As a neighborhood gentrifies, low-income homeowners face mounting financial pressures in the form of recurring property tax increases and, as a consequence, inability to cover other housing expenses, such as repairs. Homeowners who are the most vulnerable to displacement are those with the lowest incomes living in the most rapidly appreciating neighborhoods. While constitutionally-mandated tax savings are available via various homestead exemption policies, low-income homeowners who qualify for these exemptions may not have an exemption in place.
The following are strategies and tools that can be adopted by Texas cities in gentrifying neighborhoods to help vulnerable homeowners who want to stay in their current homes–with a focus on increasing these homeowners’ access to homestead exemptions and other tax relief tools available in Texas, providing direct financial relief, helping owners access the equity in their homes, and assisting mobile home owners with acquiring their mobile home communities.
Strategy #2a: Lower the property tax burdens for vulnerable homeowners.
Texas law heavily restricts what Texas cities can do to provide property tax relief for struggling homeowners, but there are still a number of useful policies they can enact. The following tools have a more equitable and softer fiscal impact on cities compared to many other tax relief tools available to Texas cities. Two of the most popular tax relief tools–expansion of the general homestead exemption (which must be set at a percentage versus flat dollar amount) and tax freezes for seniors–support wealthier homeowners much more than lower-income homeowners and shift the property tax burden onto renters, who are typically lower-income and more likely to be from communities of color compared to homeowners.
Policy Tools:
• Homestead Preservation Centers
By creating and funding Homestead Preservation Centers within gentrifying neighborhoods, Texas cities could support community education about homestead exemptions and other property rights and responsibilities that come with homeownership, targeting services towards vulnerable households who do not have an exemption or are delinquent on their taxes or mortgages. These centers could be operated by cities or through partnerships with a nonprofit or university. Centers could also conduct proactive outreach to help vulnerable owners negotiate payment plans with the tax collector and mortgage modifications with their lenders. Another need that centers could fill is the provision of legal assistance to help eligible owners qualify for homestead exemptions. In particular, heirs-property owners (homeowners who have inherited their homes without a will) often need legal assistance, such as the preparation of affidavits of heirship, to qualify for an exemption.
Examples: Cleveland (ESOP); Oregon (Homeownership Stabilization Initiative); Pennsylvania (Affordable Housing Centers of Pennsylvania); New York (Financial Empowerment Centers).
Considerations: Relatively low-cost solution to help vulnerable homeowners save hundreds of dollars in property taxes and stay in their homes by accessing constitutionally-mandated exemptions. Cities are able to tailor assistance to low-income homeowners in gentrifying neighborhoods.
• Homestead exemption enrollment program
Short of creating a Homestead Preservation Center, Texas cities could provide funding to community-based nonprofits to conduct in-person outreach to homeowners without a tax exemption and provide on-the-spot assistance to sign homeowners up for the homestead exemptions they qualify for. In Austin several years ago, a successful partnership between the nonprofit, grassroots organization PODER and the Travis Central Appraisal District provided targeted, door-to-door outreach to assist homeowners with applying for homestead exemptions.
Considerations: Low-cost program that would lower the property tax burden of vulnerable homeowners and help them stay in their homes.
• Expand notice of property tax deferral rights
Seniors, persons with disabilities, and disabled veteran homeowners are eligible to defer part or all of their property taxes until they die or move, with an interest of five percent on the taxes owed. In contrast, homeowners who do not defer and fail to pay their property taxes are subject to interest and penalties of 24 percent and can lose their home to foreclosure. Because many vulnerable homeowners who are eligible for a deferral are unaware of their deferral rights under state law, Texas cities could partner with the county tax assessor to provide targeted notices about the property tax deferral option and make the notices more accessible to homeowners who are not fluent in English. Providing door-to-door outreach to homeowners by trusted community members would likely have the greatest impact in informing tax delinquent homeowners about the financial benefits of enrolling in the deferral program rather than paying late penalties and interest for delinquent payments.
Considerations: Low-cost policy that would save vulnerable homeowners up to thousands of dollars a year and help them stay in their homes.
• Emergency homestead stabilization fund
An emergency homestead stabilization fund set up and funded by Texas cities could provide short-term property tax and mortgage assistance to low-income, cost-burdened homeowners at risk of losing their homes because of a financial crisis. The assistance could be provided through a Homestead Preservation Center or another nonprofit, and could be coupled with financial coaching and other assistance to help stabilize families experiencing a financial crisis.
Examples: Seattle (Foreclosure Prevention Loan Pilot Program); Milwaukee (Milwaukee Property Tax Rescue Assistance Program); State of Florida (Elderly Mortgage Assistance Program); Atlanta (Westside Community Retention Collaborative–grants to homeowners in a gentrifying neighborhood to cover increases in property taxes); Michigan (Step Forward Michigan–mortgage and property tax assistance); Charlotte (NC Foreclosure Prevention Fund– interest-free loans of up to $36,000).
Considerations: Helps families hold onto their homes during a short-term financial crisis. Does not provide long-term relief for vulnerable families unable to afford on-going tax increases or make their mortgage payments.
• Neighborhood stabilization loan program
Some of the most vulnerable low-income homeowners need longer-term financial assistance to be able to stay in their homes and pay their mounting property taxes. While under state law a household with a homestead exemption is entitled to enter into a property tax payment plan with the tax collector in which interest accrues at 12 percent a year, the plan cannot exceed 36 months, and a homeowner can enter into a new plan only after two years.
Texas cities could create a neighborhood stabilization loan program in gentrifying neighborhoods to provide longer-term, low-interest loans to low-income homeowners who are paying more than 30 percent of their income on housing costs. Each loan could be forgivable in exchange for the homeowner agreeing to a longer- term affordability restriction, ensuring that the home would be sold to another low-income owner and remain owner-occupied (this would also generate property tax savings). The program could also provide forgivable loans for low-income residents whose parents have utilized a property tax deferral under state law and, when their parents die, are suddenly faced with a large property tax bill. The loan could be forgivable only to the extent the family member is income-eligible and agrees to remain in the home.
Considerations: Through a neighborhood stabilization loan program, cities could generate permanently income-restricted affordable housing units for a relatively low cost compared to building new units. Longer- term and forgivable loan terms carry a larger financial burden for the city.
• Tax abatement program for homeowners
The Texas Tax Code provides multiple mechanisms by which a city can grant tax abatements of up to ten years to homeowners and other property owners in a “Reinvestment Zone.” With a tax abatement, cities abate (i.e., waive) their property taxes on the increase in the appraised value of a property. A city can provide a partial or full abatement and must adopt guidelines and criteria for awarding the abatements in a Reinvestment Zone. A city can tailor the abatements to serve the most vulnerable homeowners in gentrifying neighborhoods, such as by pairing abatements with low-income persons participating in a city home repair program, as long as the area meets the definition of a Reinvestment Zone. Issuing an abatement is contingent on the owner making specific improvements or repairs to the property, but the state statute does not set forth a minimum level of repairs that must be made. Counties and other taxing entities can extend property tax abatements to homeowners by entering into an abatement agreement identical to a city’s agreement. Several Texas cities are using tax abatements for homes (e.g., Fort Worth and Waco), but these are mainly geared towards incentivizing new developments and rehabs versus helping current homeowners stay in their homes.
Examples: Fort Worth; Philadelphia; Portland (new homes only); Waco.
Considerations: Administrative burden to process applications and enter into agreements with homeowners; homeowners with abatements in gentrifying areas will likely be hit with a sharp increase in property taxes when the abatement agreement expires.
• Market segmentation
To protect longtime homeowners in gentrifying neighborhoods from becoming property tax burdened, Texas appraisal districts are allowed to categorize and appraise older homes differently from new and remodeled homes. Instead of using comparable sales for all nearby homes to appraise a home’s taxable value, appraisal districts can appraise an older home based on comparable sales of other older homes in the area. A Travis Central Appraisal District pilot program showed that older homes were overvalued by an average of 120 percent without market segmentation, while newer homes were undervalued by an average of 83 percent. Market segmentation helped correct for this, lowering the property tax burden on owners of older homes that have not been remodeled. Market segmentation is a tool used by many appraisal districts in Texas, but it is not as widespread for appraisal districts to use this tool as a means of differentiating between old and new homes.
Examples: Travis Central Appraisal District, State of Indiana.
• Senior volunteer tax break
To help low-income seniors cover their property taxes, Section 11.181 of the Texas Tax Code allows Texas cities and counties to forgive a senior homeowner’s property taxes by the current federal minimum wage ($7.25) for each hour of volunteer work they perform for the city or county. Cities and counties could adopt special volunteer programs targeted towards seniors in gentrifying neighborhoods. In addition to the tax benefits, a volunteer program could provide opportunities for seniors to stay engaged in their community and to connect with other residents.
Considerations: Unavailable for seniors who do not have the capacity to volunteer as a result of a disability, illness, or other barrier.
Strategy #2b: Assist vulnerable homeowners in gentrifying neighborhoods with repairs to their homes.
Rising property taxes mean that low-income homeowners in gentrifying neighborhoods have a harder time paying for repairs to maintain their homes, which in turn puts these homeowners at greater risk of displacement.
Policy Tools:
• Create and expand home repair assistance programs in gentrifying neighborhoods
In many cases, home repairs and modifications, such as ADA-compliant entry ramps or bathrooms, can help residents remain in their homes rather than undergoing disruptive moves. Major home repairs can lead to an increase in property taxes, and thus repair programs in gentrifying neighborhoods would ideally be coupled with a tax abatement program or resale restrictions. While many Texas cities operate home repair programs, these programs are often over-subscribed and none are geographically targeted towards neighborhoods facing gentrification pressures.
Considerations: Repairing existing homes is generally a less expensive method of creating safe, affordable homeowner opportunities than building new affordable homes. Repair programs typically come with less restrictive resale restrictions than programs such as community land trusts and thus do not provide for long-term affordability.
Strategy #2c: Assist low-income homeowners with accessing the equity in their home through non- predatory products.
For lower-income homeowners in rapidly appreciating areas, the equity in their homes is an asset that can be leveraged to assist with property taxes and other costs of living, but many vulnerable homeowners who tap into their equity are targeted by predatory loan products with excessive interest rates and unnecessary fees. African- American and Hispanic homeowners are the biggest victims of predatory lending products. These products jeopardize the ability of homeowners to stay in their homes and deplete the wealth of African-American and Hispanic households. The following tools could be deployed by Texas cities to assist low-income homeowners with accessing the equity in their homes while avoiding predatory products.
Policy Tools:
• Enhanced fair lending education and enforcement
Texas cities rely largely on federal funding for local fair housing enforcement, but with a commitment of local dollars, cities could enhance their efforts to investigate and enforce fair lending laws, shut down discriminatory and predatory lending practices, and expand vulnerable homeowners’ access to safer lending products. The funding could also support financial education to vulnerable homeowners about safe and affordable financial products and help homeowners improve their credit to increase their chances of qualifying for safer lending products.
Examples: New York (Fair Housing Justice Center); City of Los Angeles (Housing Rights Center).
Considerations: Fair lending legal actions are difficult to litigate and can take years to work their way through the courts. Law firms may be willing to donate pro bono resources towards the enforcement of fair lending laws.
• Community homeownership loan fund
Nonprofit, mission-driven community loan funds play a key role in helping low-income households access safe and affordable financing, including refinancing and home repair loans as well as financial counseling about the lending process. These funds are typically operated by organizations classified as Community Development Financial Institutions (CDFIs) through the U.S. Treasury Department, which in 2013 opened up financing for below-market homeownership through its CDFI Bond Guarantee Program. Nonprofits and CDFIs can act as trusted interlocutors in neighborhoods with a long history of distrust stemming from past actions taken by the city government.
Examples: Indianapolis (Indianapolis Neighborhood Housing Partnership); Santa Fe (Homewise); Chicago (Community Loan Fund); Nashville (The Housing Fund).
Considerations: Administrative complexity in setting up a CDFI is high.
Strategy #2d: Increase the ability of vulnerable homeowners to generate income from their homes and lots through the creation of accessory dwelling units.
Long-time homeowners in gentrifying neighborhoods are often sitting on a considerable amount of untapped equity in their homes and lots, which will increase over time as property values continue to rise. At the same time, many of these homeowners are empty nesters and no longer need the space they once needed when raising children in their homes. Allowing low-income homeowners to tap into this equity by renting out portions of their homes and lots through the creation of internal and external accessory dwelling units (ADUs) will improve their ability to stay in their homes as property values rise. An ADU is a smaller, second dwelling created on a lot with an existing house. An ADU can be created in a number of ways, such as the construction of a new stand-alone house (external ADU) and a conversion of a portion of the existing house (internal ADU). In many Texas cities, current land use restrictions and financing barriers stand in the way of the creation of ADUs.
Policy Tools:
• Support the construction of external accessory dwelling units
ADUs provide new housing as well as a potential income stream for homeowners. Regulatory allowance of ADU construction is a key policy tool that Austin, San Antonio, and other cities across the United States have adopted to support the creation of new, more affordable housing options. Even when regulatory barriers for external ADUs are removed, research from other cities, including Seattle and Portland, strongly suggests that, without intervention, very few low- or moderate-income homeowners will build these units. To build an external ADU, lower-income homeowners also need viable financing options as well as technical assistance navigating the complex, intimidating, and risky processes of design, financing, construction, and property management for ADUs. ADU support programs broaden access to the documented benefits of ADUs–extra living space; rental income; the ability to move into a small, modern housing unit while renting out the existing house; etc.–beyond affluent homeowners to low- and moderate-income homeowners.
Examples: Austin (Austin Community Design and Development Center, The Alley Flat Initiative); Denver (West Denver Renaissance Collaborative); Portland, Oregon; the State of California passed legislation preventing cities from blocking ADUs.
Considerations: Existing models in the U.S. that provide large-scale access to ADUs are nonexistent. Would require policy and program innovation and likely a partnership with local nonprofits and financial institutions.
• Reform land use ordinances to allow for the creation of internal accessory dwelling units
Internal ADUs generate income for existing homeowners by converting excess space inside a home (a common scenario for empty nester and elderly residents) into a secondary rental unit. While a freestanding ADU can easily cost up to $200,000 or more, many internal ADU projects are feasible for under $50,000. This brings them within reach of far more homeowners. Internal ADUs involve almost negligible changes to the physical look of the home’s exterior and are also likely the cheapest possible way to add a new housing unit to already developed neighborhoods.
Examples: Portland, Oregon; Seattle; Santa Cruz, California; San Francisco; Los Angeles; Vancouver, Canada; the State of California passed legislation preventing cities from blocking ADUs (internal and external).
Considerations: May engender political opposition in some areas due to increased unit density. Low- and moderate-income homeowners will need access to affordable financing and technical assistance.
Strategy #2e: Support the preservation of mobile home parks and ability of mobile home park residents to stay in their communities.
Mobile home parks are the largest source of unsubsidized affordable homeownership in the United States and are also home to some of the city’s poorest and most vulnerable residents. While the residents typically own their homes, they rent the land their mobile home sits on. In many Texas cities, mobile home parks have been recently lost or are at high risk of redeveloping. Mobile home households face special challenges when they are displaced as a result of mobile home conversions. Moving a mobile home costs an average of $5,000 to $10,000, and many homes are in such poor condition they cannot be moved. The declining stock of mobile home parks in cities contributes to the difficulties that mobile home owners face in successfully relocating. The following bundle of tools would further the preservation of mobile home parks and reduce the vulnerability of residents living in these frequently overlooked communities.
Policy Tools:
• Comprehensive mobile home park preservation program
Around the country, there are many examples of comprehensive mobile home park preservation programs that incorporate a range of tools to promote the preservation of these affordable housing opportunities. In New Hampshire, for example, residents have purchased over 120 mobile home communities, preserving more than 7,200 homes. Public policies to support resident ownership typically include a right to purchase, funding for resident organizing, legal and technical assistance, and legal protections to allow residents to organize and form resident associations. Fortunately, financing is already available for qualified resident acquisitions of mobile home parks through groups like ROC USA, a national nonprofit social venture with a proven track record of financing resident ownership of mobile home communities. ROC USA has already financed at least one mobile home resident ownership project in Texas (Pasadena Trails). A comprehensive preservation program should include active monitoring of mobile home parks most at risk of redevelopment, which could be led by a city preservation officer or nonprofit preservation network.
Examples: New Hampshire (robust acquisition program); Orgeon (Network for Oregon Affordable Housing–comprehensive program including financing, policy reforms, and technical assistance).
Considerations: Purchases by low-income residents may require public subsidy, especially in areas in the later stages of gentrifying; success is more likely with on-going public financial support, including for technical assistance and tenant organizing. Enhanced legal protections–including a right to organize and form resident associations and enhanced protections from retaliation and harassment–improve mobile home park residents’ chances of successfully purchasing their park.
• Advanced notice of sale or change of use for mobile home parks
Texas cities can adopt ordinances requiring mobile home park owners to give advanced notice to the city and tenants before a mobile home park project owner applies for a site plan or change of use permit, applies for rezoning of the property, or puts the property up for sale. These policies increase the ability of the city and tenants to preserve the property and, if the property cannot be preserved, to prepare for potential relocation upon sale of the mobile home park. Several state governments have coupled an advanced notice of sale requirement with a right of first refusal.
Examples: Austin (270-day notice required prior to owner applying for a site plan, change of use permit, or rezoning of a mobile home residence district); Florida (right of first refusal; notice at least 45 days before owner sells property); Pennsylvania (good faith negotiation requirements); New York (advanced notice with right of first refusal); New Jersey (advanced notice with right of first refusal); Rhode Island (advanced notice with right of first refusal); Minnesota (advanced notice with right of first refusal); North Carolina (notice of sale to Housing Finance Agency required to be eligible for tax exemption); Washington (notice of sale to state office of manufactured housing, local government, local housing authority, and state housing finance commission within 14 days of advertisement for sale).
• Relocation assistance fee for mobile home park displacement
Relocation assistance ordinances require the payment of a relocation fee to mobile home park residents to help cover the costs of relocating in the event a mobile home park is shut down, such as through a rezoning change. Various cities and states have adopted mobile home relocation assistance ordinances. For example, in Maryland, property owners closing mobile home parks are required to pay tenants the equivalent of ten months’ rent. In Minnesota, the Minnesota Housing Finance Agency pays relocation costs of up to $9,000 out of a Manufactured Home Relocation Trust Fund. The City of Austin has adopted a relocation fee requirement and is in the process of setting the fee amount.
Examples: Minnesota (up to $14,500 for a multi-section home and $8,000 for a single- section home, or 50% of relocation expenses; $5,000 for single section and $9,000 for multi- section home that can’t be relocated); Washington State (actual moving expenses up to $12,000 for double-wide home and $7,500 for a single-wide home); Delaware (up to $12,000 for a multi- section home and $8,000 for a single section home); Austin (fee under development after nexus study is performed).
Considerations: Texas cities should conduct a nexus study before adopting a fee.
• Designate new sites for mobile home zoning
When homeowners in mobile home communities are forced out of their communities, they may have little or no alternatives of places to move their mobile homes, especially in cities with few parcels of land zoned for mobile home parks. Designating new sites across a city for mobile home parks would open up opportunities for mobile home residents to remain in the city.
Considerations: This policy would likely not result in new mobile home residents being able to stay in gentrifying neighborhoods unless the policy were coupled with subsidies to support city, nonprofit, or tenant acquisition of land for mobile home parks with restricted lease rates that are affordable to lower-income households.
• Extend mobile home zoning to all mobile home parks
Some cities’ mobile home parks are not zoned specifically as mobile home parks, making these residences especially vulnerable for redevelopment. Rezoning these areas as mobile home zones or adding an overlay designation prohibiting other types of development would help secure the future of these sites as mobile home parks.
Examples: Austin (City Council resolution adopted in 2018 to initiate rezoning process for all mobile home parks not currently zoned mobile home residence district; process expected to be completed by 2020).
Considerations: Low-cost regulatory solution to restrict redevelopment of mobile home parks, although staff resources are required to take the properties through the rezoning process; likely opposition from current mobile home park owners.