Oct 28, 2022 - Real Estate

Phoenix could use tax incentives to encourage more affordable housing

Illustration of a dollar sign made of wood

Illustration: Eniola Odetunde/Axios

Phoenix is looking to persuade developers to create affordable housing, preserve historic buildings and bring good retail options to various parts of the city by using a tax incentive it has traditionally reserved for its downtown.

Why it matters: City leaders say the incentive, called a Government Property Lease Excise Tax (GPLET), played a big role in bringing much-needed residential development to downtown in the past decade.

How it works: A developer partners with Phoenix to build a project on city-owned land, subject to whatever special parameters the city wants to place on it.

For example: The council could require an apartment developer to set aside 20% of its units for people who make less than the area median income, build a public park onsite or preserve a historic structure on the property.

  • In exchange, the builder wouldn't have to pay property taxes, because the city would maintain ownership of the land, which is not taxed because it's government-owned.
  • Instead, they'd pay a much-reduced excise tax for up to 25 years.

State of play: Community and economic development director Christine Mackay told a council subcommittee this week that her team was working on developing a menu of options for the council to consider when offering GPLETs.

  • She said the priority is workforce housing, which is affordable to people who make 80% to 120% of the area median income, or $70,650-$106,560 for a family of four.
  • GPLETs can be used in any of the city's 19 redevelopment areas. Most of them are located in central and south Phoenix.

1 big controversy: GPLETs are often challenged by taxpayer watchdogs who see them as a violation of the state constitution's "gift clause," which prohibits governments from providing public money for private gain.

  • If the city plans to use this tool more widely, it will have to be sure it can prove in court that the public benefit is equal or greater than the property tax it's foregoing.
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