A recent ruling by the Fourth Circuit Court of Appeals in New Orleans could have negative implications for the development of quality affordable housing in Louisiana, says Business Report Editor Stephanie Riegel in her latest column.
“At issue is how to determine the fair market value of affordable housing—rent-restricted property developed using Federal Low Income Housing Tax Credits—for the purpose of assessing it,” Riegel writes.
In most parts of the state, Rigel says, assessors use an income-based approach, valuing the property based on the income it generates, which is limited since affordable housing is, by definition, rent restricted. But in New Orleans, Riegel says Orleans Parish Assessor Errol Williams has been using a sales-comparison approach for certain types of developments.
“In other words, he treats the properties as if they were market-rate and bases their value on the recent sale prices of other nearby, comparably sized properties—or ‘comps’—much as appraisers do,” she writes.
Last year, Opportunity Homes Limited Partnership, the developer of 64 double-unit affordable housing residences on 32 scattered sites around New Orleans, sued Williams. The developer argued the assessor way overvalued its properties, using flawed comps that failed to account for the vast income difference between market-rate and rent-restricted properties.
The Louisiana Tax Commission, which administers tax policy for the state, agreed with the developer and joined its suit.
“They won at trial. But earlier this month, the Fourth Circuit reversed the lower court decision, opining that ‘… a plain reading of the statute supports the assessor’s position that he may use any … generally accepted methodology in assessing affordable housing,’” Riegel writes. “Developers and appraisers will tell you this is ridiculous. Determining the fair market value of a rent-restricted property based on the comps of nearby market-rate properties is literally comparing apples to oranges.”
It’s also unfair, Riegel says, and punishes those willing to take the considerable risk of developing a property that, by its very nature, will not generate sufficient rental income to cover the cost of construction or upkeep.
Read the full column. Send your comments to editors@businessreport.com.
