States and localities have adopted various types of tax incentives to encourage owners to preserve the affordability of subsidized and unsubsidized affordable rental homes. Some incentives are intended to make it financially feasible for owners of low-cost rentals to bring their properties up to current living standards without raising rents to levels unaffordable to low-income residents. Others seek to encourage property owners receiving federal, project-based Section 8 assistance to continue to participate in the program.
Tax incentive programs often work by freezing or lowering the real estate tax assessments for properties that preserve affordability over a designated period of time. Preservation tax incentives tend to be most compelling for property owners in neighborhoods in which rents are not yet rising significantly, and in which the real and perceived benefits of non-participation (such as charging market rate rents or widening the applicant pool beyond holders of housing choice vouchers) are outweighed by the benefits of the tax incentives.
Cook County’s Class S program encourages owners of project-based Section 8 multifamily housing in high-cost markets to keep their units affordable by reducing the tax assessment by up to 33 percent. The Class 9 program offers a similar reduction to owners of unsubsidized properties who complete new construction or major rehabilitation of multifamily buildings and reserve 35 percent of the units as affordable. In 2001, Cook County extended the Class 9 program from just low-income census tracts to all areas of the county, an important strategy for encouraging mixed-income development. In 2008, to reduce incentives for converting rentals to condos, the county lowered the property tax assessment for apartment buildings from 26 percent to 20 percent, and to 16 percent in 2009. Each program is administered by the Cook County Assessor’s Office.
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New York City’s J-51 Program provides real estate tax exemptions and abatements to multifamily buildings that are renovated or rehabilitated according to certain requirements. Property owners renovating their properties can generally receive a 34-year exemption from the higher real estate assessments resulting from the work if they agree to subject the renovated units to the city’s rent stabilization policy, which limits the annual rate at which rent can increase. These property owners can also receive a property tax abatement reducing existing taxes by a percentage of the cost of the renovations. According to the city, between 70,000 and 100,000 housing units are renovated under New York City’s J-51 Program each year.
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