Michigan PILOT Programs: How Payment in Lieu of Taxes Supports Affordable Housing

David Manley
Nov 7, 2025
3 min read

What Is a PILOT Program?

A Payment in Lieu of Taxes (PILOT) is an agreement that allows property owners — typically affordable housing developers — to pay a reduced tax amount instead of full property taxes.

In Michigan, this is authorized under Public Act 346 of 1966 — the State Housing Development Authority Act.

Purpose: To make affordable housing projects financially viable by lowering tax burdens in exchange for rent limits and tenant income restrictions.

How PILOT Works in Michigan

Instead of paying property taxes based on assessed value, the owner pays a fixed annual service charge, often calculated as:

4%–10% of annual rent collections (gross shelter rent)

Example: An apartment complex collects $600,000/year in rent. With an 8% PILOT rate → pays $48,000 total instead of a potential $120,000 in full taxes.

That $72,000 savings makes the project viable while keeping rents affordable.

Legal Foundation and Oversight

Authority:

Public Act 346 of 1966 (as amended)
Michigan State Housing Development Authority (MSHDA) oversees compliance for MSHDA-financed projects.
Local municipalities approve PILOT ordinances for each project.

Key phrase: “Payment in lieu of ad valorem taxes.”

Note: PILOTs must be authorized by city or township ordinance — not automatically granted.

Who Qualifies for a PILOT?

To be eligible, a project must:

Provide affordable or income-restricted housing
Be financed or insured by MSHDA or another qualifying federal program (e.g., HUD, USDA)
Meet rent restrictions tied to area median income (AMI)

Common Programs Paired with PILOTs:

Low-Income Housing Tax Credit (LIHTC)
HOME Investment Partnerships Program
HUD Section 8

The Role of Local Governments

Even though MSHDA provides oversight, cities and townships must:

Pass an ordinance approving the PILOT
Set the service charge rate (e.g., 4%–10%)
Define project duration (often 15–30 years)
Monitor compliance and renewals

Example: Muskegon and Grand Rapids have each adopted PILOT ordinances to encourage workforce and senior housing downtown.

Benefits of PILOT Agreements

Encourages private investment in affordable housing

Keeps projects financially sustainable long-term

Predictable annual cost for owners

Reduces municipal vacancy and blight

For municipalities: PILOT housing brings new development, long-term stability, and local control over affordability — without relying solely on federal funds.

Common PILOT Structures

Type	Description	Rate
Standard MSHDA PILOT	MSHDA-financed projects	4%–10% of rents
Local Affordable PILOT	Locally initiated, not MSHDA-financed	5%–12%
Hybrid PILOT/TIF	Paired with Brownfield or DDA support	Case-by-case

Tip: Local governments sometimes layer PILOT + Brownfield TIF to offset both tax and environmental costs.

Duration and Renewal

Most PILOTs last 15 to 30 years, matching the project’s financing period. Renewal typically requires a review of:

Ongoing rent and income compliance
Building maintenance and management standards
Updated ordinance approval if ownership changes

Investor Insight: If you buy a property under a PILOT, confirm how many years remain and what conditions apply for renewal.

Risks and Considerations

Missed filings or rent violations can void the PILOT — triggering full property taxes.

Public opposition sometimes arises if residents misunderstand PILOT incentives.

PILOT expiration can lead to sharp rent increases or forced affordability extensions.

Example: A Michigan senior housing complex lost its PILOT after failing to file annual compliance reports — property taxes quadrupled overnight.

The Future of PILOTs in Michigan

As Michigan faces a housing shortage, expect expanded use of PILOTs — especially for:

Workforce housing (60%–120% AMI)
Adaptive reuse projects
Rural affordable developments
Mixed-income downtown infill

Emerging Trend: Some cities are adopting “Tiered PILOTs” — varying rates by unit type or AMI level to fine-tune affordability.

Final Thoughts

PILOT programs are a cornerstone of Michigan’s affordable housing ecosystem — aligning private profit with public good. When structured well, they create lasting affordability, stable returns, and vibrant communities.

If you’re exploring multi-family or workforce housing development in West Michigan, I can help connect you with local planners, explain the PILOT process, and align your pro forma with tax savings that actually work in this market.

Because in real estate, impact and income don’t have to be opposites — they just need the right structure.