Cleveland’s residential tax abatement program is up for reauthorization in the coming weeks. The program is fundamentally unfair and inequitable, as it subsidizes the top end of the housing market at the expense of existing city residents. It should be reformed to focus on supporting the development of permanently affordable housing, which the private housing market will not provide.
Reasons for reform
Cleveland has an affordable housing crisis. It’s estimated that 9,300 homeowners and more than 26,000 renters pay more than half their income on housing, leaving them with little money for food, transportation, medical care, and other necessities. Many more households are rent burdened, paying more than 30% of income for housing.
At this time of shelter poverty, the reform of one of the city’s major housing programs — residential tax abatement — is being debated. The program gives 15-year, 100% property tax abatements for new housing construction or renovation projects that meet certain green building standards. The program was created in 2004 to jumpstart the moribund market for housing construction in the city. Now its unfair and inequitable impacts are clear.
Tax abatements incentivize expensive housing in a few neighborhoods: Increasingly, tax abatements are subsidizing multi-unit, market-rate buildings in a few high-priced neighborhoods of the city. Since the abatements are based on the value of buildings, developers get more subsidy by chasing the high end of the real estate market. The effect is to widen the gap between wealthier neighborhoods and the rest of the city, exacerbating disparities of income and race. And to make matters worse, it’s not even clear that abatements are needed to make new developments work economically. According to one survey of households that received abatement, 65% said they would have bought in Cleveland without it.
Tax abatements are unfair to existing residents: If you are struggling to work low-wage jobs to pay your bills, how can you think it’s fair that the comparatively wealthy people moving into the new development next door can live there tax-free for 15 years? What do you think when tax abatements enable high-cost developments around you and cause your property taxes or rent to increase? And what do you think when wealthier residents are exempted from paying property taxes that support the services that low-income people need, such as public schools, libraries, and parks? Those are the moral questions raised by the city’s current residential tax abatement program.
Recommendations for reform
The current five-year authorization for the tax abatement program will expire on June 4, 2022, so reauthorization legislation is being rushed through City Council. The proposed legislation includes some modest policy changes to make the program serve equitable development goals, including a $350,000 cap on abated property value, a slightly greater incentive to develop in weak market neighborhoods of the city than strong market neighborhoods like Ohio City and University Circle, and a requirement for multi-family developments of four or more units to set aside a percentage of affordable units or pay of fee of $20,000 per unit into a city affordable housing fund.
Such changes are positive and well-intended. However, they do not go far enough to reform a fundamentally unfair, inequitable system.
Public subsidies should be granted only for a clear and essential public purpose. In this case, the city’s tax abatement program should be reformed as follows:
Give tax abatements only to projects that expand the supply of permanently affordable housing. The policy debate should focus on the specifics of how to do this — e.g., how to define affordability, how to increase the capacity of shared-equity housing programs like community land trusts, how to use ARPA funds creatively to support affordable housing programs, how to reform the land disposition policies of city and county land banks, and how to manage the program effectively and transparently.
Strengthen requirements for green building. To reduce the existential threat of climate change, all new construction should move us towards a net-zero energy future. And the energy savings from building green will reduce the long-term cost of housing.
In addition, the city should develop a much more comprehensive housing strategy. We should learn from the best practices of other cities and create policies and tools that will preserve existing affordable housing, help address deferred maintenance and repairs, protect low-income homeowners and renters, and crack down on predatory investing. We also should make the case that affordable housing is not just the responsibility of the city of Cleveland. Every city in Cuyahoga County should provide a full range of housing types and prices.
We want a community where everyone has access to safe, decent, affordable housing. It’s time for Cleveland to align all its policies and incentives to make that happen.