Chattanooga Neighborhood Enterprise seeks tax break for 32-unit affordable housing project

City of Chattanooga / A rendering of the 32-unit apartment complex Chattanooga Neighborhood Enterprise plans to build at 2003 Bailey Ave.
City of Chattanooga / A rendering of the 32-unit apartment complex Chattanooga Neighborhood Enterprise plans to build at 2003 Bailey Ave.

With rents on the rise, Chattanooga Neighborhood Enterprise is seeking a 20-year tax break for a 32-unit housing project, which would enable at least half the apartments to be made affordable for people presently making about $45,000 per year.

The nonprofit is seeking a tax break from the city and county, which would provide annual savings of $53,000. Chattanooga Neighborhood Enterprises expects the project will cost $5.9 million. The Chattanooga City Council will consider the tax abatements Tuesday, and the Hamiton County Commission will vote on the project the day after.

"Without the (tax agreement), the only way to make this project work ... is to raise the rents," Jake Toner, development consultant with Chattanooga Neighborhood Enterprise, told county commissioners during a presentation Wednesday. "We can't hold these rents at these levels without the tax abatement."

(READ MORE: Financing plan approved for more affordable apartment complexes in Chattanooga)

The three-building project would occur on roughly half an acre of land at 2003 Bailey Ave. Of the 32 units, 20 would be one-bedroom apartments and 12 would have two bedrooms. There would be 25 off-street parking spaces and nine on the street. Construction would start before March 31, according to the nonprofit's tax break application. The land is currently vacant.

Under the terms of the proposed agreement, Chattanooga Neighborhood Enterprise would only pay the portion of property taxes normally reserved for Hamilton County Schools, according to Alexa LeBoeuf, director of the county's Department of Economic and Community Development.

The nonprofit must keep rents for at least 16 units affordable for people making 80% of the area median income, which is approximately $45,000. For a one-person household, 100% of the area median income is $55,800, according to Chattanooga Neighborhood Enterprise.

The one-bedroom units preserved at 80% of the area income would charge rents of $1,195 per month, according to a breakdown shared by the nonprofit. The two-bedroom units would cost $1,434 per month.

The nonprofit is also taking steps to ensure the remaining apartments in the project are affordable. It has received eight vouchers from the Chattanooga Housing Authority, which will cover a portion of the rent for another eight of the 32 units. Thanks to federal funds, an additional seven units will be reserved for people earning 60% of the area median income or less.

The project is part of a revitalization effort Chattanooga Neighborhood Enterprise launched several years ago in the Highland Park and Ridgedale neighborhoods, the nonprofit said in its application. It has created a development plan for 34 vacant parcels it owns in those neighborhoods. To date, the plan has created more than 300 new rental and owned housing units.

Chattanooga is having difficulty maintaining workforce affordable housing, Chattanooga Neighborhood Enterprise said in its application. Rents have increased 50% since 2015. Toner cited data from the rental website, which shows the average rent for a one-bedroom unit in downtown Chattanooga is $1,439, and for two bedrooms, it's $2,100.

(READ MORE: Chattanooga-area leaders eye tax incentives for competitive edge, community members urge caution)

The organization's rental units target people earning $13-$20 per hour, and Chattanooga Neighborhood Enterprise's tenants have an average income of about $33,000.

In a phone call, Chattanooga Neighborhood Enterprise CEO Martina Guilfoil said construction costs have also increased. Housing prices, rents and construction costs all exploded during the pandemic. The only way to bridge the gap between what people can afford in rent and the cost to build is by layering in tax incentives, federal funding and other financial resources, she said.

"It's trying to make all the numbers work," she said.

Commissioner David Sharpe, D-Red Bank, said during the meeting Wednesday he appreciates the nonprofit bringing the project forward. If officials want to take meaningful steps towards addressing affordable housing, they need to get comfortable with the idea of saying yes, he said.

"When people bringing housing projects together — various configurations of housing, new ideas about how we can increase density and provide new models of housing in our community — the answer is yes," Sharpe said. "It's yes every time, and when we start doing that, we're going to see housing costs come down to affordable levels."

Contact David Floyd at [email protected] or 423-757-6249.

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