Tax Relief Strategies for Affordable Housing, Workforce Housing & Community Benefit
There are a variety of tools a municipality can leverage to promote housing development, tax relief measures to specific properties that meet community goals are a powerful resource. To avoid creating problematic tax abatement policies, it is important to consider the trajectory of the community. Communities that have experienced significant amounts of long-term disinvestment are much more likely to benefit from the incentives that tax abatements can provide. Conversely, providing tax abatements to lower-income households in neighborhoods that are quickly becoming high-cost can also be very effective.
Tax Relief Considerations GROUND UP / NEW CONSTRUCTION
BENEFITS TO COMMUNITY • Economic development spurred • Community building promoting long-term stability • Increase in local tax base, reducing flight and displacement of existing residents • Spending in local retailers, in short term and long-term DIFFERENT TYPES OF TAX RELIEF AVAILABLE • Gross Rent Tax: Simple percentage of gross collected rents • Shelter Rent Tax: Protects municipality from reduction in existing tax collections, while limiting the increased tax burden to the property. • Exemption: Reduces taxable value • Abatement: Maintains taxable value but reduces tax bill • PILOT: Payment In Lieu Of Taxes • TIF: Tax Increment Financing, for geographic specfic goals
• Long-term financial stability • Expenses often outgrow rents • Bonds-30 year financing • 15-year Tax Credit restriction period with 15-year extended compliance period • 30+ year Regulatory agreements PRESERVATION OF EXISTING PROPERTIES & COMMUNITIES • Enables the protection of residents from predatory landlord behaviors • Long-term resident stability, and potential to “age in place” • Levels playing field when competing against for-profit market rate investors and developers
Long-term tax abatements for affordable workforce housing can provide significant benefits, both for developers and communities. Here are some key advantages: The Benefit COMMUNITY AND ECONOMIC BENEFITS AND POLICY CONSIDERATIONS
The Necessity RISING CONSTRUCTION AND OPERATING COSTS 1. Increased Construction Costs: Over the past decade and exponentially since the beginning of 2020, construction costs have risen significantly due to factors like labor shortages, increased material costs, and supply chain disruptions. These rising costs make it challenging for developers to build affordable housing without financial incentives. 2. Higher Operating Costs: Operating costs for affordable housing, including maintenance, utilities, property management and insurance, have increased significantly within the last 36 months. In certain cost the increases have exceeded 200% for the same cost, as compared to pre-pandemic expenses. LONG-TERM FINANCIAL TRENDS 1. Expense Growth Outpacing Revenue: The expenses associated with maintaining and operating affordable housing grow at a statistically higher rate than the revenues generated from rent. This imbalance can make it financially unsustainable for developers to invest in affordable housing without support. These costs often grow at a rate higher than inflation, putting additional financial strain on property owners. 2. Economic Stability: Long-term tax abatements provide a stable financial environment for developers, allowing them to plan and invest in affordable housing projects with greater confidence. This stability is crucial for ensuring the long-term viability of these projects. By providing long-term tax abatements, municipalities can create a more favorable environment for the development of affordable housing, addressing both immediate and long- term housing needs while fostering community growth and stability. Please feel free to contact us if you would like more information or would like to engage in discussion intended to facilitate dialogue for the betterment of the community.
1. Addressing Housing Shortages: By incentivizing the development of affordable housing, tax abatements help address housing shortages by increasing supply that ensures that low- and moderate-income families have access to safe and affordable homes. 2. Incentivizing Development: These abatements encourage developers to build or renovate existing units by reducing their property tax burden for an extended period enabling long-term investment. 3. Ensuring & Maintaining Affordability: In exchange for tax relief, property owners often commit to keeping rents affordable for a set number of years, ensuring long-term housing affordability. 4. Stabilizes Communities: Long-term abatements can provide stability for residents by ensuring that affordable housing remains available over an extended period. 5. Equitable Development: Properly structured tax abatement programs can promote equitable
development by ensuring that the benefits of new housing projects are shared across different socioeconomic groups.
6. Reduces Vacancy Rates: By encouraging the development and maintenance of affordable housing, tax abatements can help reduce vacancy rates in targeted areas. 7. Revitalizing Communities: By making it financially viable to develop in underdeveloped or blighted areas, long-term tax relief can help revitalize neighborhoods and improve local economies. 8. Encouraging Investment: They can attract businesses and developers to invest in areas that might otherwise be overlooked. 9. Community Benefits: Improved housing can lead to better community services, improved infrastructure, and overall quality of life for residents. 10. Economic Growth: By reducing the tax burden, these abatements can stimulate local economies, creating jobs and increasing economic activity. 11. Increased Property Values: Over time, the improvements and investments spurred by tax abatements can lead to higher property values. 12. Long-term Planning: They provide stability and predictability for businesses and developers, allowing for better long-term planning and investment.
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JAY CENGIZ Director of Development jcengiz @ nhpfoundation.org Direct: 646.336.4935
MANSUR ABDUL-MALIK Senior Vice President mabdulmalik @ nhpfoundation.org Direct: 202.312.2504
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