Consultants show tax‑abatement tool, tell Charlottesville commission abatements can help but won’t single‑handedly fix housing feasibility
Loading...
Summary
3TP Ventures presented a feasibility model to the Charlottesville Planning Commission showing current housing projects largely don’t 'pencil' under existing market conditions; traditional value‑based abatements provide modest benefit, while a rent‑gap design yields larger financial relief but raises administrative and precedent concerns.
Consultants from 3TP Ventures told the Charlottesville Planning Commission that, under current market conditions, most typical rental projects in the city are not financially feasible and that tax abatements can improve—but rarely fully solve—those feasibility gaps.
The presentation, introduced by Kelly Brown, director of Neighborhood Development Services, described a pro‑forma modeling tool 3TP developed to test how inclusionary zoning and a range of incentives (value‑based abatements, rent‑gap abatements, gap financing, land provision, expedited review) change standard development metrics such as yield on cost and internal rate of return (IRR). Jeremy Goldstein, who led the quantitative work, summarized the core finding: “Right now, looking at typical housing projects across the city … we’re not seeing a lot of projects that can really pencil out as they say right now.”
Why it matters: Commissioners said they need reliable, adjustable analysis to weigh whether the city should use public funds or foregone tax revenue to encourage housing production. The tool is intended to be a flexible staff resource for scenario testing rather than a formal policy prescription.
Key findings and tradeoffs - Market feasibility is limited across many tiers and building types; only some high‑rise, high‑rent projects show a reasonable chance to pencil under current assumptions. - Removing inclusionary zoning modestly improved metrics in some scenarios (presenters cited order‑of‑magnitude changes such as yield increases of roughly 50 basis points and IRR gains of around 2 percentage points in certain runs), but it did not flip most red cells to green across the board. - Two abatement approaches were discussed: a traditional value‑based abatement (abatement of improvement value) and a rent‑gap abatement (refund tied to the difference between market rent and mandated affordable rent). Presenters demonstrated that rent‑gap abatements can have a much larger effect on project yields and IRR in examples, but are less commonly used and bring administrative and implementation questions. - Illustrative fiscal examples from the model: presenters cited a sample project where affordable units produced an effective monthly revenue loss of about $13,000; a fiscal example showed annual tax revenue waived could be “as much as $50,000+” under certain abatement levels, while the new project could create roughly $490,000–$530,000 in tax revenue that otherwise would not exist in the modeled scenario.
Commissioner questions and limits of the analysis Commissioners pressed on several practical inputs: the duration of abatements, whether the model accounts for year‑to‑year gap narrowing, how interest rates and lender hurdle rates are reflected, and how exit (cap) pricing affects IRR. Presenters said many assumptions are configurable—the current model horizon is roughly 30 years, abatement duration can be set, and rate/exit assumptions can be adjusted—but that administration, compliance costs, and some downstream effects were not modeled in depth.
Officials also discussed policy framing: one commissioner urged treating abatements as a city investment in housing rather than a giveaway, and the 3TP team said the model can be used to compare perspectives and to test layered incentives.
What happens next Staff will retain the tool for ongoing testing, consider further vetting of rent‑gap designs with administrators and jurisdictions that have tried similar approaches, and include the model’s results in future policy discussions with Council and stakeholders. 3TP offered to run live demos and to refine inputs (for example, to reflect local lender hurdle rates) on request.
Sources and provenance: Presentation and Q&A, 3TP Ventures and Neighborhood Development Services (presentation began SEG 112; key modeling discussion and Q&A continued through SEG 1550).
