Detroit Mayor, Councilmembers announce PILOT housing program

Mayor Mike Duggan and several members of City Council rolled out a dramatic change in the way new affordable housing projects are approved, with the goal of making Detroit the easiest community in Michigan to build affordable housing.

"We have built or preserved $1 billion in affordable housing units in the last 5 years, but the way our population is growing and rents are rising, we have to build another $1 billion to keep long-time Detroiters from priced out of the city," Mayor Duggan said. The Fast Track PILOT ordinance will allow us to do that."

Councilman Fred Durhal who has taken the lead in developing the Fast Track process

Council President Mary Sheffield, who has led on the issue since her sponsorship of the trust fund

Councilmember Mary Waters, who championed the creation of the Housing Services Division

Councilmember Coleman Young, whose sponsorship of JumpStart cut evictions in De

The Problem: Bureaucratic Obstacles Delay or Prevent New Affordable Housing

A housing developer cannot afford to rent property to low-income residents at below-market rates without a source of funds to subsidize those lower rents. Historically, state law raised two huge barriers to property tax or NEZ abatements that have made it very difficult for new housing:

The tax breaks were limited to 12 years. Construction typically needs to be financed over 30 years.

In most cases state law required 5 separate hearings and/or approvals at the State and local levels, typically taking 8 -10 months.

These recent examples show how long it can take to get from the abatement application to the start of construction:

Violet T. Lewis Village

– 3 years

Preserve on Ash – 3 years

7850 E. Jefferson – 4 years

Dreamtroit – 5 years

The Ribbon, one of the first residential new construction developments in East English Village in the past decade, will soon open its doors to residents earning no more than 80% of the area's median income, albeit six months behind schedule. Developer Eddie Carrington faced some of the same delays many affordable housing developers experience under the current system, which would not occur under the city's proposed new ordinance.

The Solution: PILOT Fast Track ordinance

Michigan Public Act 239 went into effect last year, allowing an easier and faster way to use PILOTS help subsidize new affordable housing in Michigan. A PILOT is a "Payment in Lieu of Taxes". The new legislation allows a city to cancel all property taxes for affordable housing projects and substitute a smaller payment to local government. The legislation has two huge advantages over the old law:

It allows 15-year tax breaks, with a possibility of a 15-year renewal, making it much easier for builders to get 30 financing to build new housing.

It eliminates the requirements of multiple legal hurdles at the state and local level.

Councilmember Fred Durhal immediately went to work with the Mayor to develop an ordinance that would be the model for Michigan in cutting approvals from 8-10 months down to 1-2 months if developers agree upfront to 15 years of reduced rent for tenants. "The need for affordable housing in our city is urgent and ongoing, so we must implement a lasting solution rather than depend on one-time or uncertain funds," said Councilman Fred Durhal. "Detroiters deserve real access to affordable housing, and I'm proud to sponsor the PILOT ordinance to help build more affordable homes efficiently."

Home values in Detroit have risen significantly for 7 straight years, building record wealth for homeowners, but burdening renters. Council President Mary Sheffield, who sponsored the city's original Inclusionary Housing Ordinance, joined in sponsoring Fast Track: "We know housing in Detroit is going to keep getting more expensive for those who can least afford it, and Fast Track will help us make sure there are affordable housing options for all Detroiters," Sheffield said.

How PILOT would work

PILOT is available currently, but only on a limited basis on certain projects that incorporate federal funding. The PILOT ordinance would significantly expand access to the tool. If approved by City Council, it would allow city property tax rates on affordable housing developments to be tied to rent levels, as opposed to property value.

The PILOT tool would provide tax reductions on a sliding scale, based on the depth of rent affordability each project offers: The deeper the affordability, the deeper the tax cut. In exchange for the automatic tax reduction, developers would commit to offering units at rents affordable to households earning as little as 30% of AMI or less, and no more than 120% of AMI.

Estimated averages under PILOT ordinance

If the owner commits to those with average income below $39,000 (60% AMI)

One bedroom rent - $500-900/month

Original tax - $600 a year PILOT Tax $100 a year

If owner commits to those with average income below $39,000 (60% AMI)

One bedroom rent $900-1,400/month

Original tax $3,200 a year PILOT Tax $600 a year

Automatic breaks for bringing vacant apartment buildings back to life

There still are far too many vacant multi-unit apartment buildings across the city because they can be the most difficult projects to finance. The PILOT would make obtaining financing to put these buildings back to productive use much easier because of the predictability of significant property tax cuts.

Owner rents units to households with average income below $39,000

One bedroom rent Original tax PILOT Tax

$500-900/month $600 a year $50 a year

Owner rents units to households with average income below $52,000

One bedroom rent Original tax PILOT Tax

$900-1,400/month $3,200 a year $300 a year

Owner rents units to households with average income below $80,000

One bedroom rent Original tax PILOT Tax

$1,400-2,100/month $5,600 a year $1,500 a year

Compliance

In order to see the PILOT tax reduction reflected on their property's tax bill, the developer must:

Commit to 15-years of affordable rents

Complete development of the project and obtain a Certificate of Compliance to ensure the new units are quality housing

Guarantee that existing low-income residents can stay

Pass an annual audit to ensure rents are consistent with affordability agreement. Anyone who fails to honor the low-rent commitment will automatically lose their PILOT tax abatement.

The City also will conduct quarterly reviews on the effectiveness of the PILOT program, which will be reviewed by City Council, to monitor its effectiveness.

Next Steps

The draft ordinance will be introduced at City Council on Tuesday, September 24th. Mayor Duggan said it is his hope the PILOT will be approved by the end of the year so developers can begin applying in early 2025.

For more information visit http://www.detroitmi.gov