4 Ways Churches Can Combat High Costs Of Living For Pastors

Our friends and clients in ministry often ask our team how churches are handling the ever-changing economic state, especially regarding rising housing costs. We hear countless stories of churches that are unable to recruit top-level leaders because it’s simply too expensive to put down permanent roots in the community. 

Some of the most effective pastors are successful because they are living amongst and truly “doing life” with their church communities. Unfortunately, for churches in an area with a high cost of living allowance (COLA), this makes it more difficult to find and attract the right pastor.

In some cases, a church will own a parsonage or manse and allow its pastor to live rent free, but that is not financially feasible for most churches. As we’ve worked with our church clients on customized compensation and benefits analyses, we’ve taken note of some creative ways that we’ve seen churches address the high housing costs associated with bringing a new pastor on staff.

[ IF YOU'RE IN THE PROCESS OF GIVING STAFF RAISES, CHECK OUT THIS GIVING GUIDE TO ASSIST THE PROCESS ] 

Below are four examples to consider in your hiring process.

1. A Temporary Head Start Residence

We’ve worked with several churches that have purchased a property as a temporary housing plan for new pastors. This would serve both as a benefit for the new pastor and an appreciating asset for the church community. New pastors and their families would be able to utilize the property for up to 6-12 months while they are securing their own housing, saving for a down payment, or wrapping up the financial situation with their prior residences. 

A temporary head start residence has the benefit of a pre-determined “move-out date” and is a much more financially feasible option for churches to consider. One thing to keep in mind is that any housing provided for a pastor would need to be reported to the IRS. While pastors do qualify for a housing allowance to be used on utilities, rent, and mortgage payments, the market value of renting the property would need to be shown as additional income on the pastor’s tax returns.

2. A Donation From A Church Member

We have seen many scenarios where a church has a “big donor” as a part of the congregation with investment properties all around the community. Some of these donors will then “tithe” the rental value of a property on their individual tax returns and allow the church to control its use. The church can then rent out the property to whoever they see fit (like a new pastor, for example) at below market rates.

This ends up being a benefit to the church (by receiving rent from the pastor), a benefit to the pastor (through reduced rent payments), and a benefit for the donor (by receiving a tax break for their tithe).

3. Living Expense Funds 

Sometimes a church that grows particularly fast simply cannot afford to pay its staff to compensate for a high cost of living. In these instances, we’ve seen churches take up a special offering or community fund to specifically pay for pastors’ high housing costs. This collection would be given to staff members in the form of a “gift” and would rotate based on individual need. Take note that these should be separate funds from regular weekly giving or any overarching capital campaigns.

4. A Forgivable Loan

A trend that is gaining a lot of traction in churches the last several years is the forgivable loan. In this scenario, a church would raise money for a fund (or using what they have in their organizational savings accounts), and would “loan” pastors a certain amount of money (i.e. $100,000) for a home down payment. The church could then “forgive” a portion of the loan (i.e. $10,000) for every year the pastor serves on staff. In this case, if the new pastor stays for 10+ years, they owe nothing to the church. If they stay 4 years, they would need to pay back $60,000.

Churches need to keep in mind that if IRS rules are adhered to (which they always should be), this should be a taxable event for the staff member. A percentage, although very small at first, of the overall amount of the loan is taxable on an annual basis until the loan is forgiven in total.

At the end of the day, there is no one right answer on the best way to combat high housing costs. So much is dependent on individual factors that are unique to the community and the church’s financial situation. We insist that you run any of these scenarios by your church CPA or controller so that you can fully understand any tax implications that could arise out of implementing these ideas.

What are some of the other ideas you and you church community have uncovered to battle high housing costs in your area?