Restructuring Residential Tax Abatement

May 25, 2022

Council adopted legislation today (5/25) during a special council meeting authorizing a change of its 15-year residential property tax abatement for single-family new construction and renovations and multi-family new construction and renovations. The city has a deadline to renew or change the legislation by June 4.

The ordinance established three areas that will have different percentages of abatement: strong market area – 85% abatement; middle market area – 90% abatement; opportunity area – 100% abatement. Depending on the market area, the abatement is capped at $350,000, $400,000 or $450,000. The legislation also provides 15-year, 100 percent abatement for newly built affordable housing anywhere in the city.

In the strong market areas, new single-family construction will be abated at 85%, capped at $350,000 which means if a new construction house sells for $450,000 that additional $100,000 is fully taxed and the remainder is taxed at a 15% of what is the full amount. In the middle market, a newly constructed house is 100% abated, but capped at $400,000. In the opportunity neighborhoods, a newly constructed house is 100% abated, but capped at $450,000. All the abatements are for 15 years, which is state law. Rehabilitation of homes and multi-family new and rehab have differing amounts.

“From the beginning of this discussion several years ago, City Council signaled that we didn’t want to continue the one-size-fits-all program,” said Council President Blaine A. Griffin. “Residential tax abatement should promote equity and push investment into neighborhoods that haven’t seen much development.

“We understand the stress that inflation and other factors are placing on the building industry,” Council President Griffin said. “But we couldn’t continue with the status quo, and at the same time we want to ensure Cleveland remains competitive both with the suburbs and peer cities.”  

Councilman Anthony Hairston, chair of the Development, Planning & Sustainability Committee, said the council worked hard on amending the administration’s legislation to ensure that all neighborhoods will be treated equitably, whether in a strong neighborhood or the opportunity areas that have been struggling. Council had spent hours going over and amending the legislation.

“We didn’t agree on how some areas where labeled, so we made amendment’s to ensure those areas are fairly treated,” said Councilman Hairston.   

An ordinance passed in 2017 reestablished the citywide tax abatement area where all residential development and improvements were eligible to receive a 100% tax abatement for 15 years provided that the improvements met Green Building Standards. However, even under the old abatement policy, the original value of the property before the new construction or renovation, is not abated. So a homeowner who purchases a new tax abated home, for example, does pay some property taxes, however is not charged on the increased value. And under the new legislation a new house in strong market would be taxed at the full rate of anything over $350,000.

The goal of the legislation is to establish equity in the new housing market and attract development or renovation in areas where there are more demolitions than new housing projects. The policy will also require developers of apartment buildings to either set aside affordable units or contribute to a housing trust fund which will be used to incentivize equitable housing in other projects. The new abatement policy starts December 31, 2023, with projects started before grandfathered in. Ord. No. 482-2022.

The attachment gives an overview of the new policy.