City of Chattanooga launches new affordable housing Payment in Lieu of Taxes (PILOT) Program

New program launches today, allows the city to incentivize individual units at even lower rents
Chattanooga, Tenn. (June 10, 2024) – Today, the City of Chattanooga launched its new affordable
housing Payment in Lieu of Taxes (PILOT) program. The new PILOT rules allow the city to incentivize
individual affordable housing units, offer greater incentives for units with lower rents, and better reflect
the variation in market rents across different areas of the city.

“We have a lot of work to do to fight the national housing crisis and make housing more affordable in
Chattanooga. This new policy is a big step in the right direction. This gives us the freedom to
incentivize affordable housing any way we can get it, not just in big blocks in large developments,” said
Mayor Tim Kelly. “I look forward to seeing how housing developers, especially those here in
Chattanooga, are able to take advantage of this flexible new PILOT program to add affordable units to
their developments. I want to thank City Council and our housing policy team for working together to
get this done.”

Chief Housing Officer Nicole Heyman emphasized the importance of the new program, stating, “My
team has developed a flexible and effective PILOT aimed at meeting our City’s growing and diverse
affordable housing needs.” The revamped Affordable Housing PILOT program is designed to foster the
development of mixed-income housing and support the development of smaller affordable housing by
local builders.

Recent data highlights the urgent need for affordable housing solutions in Chattanooga, with 56% of
renters earning less than 80% of the Area Median Income (AMI). The PILOT program mandates that
qualifying developments include rental homes priced according to the earnings of renters within the
50-80% AMI range. Qualifying incomes and rents, updated annually by the US Department of Housing
and Urban Development, can be found HERE.

The previous PILOT framework presented challenges for small and private developers who wanted to
integrate affordable units into their projects. Under the old system, developers were required to
allocate at least half of their units to renters earning 80% of the AMI to qualify for full tax abatement.
This one-size-fits-all approach did not account for variations in rental markets across different
neighborhoods and limited the potential for deeper affordability levels without additional subsidies.

In response to these challenges, the Housing Policy Team has implemented strategic measures to
ensure that new developments prioritize both housing quality and affordability without
over-subsidizing. The new framework ties tax abatements directly to the cost of providing affordable
monthly rents. This per-unit abatement structure is based on the difference between market-rate rents
in each of Chattanooga’s zip codes and affordable rents according to AMI, ensuring developers are
adequately compensated for offering below-market rental rates.