Relief Found for Increasing Property Tax Burdens

Most housing advocates argue that property taxes have a negative impact on housing affordability. The prevailing view is that the threat of higher taxes can often reduce or eliminate the incentive to rehabilitate or improve property. Steve Smith, Senior Vice President of AHC, Inc. in Arlington, Virginia states the case succinctly, observing that , “Our rehabilitation projects increase the value of the housing we own. If the local government taxes us on all of the increased value, we have to reduce services or raise rents.” In addition, increasing property values, assessments, and taxes often place tremendous burdens on those with limited incomes. State legislatures and local governments have reacted to these problems by developing a variety of tax relief measures. Some of these efforts focus on reducing tax liabilities, while others concentrate on repaying taxpayers for payments already made.

Reducing Tax Liabilities

States throughout the U. S. offer a variety of programs aimed at assisting those whose tax liability may be particularly burdensome. For example, most states offer homestead exemption programs for residents who are elderly, handicapped and or have low incomes. These programs exempt a certain amount of a taxpayer’s home from property tax valuation. Many states have augmented this reform measure with a variety of tax relief laws. States also differentiate between tax rates on owner-occupied residential property and rental property. Rental property is usually taxed at a higher commercial rate, thereby increasing the cost of rental housing. For example, Minnesota has instituted a tax classification program that allows property owners who own affordable rental properties to be taxed at a rate of 1% of the property’s estimated market value. In Alaska, tax assessors may value tax credit properties at the statutorily mandated limited rents, rather than at market rents.

States and communities across the county have found that increased property tax assessments may discourage owners from repairing older homes or building new housing. In response, some communities now allow a phase-in of taxes on these new or rehabilitated properties. In Richmond, VA, the City permits owners of residential property undergoing substantial rehabilitation to request a partial tax exemption. Properties with less than six units can claim the exclusion for 10 years if the rehabilitation increases the assessed value of the property by 20 percent or more. Larger properties can claim the exemption if the assessed value increases by 40 percent.

Another innovative approach can be found in New York City, which provides a partial property tax exemption for new properties of three units or more. To qualify, the property must have been vacant or virtually vacant for the last three years. The City of Fort Worth has a similar program. San Antonio and St. Louis have structured their tax relief programs in a slightly different manner by allowing taxes on new property developed in certain areas of the city to be phased in over time. “While Virginia allows local governments to phase-in taxes on the increased value of rehabilitation, it does not allow a phase-in for newly constructed buildings,” said Smith. “A program similar to San Antonio or St. Louis would help us keep rents on our units lower.”

Tax relief programs vary throughout the country. For example, Illinois allows certain elderly homeowners to freeze the assessment on their property. Alabama provides property tax relief to specific philanthropic organizations (such as Habitat for Humanity) that provide affordable housing in that state. Rather than take the property tax approach, Connecticut provides tax relief through a sales tax exemption. Residents of the Nutmeg State enjoy a tax exemption for sales of personal property and services used in the construction, rehabilitation, renovation, repair, maintenance, or operation of low- and moderate-income housing. Sponsors must apply for permission to have these sales declared tax exempt, but can save substantial construction costs by doing so.

Payment Rebates

Some states do not allow tax exemptions or deferrals, but do permit the state or local government to repay taxpayers for taxes or rent paid. Both homeowners and renters are now able to take advantage of these tax relief measures. Colorado allows both homeowners and renters to deduct a portion of the taxes or rent they’ve paid from their state income tax. The taxpayer must be elderly or disabled and be on a limited income. Several states, including Massachusetts, Maine, Pennsylvania, and New Jersey, provide for rebates of a portion of taxes or rent paid if the taxpayer is elderly and/or has a limited income.

Virginia provides a tax credit for property improvements that address accessibility requirements, while Hawaii permits taxpayers to establish tax-exempt individual housing savings accounts that residents can use to purchase their first home. Other states use the tax code to encourage donations to non-profit housing organizations. For example, Kentucky provides a tax deduction for donations made to homeless organizations, while Illinois offers income tax credits for certain donations made to affordable housing developments.

Conclusion

Cities and states across the country are providing various forms of tax relief for their residents. Usually directed to low- and moderate-income households, veterans, or the elderly, these programs provide significant savings and can decrease overall tax burdens. Some states have also begun to use tax policy to encourage certain activities, such as housing rehabilitation. Depending on the level of subsidy, these programs can have a significant impact on a given household’s ability to maintain or improve the quality, durability, or livability of the residence.

The Success of New Jersey’s Rehabilitation Subcode

In examining the impediments to housing rehabilitation in New Jersey, the time for the quick-fix, patch-it-and go approach was over: officials found clear evidence that an entirely new housing rehabilitation code would be the only way to go. Overall, officials found that the existing code served as a powerful deterrent to rehabilitation because it resulted expensive, unpredictable requirements. The requirements, as well as ad hoc code enforcement, discouraged developers and investors from remodeling older homes.

The State found that certain requirements particularly discourage owners from conducting rehabilitation. As William Connolly, Director of Codes and Standards for the Department of Community Affairs explains, “Most existing codes are designed for new construction. This resulted in prohibitively expensive alterations that carried little if any safety advantage.” For example, emergency access requirements often require owners who want to replace old windows with more energy efficient systems to replace the entire window casing to meet new emergency access requirements.

The State also looked at the “perfect time” philosophy. Many building officials believe that when an owner/contractor initiates a repair on a property, that it is the right time to require all systems in the unit to be brought into code compliance. Connolly argues that the “perfect time” philosophy needed to be changed. He contends that not only does this philosophy discourage those who want to make improvements, but it also rewards those who refuse to make any improvements. He argues for a more rational approach that results in a healthy and safe unit, while not overburdening the owner with additional – and often – expensive requirements.

The State also examined the fact that implementation of the building code requirements was inconsistent. Since total code compliance was almost impossible to achieve, local building inspectors exercised a great deal of discretion in enforcing and waiving building code rules. This ad hoc enforcement encouraged a system of noncompliance among owners, as consequences for not following requirements were only infrequently enforced.

Crafting a Solution

New Jersey established an advisory committee of over 30 members in an extensive effort to create a code ensuring the health and safety of New Jersey residents, while at the same time reducing costs. According to Connolly, the committee’s focus was to create a code that would apply to existing conditions. It was a simple idea, but one that had not been previously considered. The new code would address health and safety concerns, but would not focus on dimensions and require expensive upgrades that added little to safety. According to Connolly, “We wanted this code to have fewer rules, but we wanted those rules to be very specific and require very little discretion on the part of building code officials.” He cites, for example, the requirement for sprinklers and smoke detectors in reconstructed units. “While these measures vastly improve health and safety,” he said, “they can be retrofitted into existing buildings with little impact on the structure.”

The Results Are In. The News Is Good.

New Jersey has seen positive results with its new rehab subcode. So far, the subcode has:

· Lowered project costs and made more projects feasible. For example, the owner of a five-story affordable apartment complex in Jersey City estimated that the cost of bringing the building into full code compliance would be approximately $480,000. Since rents in the area would not support such costs, he had not undertaken the work. After passage of the new code, he calculated the rehabilitation cost to be about $300,000; a savings of over 37 percent.

· Generated dramatic increases in the estimated dollar amount of rehabilitation. Prior to enactment, rehabilitation contracts increased about 15 percent a year in central city areas of New Jersey. For the two years following enactment of the new code, such contracts in central city areas jumped 60 percent.

· Provided a model for other areas across the country. Since New Jersey’s adoption of the rehabilitation code, Maryland and Rhode Island have adopted similar codes. In addition, the new International Existing Buildings Code and NFPA 5000, Chapter 15 have incorporated many of the features contained in the New Jersey subcode.

To learn more abut this Garden State success story, visit http://www.state.nj.us/dca/codes/rehab/index.shtml or call the Code Assistance Unit at New Jersey Department of Community Affairs at (609) 984–7609.

Jacksonville Takes Steps to Reduce Opposition to Manufactured Housing

For many communities, manufactured housing can provide a solution to an affordable housing crunch. Yet the placement of this housing can be a source of controversy within the community. Jacksonville, Florida faced this very dilemma and came up with a workable solution.

The Problem: A Zoning Law That Allows Too Much Discretion

Jacksonville’s zoning ordinance seemed to be the part of the problem. While Florida state law forbids discrimination against the placement of manufactured housing in residential districts that allow site-built housing, Jacksonville’s zoning ordinance required a prospective manufactured home buyer to seek a zoning “exception” before it would allow the placement of a manufactured home in any residential zone. What’s more, the City required a public hearing before granting any exception – in effect, allowing those opposed to manufactured housing to rally the troops and generate strong opposition at the hearing.

Fear – rather than facts – seemed to be the driving force behind this opposition. According to Bill Turney, Assistant Executive Director at the Florida Manufactured Housing Association, “People opposed the placement of manufactured housing because they misunderstood the installation process. When people saw a truck transporting a [mobile] home, they didn’t stop to think what it would look like when it was finished.”

According to City authorities, the exception-granting process, including the public hearing, was too discretionary in nature and was in need of clarification. “We wanted to develop a system that could reduce the fears that some had concerning manufactured housing, while at the same time make the approval process as rational as possible based on specific pre-defined criteria,” said Jeannie Fewell, Planning Director for Jacksonville/Duval County.

The Solution: New Aesthetic Criteria

With this goal in mind, the City set out to revise the existing zoning ordinance to allow any type of housing in single-family zoned areas, as long as it blended in with the surrounding neighborhood.

The first step that Jacksonville officials took was to create a task force comprised of representatives from the manufactured housing industry, homebuilders, citizens groups, members of the City Council, and the General Council’s office. Meeting monthly for over a year, these representatives worked cooperatively to develop criteria that would allow the siting of all types of single-family dwellings – including modular and manufactured homes – in Jacksonville neighborhoods, as long as the newly sited home was compatible with other homes in the area.

The task force determined that the fear engendered by manufactured homes among current residents was driven by concerns over what the homes would look like once they were on the lot next door. To address these issues, the group developed and recommended a set of aesthetic criteria for all new single-family dwellings.

“By making all housing meet the same conditions, we reduced the fear that some had concerning the appearance of some types of manufactured housing,” said Turney.

In addition to other guidance, the group recommended that all dwellings be set on permanent foundations and that projections include bay windows, garages, dormer windows, recessed doors, porches, and decks.

“From our point of view, we wanted to be compatible with the neighborhood, while still maintaining affordability,” said Turney.

The next step was to turn these recommendations into law. When the new aesthetic ordinance was passed, it included many of the recommendations that grew out of the task force meetings. The resulting ordinance removes the exception requirement for manufactured housing and provides aesthetic guidance for all new homes. The ordinance is focused on compatibility criteria, rather than referring to a specific type of home. The ordinance also includes various findings regarding the mandates of Florida’s anti-discrimination laws.

The City defined compatibility as the five closest residential dwellings with property lines within 350 feet of the proposed house. Each proposed dwelling unit must meet certain lot grading standards or have a specified roof pitch. The structure must be on a permanent foundation, have a similar number of projections in comparison to other dwellings in the neighborhood, be oriented so that the long axis is parallel to the street, and be at least 850 square feet.

The ordinance also allows the zoning administrator to make the final decision about compatibility, which can now be based on clear and fairly unequivocal criteria. “If our homes meet the criteria, then the zoning administrator makes the decision based on the merits of the home – not on anything else,” said Turney.

The Legacy: Has This Change Proven Successful?

According to Fewell, the ordinance has been a success. “The fights have gone away,” she reports. Manufactured housing can now be placed in any residential area without a lengthy and sometimes controversial public review process. In Jacksonville today, housing must only meet the specific aesthetic guidelines in the ordinance.

The new aesthetic ordinance has proven so successful that the Florida Manufactured Housing Association is taking the Jacksonville concept to other jurisdictions in the state.

For more information on this ordinance, go to Florida/Jacksonville.