CLEVELAND, Ohio – The city of Cleveland has unveiled proposed changes to its longstanding residential property tax abatement policy, which aim to tailor incentives to differing market conditions across neighborhoods.
The policy, introduced to City Council on Monday night, would replace what housing researchers and advocates have described as an “antiquated, one-size-fits-all” policy that’s largely remained unchanged for over a decade.
The existing policy, set to expire next month, grants 15-year abatements that forgive 100% of property tax bills incurred as a result of improvements to a property, either through new construction or larger home renovation projects. The proposed policy, which would go into effect in June 2023, does away with that blanket approach, in hopes of creating more affordable, equitable housing, and stoking growth in areas that have long seen little development.
“The history of growth in this city is not a surprise. We know the growth that’s happened hasn’t happened equitably,” said Community Development Director Alyssa Hernandez. “Through this policy, we’re looking to push into areas that have had underinvestment for a long time, to get investment where it hasn’t traditionally been.”
To accomplish that, the new policy would divide the city into three categories: areas with “strong” markets, areas considered “middle market” and “opportunity” areas.
Neighborhoods like the Near West Side, University Circle and parts of downtown are considered strong markets, where abatements would exempt owners from paying 85% of their increased tax bill. Large portions of the Lee-Harvard, Old Brooklyn, Collinwood and West Park neighborhood are considered middle markets, where the exemption would be 90%. Opportunity areas, eligible for 100% abatement, include most of the East Side and the Clark-Fulton neighborhood.
The above rates would apply to new construction and remodeling (costing more than $5,000) of one, two or three-family residential properties. In those cases, abatements would be capped, only covering up to $350,000 in home value. The existing policy does not have a cap.
Different rules would apply to new or renovated commercial residential properties – in any area of the city -- with four or more units.
The goal, said Hernandez, is to “encourage affordable housing in all its forms all throughout the city.”
Those buildings could potentially get abatements of up to 100% for 15 years if the owner makes some of the units affordable to lower-income residents, as opposed to market-rate units. To get the maximum tax incentive, owners would have to make one-quarter of the units affordable for the duration of the abatement, according to Hernandez.
Units would be eligible if they’re affordable to people making 80% of the Cleveland area’s median income. Additional benefits would be available if units are set aside for people making less than that threshold.
If multi-family building owners want an abatement but don’t want to include affordable housing, they could opt instead to pay $20,000 for each affordable unit they forego. That money would go into a city trust fund that would be used to pay for affordable housing initiatives, Hernandez said.
Multi-family building projects would also have to adhere to a community benefits agreement that would require minority, women and Cleveland-based contractors to participate in the work.
The proposed policy would leave intact existing rules that require new construction or rehabilitations to adhere to Cleveland’s green building standards.
If approved, all the existing rules would apply until the end of May 2023, meaning projects already in the works won’t be derailed by a sudden change in the policy. City Council will have the chance to make changes to the policy in the coming weeks.
City Council President Blaine Griffin, in a news release, said council does not favor a one-size-fits-all policy, noting that other cities have already moved away from that approach.
“Most importantly, residential tax abatement should promote equity and push investment into neighborhoods that haven’t seen much development but also ensure the city remains competitive, both with the suburbs and peer cities,” Griffin said.
Tax abatements in some form or another have been used in Cleveland since 1994.
The current one-size-fits-all approach dates to the years following the Great Recession.
Since the existing policy was last renewed in 2017, 1,128 abatements have occurred, covering 6,321 housing units. They represent $128 million in lost property taxes to Cleveland schools and $28 million in lost property taxes for city government, the city said.
Recent research “clearly shows” abatement is still needed because Cleveland’s housing market has yet to fully recover, and construction continues to lag peer cities, the city stated in its release. But research also shows incentives have become increasingly concentrated in neighborhoods that already carry higher housing costs.
Local government officials over the last few years began to publicly question the logic of granting big tax breaks to upscale or market-rate buildings in hot real estate markets, such as Ohio City, while other neighborhoods languish. For that reason, City Council and former Mayor Frank Jackson in 2019 considered limits on high-end projects and hired consultants to recommend policy improvements. Those recommendations came in 2020, but the city didn’t pursue changes until now.
Many of the recommendations – along with ones issued in April by a coalition of housing groups led by Enterprise Community Partners and Cleveland Neighborhood Progress – are reflected in the city’s proposed new policy.
Such changes should move Cleveland toward “more equitable outcomes and start to address some of the housing unaffordability in our neighborhoods,” said Emily Lundgard of Enterprise Community Partners.
Ayonna Blue Donald, vice president of Enterprise, said the changes are a step in the right direction, though she noted they won’t be a fix-all to Cleveland’s housing issues.
“Tax abatement reform won’t and can’t solve our affordable housing crisis, but without reform Cleveland will continue to fall further away from housing stability and equity,” Blue Donald said in the release. “It’s time for Cleveland to more strategically tailor their tax abatement to the needs of their residents and neighborhoods.”