Housing incentives explained: tax credits, abatements, TIF and opportunity zones, what they cost the public, and what they actually change in a pro forma.
Incentives are the tools governments use to make projects happen that the market would not build on its own, or to attach conditions such as affordability to projects that would. The main instruments are tax credits such as LIHTC and the historic tax credit, tax abatements and PILOT agreements, tax increment financing, and place-based programs such as opportunity zones.
Each incentive works on a specific line of the pro forma: some reduce equity that must be raised, some reduce an operating expense, some lower the cost of debt. Understanding which line an incentive touches is the key to judging whether it is efficient. Articles in this section explain the mechanics of each tool, what it costs the public, and what it changes in the rent.
We separate the developer fee, the promote and the return on equity in an illustrative 120-unit building, and show how much of a $2,415 rent each one explains.
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