The city of Cleveland recently updated its residential tax abatement program. For several decades, new construction homes built in the city, including single-family homes, multi-family buildings, and condominiums, were eligible for 15 year, 100% tax abatement on the improvements, as long as they met the city's permitting and green building standards. Owners still paid taxes on the land value, however. For example, if an owner bought a lot for $50,000 and built a $300,000 home there, they would pay taxes based on $50,000 not $350,000, at least for 15 years during the tax abatement period. 

Now, the city has changed that policy, lowering tax abatement in strong market areas like Ohio City or University Circle while keeping it the same in weaker market areas like Fairfax or Clark-Fulton. Cleveland wants to encourage equitable development across neighborhoods while fighting inequality, and they believe they can do this by using tax abatement as a tool. The idea is that places like Ohio City have enough housing demand that they don't need 100% tax abatement in order to attract homebuyers anymore, while areas with lower home values need the full tax abatement to spur redevelopment, and offering it will help jumpstart these markets. 

Here's a breakdown of the key changes and how they affect homebuyers and homesellers. 

Timing

• The new tax abatement program went into effect January 1st, 2024. Because lots of projects were grandfathered into the old policy, we probably won't see the full effects of this until the coming years.  

Eligibility

• To be eligible for tax abatement, projects must still have a permit issued by the city, meet the city's green building standards, and be issued a Certificate of Occupancy.

Abatement values 

• For single-family projects, abatement can range from 85% to 100% of the enhanced value, and up to $350,000 for new construction and $450,000 for rehabilitation.
• Multi-family projects vary between 85% and 100% abatement, with all projects required to set aside units affordable to families making 100% of the Area Median Income based on the applicable Community Reinvestment Area (CRA).
• Bonus: Single-family projects may qualify for 100% abatement if they meet Age-in-Place building criteria. This typically means things like first-floor bedrooms, accessible design and more. Developers must submit architectural plans and a completed "Age-In-Place" checklist for review by the Department of Community Development.

Geography

For its new tax abatement policy, Cleveland has divided the city into three different areas (click here to view the map showing these areas): 

• Market rate neighborhoods offer 15-year, 85% tax abatement. These areas include downtown, Ohio City, West Park, most of Detroit Shoreway, Tremont, parts of Glenville adjacent to University Circle, Little Italy, Larchmere, and the Mill Creek section of Slavic Village. 
• Middle Neighborhoods offer 15-year, 90% tax abatement. These areas include much of the far west side including Cudell, Jefferson, Bellaire-Puritas and more; Old Brooklyn, parts of Brooklyn Centre, and a sliver of Clark-Fulton; the Lee-Harvard area and parts of Shaker Square.
• Opportunity neighborhoods offer 15-year, 100% tax abatement. These areas include much of the east side, including Kinsman, Mt. Pleasant, Union Miles, Slavic Village, the Industrial Valley, Central, Fairfax, Glenville, Hough, South Collinwood, North Collinwood, and Forest Hills. On the west side, opportunity neighborhoods include Clark-Fulton, Stockyards, Brooklyn Centre, and parts of Cudell, Jefferson, and West Boulevard.

Additional features of the program include: 

• A cap on for-sale housing: The first $350,000 of sale value will be abated.
• Community Benefit Agreements for multi-family developments. These vary but require developers to use their project to benefit the community in some way (for example, creating a walkway or small park that community members can also use). 
• Green Building Standard continues to apply. This means all homes have to be built to the city's Enterprise Green Building standards. 
• Enforcement of Tax Abatement Termination for neglected or delinquent properties. If a property has code violations or is delinquent on taxes, the owner can lose tax abatement. 
• Developers of apartment buildings must either set aside affordable units or contribute to a housing trust fund to incentivize equitable housing in other projects.

Overall, these changes aim to promote both growth and equity in Cleveland's neighborhoods. The risk, of course, is that they dampen housing and population growth in the city, and that they're confusing and punitive to homebuyers and sellers trying to transact in the city of Cleveland. Progressive Urban is the expert in helping you navigate this process – call us at 216 619 9696 or contact us through our website at www.progressiveurban.com for more info and a consultation. If you have a project and want to explore whether it qualifies for the tax abatement program, consider scheduling a pre-development consultation with the city.