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  • Heather PresleyCowen

Unlocking the Potential of Residential Tax Increment Financing For Local Housing Projects







Tax Increment Financing (TIF) has long been a tool for spurring commercial and industrial development. However, its potential for catalyzing residential housing projects is often overlooked. This post aims to shed light on how TIF can serve as a vital financial instrument for housing initiatives.


What is Residential TIF?

Residential Tax Increment Financing is a public financing method used as a subsidy for redevelopment, infrastructure, and other community-improvement projects. Unlike commercial TIF, the primary focus here is on residential development or redevelopment.


Why Consider Residential TIF?

  1. Leverage Public Funds: TIF allows municipalities to invest in infrastructure without raising taxes or dipping into general funds.

  2. Stimulate Private Investment: A TIF structure can make a project more appealing to private investors by offsetting certain risks or costs.

Case Studies: TIF in Action

An excellent example is the City of Wabash, Indiana. This Stellar Community recently utilized residential TIF to close the development gap for Legacy Heights, a 44-unit infill housing development located just blocks from Wabash's active and thriving downtown.


How to Implement Residential TIF

Preliminary Steps

  • Feasibility Study: Conduct an in-depth analysis to determine the project's financial viability. Both of these communities chose their sites as part of a Housing Strategy developed using the H.O.M.E. Method, which focuses on housing market potential as the starting place for identifying catalyst sites.

  • Community Engagement: Involve local stakeholders early in the planning process. Mayor Scott Long chose a housing cabinet, made up of local leaders from various backgrounds. From real estate professionals to bankers to community-minded investors and housing advocates, this group oversaw and championed the creation and implementation of the Housing Strategy.

Execution

  • Legal Framework: Ensure you have a solid legal basis for implementing residential TIF. The City's redevelopment attorney played a major role supporting the work of Mayor Long's housing cabinet, covering topics like zoning, TIF and comprehensive planning.

  • Financing Structure: Design a robust financing structure that meets both public and private investment criteria. Working with its municipal advisor to establish a "TIF run" was one of the key exercises that helped the Mayor and his cabinet to see that the project was, in fact, feasible.

Measuring Success: The H.O.M.E Method

To ensure the effective use of TIF, it's crucial to have a framework for measuring success. The H.O.M.E. Method can be a highly effective approach for quantifying housing market potential and establishing a sustainable housing production system. The City of Wabash's tenacious leadership has stayed the course, weathered many storms. Neither a housing shortage nor COVID-19 has kept this community from realizing its dream of seeing hundreds of new housing starts, both for local residents who want to move up or downsize and for the 80+ Club 720 homebuyers that have let them know that they want to make Wabash their home.


Conclusion

Residential Tax Increment Financing can offer an alternative avenue for financing vital housing projects, particularly when traditional funding sources are limited or unavailable. With careful planning, community engagement, and a solid financing structure, TIF can unlock new possibilities for housing development.


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