Assessing the value of a condominium or single-family home is generally straightforward, but determining the true value of affordable housing involves a lot of variables and requires training and experience. Getting it wrong often means the real estate taxes are too high, which can result in deferred building maintenance; it can also reduce funding for additional affordable housing at a time when Massachusetts badly needs more. A 2016 study outlines how problems occur and makes recommendations to avoid them.

The report was prepared by LDS Consulting on behalf of the Lawyers Clearinghouse and in collaboration with the Massachusetts Housing Partnership and the Massachusetts Association of Community Development Corporations. It was initiated by the affordable housing community, which is more often than not negatively impacted by assessing errors.

Affordable housing is quite complex – from funding to building to assessing – and mistakes can happen at dozens of points along the way, said Lynne D. Sweet of LDS Consulting. Any of those mistakes can lead to an assessment that’s too high – or sometimes too low. She said it’s nobody’s fault that the process has become so complicated. It’s just an issue that has bubbled up, leaving assessors and developers equally hungry for information and solutions.

“It starts at the very beginning to make sure the property is categorized and assessed correctly,” Sweet said. “Then there are these automatic reassessments that might not happen locally; it might happen with a company that is just churning through and doing reassessments. So it may have been done right initially, but then you might have to fix it later on down the line. Or it could be where there is a bit of a gap between when you buy a property and when you actually build affordable housing on it and values rise or fall. It can take up to three years before a developer can get a shovel in the ground.”

There’s plenty of documentation on how to assess residential, commercial, horticultural and even agricultural properties, but there isn’t much documentation on how to assess affordable housing, said Gary McCabe, assessor for the town of Brookline.

“We want to get that information out there,” he said. “It’s a valuation assignment. By definition these properties have restrictions built into them. If they’re rent-restricted, they don’t sell. So how can I test my results? There are not a lot of these, but they’re growing in number.”

McCabe encourages developers of affordable housing to communicate with his office when a property is being assessed in an effort to arrive at what both sides consider a fair assessment.

“Occasionally there are areas of disagreement that aren’t always settled before the assessment,” he said. “Then we have to go before the Appellate Tax Board.”

That process is expensive for the developer and takes the assessor away from their primary function of assessing property.

Significant Statewide Issue

Properly assessing affordable housing is a significant statewide issue, said affordable housing attorney Kurt James, who sits on the Lawyers Clearinghouse board.

“There isn’t any good guidance at the state level so far, though there really is some interest in addressing this,” he said. “Without state rules, it falls back to individual town assessors. Some are sophisticated about it, but it’s really inconsistent. Some assessors use income to determine; others use comparable sales.”

Sweet is currently working with the Department of Revenue to create new use codes to cover affordable housing, improving the fairness and ease of the process.

“We want them to create a category that would show a property has an affordable component and it would take it out of the master batch and put it into its own little batch,” Sweet said. “We’re trying to create guidelines from DOR so assessors have more tools in their toolbox so they can more easily assess affordable properties. Right now, everyone is taking different approaches.”

Sometimes, Sweet said, problems with assessments begin when developers simply forget to fill out forms and return them to the assessor’s office. She said developers should maintain a dialogue with the assessor’s office throughout the process to avoid getting an unwelcome surprise in their real estate tax bill.

To further complicate the issue, various kinds of affordability and the ways these projects are financed and subsidized all impact their true value.

“Is the building fully affordable? Is part of it mixed-income? Partially market-rate? Is it subsidized by the government? Is it self-pay? It’s complicated,” Sweet said. “For multifamily rental projects, they’re going to assess it based on income and apply a cap rate. There is a question about whether cap rates are the same or different with affordable housing. With affordable housing, you have multiple layers of financing and you may have investors.”

Improve Assessments, Create More Housing

“A lot of times assessors don’t look at affordable housing as being a public service like fire stations, hospitals and schools,” James said. “It benefits a community to have teachers, firefighters and police officers who work in a town live in that town. They are more engaged in local issues and they’re part of the community they serve.”

James agreed with Sweet that if more affordable housing is assessed fairly, it will lead to more affordable housing being built.

“If the appraisal is right, a developer might be able to build more units in a project, since the operating costs are lower,” James said. “Or they’d need less state money, which could go to other projects, so on balance, yes, there would be more affordable housing.”