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Study: Tax Abatements Increasingly Concentrated In Specific Neighborhoods

A study presented to Cleveland City Council found the local housing market is still fragile following the 2008 housing market collapse .[Nick Castele / ideastream]
Cleveland skyline

Cleveland’s housing market remains fragile following the 2008 recession, and tax abatements are becoming increasingly concentrated in neighborhoods with higher home value, according to a tax abatement study presented to Cleveland City Council Tuesday.

Most of the city is facing depressed or declining home values, according to policy analyst Michael Norton with Reinvestment Fund.

“The overall housing market in Cleveland is still pretty fragile generally,” Norton said. “Prices are still very low and haven’t quite rebounded.”

The housing market collapse also brought about a decline in tax abatements, Norton said. The study aimed to show a neighborhood-based understanding of residential tax abatement impact, including how they contribute to displacement of residents as rising housing costs outpace the median income.

About 7,400 housing tax abatements were approved in 2007, he said, compared to fewer than 4,200 in 2018. And they were more concentrated in certain areas, he said.

Roughly one-quarter of tax abatements granted between 2014 and 2018 were concentrated in 6 percent of the neighborhoods studied, which included growing areas like Detroit Shoreway, Tremont and Ohio City, and mostly for single-family developments. The same areas accounted for roughly 7 percent of abatements from 2004 to 2008.

The study found residents were not any more likely to move away once an abatements expired and that abatements led to increased economic growth and investment in those neighborhoods.

The city could make changes to improve its abatement program, Norton said, including capping the maximum value for single-family abatements at $300,000 per housing unit, which would still cover most homes in the area.

“People that are buying houses for $300,000 aren’t buying their houses based on their property tax burden, probably,” Norton said. “It’s not going to sort of tip them one way or another.”

The city could require multi-family developments with assessed costs of more than $5 million to show that the work covered by the abatement could not happen without the tax break, Norton said, and for real estate developers to enter community benefits agreements outlining specific amenities for the neighborhood where they are building.

Increased transparency about the abatement program would also be beneficial, Norton said, as well as options for modifying abatements once the housing market hits a certain threshold.

The city needs to make an effort to communicate abatement opportunities to residents considering renovation projects, said council member Charles Slife (Ward 17), particularly in the neighborhoods that have not seen much benefit from the program.

“I’m not confident that the average homeowner knows how to go through this process,” Slife said. “To me, what I’m seeing people say is, ‘Why should I pay $10,000 for this new driveway, it’s just easier to cut bait, sell my home, and go somewhere else.’”

The study’s recommendations won’t fix the entire housing market, said Cleveland Director of Community Development Tania Menesse, but it’s the start of a larger conversation as part of the city’s 10-year housing and investment plan.

“We want to take a broader look, not just at the affordable housing tools, but tools that will incentivize private development and private investment in our communities,” Menesse said.

The city also needs to consider steps to improve quality of life and other economic factors, she said, particularly in light of the coronavirus pandemic, as solutions to housing inequity will need to include a variety of approaches.

“Give people a reason to want to live in Cleveland, to stay in Cleveland, to move to Cleveland,” Menesse said.

The tax abatement study provides insight to disparities in residential development across the city, said council member Michael Polensek (Ward 8), but those additional factors still need work.

“As we look at these programs and we look at initiatives, we’ve got to, all of us in council and with the administration, to understand, quality of life has become of paramount concern in the city of Cleveland and in our neighborhoods,” Polensek said.d