How will Columbus' new tax abatement strategy affect the city's booming real estate development market?
City of Columbus leaders have identified what they consider a flaw in the city's red-hot real estate market. While construction cranes have blanketed neighborhoods such as Short North since the Great Recession ended about nine years ago, the surge of pricy mixed-use projects has left out—and in some cases, displaced—housing for those receiving more moderate wages.
The concern has inspired a major reevaluation of the generous tax abatements the city gives out to developers, a major factor—along with a revived interest in urban living—in the construction boom of recent years. “It's not that we're seeing too much at the high end” of the housing market, says Steve Schoeny, the city's director of development. “We're not seeing more moderately priced housing.”
To that end, Mayor Andrew Ginther's administration forwarded in early June legislation to Columbus City Council seeking to tighten requirements for housing projects receiving tax breaks in 12 established Community Reinvestment Areas, including thriving markets like the Short North and the Fifth by Northwest neighborhood near Grandview Heights and more distressed neighborhoods such as the Near East Side and Franklinton. The goal is to encourage construction of moderately priced housing—primarily apartments—alongside or in the midst of market-rate housing focused on middle- and upper-income residents. “We want to create a system that encourages mixed-income neighborhoods,” Schoeny says.
In a study released in late May, the Columbus housing consulting firm Vogt Strategic Insights categorized those 12 CRA areas through various demographic trends to determine the requirements developers would have to meet to receive the best tax incentive of 100 percent for 15 years. The Short North, according to the VSI study, shows strength in all six ranking criteria, including an 8 percent gain in population from 2012 to 2017; a 54 percent gain in average median household income during the period; and a poverty rate just below 19 percent. The performance puts the upscale neighborhood in the “market- ready” category for tax abatement eligibility where developers must create or allocate 10 percent of multifamily housing units rented to households earning 80 percent or less of the area median income and another 10 percent of units to households earning 80 to 100 percent of the area's median income in order to receive the top residential property tax abatement.
The story is much different in Franklinton, however. Because its demographic data isn't as strong—a 1 percent decline in area median income and a poverty rate of 45 percent—the neighborhood is considered “ready for opportunity,” a category that also includes Linden. A multifamily or single-family project, as a result, qualifies for full abatements.
Schoeny says developers can receive tax abatements for projects in non-CRA areas if the developer can document the neighborhood as having high crime, extensive blight or four of the six distressed criteria used in the VSI study. Renovation to properties on the Columbus Register of Historic Properties also would get the abatement without having to provide affordable units.
If passed as expected, the abatements will go into effect for projects that begin construction next year. Developers, by and large, are supportive of the changes, seeing the need for lower-income housing and new requirements for abatements.
Mike Fitzpatrick, the president of Elford Development Ltd., calls the tax incentives available in the Short North a key and necessary component in the revitalization of the area immediately north of the Greater Columbus Convention Center. “There's a national movement of people going back to the core city,” says Fitzpatrick, who first ventured into the Short North nearly a decade ago to build The Hub apartment and commercial project at North High and East Hubbard Avenue. “There's no question the public-private partnership has made it possible for developers to take the risk while meeting the demand for residential.”
He says the development community remains cautious as it looks into precisely how the affordable housing requirements will affect continued redevelopment of the Short North and other central city neighborhoods. He expects the affordable housing components to get integrated into a project with units set aside for tenants meeting the income requirements, rather than getting built separately. “We're still evaluating how [the inclusion of affordable housing] impacts the economics of the deal. It will impact [project] income and our financing options.”
Columbus developer Mark Wagenbrenner says his firm has already committed to the housing development criteria ahead of the new regulations with the Grandview Crossing project along Dublin Road between the city's water treatment plant and Grandview Avenue, and the 20-acre mixed-use project set along the south edge of West Third Avenue between Perry Street and the Olentangy River. “There's always a market for affordable housing,” the Wagenbrenner Development president says, “and there's always the expense of providing it. … We support the [new policy], and we understand the balance.”
Wagenbrenner expresses some concern about how rising demand and construction costs will affect the future cost of accommodating those qualifying for workforce housing. “Although rents seem high in Columbus,” he says, “we're still below our peer cities of Indianapolis, Cincinnati and Charlotte.”
He pledged the housing units rented as affordable will get built to the same high standard the developer has established in his Harrison Park redevelopment and Jeffrey Park in Italian Village. “The units we're building will meet the same thresholds as the market-rate units,” Wagenbrenner says.
Columbus developer Bob Weiler called the tiered abatement in support of workforce housing “a step in the right direction.”
“It's important that everyone joins in,” says Weiler. “Otherwise, we're only exasperating the segregated housing that exists in the region.”
Kenny McDonald, the president and chief economic officer of Columbus 2020, says affordable housing needs regional attention to make greater Columbus even more competitive in attracting new jobs. “Housing capacity and transportation has become a topic of concern and conversation among [prospective employers] who want to know where their workers will live,” McDonald says. “We still have communities underserved with access to affordable housing.”
Schoeny says the abatement policy change council will consider for passage before its August recess is designed to not only allow lower income workers to live close to jobs in more desirable urban centers, but also encourage housing and commercial development in areas such as the Milo-Grogan and Linden neighborhoods. “Repopulating these neighborhoods is really important because it will bring back jobs and support retail,” he says.
Developers also may buy out the affordable housing requirements through the construction of top-tier office space built as part of a housing-anchored project. The payments would go into the region's Affording Housing Trust in support of affordable housing construction. “I hope the city raises zero funds,” Schoeny says. “I'd much rather see all of those housing units get built.”
Brian Ball is a freelance writer.