HOW CHATTANOOGA PLANS TO ADD AFFORDABILITY TO HOUSING MARKET
The lack of affordable housing has exploded into one of the most challenging problems facing America’s cities.
Mayors across the country are being pressured to address the lack of affordability in the housing and rental markets. For a number of reasons, that task is easier said than done.
According to home and apartment search engine Zillow, Tennessee rental prices in February averaged at $1,733 a month and inched up to $1,740 in March. That monthly cost is too burdensome for many families; remember that the average household income in Tennessee is a little more than $60,000, according to Census data.
According to city data, Chattanooga is expected to have a shortfall of 7,000 affordable units by 2030.
And between 2016 and 2021, one out of every four rental homes became unaffordable to households earning $35,000, according to data from the group Chattanoogans in Action for Love, Equality & Benevolence. Since 2021, the cost of rent has increased 30% — outpacing the 13% growth in household incomes.
In 2022, Hamilton County saw the largest annual rent increase in the past decade, the Chattanooga Times Free Press previously reported.
Chattanooga officials have heard the demand for more affordable housing, and after months of work, have developed several strategies to incentivize development of these housing units.
WHAT IS THE PLAN?
Last Tuesday, the city unveiled a new PILOT program with the aim of attracting developers interested in adding affordable housing to their projects.
“The current pilot that we have just isn’t working,” Chief Housing Officer Nicole Heyman said during the presentation unveiling the new pilot program. “It is a one-size-fits-all approach, and it unfortunately and gratefully benefits our affordable housing developers and LIHTC developers but is not a strong-enough tool to incentivize our market-rate developers to provide a mix of incomes in their units.”
Chattanooga Mayor Tim Kelly seems to agree.
“It just makes sense: We can’t use the old one-sizefits-all solution for a problem that changes block-by-block, and we need the freedom to incentivize affordable housing any way we can get it, not just in big blocks in large developments,” Kelly said in a statement. “Almost every city in America is facing a shortage of affordable housing, and solving this crisis here at home is one of the goals of my One Chattanooga plan.”
According to the city, the new PILOT framework sets a per-unit tax incentive based on the difference between market-rate rent and the affordable rent offered by the developer.
The program will compensate developers for rent revenue lost by developers who offer affordable housing, and offers an additional 2% participation incentive that helps cover the administrative costs of compliance. For each ZIP code, there is a set of tax abatements for studio to four-bedroom units at 50-80% AMI. Developers can add affordable units to their projects of varying sizes and affordability levels, and receive a corresponding tax abatement.
City officials appear to be heeding the call to respond to a huge need in Chattanooga. Credit to them for coming up with creative solutions attract housing development that more families will be able to access.
The success of Chattanooga’s push for affordable housing does indeed depend on how many developers decide to optin to this mixed-income model. The reform that city officials have worked on can demonstrate that affordable housing development can benefit developers’ bottom lines and the community alike.