Property Tax Post: California’s Quest for Affordable Housing Makes Use of Tax Exemptions

Last week on Sept. 22, California enacted S.B. 1115, doubling the state’s existing cap on property tax exemptions for non-publicly financed low-income housing.

The bill provides that effective Jan. 1, 2019, property tax owed on the first $20 million of assessed value will be exempt. In order to qualify, however, the property must be owned and operated by a nonprofit organization where low-income households occupy 90 percent or more of the property.

Conversely, the property tax exemption for publicly-financed housing is unlimited and remains unaffected by S.B. 1115. This category generally includes property backed by government grants, bonds, and credits. Though both housing types are intended to service low-income residents, non-publicly financed affordable housing is subject to more requirements. For example, the nonprofit owners must certify that any savings resulting from application of the exemption is used to keep their housing affordable or reduce the rent charged to their tenants. Further, these non-publicly financed housing owners must submit a claim disclosing: the actual household income of their occupants; the maximum rent that may be charged to the occupant; and the actual rent charged to the occupant.

Text from the bill’s Assembly Floor Analysis identifies a likely reason for the higher standard on non-publicly financed housing—asserting that publicly-financed housing would “at least be subject to some level of government oversight,” perhaps suggesting less potential for exploitation or maintenance abuse.

S.B. 1115 notably cites California’s “serious shortage of affordable, decent, safe, and sanitary housing for persons and families of low income” as the impetus for its property tax exemption expansion; a conviction echoed by its author, Sen. Jerry Hill (D), whose constituents reside in the costly and densely populated Bay Area. Should this plan to encourage more housing find success, state legislators have not ruled out revisiting the cap once again.

Continue the discussion on Bloomberg Tax’s State Tax Group on LinkedIn: Do you think California’s exemption expansion has the potential to encourage nonprofits to build more affordable housing?

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