Austin faces a yawning gap in affordable housing and a shrinking number of tools to address the need. As the city considers reshaping one of its tools to fund affordable housing, however, we urge caution. This device is a double-edged sword.
The powerful tool in question is called tax increment financing. It could raise thousands, if not millions, of dollars for much-needed affordable housing. But it would do so at a cost to the general fund, which the city relies on to meet its operating expenses, including salaries for police, firefighters and ambulance crews. If too much money is diverted from the general fund, tax increases would be needed to maintain essential city services.
The City Council passed a resolution last month directing finance officials to study the idea of using tax increment financing, known as TIF, to support affordable housing. East Austin leaders suggested a version of this idea in January as part of the People’s Plan, and the tool is now one of the seven pillars in the Housing Justice Agenda championed by Council Members Greg Casar, Delia Garza and Sabino “Pio” Renteria.
We support the council’s desire to explore every option in a city where about 60,000 additional affordable housing units are needed by 2025, according to the city’s Strategic Housing Blueprint. As it is now, elementary school teachers can’t afford to buy a median home worth $285,000, according to Austin-area data compiled by the National Housing Conference, while child care workers and custodians can’t afford to rent a one-bedroom apartment.
Worse, the Texas Legislature has brazenly undercut cities’ efforts to address the affordability problem by taking away tools that have worked in other states. Texas cities are banned from requiring all new development to pay into an affordable housing fund, and they can’t require residential developers to set aside a certain portion of units as affordable unless cities provide incentives. Last session, Abbott vetoed a bill that would have allowed Austin to fund three new homestead preservation districts in rapidly gentrifying East and Southeast Austin.
We’ve also noted that Austin’s density bonus program, which allows developers to build larger projects in exchange for providing some affordable units, has failed to deliver as much as it should. Too often, developers simply pay into the housing fund instead of providing affordable housing units needed in high-opportunity areas, or they build efficiencies that are suitable for students, not lower-income families.
Given all of those pressures, it’s tempting to jump on the bandwagon of cities like Dallas and San Antonio, which are using tax increment financing to reimburse developers who provide affordable housing units. But first, Austin should have a clear picture of what such a program would cost, how that could affect the city’s other financial obligations and whether a TIF is likely to make an appreciable dent in the housing problem.
The city already has a handful of TIFs for economic development projects, such as the construction of the Waller Creek Tunnel and the restoration of the Seaholm Power Plant. The city borrowed the money for those projects, then repaid the debt using a portion of the property taxes from the surrounding area as those properties increased in value.
This year five TIFs received nearly $9 million that otherwise would have gone into the general fund. About half that money indirectly supports affordable housing in Mueller, where the developer agreed to make a quarter of the housing units affordable while the city put TIF money toward roads and other amenities.
It’s worth noting other dollars are being diverted toward affordable housing. As tax-exempt, government-owned properties are redeveloped into projects that do pay taxes, the City Council has voted in recent years to steer those city tax dollars toward affordable housing efforts. This year those projects produced $3.7 million in city tax revenue, and the council put $2 million of that toward the housing trust fund.
Casar, who has pushed to explore the use of TIFs for affordable housing, recognizes the city has a limited window to make the most of this tool. Under the transportation bond that voters approved in 2016, Austin will pump $482 million into fixing up major road corridors. Those improvements could promote better transit service, which could spark construction of higher-density housing and growing property values along those arteries.
Apply an affordable housing TIF to some of those areas, Casar reasons, and the city can capture some of that growing tax revenue for its housing needs. If developers provide some affordable units along those corridors through the density bonus program, the city could use its TIF dollars to further subsidize those units for Austin’s poorest residents.
It’s a compelling scenario. But first, the council needs to fix its density bonus program, as it promised as part of CodeNext. And it needs to thoroughly examine the financial impact of an affordable housing TIF before deciding whether it’s the right tool for the job.