SC law needs clarity on when apartments get a tax break

Perhaps it’s best that South Carolina lawmakers didn’t rush through a bill clarifying when affordable housing serves a large enough public good that its owners shouldn’t have to pay property taxes. Turns out, it’s a surprisingly complicated question, but it’s one legislators must sort out when they return next year.

They failed to reach a compromise this year and instead, as reporter David Slade notes, installed a one-year moratorium on new property tax breaks.

This question has been kicking around for six years, ever since local officials in Rock Hill and other parts of the state noticed apartment complexes suddenly vanishing from their tax rolls due to a too-generous provision in a 2020 law meant to support affordable rental housing. Essentially, if private owners of apartment complexes gave nonprofits a small ownership stake, that made the private owners eligible for a total property tax break, which often saved them hundreds of thousands of dollars a year.

Here’s the challenge for state lawmakers: Find that sweet spot to ensure that genuinely affordable places, such as public housing and nonprofit-owned housing built and priced for the working class, remain tax exempt — and therefore more affordable — while ensuring that private apartment buildings continue to pay taxes if they do little to nothing to lock in affordable rents.

And whatever the tax-exempt rules for apartments, the Legislature must ensure that local governments and school districts are aware of the breaks and can anticipate what tax revenue they will (or won’t) receive.

Lawmakers also must find a way to ensure such breaks, once given, are monitored and removed if a property owner raises its rents beyond what is considered affordable locally — or if the property becomes a for-profit enterprise.

That’s a lot to consider, and it might require annual reporting of apartment rental rates. A privately owned apartment complex might deserve tax-free status if its rental rates are low enough to serve a public good in a given year, but who is checking on how those rental rates change the following year?

What also complicates the matter is how some affordable housing is financed through tax credits. Those credits are only valuable to the private sector, so sometimes there are ownership changes on paper, such as the Charleston Housing Authority’s planned transfer of Robert Mills Manor to a for-profit corporation that the authority owns. County Council recently had to vote to let the public housing complex remain off the tax rolls during Robert Mills’ ownership change, which will help pay for its renovation. Any new policy must be careful not to discourage affordable housing development (as the current moratorium might).

While the 2020 law made it easier for affordable housing developed by nonprofit groups to be exempted from property taxes, it also enabled real estate…