If you are an owner or operator of affordable rental housing (property with four or more units), it might be worth noting that the General Assembly has just restricted your local real estate tax assessor’s discretion to value your property to one method. Senator Whipple, apparently at the request of the Virginia Housing Commission, patroned a bill passed by both houses this session to amend Section 58.1-3295, requiring localities to assess real property being operated as affordable rental housing solely via the income valuation approach. Presumably, the reason for this was that local assessors have been trying to tax committed affordable rental housing (i.e. housing that is legally bound to remain and operate as affordable housing at limited rents), at rates that do not reflect these income stream restrictions, by using methods to determine fair market value other than the income approach.
In a nutshell, before this amendment, a local assessor could assess real property three different ways:
- The Sales Comparison Method, or “Market Approach;”
- The Replacement Cost Less Depreciation Method, or “Cost Approach;” and
- The Capitalization of Income Method, or “Income Approach.”
Additionally, when dealing specifically with affordable housing, after application made by the owner, assessors were required to consider:
- The impact of any legally imposed rent restrictions;
- Any additional operating expenses associated with affordable housing compliance requirements; and
- Any legally imposed restrictions on the transfer of title or other restraints on alienation.
Assessors were also expressly prohibited from attributing the value of affordable housing tax credits to affordable housing sites.
So, basically, assessors will still be required to take into account the special affordable housing valuation factors listed above, but will now be required to only use the Income Approach in determining fair market value. Well, the policies involved being fairly apparent, we just have to wait and see whether local assessors will decide whether they think they need to obey this new valuation as prescribed by this amendment, or whether they may disregard it. In any event, it may be worth looking into how your local assessor is currently determining the value of your affordable housing inventory.