues to be used for affordable homeownership, owner-occupied home repair, and foreclosure prevention programs for “low-income households” (defined as 80% or less of the county's median income).

If both a city and the county it is located in impose a levy, the levy of the last jurisdiction to receive voter approval is reduced so that the combined rate does not exceed $0.50 per $1,000 AV in any taxing district. This tax may not be imposed until the legislative authority declares the existence of an emergency with respect to the availability of housing that is affordable to low-income or very low-income households, and the legislative authority adopts an affordable housing finance plan in conformity with state and federal laws regarding affordable housing.

Sample Property Tax Levies

  • Bellingham Resolution No. 2018-09 (2018) — 10-year levy that combines a single-year levy lid lift with an affordable housing levy.
  • Jefferson County Resolution No. 35-17 (2017) — 7-year levy, combining a single-year levy lid lift with an affordable housing levy to create an affordable housing trust fund. Note: The resolution title says RCW 84.55.105, but the correct citation should be RCW 84.52.105.

Real Estate Excise Taxes

Real estate excise taxes (REET) are mostly reserved for eligible capital projects. However, any jurisdiction that is fully planning under the Growth Management Act and imposing the second 0.25% “REET 2” tax under RCW 82.46.035 may use some of the revenues for affordable housing projects through January 1, 2026, subject to certain limitations.

In addition, San Juan County has imposed a 0.5% affordable housing REET under RCW 82.46.075. No other jurisdictions are currently eligible under this statute.

For more information on these REET options, see our Real Estate Excise Taxes page.

Multi-Family Tax Exemption

Any city with a population of 15,000 or more may establish a multi-family tax exemption (MFTE) program (chapter 84.14 RCW) to stimulate the construction of new, rehabilitated, or converted multifamily housing, including affordable housing, within designated areas. Some smaller cities may also be eligible under the definitions in RCW 84.14.010(3).

To be eligible, a multifamily project must have at least four residential units. When a project is approved under the MFTE program, the value of the eligible housing improvements is exempted from property taxes, typically for 8 or 12 years. To receive a 12-year exemption, the property owner must commit to renting or selling at least 20% of the units to low- and moderate-income households. Land, existing improvements, and non-residential improvements are not exempt and are subject to normal property taxes. 

If the property use changes in a manner inconsistent with the program requirements before the exemption period ends, back taxes are recovered based on the difference between actual taxes paid and those that would have been paid without the exemption. 

Sample MFTE

Lodging Taxes

Lodging taxes, also known as hotel-motel taxes, are generally reserved for eligible tourism-related expenses. For a general overview, see our Lodging Tax (Hotel-Motel Tax) page.

However, beginning in 2015, cities and counties may also use lodging tax revenues to repay general obligation bonds (RCW 67.28.150) or revenue bonds (RCW 67.28.160) issued to finance loans or grants to nonprofit organizations or public housing authorities for affordable workforce housing within a half-mile of a transit station. (King County has separate requirements.)

While these two statutes do not specifically define “affordable workforce housing” or “transit station,” definitions are provided in RCW 67.28.180(3) discussing the requirements for King County. In that context, “affordable workforce housing” means housing for a single person, family, or unrelated persons living together and earning between 30% and 80% of the county median income, while the definition of “transit station” references RCW 9.91.025, which is very broad and includes any bus stops or zones.

Washington State Housing Trust Fund

The Washington State Department of Commerce (DOC) administers a Housing Trust Fund to provide loans or grants to affordable housing projects through annual competitive application cycles. The program is funded primarily through the state’s capital budget, and local governments and local housing authorities are among the entities eligible to apply.

Eligible projects can serve people with incomes up to 80% of the area median income, but the majority of funded projects serve people with special needs or incomes below 30% of the area median income.

There is also a complementary HUD National Housing Trust Fund (NHTF) program administered by DOC through the state Housing Trust Fund application process. For more information, see the DOC Housing Trust Fund resources and handbook.

Community Development Block Grants 

The Community Development Block Grant (CDBG) program provides annual grants to local governments and states for a wide range of community needs, including ensuring decent housing, providing services to the most vulnerable community members, and creating jobs through the expansion and retention of local businesses.

The U.S. Department of Housing and Urban Development (HUD) provides these grants directly to “entitlement” states, metropolitan cities, and urban counties on a formula basis. For more information, see the HUD Exchange Community Development Block Grant Programs resources.

Small rural cities and counties that are not entitled to receive CDBG funds directly from HUD can apply for state CDBG grants through the Washington State DOC. Special purpose districts, public housing authorities, economic development councils, community action agencies, nonprofit organizations, and Indian tribes are not eligible to apply directly to the state CDBG program for funding, but they may partner with eligible city or town applicants as subrecipients.

In addition, specialty CDBG Housing Enhancement Grants are available to eligible rural cities and counties through the Housing Trust Fund application process. For more information, see the DOC Community Development Block Grants (CDBG) resources.

Home Investment Partnerships Program

The Home Investment Partnerships Program (HOME) is a HUD block grant program similar to community development block grants, except that the funds are for the sole use of preserving and creating affordable housing. The funds can be used for a variety of activities related to affordable rental housing and affordable homeownership, and the income requirements vary depending on the nature of the funded activity. For more information, see the HUD HOME Program: Home Investment Partnerships.

Some of the HOME programs in Washington State are administered by the DOC, which maintains a HOME Program resource page.

Low-Income Housing Tax Credit

The Low-Income Housing Tax Credit (LIHTC) is a federal tax credit program created in 1986 to provide private owners an incentive to construct and maintain affordable rental housing. The U.S. Internal Revenue Service (IRS) allocates program funds on a per capita basis to each state. The Washington State Housing Finance Commission (WSHFC) administers the tax credits, and investors in housing projects can apply for different tax credits depending on the project type. For more information on LIHTC and other tax credit and financing options, see the WSHFC Multifamily Housing resources.

Section 8 Housing Choice Vouchers

The Section 8 Housing Choice Voucher program provides a federal housing voucher for very low-income families and qualifying elderly residents or people with disabilities to afford housing in the private market. These vouchers are administered by local public housing authorities, which receive funds from HUD to administer the program.

Participants are free to choose any housing that meets the requirements of the program and are not limited to units within subsidized housing projects. Usually, the public housing authority pays a subsidy directly to the landlord on behalf of the participating individual or family, and the individual/family pays the remainder of the rent. Under state law, landlords may not reject prospective renters based on their source of income, including Section 8 assistance (RCW 59.18.255). 

MRSC Recommended Resources

Below are additional topic pages in MRSC’s series on Affordable Housing:

And below are related topic pages:

Recommended Resources 

Below are some additional resources related to affordable housing funding that may be helpful to local governments.

Last Modified: April 09, 2021