Proposal: Build housing in downtown Anchorage, get a 12-year property tax break

The administration of Mayor Ethan Berkowitz wants to end a housing construction drought in downtown Anchorage by offering housing developers a 12-year property tax break.

The proposed ordinance, recently unveiled to the Anchorage Assembly, is aimed at new downtown development or redevelopment that adds at least four units of housing.

City officials hope to kick start apartment and mixed-use projects that could inject fresh energy into the city’s central business district, said Chris Schutte, the city’s community and economic development director. People want to live in the downtown core, Schutte said, but there’s few options. Developers say the price of land and construction downtown make housing prohibitively expensive to build.

One developer says the proposed incentive could make or break a planned luxury apartment project on a bluff overlooking Cook Inlet.

The last multi-family housing to be built in the downtown Anchorage core was the McKinley Tower Apartments in 2006, Schutte said. Berkowitz and his deputies have contended that stagnant housing construction hurts the city’s economy and contributes to other problems.

[How Anchorage is trying to kickstart development on empty land downtown]

There are signs of change. A new mixed-use housing project by the nonprofit housing developer Cook Inlet Housing Authority is rising up at the corner of 7th Avenue and I Street. In the industrial Ship Creek area, a new condo development called the Downtown Edge is under construction on land owned by the Alaska Railroad Corp.

Other projects are at the design stage. Anchorage’s downtown transit center may be redeveloped into apartments, along with a hotel and ground-level businesses; a property at 8th AVenue and K Street, owned by the Anchorage Community Development Authority, is slated to become a mix of apartments and business.

For now, the Cook Inlet Housing and Ship Creek projects add up to fewer than 100 units, Schutte said. That’s not enough for a city of Anchorage’s size, he said.

“(We want) to establish that 24/7 population that makes downtowns across the country thrive,” Schutte said.

Downtown Anchorage lacks basic amenities that cater to residents, like a grocery store or pharmacy. But more housing could change that, Schutte said. He said efforts to bring chains like Walgreens to downtown have failed because of the relatively small residential base.

[Support local journalism in Anchorage. Subscribe to the Anchorage Daily News / adn.com]

Surveys conducted by the Anchorage Economic Development Corp. in recent years found strong interest in more downtown housing.

Denver, Oklahoma City

For years, state laws restricted Anchorage’s ability to give out financial incentives to developers. Then, in 2017, the Alaska Legislature changed state law to give Alaska cities more flexibility to create tax breaks for specific types of development.

Before that, the main tool available to Anchorage developers was a tax break for deteriorated property. The law has been rarely used, and is often described by developers as burdensome. Officials also worried the law had a perverse incentive, Schutte said, encouraging developers to neglect properties in order to qualify for the tax benefit.

The new tax proposal is meant to be simple and easy to use, Schutte said. Similar laws are on the books in cities in the lower 48, including Oklahoma City and Denver.

There are a few rules, according to the Anchorage proposal. The developer has to apply for the tax break before starting construction, and it won’t take effect until the development is finished and certified for residency. At least four units have to be built, and the the development has to add to downtown’s housing base. If the development includes a commercial side, only the housing part will be exempt from taxation.

The tax break would only apply to properties within the boundaries of what’s known as the “central business district,” which spans west of Ingra street, north of 9th Avenue, east of the bluff that runs along Coastal Place, M Street, N Street and O Street; and generally south of Ship Creek.

To show the exemption should still apply, the property owner will have to submit an annual compliance report to the city, or face fines.

Downtown Assemblyman Christopher Constant he sees the measure as a way to spur more downtown housing options for young and working-class residents. He said a vibrant neighborhood depends on bringing in people that not only work but live there.

“We don’t have a culture of people living downtown,” Constant said.

About two years ago, developer Nick Mystrom bought empty land at the corner of 2nd Avenue and K Street in downtown Anchorage. The land is on a bluff looking over Cook Inlet and the Tony Knowles Coastal Trail.

Mystrom, the son of former Anchorage Mayor Rick Mystrom, has plans for the property. He wants to build 24 luxury loft apartments ranging from 1,200 to 3,500 square feet. The $15 million building would consist of eight stories, with three floors of parking built into the hillside and five floors of apartments, Mystrom said.

The apartments would sell between $500,000 and $1.2 million, Mystrom said.

But project doesn’t yet make financial sense, Mystrom said. It’s located in a high-risk seismic zone and will require extra engineering and expense to build. Mystrom has also hesitated to jump into uncharted territory. Very little housing has been built downtown in recent years, particularly luxury apartments, he said.

“I’m bullish on the Anchorage market, but no developer really wants to be the first guy into any given market,” Mystrom said.

He said he’s been talking to the Berkowitz administration about the new tax exemption proposal. He said the new law would make it far more likely that his project goes forward.

The owners of the new apartments he builds would pay between $10,000 and $20,000 less in property taxes each year, Mystrom said.

South Anchorage Assemblyman John Weddleton, who chairs the Assembly’s community and economic development committee, said he had been researching whether the 12-year time frame was necessary, or if it should be capped. He encouraged builders, planners and residents to contact the city or representatives to make suggestions for changes.

He also said he wanted to ensure that the new tool helps spur housing for a wide range of incomes.

The Assembly is scheduled to debate the measure at its Feb. 12 meeting.

If it passes, Schutte said the new tax law can be tweaked later on to apply to other parts of Anchorage. He pointed to areas that city plans have identified as ripe for reinvestment, such as the central Spenard area.