Columbus looks to spur more affordable housing with reforms to tax abatements for residential developers
A tax relief program for developers constructing residential housing is getting another makeover a few years after initial reforms were made.
Columbus housing officials want to battle a shortage of affordable housing by requiring participating developers to build more dwellings that are economical to people making less than the area’s median income.
The city took a stab at reforming its abatement program policies in 2021 by adding more requirements for developers in exchange for the tax breaks. Because many of the development projects were grandfathered in, however, none of the projects granted the 15-year, 100% property abatements in areas like the Short North led to the production of units at affordable rates in exchange for the tax reductions.
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“When the initial policy update back in 2018 occurred, the city recognized that we had to allow a transition timeline to not quote-unquote, ‘pull the rug out from like underneath projects.’ It takes a long time to finance, it takes a long time to get investors. And it's a big change to incorporate that kind of affordability,” said Jeremy Druhot, who runs the residential abatement program for the city.
Now, the number of projects grandfathered in is dwindling, and projects that include affordable units are going through the system. Druhot and his Columbus housing colleagues are working on even more changes to residential tax abatements under the Community Reinvestment Area program.
Druhot said the program incentivizes developers to diversify housing stock and build in neighborhoods that need a boost.
“It helps to direct private investment into communities that most need it. And that need can mean that the neighborhood needs economic revitalization, or it can mean that neighborhood needs affordable options like the Short North,” he said.
Using updated data, Druhot said the program now divides the city into three categories – ready for market, ready for revitalization and ready for opportunity.
“We determined the amount of intervention needed to help make those neighborhoods not only affordable but also direct private investment to help improve those neighborhoods,” said Druhot.
The 'ready for opportunity' rating applies to the city’s most distressed areas, like Linden and Franklinton.
“The largest category is the middle tier called ‘ready for revitalization.’ These are communities that are on the upswing, but to make certain projects happen, one needs a tax abatement to make the project economical,” Druhot said.
Areas like the Short North are in the 'market ready' category. New projects there will have the most stringent affordability requirements in exchange for the tax break on improvements to the property.
“These are neighborhoods that are more or less fully developed. And the tax abatement is actually not needed in a lot of cases on its own to make a profit pencil out. So, the city in 2018 thought, ‘Okay, how can we get some more public value for the tax abatement across all the CRAs,” Druhot said.
Areas that need development the most, have fewer requirements for the developer.
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“There's not an affordability requirement for ‘ready for opportunity’ because the tax abatement is so needed to make a project viable, that we're not requiring affordable units in those areas, they naturally tend to happen,” he said.
The new program would also lower the future renters' income thresholds.
The current program requires developers to set aside 20% of the units for people with incomes at or below 80% of the area’s median income– which is about $57,000 a year for an individual.
The new program would require developers to reserve units for residents at the 80% area median income of about $47,000 a year, and people who make about $35,000 a year -- 60% of the area median income.
“So, the net result is either a deeper affordability requirement or a wider affordability requirement,” Druhot said.
The city heard feedback from the public on the proposed changes in December.
Speakers said the policy doesn’t help people on the lower end of the area median income spectrum and offers a break to developers without much in return. Some also questioned whether the rent for the affordable units is really affordable to people making less than the area’s median income.
Hilltop advocate Betty Jaynes worries the policy doesn’t go far enough.
“If the true goal is to foster private sector investment to build affordable mixed-income neighborhoods, I believe that policy needs to go even deeper to further incentivize those developers that will do the right thing instead of rewarding those that want to build more upscale apartment buildings in high land cost areas,” Jaynes said.
CEO of Metro Development Tre’ Giller said the policy is already working fairly well. He said developers like himself sometimes build more affordable units than required because it makes sense in the area of the build. He did criticize the policy for using the area median income of the county instead of the area median income of the city. He said that distorts the process.