Tens of millions of dollars are at risk for local municipalities because of a loophole in a state law regarding affordable housing.
“This is a substantial leak in your tax base,” Marcus Kinrade, Wake County Tax Administrator, said. “This is, in my opinion, the biggest threat to the revenue stream of the county that I could ever imagine.”
Other WRAL Top Stories
Kinrade gave a presentation regarding the loophole to the Wake County Board of Commissioners in February. The law allows for non-profits to be exempt from paying property taxes when building affordable housing “for individuals or families with low or moderate incomes.”
But what qualifies as a “non-profit” is extremely broad, according to a ruling by the State Supreme Court in 2013, Deputy Tax Administrator Nicole Kreiser said.
“The court concluded, even though the not for profit was .1 percent and the for profit organization had majority ownership, it would qualify under charitable ownership statute.”
There’s some ambiguity in the definition of low to moderate incomes as well, according to Kreiser.
“We know Housing & Urban Development (HUD) defines low and moderate incomes but not in the ruling defined here,” Kreiser said, pointing to that state decision in 2013.
Because of that, any apartment offering rent at or below 80 percent of the area median income could qualify for this exemption. According to the City of Raleigh, that would mean a $72,950 salary for an individual, $83,400 for family of 2 or $93,800 for a family of 3.
“Here’s an example of an existing apartment complex in Wake County,” Kinrade said. “For 2024, it was fully taxable at $104.2 million in value. For 2025, they qualified for a 70 percent exemption, or $31.3 million left in taxable value.”
That’s just one property. In 2025, Wake County says it had 137 properties qualify for the exemption, totaling $2.2 billion in exempt property values because of the affordable housing loophole.
That was a $776 million increase from the year before and nearly $2 billion more than 2020 when only 66 properties qualified.
“If this issue continues to grow,” Kinrade said. “It could encompass 94 percent of all the multi-family units in Wake County. If we equate that to value, it’s roughly $27 billion in value. If we convert that to county taxes, it’s about $140 million dollars which is the equivalent of four to five years of growth summed up in our tax base.”
“This is starting to snowball,” Raleigh Mayor Janet Cowell said. “We could see an erosion of tens of millions of dollars.”
Cowell says she was stunned to learn of this loophole being exploited.
“I’ve been in elected office for 16, going on 17 years,” Cowell said. “This is one of the most egregious tax loopholes that I’ve ever heard of.”
She says the city will be missing out on $6 million in property tax revenue this year because of these exemptions.
Making up those shortfalls could end up on the rest of the community.
“We’d either have to cut services or raise taxes on single family or town home owning residents,” Cowell said. “So we’d either raise taxes on homeowners to make up for that or not hire those police, build those fire stations.”
But Cowell’s hands are tied. There is nothing she can do to change the state law.
“It’s scary because you can see a train coming down the railroad track at you and you need somebody to get the engineer to stop the train,” Cowell said. “That is the General Assembly.”
Cowell feels optimistic state lawmakers will make a change. She says both the State Senate & House have committees looking into the issue. But she says something needs to be done soon or the amount of money lost in tax revenue could continue to balloon not just in Raleigh or Wake County, but statewide.
“This is going to affect every single municipality in the state,” Cowell said. “Their ability to do fire, police, all the services, parks, everything that we do in the city.”