Desperate for affordable housing, some cities sweeten tax breaks for developers

Last month, city council members in Fort Worth, Texas, decided developers that received massive tax breaks to build affordable housing would no longer be able to buy their way out of the obligation by paying a $200 annual fee in lieu of each unbuilt low-income unit.

In Columbus, Ohio, leaders voted in December to expand the city’s tax break program for affordable housing. And in Cincinnati, builders can now get an automatic property tax exemption for some affordable housing projects, rather than having to apply.

Tax abatements have long been a tool cities use to encourage developers to build homes low-income residents can afford. Developers pay lower property taxes in return for setting aside homes or apartments for potential residents with lower incomes. Cities lose that tax revenue, but they gain affordable housing.

As the nation’s housing crisis continues, many cities are altering their policies. Some are making the programs stricter; some are offering more money or extending tax breaks for more years. No matter the approach, municipal leaders say they’re trying to figure out how to get more of their residents safely housed.

“As a city, we can’t force developers to make housing affordable. But we have tools,” said Sarah Odle, neighborhood development coordinator for the city of Fort Worth.

“The name of the game for a developer is to make money,” Odle said. “And the name of the game for us is if we’re going to give you incentives, then we want something substantial in return — and that’s housing that is truly affordable.”

Expanded tax breaks

In Fort Worth — which attracted nearly 50,000 new residents from 2020 to 2023, the most of any city in Texas — tax abatements have driven affordable housing for years. Developers can receive a five-year tax break if they build in designated zones and set aside 20% of their units as affordable housing.

Last month, however, the Fort Worth City Council removed the option that allows developers to pay an annual $200 fee per unit in lieu of building affordable homes. Developers are now required to set aside affordable housing if they want the tax breaks.

In December, the Columbus City Council in Ohio expanded the tax abatement program beyond certain neighborhoods to include the entire city, granting developers a 100% tax break for 15 years.

A spokesperson from Columbus’ Department of Development told Stateline that housing building permits are projected to be down 10% from last year. But officials expect the expanded tax incentive to accelerate affordable housing in all areas of the city — including in historically underinvested areas.

An hour and thirty minutes away in Cincinnati, an ordinance passed by the city council last month allows affordable housing developments funded by public-private partnerships there to get an automatic property tax exemption without council approval, streamlining the building process.

In their bid to spur more affordable housing, cities also are trying to boost the post-pandemic trend of downtown office-to-housing conversions.

Western states look to these lands for new affordable housing

In 2022, D.C. expanded tax breaks for developers converting downtown offices into housing, with tax exemptions for up to 20 years if they meet affordability requirements.

Boston Mayor Michelle Wu, a Democrat, last year also announced a public-private partnership that expands tax breaks for conversions to housing. Developers must reserve at least 20% of their new units as affordable, with some space for federal voucher holders as well.

Chicago and Pittsburgh have put similar tax deals in place in the past two years, with affordable housing stipulations attached.

Washington state legislators recently held a hearing on proposed legislation to offer affordable housing tax incentives for conversions statewide.

Washington state Sen. Yasmin Trudeau, a Democrat who represents Tacoma and who sponsored the measure, said her bill is a quick approach to address Seattle’s need for more housing, which is estimated at 1 million new units over the next 20 years.

Trudeau is optimistic about the bill’s chance of success this legislative cycle, as it passed a Senate committee in January. But some aspects of her legislative package didn’t advance, including a tax incentive for converting market-rate apartments to affordable units, as well other legislative levers to maintain affordability.

“There’s a larger conversation we’re not having about ways to maintain affordability, such as rent stabilization or transit-oriented development, which are built-in affordability measures,” she said.

‘Double-edged sword’

Tax abatement deals might not always live up to expectations, according to David Dworkin, president and CEO of the National Housing Conference, a Washington, D.C.-based affordable housing advocacy group.

“I think tax abatement is a double-edged sword. If you have it, you can create fairly significant incentives to create and maintain, to create and preserve affordable housing where you don’t have it,” said Dworkin.

However, he said, new construction can displace current residents with low incomes, and oversight is needed to ensure that developers follow through on promises of affordable units.

Cities Support Community Land Trusts to Protect Affordable Housing

In a review of New York’s affordable housing tax incentives, the Fiscal Policy Institute, a nonpartisan think tank, suggests increased abatements hurt cities by removing their primary source of revenue, handicapping them to handle other costs associated with rising populations and burdening school districts.

Meanwhile, some states are seeing conflicts between legislative action and local goals.

In Florida, for instance, a law passed with bipartisan support last year, the Live Local Act, offers developers sweeping tax breaks in exchange for building affordable units for people making up to 120% of the area median income. Developers that participate also can override local zoning rules to build in commercial and industrial areas.

Developers have rushed to take part, according to The Wall Street Journal.

But Pasco County, on Florida’s west coast, is aiming to change the law, arguing that the cutoff for affordable housing should be at 80% of median income to help more families in need.

The law puts local governments in a financial bind, county officials say. In Pasco’s case, commissioners had made plans for their industrial zones and are trying to lure more employers — not residents — to the suburban bedroom county outside of the Tampa-St. Petersburg area.

Here’s One Way States Are Boosting Affordable Housing

The Pasco County Attorney’s Office told Stateline in an email that the Live Local Act “forces the county to make these sacrifices for housing” with no guarantee of homes that will be affordable to residents.

In various meetings on the issues, Pasco County administrators have discussed imposing a moratorium on all multifamily development if no change is made to the law.

Other states have sought to rein in local tax breaks.

This year, a Republican bill in the Arizona legislature would halve the period a property can receive tax breaks from eight years to four.

Last year, Texas lawmakers approved a revision to how tax breaks are used for affordable housing. The law closes loopholes that allowed some properties to be tax- exempt for years and requires regular audits for future tax deals.

Stateline is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Stateline maintains editorial independence. Contact Editor Scott S. Greenberger for questions: info@stateline.org. Follow Stateline on Facebook and Twitter.