What’s out there, how can it help portfolios and how to go about it.
Rental housing owners have numerous options at various levels of government at their disposal when it comes to leveraging tax rebates and abatements for their properties, with the best solution dependent on the type of property, demographics of the area and particular wrinkles of the state or municipality.
Rebate and abatement programs to support housing aimed at working-class and middle-class occupations like teachers or firefighters are perhaps the most common, spanning public facility corporations (PFCs), housing finance companies (HFCs) and tax-increment financing (TIF) districts, along with the federal Low-Income Housing Tax Credit (LIHTC) program, says Lisa Catlett, Senior Vice President of Operations, Affordable, RPM Living.
“They’re there to focus on your blue-collar workers… because the cost of living throughout the United States has gone up so much,” she says. “Those have been the focus of our government, trying to get nice, affordable housing to the people that are working day-in and day-out, when expenses have gotten so insanely high.”
Lisa Gunderson, Vice President of Asset Management at Bristol Development Group, says each state or municipality has different outcomes they are looking to incentivize with tax rebate and abatement programs.
“At the end of the day, we’re real estate developers,” she says. “It’s the economic benefit we’re seeking to get a deal done. With high interest rates, it’s advantageous to have a program in place that people are trying to solve for—but [rental companies,] make sure you have all the pieces of the puzzle and understand all the components of the program before you get started.... There are economic consequences to getting that wrong.”
Demetrio Jimenez, Past President of the Texas Apartment Association and President and Owner of Tropicana Properties, says his company doesn’t use property tax rebates. But he was a key figure in testifying before the state legislature last year on PFCs, nonprofit corporations that can be created by a municipality, county, school district, housing authority or special district, in partnership with developers, under Texas statute.
However, developers had to pay ad valorem taxes—derived from the assessed value—on such properties until the law changed in 2015 to stipulate that PFCs used for affordable housing, with at least 50% of the units reserved for households with an income less than 80% of the area median income (AMI), and which leased the affordable housing property to a for-profit entity for operation, would be exempt from all ad valorem tax, as explained in a June 2023 National Law Review article.
But the 2015 law did not impose requirements customary in the affordable housing industry to ensure that sufficient public benefit was generated in exchange for the tax exemption provided, according to a June 2023 article from law firm Locke Lord LLP, and Jimenez says it was reformed in 2023 to tighten the requirements. “There were no guardrails,” he says. “There were no rent restrictions nor income caps. However, with the new reform, the Texas Department of Housing and Community Affairs has a purview over all public financing corporations.”
Jimenez knows of one or two developers who have signed on as a PFC in partnership with the Housing Authority of El Paso; he’s not sure of the statewide total. Existing or occupied properties can also qualify, he says. “The baseline income requires each affordable housing property to reserve at least 10% of the units for households with incomes at 60% of AMI or less, and at least 40% of the units for households with incomes at 80% of AMI or less,” he adds.
Once a unit is rented to a qualified household, it willcontinue to qualify even if the household’s income increases beyond the household limit of up to 140% AMI, the Locke Lord article notes. This provision “allows a low-income family to stay and the ability to increase their income comfortably,” Jimenez says. “It allows them to stay in that unit, pay the low rent, and save for hopefully purchasing a home.… It’s another instrument for providing affordable housing, which, in some cases, has no other subsidies or much governmental interference. It’s very inventive, and I think it’s a unique program now that the guardrails are in place.”
Depth of the Need
Without tax rebate and abatement or other incentive programs, Catlett says it’s questionable how much affordable housing would be built, especially on the coasts and in other higher-end markets. “The [difference in] cost to build a Class A luxury [structure] vs. a garden-style is pennies on the dollar,” she says. “For the developer, it only makes sense in most cases to go more high-end, which, in turn, means higher rents.”
HUD has been working with great care and perseverance to sign-up additional rental companies for the LIHTC program because a whopping 325,000 units will be “falling out of that program” in 2025, worsening the affordability picture, Catlett says. “They are going above and beyond to get funds out there, to get owners and developers interested in getting LIHTC units online,” she says. “I’m hopefully optimistic.” Not only new developers can avail themselves of this program but also those looking to re-syndicate for another 15 to 30 years, she adds.
Some municipalities, including Austin, Texas, require an affordability component to sign off on building permits, Catlett says. Many states have “bountiful” funding available, Texas in particular. “There is so much opportunity,” she says. “We always do try to talk to our clients about it, and at least have them explore the options. Because at this point, it’s not a difficult process. It does range county by county, and state by state.”
RPM Living can give guidance on what kind of program makes the most sense in a given situation, Catlett says. “It really is client-specific, property-specific, and specific to the location,” she says. “If it’s a high-end luxury community that they plan on building in uptown Dallas, my recommendation would be some kind of TIF or smart housing program where it only impacts 10% of the community. If it’s in Plano or any area that’s more up-and-coming, I would recommend an HFC or PFC program that impacts 50% of the community.”
While oversight of such programs by HUD or states receiving HUD money has been lax at times, Catlett says it’s tightened up considerably in the past 18 to 24 months. “They are having auditors come in and do audits. It’s critical that if you take the funds and sign up for a program, that you manage it properly …to make sure that you’re not going to lose those big rebates.”
In that sort of environment, regulatory agreements need to be followed verbatim, Catlett says. “There are so many amazing opportunities out there to benefit from providing affordable housing, but you have to educate yourself,” she says. “You have to understand the program and follow the guidelines set in place by the county or the state.” And get to know your local councilmembers and others who need to sign off on your plan, she adds.
Projects Underway or Completed
RPM Living is helping to manage multiple affordable projects undergoing either new construction or major renovations, Catlett says. One 800-plus-unit project in Oklahoma is a vintage community getting a multimillion-dollar renovation that requires residents to be relocated temporarily. It’s part of the federal LIHTC program, after never having been part of an affordable tax rebate or abatement program previously, she says. All units will be affordable.
Another current RPM client property in Texas will be a mixed-use asset with 230 units total, 10% of which will be earmarked for veterans facing homelessness and another 10% for those facing chronic homelessness, Catlett says. RPM also manages “a large amount of units” for the Fort Worth Housing Authority and recently took over some on behalf of the Nashville Housing Authority. Overall, the company is involved with about 26,000 affordable units nationally, ranging from project-based Section 8 Housing Choice Voucher program units to luxury high-rises with a small percentage of affordable units.
Bristol Development Group has pursued numerous projects with an affordable component nationwide, totaling about 1,000 units. Several of those have been in Florida under the Live Local Act—passed in 2023 and amended in 2024—which provides both a 75% tax reduction for those between 80% and 120% AMI and 100% for those under 80% AMI, as long as at least 71 units are certified as meeting the “missing middle housing” need, with rental rates and income requirements at a maximum of 120% AMI. The law also fast-tracks approval, taking the cycle from about five years to eight months, Gunderson says.
“It’s been beneficial to us and other developers, and it’s gotten the desired results,” she says. “It’s designed for affordable or ‘missing middle’ housing, with very straightforward guidelines.” Developers must commit to the program in three-year time blocks, although they must recertify annually with the state—the tax break continues as long as requirements are met, she adds.
At the local level, Bristol opened a project last year in Knoxville, Tenn., leveraging a city Payment in Lieu of Taxes program used to incentivize downtown urban living developments through a 20-year tax rebate, Gunderson says. For the five-story, 237-unit project, 80% of which are one-bedroom and 750 square feet, the program provides approximately a 40% tax reduction, she says.
“It helped us get the deal financed,” Gunderson says. “The banks that we use looked at it as net-present value. It’s a rebate, so we pay and then we get refunded a pro-rata portion, based on the structure of the deal.” The property does not have affordable units, per se, “It’s just to stimulate property development in downtown,” she adds.
Bristol has built a 269-unit, seven-story building in the New Lou neighborhood of Louisville, Ky., as part of a 20-year TIF district with $5 million offered as seed money with additional matching of state funding as private funding increases; this is similarly designed to stimulate downtown housing developments, Gunderson says. “The majority of the housing stock is 100-year-plus renovated storage-type buildings with a traditional warehouse look that had been turned into apartments,” she says. “They saw an opportunity to incentivize development.
Overall, she adds, such programs are “a wonderful way to get desired outcomes, whether that’s affordable units in Florida, or a new development in an area of town you’ve been struggling to get engagement with. It’s a great way to align those requirements.”
Ed Finkel is a freelance writer for units.