TALLAHASSEE, Fla. – On March 29, 2023, Governor Ron DeSantis signed Florida Senate Bill 102, called the “Live Local Act” (the Act), which becomes effective on July 1, 2023. While the Act includes incentives that may also appeal to market rate developers, such as flexibility to use commercially zoned property to develop multifamily housing if a minority percentage of the units are used for affordable and/or workforce housing, there are significant additional benefits to those who develop what is traditionally considered affordable housing – residential units affordable to those earning 80% of area median income or lower.
Tax exemption for building materials used in construction of affordable housing units
The Act creates a new tax exemption applicable to sales that occur on or after July 1, 2023, of building materials for use within an affordable housing development that is restricted under a recorded land use restriction agreement with the Florida Housing Finance Corporation (Florida Housing).
Building materials are those that:
- become a component part of eligible residential units and are part of improvements to the real property that did not previously exist or
- are used in the construction of a new improvement where an old improvement was removed.
In other words, the tax exemption excludes building materials used for renovation, restoration, rehabilitation, modification, alteration, or expansion of existing buildings. The term includes appliances but excludes plants, landscaping, fencing, and hardscaping. The units in the affordable housing development are those for extremely-low-income (30% of area median income (AMI)), very-low-income (50% of AMI), or low-income (80% of AMI) individuals or families as specified in Fla. Stats. § 420.0004.
A refund may not be granted unless the amount to be refunded exceeds $500, and a refund may not exceed the lesser of $5,000 or 97.5% of the Florida sales or use tax paid on the cost of building materials. Only one exemption through a refund of previously paid taxes may be claimed for any eligible residential unit.
Unless the building materials are paid for from the funds of a community development block grant (CDBG), the State Housing Initiatives Partnership Program (SHIP), or a similar grant or loan program, this exemption inures to the owner at the time an eligible residential unit is substantially completed (meaning that that the improvement can be used for the purpose for which it was constructed), but only through a refund of previously paid taxes.
A refund is obtained by filing an application with the Department of Revenue (i) within 6 months after the eligible residential unit is deemed to be substantially completed by the local building code inspector or (ii) by November 1 after the improved property is first subject to assessment. This exemption inures to a municipality, county, other governmental unit or agency, or nonprofit community-based organization through a refund of previously paid taxes if the building materials are paid for from the funds of CDBG, SHIP or a similar grant or loan program.
Affordable housing property exemption for land leased for 99 years from nonprofit for affordable housing
While portions of property used to provide affordable housing to eligible persons owned entirely by a qualified nonprofit entity are currently exempt from property taxation to the extent authorized under Fla. Stats. § 196.196, effective January 1, 2024, land that is owned entirely by a qualified nonprofit entity and is leased for a minimum of 99 years for the purpose of, and is predominantly used for, providing housing to natural persons or families meeting income limits specified in Fla. Stats. § 420.0004 is also exempt from property taxation.
Land is predominantly used for qualifying purposes if the square footage of the improvements on the land used to provide qualifying housing is greater than 50% of the square footage of all improvements on the land. This first applies to the 2024 tax roll and is repealed on December 31, 2059.
Funding: Up to $150 million/fiscal year to state apartment incentive loan program (SAIL) from documentary stamp taxes
All documentary stamp taxes remaining after deduction of costs and the required distributions to the Land Acquisition Trust Fund as set forth in Fla. Stats. § 201.15 shall be distributed as follows: The lesser of 8% of the remainder or $150 million in each fiscal year shall be paid into the State Treasury to the credit of the State Housing Trust Fund and shall be expended pursuant to the newly created Fla. Stats. §. 420.50871. This expires on July 1, 2033.
Fla. Stats. §. 420.50871 provides that allocation of increased revenues derived from amendments to Fla. Stats. § 201.15 made by this Act must be used annually for projects under the State Apartment Incentive Loan Program (SAIL) under Fla. Stats. §. 420.5087.
Notwithstanding the income limitations in Fla. Stats. § 420.5087(2), projects are intended to provide housing that is affordable, meaning that monthly rents or monthly mortgage payments including taxes, insurance, and utilities do not exceed 30% of that amount which represents the percentage of the median adjusted gross annual income for the following households (all as specifically defined in Fla. Stats § 420.0004):
- Extremely-low-income persons (30%)
- Very-low-income persons (50%)
- Low-income persons (80%)
- Moderate-income persons (120%)
Beginning in the 2023-2024 fiscal year and annually for 10 years thereafter, Florida Housing shall issue competitive requests for application for:
(1) 70% of the funds to be used for the following affordable housing project purposes:
- Building a new affordable housing development, relocating the tenants of the existing development to the new development, and then demolishing the existing development for reconstruction of an affordable housing development with more overall and affordable units.
- Addressing urban infill, including conversions of vacant, dilapidated, or functionally obsolete buildings or the use of underused commercial property.
- Providing for mixed use of the location, incorporating nonresidential uses, such as retail, office, institutional, or other appropriate commercial or nonresidential uses.
- Providing housing near military installations, with preference given to projects that incorporate critical services for servicemembers, their families, and veterans.
(2) 30% of the funds to be used for the following affordable housing project purposes:
- Using or leasing public lands for affordable housing purposes.
- Addressing the needs of young adults who age out of the foster care system.
- Meeting the needs of elderly persons.
- Providing housing to meet the needs in areas of rural opportunity, designated pursuant to Fla. Stats. § 288.0656.
Note that Florida Housing may use up to $25 million of eligible contributions to provide loans for the construction of large-scale projects of significant regional impact. Such projects must include a substantial civic, educational, or healthcare use and may include commercial use, any of which must be incorporated within or contiguous to the project property.
Such a loan must be made, except as otherwise provided in this subsection, in accordance with the practices and policies of the SAIL Program. Such a loan is subject to the competitive application process and may not exceed 25% of the total project cost. Florida Housing must find that the loan provides a unique opportunity for investment alongside local government participation that would enable the creation of a significant amount of affordable housing.
Land use mechanisms to increase affordable housing, including inclusionary zoning
The Act further paves the way for municipalities, counties, or other entities of local government to implement additional beneficial measures. Local government may adopt and maintain in effect any law, ordinance, rule, or other measure which is adopted for the purposes of increasing the supply of affordable housing using land use mechanisms such as inclusionary housing ordinances.
The Live Local Act covers many incentives and appropriations in great detail. This advisory focuses primarily on a high-level summary of benefits that may appeal to developers that traditionally develop affordable housing.
Buchanan’s multi-disciplinary team of attorneys and government relations professionals maintain regular communication with lawmakers at the state and federal level, and leaders from across the industry to ensure our clients are in the loop on the latest trends and legislation to help developers evaluate Florida’s affordable housing process.
© Mondaq Ltd, 2023, Ms. Michelle Yarbrough Korb, Buchanan Ingersoll & Rooney PC, Pittsburgh, Pa.