The City of Chattanooga has launched its new affordable housing Payment in Lieu of Taxes (PILOT) program.
The new PILOT rules allow the city to incentivize individual affordable housing units, offer greater incentives for units with lower rents, and better reflect the variation in market rents across different areas of the city.
“We have a lot of work to do to fight the national housing crisis and make housing more affordable in Chattanooga. This new policy is a big step in the right direction. This gives us the freedom to incentivize affordable housing any way we can get it, not just in big blocks in large developments,” said Mayor Tim Kelly.
“I look forward to seeing how housing developers, especially those here in Chattanooga, are able to take advantage of this flexible new PILOT program to add affordable units to their developments. I want to thank City Council and our housing policy team for working together to get this done.”
Chief Housing Officer Nicole Heyman emphasized the importance of the new program, stating, “My team has developed a flexible and effective PILOT aimed at meeting our City’s growing and diverse affordable housing needs.” The revamped Affordable Housing PILOT program is designed to foster the development of mixed-income housing and support the development of smaller affordable housing by local builders.
Recent data highlights the urgent need for affordable housing solutions in Chattanooga, with 56% of renters earning less than 80% of the Area Median Income (AMI). The PILOT program mandates that qualifying developments include rental homes priced according to the earnings of renters within the 50-80% AMI range. Qualifying incomes and rents, updated annually by the US Department of Housing and Urban Development, can be found HERE.
The previous PILOT framework presented challenges for small and private developers who wanted to integrate affordable units into their projects. Under the old system, developers were required to allocate at least half of their units to renters earning 80% of the AMI to qualify for full tax abatement. This one-size-fits-all approach did not account for variations in rental markets across different neighborhoods and limited the potential for deeper affordability levels without additional subsidies.
In response to these challenges, the Housing Policy Team has implemented strategic measures to ensure that new developments prioritize both housing quality and affordability without over-subsidizing. The new framework ties tax abatements directly to the cost of providing affordable monthly rents. This per-unit abatement structure is based on the difference between market-rate rents in each of Chattanooga’s zip codes and affordable rents according to AMI, ensuring developers are adequately compensated for offering below-market rental rates.