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Thurston County currently has the highest vacancy rate in a decade in the rental apartment sector. I see “for rent” and “for lease” signs throughout the county.
At Briggs Village, there are four different complexes with “for rent” signs posted. At Summers Manor, along Yelm Highway, the sidewalk is obstructed by advertising signs for apartment vacancies. A friend who owns a couple of duplex units had trouble filling a vacancy for the first time in a decade.
The Thurston County housing market is not monolithic. There are owner-occupied single-family homes, rental homes and apartments. There are senior-only housing complexes. There is so-called “middle housing,” which consists of accessory dwelling units and other “add-ons” to single-family homes. There is a separate category of subsidized affordable housing for low-income households.
These are very different housing types and somewhat independent housing markets.
There is a genuine shortage of “affordable housing” like those units subsidized by the Thurston County Housing Authority and other governmental and nonprofit entities.
The market will not supply these, and if we are to provide housing to low-income and very low-income households, these subsidy programs need to be expanded.
There is a relatively small inventory of single-family homes for sale, reported by realtors as only a two-month supply, less than what is considered a “balanced” market.
But we have moved beyond the “bidding up” era of 2020-22, when people were suddenly demanding more space to work from home and houses were selling in days for tens of thousands of dollars above the listing price. And there are many fully approved lots available in Olympia, Lacey and Tumwater for new single-family homes, which have not yet been built.
We are an aging population, and there will be a growing need for senior housing, which includes elevators, wide doorways for walkers and wheelchairs, and other specific design elements. Senior housing is a different niche than market-rate apartments.
There are hundreds of new homes under construction at Sleater Crossing and other sites. But there are also plenty of already-approved development sites, for example, at Briggs Village and at The Village at Mill Pond, which are not being built because market conditions apparently do not support the cost of construction.
Single-family homes are not commanding prices above the cost of new construction plus site development, which suggests this market is more or less “in balance.”
But market-rate apartments are approaching a glut. The University of Washington publishes quarterly data, by county, of apartment vacancy rates by county. The last time vacancies were this high was in 2012, more than a decade ago.
This occurred because more than 5,000 rental apartments have been built in the past decade, a natural response to the tight housing market that followed the 2008 financial crash and cessation of building. But it is evident that this construction has now outpaced demand for market-rate apartments.
There has been a big bulge in new apartment construction housing permits over the past several years. Indeed, there have been more new apartments permitted in the past eight years, from 2016 to 2024 than in the two previous decades. Prior to 2015, the majority of new housing permits were for single-family homes; in recent years, about two-thirds of permits have been for apartments.
Thousands of additional apartment units are under construction now. There are gigantic projects along Interstate 5 (I-5) in Tumwater, and north of I-5 and at Woodland Square in Lacey. These will further supply the apartment rental market.
Briggs Village is before the Olympia Planning Commission now with a request to increase the number of allowed apartments, and to reduce the requirement of a grocery store in the (yet to be developed) commercial hub of this “urban village.”
Olympia is in the process of approving high-rise development in the Capital Mall area, a logical place for urban density — close to workplaces, shopping and medical services. However, if built, these will further increase apartment supply.
None of these projects require subsidies or tax exemptions. The market is strong enough to support this type of investment. Subsidies in one area will simply displace unsubsidized investment in another area, sapping money from existing residents to support the subsidized units.
In the 2023 Washington State Housing Trust Fund (HTF) funding round, project proposals statewide for affordable housing developments totaled 6,505 new units at an average of $476,000 per unit, including financing costs.
At that cost, a private owner would need to charge over $3,000 a month in rent to generate any return, a rent that is not affordable to lower-income households. So, subsidies are needed.
New apartment units cost at least $250,000 each to build, once you include the land, site preparation, common facilities, appliances and parking. Which means they need to rent for $2,000 a month or so (rising with inflation over time) for the investor to get a competitive return and cover management and maintenance costs.
Without a competitive return, potential rental owners will instead invest in stocks, bonds and mutual funds to obtain the returns available for those types of investments.
See my article on this in The JOLT News in 2024.
That math has worked for the past decade for many households, and lots of units have been built. While those rental prices work for households with professional careers, they do not work for low-wage workers in retail and hospitality, or for single-parent families;those folks generally need subsidized housing, a different market entirely. But we are approaching a glut of market-rate apartments.
A part of this surplus of apartment development has been driven by the Multi-Family Tax Exemption (MFTE) approved by the cities. Cities can grant eight-year exemptions from property tax for market-rate units and 12-year exemptions for complexes that meet very weak affordable housing standards. (The requirement is for only 20% of the units to be affordable.) That has encouraged builders who know how to take advantage of these programs.
Olympia has approved eight- and 12-year exemptions from property tax for about a dozen developers, and the vast majority have been the eight-year (market-rate) apartments.
These have forced property taxes for other property owners up, to make up for the taxes that would normally be paid by the new apartment buildings. The City of Olympia grants the exemption, but it does not lose any money; the rest of us just pay more.
There is clearly no need for the eight-year MFTE program now. Rents are high enough that developers have built thousands of apartments. And it is time to increase the requirement for affordable units in the 12-year MFTE program to far more than 20% of new units.
It is time for the cities and county to stop subsidizing market-rate apartment development (the 8-year MFTE program), and focus on obtaining funding for the Thurston County Housing Authority, Habitat for Humanity, Homes First and other nonprofit housing assistance organizations to provide permanent affordable subsidized housing for low- and very low-income households. Those homes remain affordable for decades to come.
Jim Lazar is an economist, a former rental owner, a former Thurston County PUD commissioner and a lifelong cyclist.
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Larry Dzieza
Thank you Mr. Lazar for a tour-de-force of research and rational thinking.
I strongly urge our elected officials, particularly the Olympia city council, to take your analysis into consideration and stop shifting the property tax burden of wealthy investors' market rate housing onto the rest of us.
If there is to be a public subsidy for housing, it should go to those need it.
Again, thank you.
Friday, February 21 Report this
KatiTh
Thanks for this in-dept view into this situation. One thing I'd like to add. Where above you say "The City of Olympia grants the exemption, but it does not lose any money; the rest of us just pay more." I'd like to point out that I have read Olympia is predominantly occupied by folks who rent. Therefore those extra property taxes the owners pay directly causes rents to go up. In my case, I own a small duplex in NE Olympia; built in the 1970's. The Assessor's office says this property increased in value nearly 50% in ONE year which caused an increase in the property taxes of nearly 50%. The property taxes on that property went up this year $122 per MONTH--which means unless I want to lose money, I would have to raise the rent $61 per month per unit. That's a BIG increase as my rents are low--it amounts to over the 5% the city tries to cap rent increases at.
Based on your math, on this duplex--which the Assessor's office perceives to be worth over $450,000--I would need to charge just north of $1,800 per month which is almost double what I'm currently charging for one of the units (which was remodeled just before the tenant moved in).
Additionally, HB1334 seeks to TRIPLE the limit the state can raise property taxes (on top of higher taxes due to perceived increases in value) from 1% to 3%.
All our electeds SAY they want to make housing more affordable--and I know we need tax money to support the great things the state does--but these excessive tax increases (once again) increase harm to folks at the lower end of the economic scale. We need to find a better way.
Maybe instead of losing money on commercial properties that do not increase housing stock that is affordable the City of Olympia and others should consider ceasing that program and instead, reducing the taxes for properties rented at some percentage below market rates?
Friday, February 21 Report this
BobJacobs
I join Larry Dzieza in thanking Jim Lazar for this very informative op ed.
Let's call on our local and state elected officials to act on facts, not just theories and advocates' pitches.
Personal experience confirms that our local rental housing market is oversupplied and will become more so.
Bob Jacobs
Friday, February 21 Report this
JW
If we aren't going to seriously address the real issues behind why costs are high and continue to rise, then starting from the back end and focusing on "affordable housing" is nothing more than a bandaid. I don't take ibuprofen to fix my broken leg. I fix my leg.
If the state hadn't spent money like drunken sailors for years and instead reduced the burden of property taxes on their citizens, then we'd all be better off.
Friday, February 21 Report this
OlyKid88
There isn't much that is accurate in this piece. Even the reference to the data and the charts are misinterpreted. Olympia has anything but a "glut" of any type of housing.
The housing market was tight in Olympia in 2012, and it remains tight in 2025. Even at its peak, the vacancy rate locally was very low and it remains that way today. Typical turnover for MF used in pro forma calculations to meet lending requirements is roughly 3% (3 units per 100) which is the normal ebb and flow of tentants. Where vacancy rates stand today at 5% is just 2 extra units per 100. Washington has one of the lowest vacancy rates in the Country.
I'm happy to go through this point by point, but I think I can easily summarize the valid point Mr. Lazar is really trying to make.
He doesn't like the MFTE to which I also agree. The arguments he uses to get there are not accurate, or even all that relevant.
The MFTE gave cities like Olympia a free option to incentivize private investment in "Opportunity Zones" as defined by the City. The MFTE was implemented in a way that ensures the government still gets the additional property tax revenue simply by shifting the tax burden to current property tax payers. It didn't have to work this way but the bureaucracy didn't want to give up a new source of revenue. I think the City has granted the MFTE 12 times - so far at least - and not every development qualifies for this exemption.
The mistake I often hear in public conversations is that doing away with the MFTE will free up money and make it available for what many in Olympia are after - affordable housing. This isn't accurate. The City still received the property tax created from these new multifamily development exemptions and spent it. And...its gone....
A point I would like to make is that all new housing in Olympia is very expensive to build. My biggest concern is that while demand here is driving the affordability equation, our economic base can't support the increased cost of building homes. Costs have outpaced our communities ability to absorb the higher costs. We have the infill lots and the land to develop, but we can't afford the costs involved to do the development. Higher interest rates and high inflation just exacerbate an already difficult issue.
Building any type of housing in Olympia is expensive and that is before the inflation of labor and material costs are considered. An "average" (2500ish sqft) new build incurs roughly $100,000 in impact fees/taxes. (~$50k City Permit/Impact Fees and ~$50k in Sales Tax).
Habitat for Humanity couldn't get a recent project to pencil because of the large cost of the offsite improvements required by the City building code. And remember, HfH is a non profit, with free volunteer labor and free land and they still couldn't get the project to work financially. Not a good look for the community where we desire more "affordable" housing. I put quotes around "affordable" because that term isn't well defined and probably deserves its own opinion piece.
When LIHI built the Billy Frank Building 9 years ago in 2016, their cost per unit was over $350,000 on free land. The parcel it was built on was given to LIHI by the City after the City purchased the lot from the State of Washington for $1,300,000. The building was not built to market rate apartment standards at the time. Slab on grade. No drilled support pilings, Exterior stairway. No W/D. No AC. No parking. Etc. Subsidized housing is really expensive and complicated housing to build.
I’m afraid I’ve identified a problem, but I don’t have a good solution to provide. A typical local developer can't build "affordable housing" as they pay market rates for materials, labor, impact fees and taxes. I also don't think the people of Olympia can tolerate more increases in their tax burden and this would just result in even more pressure on housing costs.
If affordable housing is truly a priority for the community, it will have to come from shifting priorities in the City budget and a hyper focus on reducing the time and costs to work through the building process. The City will also need to ensure it is auditing every part of this process to ensure the City is minimizing the time requirements and expenses so that taxpayer money is leveraged to maximize its utility. Ensure the housing non profits get the help they need by reducing existing roadblocks and expensive requirements. I think the City has defaulted to LIHI for most of their subsidized projects, so possibly there are other firms in the market place that can bring down the cost or at least make it a competitive environment. I'm not sure. Just some quick thoughts, and again probably a topic for another opinion piece.
A agree with the conclusion, just not the argument. I do appreciate bringing the topic forward and the discussion it creates.
Saturday, February 22 Report this
GFelsen
Thanks to all involved for one of the best topical discussions experienced on JOLT. Best of all, the discussion has been generally acrimony free and totally thought provoking.
Monday, February 24 Report this