This finding was among the conclusions of a recent report, Missed Opportunities: Assessing and Leveraging Requirements, Incentives and Trade-Offs in Affordable Housing Development, that used data collected from Up for Growth’s cross-sector network of advocacy organizations, nonprofits, investors, and developers to create a pro forma model based on rigorous application of housing development economics. The report examined the current tax abatement program in Portland, Oregon, as a case study to assess the impact of tax exemptions and other incentives and requirements on affordable housing production’s financial feasibility.

Report authors say their findings have implications for programs such as Pittsburgh’s LERTA program, which creates a graduated increase in tax payments on new construction and property rehabilitation for owners of commercial, industrial, and business properties located within designated zones. LERTA requires property owners to pay full land taxes while taxes on improvements grow incrementally over ten years.

“We were able to identify an optimal mix of requirements and offsets that communities like Pittsburgh could use as a model to effectively leverage private sector investment and produce the greatest number of affordable homes,” said Mike Kingsella, Chief Executive Officer of Up for Growth. “For Pittsburgh, the marriage of the city’s new inclusionary zoning law with the tax incentives offered by LERTA could prove a powerful and effective combination for encouraging the development of much-needed affordable homes in the area.”

Up for Growth’s analysis suggests there is common ground around policies that leverage tax policy to increase affordable housing production in market-rate buildings and achieve lasting affordability. Recommendations from the report could significantly increase the total number of affordable units produced in market-rate apartments in Pittsburgh and other communities with inclusionary housing policies.

Key findings from the report include:

• Effectiveness of tax exemptions: By leveraging longer tax exemption periods, local jurisdictions can prioritize targeted outcomes around the depth of affordability and the percentage of units set aside in mixed-income developments.
• Maximizing number of units: Nearly 60% of Up for Growth members prioritize maximizing the number of affordable units created over deeper affordability (defined as the affordability level based on household income thresholds, typically 60 percent or 80 percent of an area’s median family income).
• Calibrating trade-offs: To maximize housing production and ensure long-term affordability, policymakers must carefully calibrate tradeoffs between short-term forgone property tax revenue and long-term public benefit.

The report is drawing praise from local and national housing organizations and advocates, including those from Pittsburgh NAIOP, the Mercatus Center, and the Grounded Solutions Network.

“Without an accompanying incentive to help close the financing gap presented by inclusionary zoning, it can become a hurdle to building more housing, thus creating greater rent escalations,” said Brandon Mendoza, Executive Director of NAIOP Pittsburgh. “Up for Growth’s analysis shows a middle path where we can marry economic incentives to the shared goal of more affordable housing. I would love to work with our new administration on this middle path that ensures there is public investment in meeting public goals.”

“Poorly crafted inclusionary zoning programs run the risk of stifling housing construction and harming housing affordability for people at all income levels,” said Emily Hamilton, senior research fellow at the Mercatus Center at George Mason University. “This analysis from Up for Growth demonstrates the importance of policymakers including offsets for below-market-rate units in their inclusionary zoning programs and provides strategies for maximizing the program’s benefits for housing affordability.”

“For policymakers working to enlist private-sector partners toward the goal of increased affordable housing production with lasting affordability, determining the mix of policies and incentives and their impact on outcomes can be daunting and difficult to quantify,” said Tony Pickett, CEO of Grounded Solutions Network. “With this report, Up for Growth presents data to illuminate the tradeoffs involved when calibrating inclusive housing policies – an invaluable tool for community leaders and advocates everywhere who are working to address the nation’s housing shortage.”

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Up for Growth® is a 501(c)(3) cross-sector member network committed to solving the housing shortage and affordability crisis through data-driven research and evidence-based policy.