Chattanooga creates unit-level PILOT for mixed-income apartments

"For more than two decades, Chattanooga has used payment-in-lieu-of-taxes agreements to reshape its downtown. But the tax-break tool that once helped fill the Tennessee River city with market-rate apartments has been retooled for a different purpose: mixing affordable and market-rate units. City officials say seven of every 10 renters are either rent-burdened or severely rent-burdened."

"With a change in state law, Chattanooga housing and finance officials crafted a voluntary PILOT an acronym for Payment in Lieu of Taxes program for individual units in a market-rate building. The 15-year abatement is pegged directly to the cost of lowering rent from a modeled market level to an affordable one. The program does not appear to copy any other affordable housing incentive in the country."

"Incentives in Chattanooga and nationwide tend to be blunt instruments that do not prove to work well, especially over time. I saw the limitations of the structure that most cities use, and we needed something different, van Deursen said. That's what really drove us to come up with a creative solution, to be more precise about how we use this incentive."

"The goal was to expand the pool of potential developers beyond those focused specifically on affordable low-income or supportive housing. Chattanooga's approach has earned national recognition for innovation in housing. It was named a co-winner of the 2026 Ivory Prize for Housing Affordability in the policy and regulatory reform category."

Chattanooga has used payment-in-lieu-of-taxes agreements for more than two decades to shape downtown development. The program has been retooled to support mixed-income housing by combining affordable and market-rate units. City officials report that seven of every 10 renters are rent-burdened or severely rent-burdened. After a change in state law, housing and finance officials created a voluntary PILOT for individual units within market-rate buildings. The 15-year abatement is linked to the modeled cost of lowering rent from a market level to an affordable level. The approach aims to broaden the developer pool beyond those focused only on affordable or supportive housing. The first project using the new PILOT is a 278-unit development under construction in North Shore, with 42 units affordable for households earning 60% to 80% of area median income.

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