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Post Election Recap for Housing Providers

Housing providers in Seattle and the State of Washington have faced an onslaught of regulation over the last 5-10 years. That trend is sure to continue after Bruce Harrell and Sara Nelson lost their re-election bids. Here is what I am expecting over the next 12 months.

City of Seattle Economic Displacement Relocation Assistance

Effective July 1, 2022 the City of Seattle required housing providers to pay Economic Displacement Relocation Assistance (EDRA) to Residents making less than 80% of Area Median Income ($96,950 for a household of 2) if the housing provider raised rents by more than 10%. In May of 2025 the State of Washington passed rent control limiting rent increases to 7% + CPI or 10%, whichever is lower. The State rent control law rendered the City EDRA useless because housing providers are no longer allowed to raise rents higher than the 10% threshold in which the EDRA kicks in. Will the City close the program and lay off or re-assign the staff administering the program? Yeah right.

Mayor-elect Katie Wilson states on her web page that she wants to lower the EDRA threshold from 10% to 5%. I think it’s a virtual certainty the EDRA threshold will be lowered and will be one of the first items taken by the new City Council.

Housing Providers need to consider how this potential change in law will interact with the 180-day minimum notice requirement to increase rent. The EDRA law has specific requirements for the notice service. Under current City law if you raise the rent by more than 10% you must serve a packet along with the rent increase notifying the resident how they can apply for EDRA. Let’s say you serve a 180 day rent increase notice today going into effect on June 1, 2026 for a 9% increase in compliance with State law. If the City updates the EDRA threshold to 5% effective May 31 and your rent increase service did not include the required EDRA forms, will your rent increase notice be invalid? Will you need to re-serve another 180 day increase? My fear is the answer will be “yes” to both questions. For this reason we have been rolling all of our term leases to periodic month-to-month rental agreements. That way if the City changes the laws and invalidates previously legally served notices I can re-serve a 180 day notice without needing to wait until the end of the renewal term, which could be as much as 12 months.

Higher property taxes

Every property tax levy that hits the ballot in Seattle passes with over 70% of the vote. The voters have signaled so clearly to our politicians that we want higher taxes. Current State law limits local governments to a 1% annual increase in property tax revenue. An attempt was made this last legislative session to lift that tax but did not make it through. Our State government is already facing another big budget deficit due to lower forecasted tax revenues and they will be back to the well to increase taxes. I think we are at big risk of the State raising the property tax increase cap from 1% to 3% and for Seattle to take full advantage. Expect property taxes to increase faster than the general rate of inflation over the next 5 years.

City Level Capital Gains Tax

In 2021 the State of Washington passed a 7% capital gains tax on capital gains greater than $250,000. In the last legislative session the State added an additional 2.9% tax on Capital Gains greater than $1 million (and also drastically increased the estate tax). Both Katie Wilson and re-elected council member Alexis Mercedes Rink want a City level capital gains tax. I think this is likely to get through soon and that this will be a priority for the next City Council.

It’s important to note that real estate is not subject to the capital gains tax because it is already hit by the real estate excise tax. I would think the City tax would also exempt real estate, but who knows.

Katie Wilson also wants a city level estate tax. That strikes me as a terrible idea and unlikely to pass but again, who knows.

Potential to subject property management fees to sales tax

Also on Katie Wilson’s platform is a proposal to subject professional services such as attorney fees to sales taxes. I assume this would also apply to property management services, which would be a big increase to the cost to operate rental housing.

Potential to subject rent income to B&O tax

The State of Washington is changing the law such that starting April 1, 2026 self storage rent will be classified as a retail transaction and be subject to B&O tax. RHAWA believes this was a test run and that State Democrats want to subject rent income to B&O tax. This strikes me as unlikely to pass but is worth keeping an eye on.

Housing Provider Response

What actions should we take as rental housing providers to respond to the pending onslaught of taxes and regulations?

1.       Get your rents to market! Rent control kills housing providers who think they are doing right by their tenants to keep rents low. Because buyers may be unable to realize market rents for years they are only willing to value existing buildings using in place rents. Property owners with below market rents are getting hammered on pricing when they go to sell. The time to be Mr. Nice Guy is over. You must serve notice properly and use the maximum increase allowance if your rents are low!

2.       Review and challenge your property’s tax assessor valuation. Building values continue to get pushed down not just as a result of rent control but because of high supply, high interest rates, and operating cost increases outpacing rent increases. Review your property valuations and consider challenging the values, especially if you have below market rents.

3.       Understand tenant credit quality. Tenant credit quality is more valuable now than ever. Renovated units in South Lake Union, Queen Anne, and Fremont attract high income residents who pay rents on time and will not qualify for the EDRA 80% AMI requirement. Buildings just outside of those areas, while still in good location, attract younger people just entering the work force or lower income residents. Lower income residents not only will qualify for the EDRA fees but are more susceptible to job loss in a recession. Tenants in Washington are provided with taxpayer funded attorneys to help them in an eviction lawsuit and it can take 9-12 months to evict a tenant. It is extremely risky to rent to people with low income and marginal credit. Don’t do it! You are better off waiting for a qualified tenant and paying some extra vacancy.

4.      Buy Right. Buy in great locations that attract high quality tenants. Understand how to identify and avoid surprise deferred maintenance issues. Understand how to identify and avoid problem tenants! Only pay for in-place rents or have a clear plan to bring rents to market in compliance with the current and future legal landscape. Plan for higher property taxes.

5.   Consider diversifying to different markets. I hate to say it because I love Seattle and think we are lucky to live in the most beautiful city in the mainland 48. However our voter base is totally hostile to housing providers and believes in price controls. Lowering the rent cap will always be popular. On one hand the increase in taxes and regulatory burden must result in a decrease in supply which will drive up rents on existing buildings. On the other hand rent caps make it difficult to keep up with rising expenses and are driving building valuations down even further. We are still investing in Seattle but are working to diversify into other markets. I’m not just talking about lower tax and lower regulation markets either. California is much richer than Washington. If I’m going to be taxed and regulated on the same level as California, why wouldn’t I move my money to California instead?

Are you anticipating any tax or regulatory changes not listed here? What actions are you taking to respond?