By Sarah Curry, DBA
Maybe you missed it, but April 3-9 was Affordable Housing Week in Iowa, where one of the main takeaways was that Iowa needs to increase its housing supply. It’s no secret that many states, including Iowa, have a housing shortage. Housing advocacy groups have identified a particular shortage of affordable homes, especially for lower-income Iowa families. In fact, it is such a pressing need that the State has designated $330 million over a five-year period to help aid in the issue.
So imagine our surprise when we found out the city of Des Moines is offering nine years of property tax abatements for luxury townhomes priced at $1.3 million each. To make this even more of a shock, these specific townhomes will receive that ninth year of tax reductions because they include charging stations for high-priced electric vehicles.
Welcome to Des Moines. Drive a Tesla, get free property taxes!
Is this really what the city has in mind for tax abatements? According to the city’s website, the City Council unanimously adopted a new tax abatement program to “stimulate community revitalization, improve existing housing stock, and retain and attract residents to the City of Des Moines…”. The Des Moines Register reported on the policy change saying it would help address the city’s missing middle housing by building units that would cost less to buy or rent than single-family homes. Here We Grow!, a Des Moines-based housing organization, praised the city’s plan to expand the tax incentives because they believed it would help incentivize housing that is more affordable for those with incomes under $75,000 who are looking to buy.
This recent round of abatements does not meet that intent. $1.3 million townhomes are not within reach for families with incomes below $75,000. These are more government handouts to a select few while the rest of Des Moines’ residents get slapped with even higher property tax bills. Over the last ten years Des Moines has seen a 22.4% increase in its property tax collections while its population has been decreasing since 2017.
What’s even worse, though, is it does not just impact residents of Des Moines. Iowa law requires the State to backfill abated education dollars so all Iowa taxpayers will have to chip in to refill any lost school funding. Iowans want lower property taxes, but they should be furious at the basic unfairness of having to pay for Des Moines directing resources to its wealthy neighborhoods.
Tax abatements and similar incentives are bad policy, period. Why should a select few get a property tax reduction at the expense of everyone else? Why not reduce the burden for everyone?
Unfortunately, cities like Des Moines playing games with tax abatements will only make the property tax situation worse, especially for middle to lower income households. Even when the abatement is provided for homes that would truly fit the “missing middle” definition, consider what happens to the homeowner when the abatement ends. The homeowner will be handed a sizable property tax bill and be in a worse place than they are today. Ultimately, the tax abatement is a band aid to a much bigger problem.
But if tax abatements are going to exist for the purpose of increasing affordable housing stock, and they’ll be here until at least 2028, then there should be a policy to generate the desired result. Developers need guidelines to ensure they cannot pair luxury townhomes (with high-end finishes and elevators!) with big tax breaks. The incentives should at least attempt to spur the development of affordable housing.
Local governments have more tools at their disposal beyond tax incentives and giveaways. For instance, they could consider their zoning guidelines that might penalize or even prohibit what a developer chooses to build. Hopefully local leaders in our state will explore less expensive options to the affordable housing problem, instead of costly handouts that distort the market.