Tax rebates for landlords keeping rent affordable? One proposal to stem the housing crisis.

PROVIDENCE − A state legislator is workshopping a pilot program to offer small-scale landlords tax rebates in exchange for charging below-market rent to people making up to 80% of the area's median income.

"More often than not, when I get calls, emails, messages on a daily basis, it's [about whether] I know of an affordable unit I can connect people with, or they're calling to see if it's legal that their landlord price-gouges and increases the rent more than $300 in the new year," Rep. David Morales said during a meeting on Thursday of the Special Legislative Commission to Study Housing Affordability.

Morales said the reason he came up with the affordability tax-rebate idea is the steep rise in rents in the state, and in Providence, as both rental and purchase costs have significantly increased since the onset of the pandemic.

Morales said he wanted stakeholders to give him feedback on the proposal.

While some significant housing projects are in the pipeline, it will take years until those units are on the market, Morales said.

While a more expansive solution would be state-wide rent control, there is no political will for that kind of a solution, he said, hence the pilot proposal.

How would the pilot program work?

Morales' core idea is that landlords receive a tax rebate for offering below-market rents to people at or below 80% of the area median income.

His current proposal, still in development, is a pilot program that would last one year and cost $2 million, which would help an estimated 1,000 to 1,600 households.

According to the 2023 Housing Fact Book, nearly 50% of renters in the state are housing cost-burdened, meaning they spend more than 30% of their monthly income on rent and utilities.

Page 1 of Legislative Proposal - Tax Rebate for Landlords offering Affordable Rents (Pilot Program)

Contributed to DocumentCloud by Wheeler Cowperthwaite (The Providence Journal) • View document or read text

What would the program rules be?

The current owner-occupied proposal is meant to direct the pilot program at "mom-and-pop" landlords, who often live in one level of a triple-decker and rent out the other floors to be able to afford their mortgage. It is also to reduce the chance of abuse by institutional landlords, as city tax breaks have increasingly come under fire and scrutiny, Morales said.

Other proposed rules include:

• The tenant cannot be a relative of the landlord

• Eviction would be allowed only for "just cause"

• The housing unit must be a legal unit and not a makeshift residence

How much of a subsidy would landlords get?

Landlords would be able to collect modest tax rebates for renting for a year; the maximum rebate a landlord could receive for multiple units would be $3,600. The proposed rebates are:

• $1,200, one bedroom

• $1,500, two bedroom

• $1,800, three bedroom and larger

How much would rent cost?

Rents would be set within the federal Department of Housing and Urban Development affordable rent limits for the area. The current rent limits are:

• $1,171 for a one-bedroom unit

• $1,409 for a two-bedroom unit

• $1,697 for a three-bedroom unit

• $1,873 for a four-bedroom unit

• $2,048 for a five-bedroom unit

Who would be eligible?

The program would be designed for renters who make 80% or less of the area median income. Calculations of that income for 2024 have not been released yet by the federal government. The 80% maximum income limits for all of Rhode Island except six coastal communities are based on household size:

• 1 person, $57,350

• 2 people, $65,550

• 3 people, $73,750

• 4 people, $81,900

• 5 people, $88,550

• 6 people, $95,050

• 7 people, $101,600

• 8 people, $108,150

What's been the response to the proposal?

Multiple members of the legislative commission said the amount of subsidy would probably need to rise to get landlords to participate.

House Minority Leader Michael Chippendale said landlords would be taking a significant loss in potential rental income, and Rhode Island Foundation President David Cicilline said there would be little incentive for landlords to participate when the rebate is $100 a month for the smallest units.

If the program went forward and every landlord was renting a three-bedroom unit, and with no administrative costs, the $2-million proposed appropriation would last for 1,111 units.

Morales said in an interview that he hopes to file a bill by early February after incorporating all the feedback he receives, including eliminating the requirement that units be owner-occupied, and instead limiting it to landlords who own small portfolios of properties.

"The level it's set at is following the HUD standards for fair market, and it's making sure people aren't being price-gouged," Morales said.

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Reach reporter Wheeler Cowperthwaite at wcowperthwaite@providencejournal.com or follow him on Twitter @WheelerReporter.

This article originally appeared on The Providence Journal: RI legislator proposes tax rebate for landlords who reduce rent