(This story was updated to add new information.)
Detroit city officials announced a new proposal that aims to speed up affordable housing development in the city.
Detroit Mayor Mike Duggan, city council members and housing developers on Tuesday pitched the so-called Fast Track PILOT ordinance, a plan that would offer property tax cuts to developers based on rent prices. In other words, the more affordable the units, the deeper the tax reduction, according to officials. The ordinance would also shorten the approval time for projects from eight to 10 months to one to two months if developers agree to keep rents reduced for 15 years.
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“If we do not build more affordable housing, all those Detroiters who stayed are ultimately going to get pushed out. This is a tax break for our low to moderate income residents,” Duggan said at a news conference in front of The Ribbon, a mixed-use commercial and residential development in East English Village currently under construction.
Edward Carrington, founder of Flux City Development, the firm behind the 18-apartment project with ground level commercial space, said the ordinance would be a game changer for affordable housing developers like himself.
Developers face what he called an abatement cliff. That’s when tax incentives run out and costs increase for developers. For a development like The Ribbon, raising rents is not an option, he said, because his project is required to stay below 80% of the area median income (AMI), a regional measure set by the federal government to determine housing affordability. Eighty percent AMI for a three person household is $69,120 for Wayne County, according to the Michigan State Housing Development Authority.
“This is why developers like me — who prioritize impact over profit by focusing on adding affordable units to our city — must have more options in place for our projects to make long term financial sense. … The PILOT program ties the property’s tax liability to its rental revenue, not its inflated market rate, making it much easier for affordable housing projects like The Ribbon to remain financially viable,” Carrington said.
In the past, available state tax breaks were convoluted and limited to 12 years — when developers need their building financed over 30 years — and the abatements required multiple city and state hearings, which took up to 10 months before getting approved, Duggan said.
But in 2022, Michigan lawmakers passed legislation which exempts certain projects from property taxes. The law allows 15-year tax breaks, with the chance to renew another 15 years, officials said Tuesday.
The proposed city ordinance would expand access to what is known as Payments in Lieu of Taxes, which is currently available on certain projects that use federal dollars. If council members approve the proposal, city property tax rates on affordable housing developments would be connected to rent prices, instead of property value. The developers would also need to commit to keep rents affordable for households under 120% AMI, or a three household making $103,680.
For instance, if the property owner offers a one bedroom for $500 to $900 a month for those making below 60% AMI, the taxes for a year, under the ordinance, would be $100 instead of $600.
The ordinance also seeks to make it easier to finance the rehabilitation of multi-unit vacant apartment buildings. If the owner offers a one bedroom for $500 to $900 a month to households earning less than roughly $39,000, their taxes for a year, under the ordinance, would be $50 instead of $600, according to a news release.
The proposal is an important tool to incentivize affordable housing developments across Detroit, said Detroit City Council President Mary Sheffield, who was also joined on Tuesday by council members Fred Durhal III, Coleman A. Young II, Mary Waters, Latisha Johnson and Gabriela Santiago-Romero.
“What’s also exciting about this pilot program is its potential to benefit small and emerging developers — those who traditionally don’t have access to larger incentives that are often reserved for bigger developments,” Sheffield said.
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Carrington said the benefits of the ordinance include: reduced financial risks for developers, in the midst of rising construction costs and higher interest rates, and faster approval timelines.
“It’s not just a tax break, it’s a lifeline for affordable housing. It bridges financial gaps, ensures long term affordability and gives developers like me the tools we need to make projects like The Ribbon a reality,” he said.
Carrington estimated Detroit could see more than 1,500 new units added per year, providing relief to the city’s housing crisis.
In order to see the tax cut, under the ordinance, the developer would need to commit to 15 years of affordable rent, finish the development and get a certificate of compliance, guarantee that low-income residents can remain, and pass an annual audit to ensure affordability, according to the news release. The city will conduct quarterly reviews, which will be reviewed by City Council as well.
The need for more affordable housing is a persistent need in Detroit. This year, the Detroit Housing Resource HelpLine received 4,200 calls for affordable housing, according to Chelsea Neblett, program director for the Detroit housing services office.
A draft of the ordinance is slated to go to City Council next Tuesday.