Trouble with implementing the good landlord tax credit
Most of this summer I spent out of state. A lot of that was a not-really-vacation as I was helping remotely with organizing the Prop 2.5 Override campaign. There have been a lot of local and national developments over the summer, and I could write my first blog most in nearly two months about any one of those national or local developments.
But I won’t — I can get into all that later. Instead, I’m going to write a about my futile efforts to implement a minor tax law. Frankly, I’ve been thinking about it more.
The Good Landlord Tax Credit was introduced for discussion near the beginning of this current Council session. A recently passed Massachusetts General Law ostensibly gives cities and towns the ability to offer small landlords tax breaks for keeping their housing affordable. And that’s great! I was being pushed by affordable housing advocates to implement this, and I’ll support any reasonable policy that will help get affordable housing in the area. So I started to do my homework.
The state law reads as follows:
Property tax exemption for real property classified as Class One, residential in the city or town; qualifications; municipal ordinances
Section 5O. (a) In any city or town that accepts this section, the board of selectmen or select board of the town, the town council of a municipality having a town council form of government, the city manager, with the approval of the city council, in the case of a city with a plan D or plan E form of government, or the mayor, with the approval of the city council, in all other cities, may establish a property tax exemption for real property classified as Class One, residential in the city or town. To qualify for the exemption, the property shall be: (i) rented at an affordable housing rate, as determined by the city or town and in accordance with the United States Department of Housing and Urban Development guidance and regulations; (ii) rented on a yearly basis; and (iii) occupied year-round by a person or persons whose household income does not exceed an amount to be set by the city or town; provided, however, that said income shall not be more than 200 per cent of the area median income. The property tax exemption shall be for an amount determined by the city or town; provided, however, that the amount shall not be more than the tax otherwise due on the parcel based on the full and fair assessed value multiplied by the square footage of the housing units rented and occupied by a person or persons whose household income is not more than the income limit set pursuant to clause (iii), divided by the total square footage of a structure located on the parcel. Assessment of property seeking an exemption under this section, if by an income approach to value, shall assume fair market rent for all units. The property owner seeking the exemption shall submit to the city or town any documentation the city or town deems necessary, including, but not limited to, a signed lease and proof of the occupying person or persons' household income, to confirm the eligibility of the property for the exemption under this section.
(b) A municipality may adopt ordinances or by-laws to implement this section.
High-level laws are typically written in a vague and simple way like this; ordinances and court documents that implement and interpret these laws are much more wordy.
I had a conversation with Medford’s assessor that quickly deflated all my hopes. He pointed out this line in the law:
…a property tax exemption for real property classified as Class One, residential in the city or town…
“Class One residential” is a term that covers both small landlords, who usually don’t have to rent out at affordable rates, and huge apartment complexes, many of which are already required to have a certain percentage of affordable units. Again, the purpose of this law, in my head, is to give small landlords an incentive to willingly rent out at more affordable rates, since they don’t have to.
The wrinkle here is that, with the way this law is written, it covers both small landlords and big apartment complexes, and there is no mechanism to legally distinguish the two. In other words, if we were to implement the Good Landlord Tax Credit, small landlords who choose to rent at lower rates would qualify for a tax break — but so would huge real estate trusts that are already required to offer affordable rates anyway. That’s a few hundred units in Medford, which would substantially affect the tax base of a city that’s already underfunded. In other words, the law is a poison pill that would make the city poorer while giving tax breaks to the rich.
Anyway, when researching bills, things like this happen. But I like to write about these things because (1) I could be wrong, and someone with better ideas might email me (I would like to see this implemented in some form); and (2) if I’m not wrong, then folks in other towns could avoid the same pitfalls when trying to implement this, and it saves everyone time.
