Building Blocks: How Tax Incentives Lay the Foundation for Housing Growth

Originally published via NMHC

Property tax-based incentives like abatements and exemptions have been implemented in jurisdictions across the U.S. to promote housing development and preservation. In this study, RCLCO’s Charlie Hewlett, Caroline Flax Ganz and Jackson Browning examine how these programs support new construction and renovation projects by providing financial relief to developers, especially in those localities where market conditions make development a financial challenge.

Their analysis finds that, when structured effectively, these programs lead to a strong return on investment for municipalities, resulting in more affordable housing and increased tax revenues. Despite the clear benefits, some cities remain hesitant to adopt these incentives due to concerns about the timing and magnitude of budgetary impacts.

Key Findings

• 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.
• Evaluations across multiple U.S. cities show that these programs positively impact housing affordability both directly through creating new deed-restricted affordable housing and indirectly by increasing the supply of market-rate housing.
• 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.