In 2013, HPP co-authored a report entitled “The Space Between.” This report examined the supply of unsubsidized but still affordable rental housing in Minnesota, arguing that policymakers should focus more attention on this critical supply of rental housing that the majority of low income households rely upon. The report concluded that there were some opportunities to impact this critical resource in order to preserve its affordability, deepen that affordability in some cases, and better match these units with the lower income households who needed them the most. The report identified a number of specific strategies for further investigation, including one involving the use of state tax incentives.

Following up on that idea, HPP secured some research funding and the commitment of a working group of city and county staff, and landlord representatives, to examine more deeply the tax incentive strategy. This idea is based upon something HPP discovered several years ago that the state law providing a property tax break to subsidized rental properties (popularly known as the 4d program) could also be extended to selected properties that were currently unsubsidized but affordable, through local government programs, and without a change in state law. What was attractive about this strategy was its potential to provide a policy tool to address a growing regional concern, the fear that low income households living along the region’s emerging network of transit corridors would be driven out over time by escalating rents. By selectively extending 4d eligibility, we could provide a tax break to property owners willing to agree to restrain rent increases in gentrifying areas.

The new report, “Using Property Tax Incentives to Achieve Affordable Rental Housing Goals,” concludes that there are multiple challenges in trying to use the 4d program tax incentive as an incentive to restrain rents. The report also finds, however, that selective extension of 4d eligibility can provide increased incentives for owners to participate in achieving other housing policy goals, including participating in local rent subsidy programs, participating in Inclusionary Housing programs to encourage new production of mixed income housing, and enhancing the affordability of unsubsidized projects acquired by nonprofit and other preservation purchasers.