The Local Angle – Feb. 24, 2025
Whatever the future holds for the federal Low Income Housing Tax Credit program—it’s not yet clear whether the current administration will seek to expand it—local tax incentives remain an essential component of spurring development amid ongoing housing shortages. However, the National Multifamily Housing Council (NMHC) observed, “some cities remain hesitant to adopt these incentives due to concerns about the timing and magnitude of budgetary impacts.”
These municipal governments might do well to review a just-released study produced by RCLCO with support from the Douglas M. Bibby NMHC Research Foundation. Writing in Building Blocks: How Tax Incentives Lay the Foundation for Housing Growth, RCLCO’s Charlie Hewlett, Caroline Flax Ganz and Jackson Browning found that, when structured effectively, property tax-based incentives can reduce shortages and lead to a strong return on investment for municipalities. The result can be more affordable housing and increased economic activity.
“While there was not a universal approach to how developments received tax-based incentives, these programs have built or renovated thousands of units,” wrote the RCLCO team.
Moreover, the study’s authors found “a clear return on investment” in providing such programs. Aside from the intangible benefits of improving the supply-and demand-balance and spurring additional investment in these municipalities, there was a clear monetary benefit.
“For every dollar spent on a tax-based incentive, these municipalities received anywhere from $1.83 to $39.82 per year in additional taxes, depending on the type of program,” according to the study.
The authors examined tax incentive programs in seven cities across the U.S.: New York, Los Angeles, San Antonio, Seattle, St. Louis, Portland, OR and Buffalo. Although the programs vary in their application, tax burden reduction and affordability requirements, all have added to their cities’ housing inventories. In some cases, they have contributed up to 40% of deliveries in a given year.
“Each of these municipalities was selected for a variety of reasons, but the goal was to create a wide cross-section of cities that include those in high-growth markets (San Antonio and Seattle), with high barriers to entry (Los Angeles and Manhattan), as well as lower growth markets trying to facilitate development (Buffalo and St. Louis),” the authors wrote.
Key findings of the study include the following:
- Evaluations across multiple U.S. cities show that tax abatement programs positively impact housing affordability both directly through creating new deed-restricted affordable housing and indirectly by increasing the supply of market-rate housing.
- Tax-based programs help developers by filling financing gaps, especially in markets with affordability constraints. Municipalities benefit with new housing, new residents and additional resident spending.
- In cities with affordable housing requirements, the programs often result in more affordable housing than the minimum required, highlighting the effectiveness of tax-based incentives in creating affordable housing options.
“With the nation facing a shortage of housing of all types, this work clearly demonstrates that tax incentive programs offer a real solution to the building of badly needed housing in communities across the country,” said NMHC President Sharon Wilson Géno. “Not only do these programs directly lead to the creation of new affordable and market rate housing and improve housing affordability, they also directly benefit communities in a variety of ways. This research should encourage lawmakers to support legislative proposals to incentivize the broader use of these tools that will lead to lower housing costs and greater housing opportunity.”