5 Benefits of Long-Term Tax Relief

Rising costs of living and stagnant wages have made it progressively more difficult for families to find safe and stable housing. This is especially true for the economically disadvantaged. However, working-class families who earn more than the area’s median income are experiencing similar challenges.  

Recognizing this trend, many municipalities are using tools like long-term tax relief to encourage the development of affordable housing, helping to protect lower-income and working-class families from displacement. These tax incentives offer developers financial relief in exchange for long-term affordability commitments, fostering both community stability and economic growth. 

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Since 2020, construction costs have surged due to labor shortages, supply chain disruptions and rising material costs. Compounded by newer, often costly building codes and environmental regulations, these rising costs make affordable housing difficult to finance, meaning many developments simply aren’t feasible without financial support through tax relief. 

On top of high construction costs, operating expenses for affordable housing, including maintenance, utilities, and insurance, have also sharply increased—sometimes by over 200 percent compared to pre-pandemic levels. One specific challenge for affordable housing development is that expenses historically grow faster than revenues where financers and investors typically forecast future property cash flow as such.  

Rent in affordable housing is restricted as determined by the prescribed regulatory authority, typically limited to 30 percent of the eligible household income. While operating expenses have no such restriction, providing for conditions where expenses consistently out-grow revenues over time creates an imbalance resulting in financial strain that discourages investment in affordable housing.  

Long-term tax relief can help address all of these challenges by reducing one of the most significant operating costs: property taxes. By lowering this expense, tax relief that is tethered to long-term regulatory agreements provides much-needed stability, helping projects support more permanent debt than would otherwise be financeable and minimizing the burden to the locality often required to fill projects’ financial gaps. By reducing property tax burdens over an extended period, relief programs enable predictable future operating expenses, offsetting the pace of escalating costs and allowing developers to confidently invest in affordable housing with long-term success. 

Implementing such programs requires significant community support and legislative action. Concerns often arise about potential lost tax revenue and the impact on public services, but experience has shown that the broader community benefits—from reduced displacement to stabilized neighborhoods—often outweigh the costs. 

What’s driving the trend

For those considering the adoption of long-term tax relief to address housing shortages, tax relief encourages affordable housing development by making it financially viable for developers to build or renovate affordable units, expanding the overall supply while providing housing for low- and moderate-income families. Here are some key benefits: 

1. Ensuring future and maintaining existing affordability: In return for tax relief, developers agree to keep rents affordable for a specified period, providing stability for residents and ensuring accessible housing options. 
2. Building stable communities: Long-term abatements promote stability for both residents and developers, helping prevent displacement, foster strong neighborhoods and revitalize communities. This allows for reduced vacancy rates and foster community development encouraging residents to take pride in their community by improving their quality of life, while drawing investment to underserved districts.  
3. Promoting equity: Well-designed tax programs can ensure that subsidized housing benefits a wide range of the population, promoting economic and social equity across areas. 
4. Driving economic growth: Easing tax burdens stimulates job creation and local economic activity, benefiting both cities and developers by securing long-term investment in the community. This economic activity can increase property values in the surrounding areas, benefiting citizens and local governments by increasing the tax-base.  
5. Facilitating long-term planning: Developers and local businesses alike benefit from the long-term stability offered by formalized tax relief programs, allowing for strategic planning and sustained investment beyond individual projects. 

Long-term tax relief programs offer a critical tool for addressing housing shortages and rising living costs. By offering financial incentives, these programs encourage affordable housing development and preservation, contributing to stronger, more equitable communities. For municipalities, tax relief initiatives represent a pathway to sustainable growth and investment, ultimately benefiting the communities that need it most. 

Jay Cengiz is director of acquisitions & development, with the NHP Foundation.