Puerto Rico’s chronic shortage of new housing—and the soaring costs tied to building has revived calls for a targeted package of tax incentives aimed at jump‑starting residential construction, particularly for young professionals and middle‑income families.
Carlos Fontán, a former head of tax incentives at the Department of Economic Development and Commerce (DDEC) and co-founder of the business consulting firm Formentus LLC, emphasized that the island’s housing crisis is no longer a matter of speculation but of hard numbers. Citing data from the Puerto Rico Builders Association, Fontán noted that government bureaucracy and the permitting process alone tack on an estimated 25 percent to total construction costs, forcing developers to raise prices to achieve financial viability.
“Developing housing in Puerto Rico, well, it is expensive… the construction costs of materials, of labor, have increased,” he told Caribbean Business.
Those pressures have pushed developers to raise prices simply to break even, resulting in a market where new units are scarce and increasingly out of reach for the island’s workforce. Fontán argued that Puerto Rico must revive and expand incentive programs that directly support residential development. He said such programs existed in prior administrations but were halted by the Financial Oversight and Management Board due to projected fiscal impact.
A Call to Revive Urban Core Credits—and Expand Them
One of the most effective tools, he said, was the former 40% tax credit for construction in urban centers, which mirrored the incentive structure used in the tourism sector. “It would be fantastic to have programs such as the ones for urban centers,” he said, arguing that the credit successfully encouraged the creation of housing in walkable, revitalizable areas.
He recommended not only reinstating the program but expanding it beyond urban cores to any new residential project that targets young professionals—an underserved segment that currently lacks any dedicated incentive.
Earlier this year, Rep. Jerry Nieves Rosario, who represents District 13 (Manatí, Florida, Barceloneta and Arecibo) and chairs the House Northern Region Committee, introduced House Bill 1184 to create the Northern Corridor Revitalization Program, an initiative aimed at transforming the urban centers of municipalities from Toa Alta to Quebradillas.
The measure seeks to establish mixed‑use districts that combine affordable housing, local commerce and cultural tourism. It authorizes the Department of Economic Development and Commerce (DDEC), in coordination with participating municipalities, to designate Urban Incentive Zones within those urban centers. New businesses operating inside these zones would receive a 100% exemption from the municipal Sales and Use Tax (IVU) for five years, while construction and rehabilitation projects would qualify for a five‑year exemption from municipal construction taxes.
Property owners who rehabilitate structures declared public nuisances—converting them into affordable housing, coworking spaces or local businesses—would be eligible for a 25% tax credit on rehabilitation costs, capped at $200,000 per project.
The bill also proposes the creation of a “fast‑track” permit office for projects involving abandoned structures; the redesign of roadways under the “Complete Streets” model and tactical urbanism; a collective transportation system linking urban areas; community management committees; and a regional economic identity initiative branded as the “Identity of the North” seal.
However, the legislation is still under evaluation in the House. The current session ends June 30.
Opportunity Zones Shrinking—and With Them, Housing Potential
This urgent need for housing development intersects with looming federal changes to the Opportunity Zone program, which currently designates 98 percent of Puerto Rico as eligible for tax-incentivized real estate investments. By federal mandate, this footprint must shrink to just 25 percent of the island starting in 2027.
Fontán believes the local government must be highly strategic in redrawing these maps, advocating for a design that deliberately pairs housing with industrial infrastructure. To successfully encourage manufacturing hubs to expand operations and add personnel, he argued that affordable housing must be made available within a reasonable radius of these industrial parks, making life manageable for the local workforce.
“If I want to promote a manufacturing company to increase operations… it is going to have to hire more employees,” he said, stressing that housing access is essential to economic expansion.
While Puerto Rico offers incentives for low‑ and moderate‑income housing, there is no program tailored to young professionals—despite their central role in stemming population loss, Fontán said. The official argued that a new incentive should directly support the construction of attainable housing for this demographic, helping retain talent and stabilize communities.
A Broader Economic Case
The official noted that Puerto Rico’s incentive system is robust in sectors like manufacturing, export services, and tourism, but housing remains a glaring gap. With new housing starts at historically low levels, he warned that the island risks long‑term economic drag if it fails to address affordability and supply.
“If you go to the latest numbers for new housing over the past few years, it is truly scary how little housing is being made on the island,” he said.
The message from economic experts is clear: without a modernized housing incentive program—one that reduces construction costs, encourages development near job centers, and supports young professionals—Puerto Rico will struggle to meet its housing needs or sustain economic growth.
