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Building Incentives for California Builders

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Building Incentives for California Builders

California has recently implemented a series of laws and incentives to encourage builders to increase the construction of multi-family housing.

The prolonged housing shortage in California has garnered the attention of the federal government, leading Congress to enhance cashback tax incentives to encourage property owners to enhance the energy efficiency of their multi-family residential units and buildings over three stories in height.

In 2022, Congress introduced the Inflation Reduction Act (IRA) to expand tax-code incentives for owners of multi-family residential units, offering:

  • A tax credit of up to $5,000 per unit for substantial renovations that enhance energy efficiency in both multi-family and single-family residential units (Internal Revenue Code §45L; New Energy Efficient Home Credit).
  • A tax credit of up to $1.00 per square foot for energy-efficient improvements in commercial or multi-family buildings exceeding three stories in height (IRC §179D; Energy Efficient Commercial Buildings Deduction).
  • A tax credit of up to 30% of the costs of electric vehicle (EV) charging stations installed by owners of multi-family buildings, extending to energy-efficient power supply tax credits for solar, geothermal, and batteries (IRC §48; Clean Energy and Alternative Fuel Vehicle Refueling Property Incentives).

Tax Credit Codes

The tax credit codes now allow owners to cumulatively “stack” incentives, encouraging multiple sets of tax credits for a single energy improvement. Congress has also allocated $8.8 billion to states for Home Efficiency Rebates, benefiting owners of multi-family residential properties making energy-efficient upgrades.

To address California’s housing shortage, efforts include reducing the influence of not-in-my-backyard (NIMBY) promoters, facilitating accessory dwelling units (ADUs), and offering cashback incentives for improvements. Despite these efforts, the housing supply remains insufficient, exacerbated by the late-arriving recession.

Building multi-unit residential properties is considered a swift and efficient way to alleviate overcrowding in coastal California. However, builders may not immediately capitalize on incentives due to the current recession conditions affecting the real estate sector and the broader economy. Builder confidence is low, but as the market rebounds from the 2024 recession, construction is expected to pick up around 2026-2027, with builders gaining confidence to invest in new developments.

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For further information on California building incentives and laws, reach out to Community Partners Realty, Inc., your trusted ally in Real Estate.