Atlanta's Private Enterprise Agreement Case Study
“Right-Sizing” Property Tax Incentives to Increase Housing Affordability
In 2023, as part of Mayor Dickens’s pledge to create 20,000 affordable housing units, Atlanta established the Atlanta Urban Development Corporation (“AUDC”). Beyond functioning as a “European style” public developer, AUDC created a program leveraging the Private Enterprise Agreement (PEA), found in the original 1937 Georgia Housing Authorities Law, to provide tax exemptions to projects that provide a minimum number of affordable units. In exchange for reserving at least 20% of units at 50% AMI, 10% of units at 80% AMI, and the remaining units at 140% AMI or lower, projects can receive a tax exemption of negotiable length (typically tied to the length of the affordability mandate of at least 20 years). Similar to Texas’ program, the PEA is structured through a partnership whereby AUDC owns the land and enters into a ground lease with the private developer for the duration of the affordability program.
The frictional transaction costs, or Friction Costs (unrecoverable costs associated with any given program, defined further below) associated with the PEA are moderate. Developers are required to pay a lease closing fee (0.5% of property value at time of agreement), annual compliance charges between $2,500 per year and up to $75 per unit per year, and a lease break
fee, if applicable. The application and approval process for the tax exemption includes a short, written, application (as part of a collaborative information collection process), AUDC investment committee review, and a board vote. Because AUDC is a quasi-independent public corporation not beholden to the same regulations as public entities, and because the PEA, importantly, is an off-the-shelf product, the response time for a PEA award is typically between 3-6 months.
This standardized approach presents certain tradeoffs. The uniform structure risks providing insufficient subsidy for some developments while potentially over-subsidizing naturally occurring affordable properties, wherein tax abatement is not needed. In the current market environment, the private rate of return enhancement may be insufficient to stimulate new affordable housing production.
To address this potential issue, the City of Atlanta, along with the Community Foundation for Greater Atlanta (“CFGA”) has created a low-cost loan program to provide further incentives for the affordable housing units that need it the most. With an independent underwriting team and investment committee, CFGA is able to provide more tailored subsidies to spur more affordable developments.