Would Tax Abatements Spur More ADU Construction in Anchorage?

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A recent article by Alaska Public Media described Anchorage Mayor Dave Bronson’s abrupt effort to kickstart the construction of accessory dwelling units (ADUs) in Anchorage with subsidies offered as property tax abatements. 

Like many West Coast cities, Anchorage has been experiencing a housing shortage and escalating home prices, forcing many residents to choose to live outside the city and commute from nearby communities like Palmer, Wasilla, and beyond. Anchorage’s population has consistently declined over the past four years, with most losses attributed to residents relocating to nearby communities. Many are likely purchasing single-family homes, but the housing shortage is still driving up prices on rentals. 

Anchorage was founded in 1915, but experienced its most significant growth in the 1960s and 1970s. As a result, it lacks the options available to older cities for expanding housing options, like converting old brick warehouses or renovating historic apartment buildings. A bulk of Anchorage growth since WWII was the result of the 1970s domestic oil boom and construction of the Trans-Alaska Pipeline, so, naturally, it’s a very auto-centric city

We don’t have traditional neighborhoods with corner stores and mixed-use buildings—instead, we have large swaths of suburban-style, single-family home neighborhoods. Some of the older areas near downtown, like South Addition and Fairview, have had ADUs or mother-in-law apartments long before any debate was raised about them. For decades, they quietly augmented these homes by providing small, separate living spaces to give independence to an aging parent, college student, or anyone who needed a small, affordable place to call their own. 

Subsidizing ADUs

In an attempt to incentivize homeowners and developers who may be considering building ADUs, the Bronson administration proposed a 10-year abatement on resulting property tax increases. The Anchorage Assembly heard public testimony on the proposed reduction during its February 15 meeting, where some residents raised concerns the new ADUs would be used as short-term vacation rentals—a valid concern. Tourism is Alaska’s second-largest industry, and the hospitality industry has suffered due to the rise in popularity of online marketplaces like AirBnB and VRBO. Additionally, losing long-term housing units to vacation rental use puts additional strain on the housing market. Assembly member Meg Zalatel has proposed an alternate version of the ordinance, in which only ADUs offered as long-term housing will be eligible for the tax pause. Additionally, it would apply to existing, unregistered ADUs to help bring them into compliance. Zalatel’s alternate version is well intentioned, but seems difficult to enforce and potentially problematic when deeds are sold or transferred.

According to an ADU survey conducted by the city in late 2021, only 14.2% of respondents who had previously considered building an ADU cited future tax burden as a reason they chose not to build. It’s also logical to assume that not every respondent who noted this reason accurately calculated the tax increase and may have overestimated it. Even so, a 10-year abatement on what is likely to be a modest tax increase is unlikely to be the impetus to invest $60,000–80,000 to construct an ADU. If they have the upfront capital and the motivation to build an ADU, they’ll do it. 

A local construction company owner is suggesting the city of Anchorage issue grants to property owners looking to build an ADU. In Juneau, a similar program in 2017 issued twelve direct grants at $6,000 each, less than ten percent of the up-front capital required to build an ADU. 

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