The federal opportunity zone program's expiration in 2026 will leave a void for investors and developers who need tax incentives to continue building affordable housing.
But at least one state has devised a plan to ensure affordable housing development continues. Florida's Live Local Act, which allocates more than $700 million for incentives to develop affordable housing, took effect July 1.
The law mandates local governments to:
- Authorize the development of multifamily rentals on sites that are zoned as mixed-use residential, commercial or industrial if at least 40% of the residential units will be affordable to people making up to 120% of the local area median income (AMI) for at least 30 years
- Apply the highest density permitted on land in their jurisdictions to proposed multifamily developments and allow proposed developments to build to heights of at least three stories
Certain developments will be eligible for a 75% to 100% ad valorem tax exemption, depending on the level of rent restriction for the units, which will first apply to the 2024 tax roll.
"I think that the success of the implementation of the opportunity zone program has highlighted to the legislative body in Florida that there's an opportunity to create incentives to get developers to develop more housing for the missing middle," said Mike Tillman, CEO of PTM Partners, one of the largest opportunity zone funds and developers in the U.S.
PTM Partners, which has developed projects valued at more than $2 billion in opportunity zones, brings high-quality housing that is price accessible to key markets across the U.S. The company identified development opportunities where it can achieve target returns while still ensuring rental rates are attainable for at least 65% of the population living within a 1-mile radius.
Opportunity zones were created under the 2017 Tax Cuts and Jobs Act to provide an incentive for private, long-term investment in economically distressed communities. Opportunity zones are based on Census tracts chosen by the governors in each state, but Florida's Live Local Act is not tied to a specific location.
"I think the Live Local Act can work very well in tandem with opportunity zones," Tillman said. "You can do a development in an opportunity zone and still leverage Live Local to assist with some of the zoning."
Whether developers are leveraging opportunity zones or Live Local incentives to complete their projects, it's critical that any development they're considering should still be a good deal.
"The financial benefits to develop in that location should be the icing on the cake," he said. "You have to build something that's fundamentally sound. You have to build something that there's true demand for.
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