Downtown Housing and Tax Abatements

Urban centers have been booming with the growth of multi-family residential units. Look at Ohio:

  • Downtown Dayton has 204 units are under construction and another 432 units are in the development phase;
  • Downtown Columbus has over 5700 residential units constituting a growth in residents of 132% since 2000;
  • Downtown Cleveland has over 8000 residential units; and
  • Downtown Cincinnati leads them all with over 8200 residential units.

Many of these urban communities are benefiting from a desire of Millennials to move back to the urban core but they are also using tax incentives to create a level playing field with the less costly suburban housing market. Urban centers are typically complex development sites with existing buildings, property owners and struggles to find the parking and other amenities that are cheap and easy to build when transforming a field of corn into homes. Also, the development of housing and mixed use developments in the urban core benefits the entire region as it breathes new life into downtowns which serve the entire region as a central business district and often a regional or national entertainment center. The public policy and economic benefits of homeownership in urban, downtown centers is even stronger. Homeowners traditionally are more connected to the success of their community as they are invested in the value of that neighborhood. Clearly, supporting the development of downtown housing is a confluences of the current residential market, good public policy and smart economic development.

How can communities big and small create a downtown housing marketplace. The solution generally starts with determining the best tax incentive scheme to use. The Ohio Community Reinvestment Area (CRA) program is an economic development tool administered by municipal and county government that provides real property tax exemptions for property owners who renovate existing or construct new buildings and is the prime economic development tool driving downtown housing growth. Community Reinvestment Areas are areas of land in which property owners can receive tax incentives for investing in real property improvements. The program is delineated into two distinct categories, those created prior to July 1994 (“pre-1994”) and those created after the law changes went into effect after July 1994. The CRA Program is a direct incentive tax exemption program benefiting property owners who renovate existing or construct new buildings. This program permits municipalities or counties to designate areas where investment has been discouraged as a CRA to encourage revitalization of the existing housing stock and the development of new structures. Local municipalities or counties can determine the type of development to be supported by the CRA Program by specifying the eligibility of residential, commercial and/or industrial projects.

For a post 1994 CRA, the tax exemption percentage and term for commercial and industrial projects are to be negotiated on a project specific basis. If the proposed exemption exceeds 50%, local school district consent is required unless the legislative authority determines, for each year of the proposed exemption, that at least 50% of the amount of the taxes estimated that would have been charged on the improvements if the exemption had not taken place will be made up by other taxes or payments available to the school district. Upon notice of a project that does not meet this standard, the board of education may approve the project even though the new revenues do not equal at least 50% of the projected taxes prior to the exemption.

Many downtown residential tax abatement programs are beginning to approach the 15 year mark of their life. Recently, Ohio law was changed to permit the period of the tax exemption for a dwelling to extended by a legislative authority for up to an additional ten years if the dwelling is a structure of historical or architectural significance, is a certified historic structure that has been subject to federal tax treatment under 26 U.S.C. 47 and 170(h), and units within the structure have been leased to individual tenants for five consecutive years. However, this change to state law does not help many other apartment and condo owners who will struggle to compete without their current tax abatement.

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