With its corner of Southeast Tennessee growing, Chattanooga has developed a new tool to encourage more housing, without making taxpayers foot the bill.

The city has secured the first set of new housing developments using a first-of-its-kind tool, which incentivizes the construction of below-market housing without direct subsidies. Chattanooga’s Payment in Lieu of Taxes (PILOT) program offers developers a property tax discount if they include affordable units in new housing developments.

The program is a new tool in the push to boost housing supply and keep housing costs down, said Hanneke van Deursen, Chattanooga’s director of housing finance.

The program was just honored as a winner of the Ivory Prize, a national housing innovation competition by the University of Utah‘s affiliate, Ivory Innovations.

“Chattanooga has demonstrated that cities don’t have to wait for federal dollars to produce affordable housing. They can unlock it through smarter local policy design,” said Chris Herbert, managing director of the Harvard Joint Center for Housing Studies and an Ivory Innovations advisory board member.

The Scenic City’s dilemma

Like many small cities, Chattanooga’s seen a lot of change this decade. The city’s population grew by 24,000 from 2010 to 2024, including 10,000 in the past five years, thanks in part to digital nomads seeking cheaper living after the COVID-19 pandemic.

Housing costs have grown across the metro of a half-million as a result. The Chattanooga metro’s median listing price grew from $215,000 in early 2017 to $400,000 now, Realtor.com® data shows.

The state-by-state housing affordability report card from Realtor.com gives Tennessee a C, lower than almost every state around it. The state’s housing issues emanate from Nashville, whose booming economic fortunes have now left many residents feeling like owning a home is out of reach.

Tennessee, though, allows its local governments relatively few levers to pull from a tax standpoint.

“COVID really just put us in the pressure cooker, where we saw rapid rent growth and we suddenly saw a need for more housing,” van Deursen said. “So the city was really caught on its heels to see how to respond to this suddenly difficult market, and without a robust set of policies to react.”

New tool for building

The PILOT program is a way to make new housing development more achievable by rewarding developers for creating affordable housing units. In exchange, they receive a 15-year property tax abatement tied to the affordability level of the housing they’ve provided.

Chattanooga has an interactive calculator for developers to predict the tax breaks they’d get from certain projects. Offering many units at 80% of the area’s median income, also known as “workforce” housing, conveys smaller benefits than more deeply affordable units. But deeply affordable housing also digs deeper below market-rate rents.

So, the developer has lower operating costs in the development in exchange for lower rents. That makes building more financially feasible, and it allows Chattanooga to grow its housing stock. The city isn’t stuck with a one-size tool that doesn’t adapt to the market conditions, van Deursen said.

Chattanooga approved its first 278-unit housing project downtown in October. When completed, it’ll have 42 units at 80% or 60% of the area’s median income. And the city still wins, because the property’s going to go from generating $9,000 in taxes a year to $363,000, even with the abatement.

“You usually need federal dollars to hit that kind of target,” van Deursen said.

The program is limited to rental housing projects of 10 or more units. But the city sees it as a strategy to lower the cost of housing overall. Especially in Chattanooga’s urban center, where home development was previously expensive.

In a state where housing affordability is a crucial question, the program is “a very innovative tool that any city with tax abatement authority can replicate,” Herbert said.

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Chattanooga is the fourth largest city in Tennessee. It is located in southeastern Tennessee, close to Knoxville and just across the river from Georgia. Chattanooga proper is home to nearly 200,000 people. However, the Chattanooga housing market includes its suburbs, meaning the Chattanooga real estate market actually includes around half a million people.

The Chattanooga housing market is the 169th largest housing market in the United States. The Chattanooga housing market is expected to remain strong in 2023. However, it is important to note that the Chattanooga housing market is shifting to a more balanced market in 2023. This means that the supply of homes for sale is increasing, and buyers are having more choices and more negotiating power.

Chattanooga Housing Market Report September 2023

In Chattanooga, the local market saw decreases in new listings and pending sales, along with rising prices and increased days on the market, according to the GREATER CHATTANOOGA REALTORS.

• New Listings: New listings decreased by 6.4% from September 2022 (1,204) to 1,127.
• Pending Sales: Pending sales were down by 9.3% from September 2022 (903) to 819.
• Inventory Levels: The number of available units shrank by 11.5% from September 2022 (2,244) to 1,986.
• Median Sales Price: Prices continued to rise, increasing by 5.0% from September 2022 ($306,500) to $321,900.
• Days on Market: The average number of days a property stayed on the market was up by 29.2% from September 2022 (24 days) to 31 days.
• Months Supply of Inventory: Buyers felt more empowered as the months supply of inventory increased by 4.5% from September 2022 (2.2 months) to 2.3 months.

Whether the Chattanooga housing market is a buyer’s or seller’s market depends on a number of factors, including the specific neighborhood, the type of home, and the overall condition of the home. However, in general, the Chattanooga housing market is shifting to a more balanced market in 2023, which means that it is becoming more favorable to buyers.

Chattanooga Housing Market Forecast 2023 & 2024

As of the most recent data available from Zillow, the average Chattanooga home value stands at $294,401. Over the past year, these values have seen a 3.2% increase, making it an attractive market for homeowners and investors alike. Homes in Chattanooga are in high demand, typically going pending in around 10 days.

Key Takeaways for Chattanooga

• Typical Home Values: The typical home in Chattanooga is currently valued at $294,401.
• 1-year Value Change: Chattanooga has experienced a positive value change of 3.2% over the past year.

These figures provide a snapshot of the current real estate scenario in Chattanooga, highlighting its growth and stability as an investment destination. The data is accurate as of September 30, 2023.

Market Overview

When looking at the market overview, it’s important to consider various metrics that shape the real estate landscape in Chattanooga. Let’s examine some key data points:

• Median Sale to List Ratio (August 31, 2023): This ratio stands at 1.000, indicating a balanced market.
• Percent of Sales Over List Price (August 31, 2023): A significant 47.4% of sales in Chattanooga are closed above the list price.
• Percent of Sales Under List Price (August 31, 2023): 10% of sales are negotiated below the list price.
• Median Days to Pending (September 30, 2023): Homes in Chattanooga are in high demand, with a median time of 10 days to go pending.

These metrics provide valuable insights for both buyers and sellers, helping them make informed decisions. The data reflects the real estate market’s vibrancy and competitiveness in Chattanooga.

Chattanooga MSA Housing Market Forecast

The Chattanooga Metropolitan Statistical Area (MSA) is an important region in Tennessee, and understanding its housing market forecast for 2023 and 2024 is crucial for both potential investors and homeowners.

As of October 31, 2023, the housing market in Chattanooga is expected to see a 0.3% increase in property values. This suggests a modest but positive trend, indicating that real estate in Chattanooga remains a stable and potentially lucrative investment.

By the end of December 2023, the market is projected to experience a slight uptick, with a 0.6% growth in property values. This indicates a strengthening housing market, making it an attractive period for those considering buying or selling property in the Chattanooga MSA.

The most significant forecasted growth is anticipated by September 30, 2024, with a substantial 3.4% increase in property values. This robust growth projection indicates that Chattanooga’s housing market is poised for expansion, potentially offering excellent opportunities for real estate investors and homeowners alike.

In summary, the Chattanooga MSA’s housing market forecast for 2023 and 2024 suggests positive and consistent growth. The initial modest gains in 2023 are expected to be followed by more significant growth in 2024, making it an appealing prospect for those looking to invest in real estate in this region.

Chattanooga, Tennessee’s real estate market is thriving, with rising home values and a competitive environment. The city’s picturesque surroundings, diverse neighborhoods, and strong economic prospects make it an attractive destination for homeowners and investors. As the data suggests, Chattanooga’s real estate market is on an upward trajectory, offering great opportunities for those looking to buy or sell property in this vibrant city.

Should You Invest in the Chattanooga Real Estate Market?

Population Growth and Trends

• Chattanooga, Tennessee, has been experiencing steady population growth and trends in recent years. The city’s attractive features, such as its natural beauty and affordability, have drawn people to the area.
• Population growth often indicates increased demand for housing, which can benefit real estate investors by ensuring a consistent pool of potential tenants or buyers.

Economy and Jobs

• Chattanooga’s economy has been diversifying, with growth in industries such as manufacturing, healthcare, and technology. The presence of major employers like Volkswagen and the city’s accessibility to major markets have contributed to job growth.
• A thriving job market is a significant factor for real estate investors, as it correlates with increased housing demand, rental income, and property appreciation.

Livability and Other Factors

• Chattanooga offers a high quality of life with an attractive cost of living. The city is renowned for its outdoor recreational opportunities, cultural amenities, and welcoming community, making it an appealing place to live.
• Factors like livability and a strong sense of community can lead to a stable and growing real estate market, as residents are likely to stay long-term and invest in homeownership.

Rental Property Market Size and Growth

• The rental property market in Chattanooga is substantial and shows potential for growth. The city’s population increase and job market expansion create consistent demand for rental properties.
• Rental properties provide real estate investors with the opportunity to generate passive income and potentially benefit from long-term property value appreciation, making Chattanooga an attractive location for rental investments.

Other Factors Related to Real Estate Investing

• Chattanooga’s real estate market has shown stability even during economic downturns. This resilience is valuable for investors looking for a secure investment environment.
• The city’s regulatory environment is conducive to real estate investors, with landlord-friendly laws and regulations that protect property owners.
• With various property types available, from single-family homes to multi-unit buildings and commercial properties, investors can diversify their portfolios in Chattanooga to align with their preferences and goals.
• Chattanooga’s strategic location, with access to major transportation hubs, enhances its desirability as a place to live and work. This connectivity contributes to the city’s real estate market’s long-term growth potential.

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References:

• https://www.zillow.com/Chattanooga-tn/home-values
• https://www.gcar.net/consumer-tools/market-statistics
• https://www.realtor.com/realestateandhomes-search/Chattanooga_TN/overview