Philadelphia's current housing boom is certainly
attributable to the 10-year tax abatement, yet the very mention of it can lead
to complaints that the abatement favors the very rich - both buyers and
developers.
The luxury 500 Walnut building, scheduled to be finished
early in 2017, includes one penthouse that is said to have sold for $17.85
million.
Real estate agents and developers don't see it that way.
In fact, at a fall meeting of the Building Industry
Association of Philadelphia, members not only vowed to support the tax
abatement but also advocated that it be expanded.
"Why take the bread out of the oven before it is
baked?" asked developer Carl Dranoff, who with Center City District
executive director Paul Levy and developer Ron Rubin lobbied the Rendell
administration for the abatement in the mid-1990s.
"It is an annuity for the city, bringing in $2 for
every $1 it forgoes," Dranoff said.
Without the abatement, said Noah Ostroff, of Keller
Williams Philly Realty, "many buyers wouldn't be able to afford as
high-priced a home, and developers wouldn't be able to sell for the higher
prices, in turn, not allowing developers to pay the land prices needed to make
the deals make sense."
"Each $1,000 in property taxes per year is
equivalent to about $18,000 of buying power for a buyer on a 30-year
mortgage," Ostroff said.
Jeff Block, of Berkshire Hathaway Home Services Fox &
Roach Realtors, said the abatement has led to, and will continue to lead to,
"increased revenue to the city that is greater than the amount of revenue
decrease from the abated taxes."
A study by Kevin Gillen, senior research fellow at Drexel
University's Lindy Institute for Urban Innovation, shows that of 22,432
residential properties granted abatements since 2000, 6,911 abatements have
expired.
Gillen's study was a response to public concern that the
expiration of abatements - a number of them for homes built during the boom of
the mid-2000s - would result in a "significant liquidation" of those
properties and an exodus of their owners from the city.
The economist also mentioned a fear that there would be a
significant devaluation of those properties, to the detriment of the city's tax
base.
To answer those concerns, Gillen used comprehensive
property-level data from the city's Office of Property Assessment and sales
data from the city Recorder of Deeds, which include dates and prices.
The study was limited to single-family residential
properties - houses and condo units - because they comprise 96 percent of
abated units and "have sufficient turnover to facilitate an analysis of
transactions volume and pricing over time," Gillen said.
Has the turnover rate of properties with expired
abatements been significantly different from that of the city's overall housing
market?
The data don't show it.
Gillen found that the majority of units with expired
abatements, 58 percent, remained with their original owners. The sales rate of
units with expired abatements was only slightly higher than the sales rate of
housing citywide.
Has the value of properties with expired abatements
changed significantly following their expiration?
Gillen found that about half of all abated units
experienced price increases between sales, while about half the units
experienced price decreases. Over the long term, he said, properties with
expired abatements seem to exhibit the same rate of return as the typical
Philadelphia home.
In short, the data do not provide evidence that there has
been a significant or fundamental drop in the value of properties following the
expiration of their tax abatements, Gillen said.
Dranoff said too many people have "short
memories" about how stagnant Philadelphia was before City Council approved
the first tax abatement for renovations in 1997 and the one for new
construction in 2001.
"The city was dead, with obsolete office buildings
left vacant when firms moved to newer buildings farther west," he said.
"A large project was someone painting his front
porch."
Source: Philly.com
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