06-08-2025
Oregon's Tax Relief For Housing Affordability Too Complicated
Property tax abatements, reductions in tax rates or collections, in exchange for affordable housing, and tax exemptions, elimination of tax obligations in exchange for affordable housing are relatively common across the country and take different forms. Previous posts have looked at the different approaches and looked an abatement program in Montgomery, County, Maryland. Both abatement and exemption programs can have a variety of goals or agendas. Oregon's Vertical Housing Development Zone (VHDZ) is a rather ambitious program that intends not just to create affordable housing but to promote density and height, both of which are arguably related to affordability. The program is complex, and complexity can contribute to costs and lack of participation. Here's a look at the VHDZ.
The VHDZ program is authorized by state law, and administered by local cities and counties. The City of Milwaukie, Oregon describes its program as 'designed to encourage the private sector to build higher-density mixed-use development (first floor commercial with residential above) and affordable housing in Milwaukie. The tool provides a partial tax exemption on increased property value for qualified projects and a land exemption if affordable housing is developed.'
A project qualifies for the program if it is in an area designated as a development zone, has to be a multiple-story building, with half of the ground floor fronting a 'primary public street,' and half of that used for non-residential use. The state law has a test based on entry ways and amenities on the ground floor.
Projects that meet these requirements can receive a 10-year property tax exemption based on 20% of the value of the first four residential floors above the ground floor up to 80% of the total value of new construction. An additional exemption is available if some or all of the floors have affordable housing that rents for no more than 80% of the local Area Median Income (AMI).
Has anyone used the program? I couldn't find any projects in the public realm that cite the program. The Axletree Apartments, completed in 2019, touts 110 apartments with five-stories. According to the developer's website, 'It's notable for being the first newly-constructed multi-family development in Downtown Milwaukie in over a decade.' But there's no indication that there are affordable units in the building, however, or that it availed itself of the VHDZ even though it is in the zone. And an extensive report on Milwaukie's Housing Production Strategy (HPS), doesn't refer to the program at all even while citing other programs like the Multiple-Unit Limited Tax Exemption Program (MUPTE). Just because I didn't find any examples doesn't mean there aren't any in Milwaukie, but it is peculiar considering the availability as a tool to motivate more dense construction.
A legislative review of multiple programs including the VHDZ found that 'it does not provide upfront financing, which may limit its effectiveness at increasing the supply of workforce rental housing.' The report also notes that the 'partial exemption could be relatively ineffective at certain times because it has been implemented as a partial [real market value] exemption. Real Market Value in Oregon is the assessor's estimate of what the property would sell for on the open market as of January 1 of the tax year. The report also concludes that 'in terms of efficiency, the VHDZ partial exemption may be relatively difficult for cities or counties to administer given the requirements for zone designation and the unique exemption amount formula.'
An analysis by the National Multifamily Housing Council (NMHC) quite sensibly concluded that, 'administering policies with greater complexity and difficulty requires more time and resources. An onerous process also discourages developers from participating in a program and developing units.' And it can also discourage cities from using them as well. Complex and locked in formulas for abatement and exemption programs for affordable housing can limit their effectiveness. Next, all the factors considered, what are the ideal elements for tax abatement or exemption program to efficiently and reliably incentivize the creation of affordable housing?
