In 2017, Ordinance 244-2017 established in the city of Cleveland a “one size fits all” residential tax abatement policy: a blanket 15 years 100% abatement of any increase in real estate property tax that results from eligible improvements on qualifying projects (whether a new construction or the remodeling of existing homes). All work had to be completed under a permit issued by the city and needed to meet Green Building Standards.
While the tax abatement program has been a clear success in various parts of the city like downtown, the near west side (Ohio City, Tremont, Detroit-Shoreway, Edgewater, etc.), or University Circle – some neighborhoods have not drawn as much interest and remain lagging behind.
With the 2017 tax abatement program expiring on June 4, and the crippling affordable housing crisis, Cleveland Mayor Justin Bibb and his administration introduced a revamped tax abatement legislation on May 9. After some alterations, Cleveland City Council unanimously adopted the new legislation on May 25 – days ahead of the expiring program.
The redesigned tax abatement program focuses on incentivizing equitable developments uniformly across the city by dividing the city blocks into three tiers: market rate, middle market and opportunity neighborhoods. A map of the neighborhood designations is available on the city of Cleveland website at bit.ly/3Apj6YM.
The idea behind the three-tiered design is to grant greater tax relief to neighborhoods with the weakest housing market than neighborhoods with more demand.
For example, constructions of new homes in a market-rate neighborhood will be eligible for an 85% abatement on the first $350,000 of a property’s value. In middle markets, the abatement rises to 100% on the first $400,000. And finally, in opportunity neighborhoods, the owners may claim 100% on the first $450,000.
Constructions of multi-family projects of four units or more are also subject to the three-tiered approach with an 85% abatement in market-rate neighborhoods, 90% abatement in middle-markets, and 100% in opportunity. But with multi-family projects comes an additional requirement: that the owner enters into a Community Benefits Agreement with the City.
The Community Benefits Agreement requires that owners of multi-family projects set aside a percentage of units that someone making the metropolitan area’s median income of $56,000 could afford (just above $1,000 for a one bedroom). The set aside is 25% for a multi-family project in avmarket-rate neighborhood, 15% in a middle-market neighborhood, and 5% in an opportunity neighborhood. Developers that do not meet the set-aside requirement can also pay $20,000 per unit into a housing trust fund.
The main alteration that the council undertook from Bibb’s proposed plan is with regards to renovations. Renovations will not be subject to the three-tiered approach. Rather, the blanket 100% abatement for 15 years remains – regardless of geography. For a single-family home, the 100% abatement applies to the first $450,000 of the property’s value or if all units are affordable at 80% of the area’s median income. For a multi-family home, the 100% abatement applies if the remodeling costs are greater than $15,000 per unit or $500,000 per structure and if the owner enters into a Community Benefits Agreement with the city.
The hope is that developers will prefer undertaking renovations rather than new build projects – creating significantly less waste than the latter.
For all projects, the requirement that all developments (whether renovations or new build) adhere to the green building standards remains.
The new abatement program will take effect on Jan. 1, 2024. For more information about the new abatement program, check out the council program.
Whether the new abatement program is or isn’t successful in creating significantly more affordable housing, one thing is certain – Cleveland is building more than ever and changing at a rapid pace.
Andrew Zashin writes about law for the Cleveland Jewish News. He is a co-managing partner with Zashin & Rich, with offices in Cleveland and Columbus.