Gov. Lee signs Kelly Administration-backed bill

Gov. Lee signs Kelly Administration-backed bill allowing incentives for housing affordability.

Chattanooga, Tenn. (June 6, 2024) – Today Chattanooga Mayor Tim Kelly announced that Gov. Lee has signed the
affordable housing legislation supported by the City of Chattanooga and sponsored by Sen. Todd Gardenhire and
Rep. Dale Carr. The new law will allow cities to offer no-cost incentives to builders who agree to create homes
that are affordable for more Chattanoogans. Under the previous law, cities were prohibited from providing certain
incentives, such as density bonuses or reducing parking requirements, in exchange for enhancing affordability.

“This new law will be a big help for city government as we fight the national housing crisis. We simply could not
have done this without Sen. Todd Gardenhire, and I want to personally thank him for his partnership,” said Mayor
Kelly. “This new state law will allow us to offer local incentives that will work in concert with our PILOT reform
and upcoming zoning reform. Combined, these changes will represent an overhaul of the city’s housing policy
since I took office, and it has taken years of hard work to get here. But policy is just words on a page until we can
put it to work helping our people. We know we still have a lot to do to increase Chattanooga’s supply of housing,
and affordable housing in particular. We can solve big problems when we come together as Chattanoogans and
embrace innovative solutions, and I’m committed to doing just that.”

The bill will become one of a number of new tools the city can deploy to offset rent increases of roughly 30
percent since 2020, at a time when renter incomes have risen only 13 percent during the same period, according
to the mayor’s recent Housing Needs Assessment. The new incentives will also help address supply shortages that
have priced many residents out of their communities. From 2013 to 2022, only six new homes were built for every
10 new jobs created, according to an analysis by ThinkTennessee.

“Government should never stand in the way of everyday folks improving their lives, livelihoods, or living
conditions,” said Sen. Gardenhire. “I’m really appreciative of Mayor Kelly and his team for not only bringing to my
attention a real problem that was impeding success, but also a comprehensive and realistic solution that would
solve that problem. I believe the best way to solve big issues is to work together at all levels of government – and
this is just the latest example of that.”

Senate Bill 2496 and House Bill 2623 provide a number of vital tools to close the affordability gap in Chattanooga
and across the state. Towns and cities will now have the option to create a package of no-cost zoning incentives
tailored to their community, which they can offer to builders who want to create or preserve multifamily housing
at price points that Tennessee families and seniors can afford. Incentives can include:

● Increase Density Allowance — A city or county can choose to reduce the land area required per housing
unit. This allows more homes on a piece of land, spreading out the fixed costs and reducing home sizes,
which makes it possible to offer lower-priced homes.
● Lower Parking Requirements — A city or county can choose to reduce construction costs by reducing
regulations requiring a minimum number of parking spaces per home, creating savings up to $14,000 per
home according to a 2023 Rutgers University study.
● Priority Permitting — A city or county can choose to give priority in the permitting process to projects
that include attainable homes. Faster permitting reduces the carrying costs for developers in the
pre-development stage.

“The language of the previous law in Tennessee was highly restrictive and held us back significantly as we looked
for tools to make housing more affordable to working class families,” said Nicole Heyman, chief housing officer
for the City of Chattanooga. “Using this law, we can work with housing developers and create pathways for them
to reduce their rents without forcing them to sacrifice their project’s viability. I believe this law will change the
game for cities across the state that are struggling to come up with creative solutions to combat Tennessee’s
housing shortage.”

Under the terms of the law, each municipality wishing to adopt the new framework will have to pass a local
ordinance laying out the local incentives and process. Upon adoption, developers and builders will be able to
opt-in by providing a written notice of interest. Projects that meet the local criteria would go through a
transparent review process culminating in approval or denial by the Regional Planning Commission. The
properties would then be deed-restricted to ensure that the housing is attainable long term.

The Kelly Administration is actively working to create an ordinance to present for council approval.

More on Mayor Tim Kelly’s ongoing efforts to improve Chattanooga’s housing landscape:

Since entering office, expanding access to affordable housing has been a top priority of Mayor Kelly’s
administration. Expanding access to affordable housing is one of the major tenets laid out in the administration’s
One Chattanooga Plan. The Kelly Administration committed to a five-year, $100 million suite of affordable housing
initiatives designed to create and preserve housing that every resident can afford.

In March, the Kelly Administration presented, and the city council passed, its proposal to reform the City’s
payment-in-lieu-of-taxes (PILOT) program. The changes to the program allow the City to incentivize private
developers to build mixed-income housing projects, offer incentives for different levels of affordability, and tailor
the incentives to local market conditions.

Last year, the Kelly Administration presented the findings from its Housing Action Plan and Market Value Analysis,
comprehensive and detailed evaluations of Chattanooga’s current housing crisis and the tools needed to reverse
the course. The Housing Action Plan detailed, among many other things, the need for zoning law changes and an
emergency homeless shelter to make inroads to reducing homeless rates and improve the city’s housing
landscape, which could experience a 7,000 unit affordable housing deficit by 2030.