What are tax abatements?
Communities that offer tax abatements or exemptions agree to eliminate tax increases or otherwise reduce property taxes for specific properties for a designated period of time in order to stimulate a specified public benefit. In the housing sector, real estate tax abatements or exemptions are most commonly used to provide a financial incentive for the construction or rehabilitation of rental homes. Some communities also offer some form of tax abatement or exemption to developers and buyers of homes in designated revitalization zones and/or rental property owners who participate in housing subsidy programs. Abatements or exemptions can be structured in a variety of ways including freezing or reducing the property’s taxable assessed value, reducing the rate at which a property is assessed, or reducing overall property taxes owed.
What problems can tax abatement solve?
Jurisdictions can design policies to address a variety of community concerns, depending on local conditions and priorities. To encourage rehabilitation and prevent the loss of existing rental homes, for example, cities may offer to limit real estate tax increases for property owners who upgrade or remodel aging structures. Local jurisdictions also may offer tax exemptions as a community development strategy to help stimulate new construction in targeted areas that have experienced disinvestment and decline.
By stipulating the inclusion of affordable units as a condition for eligibility, tax abatement policies can further help to increase the supply of homes available to low- and moderate-income households. Finally, tax abatements can be used to prevent displacement and promote participation in subsidized housing programs (by rental property owners) in areas with rising housing costs and property tax assessments.
Where are tax abatement policies most applicable?
Thanks to the broad range of goals that tax abatements and exemptions can help achieve, they can be successfully applied in both strong and weak markets. Tax abatements can help preserve affordability for residents in areas where housing values are rapidly appreciating, but can also be used to stimulate new construction and substantial rehabilitation in neighborhoods in need of revitalization. In developing tax abatement policies, as with any other policy, state and local governments should carefully consider the projected fiscal impact. While abatements generally do not reduce tax revenue, they do limit the additional revenue that may be collected during the term of the abatement.
Solutions in Action
Portland, Oregon has a range of tax abatement programs designed to promote development near public transit stations, rehabilitation of rental homes, the construction or rehabilitation of owner-occupied homes in certain “opportunity areas,” and nonprofit ownership of affordable rental homes.
As of fiscal year 2006-2007, approximately 13,405 homes received one of these abatements, contributing significantly to the city’s objectives for affordable homes and community development.
Click here to learn more about Portland’s tax abatement programs.
Learn more about tax abatements
Go back to learn about other policies that can be used to capitalize on market activity
The Center for Housing Policy gratefully acknowledges the input and feedback provided for this policy section by the following reviewers: Miriam Colon, Katheryn Maccracken, Arden Sokolow, Elaine Toribio, and Lisa Yee, NYC Department of Housing Preservation and Development; Candace Stowell, City of Raleigh NC. Please note, however, that the views and opinions expressed on HousingPolicy.org are those of the Center for Housing Policy alone.