To Lower Property Tax Rates, Add More Payers

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I liked this article from Catherine Lucey on whose taxes stand to increase under Michael Nutter’s Actual Value Initiative (AVI) for property tax assessments, but I do think it might confuse people about the shape of this issue:

Precisely who will see their tax bills go up under AVI?

Part of the problem with the debate is that no one knows for sure. It is likely that areas with rapid growth, gentrification and development in the past decade could experience tax hikes because the current assessments haven’t kept pace with the changing property values.

Parts of South Philadelphia, Northern Liberties, the Graduate Hospital area and pockets of West Philadelphia could all be on this list. Dubow said the city hopes to get some analysis about the average sale prices in neighborhoods to Council soon.

“A neighborhood like Northern Liberties, which is the fastest growing neighborhood in Philadelphia, is ground zero for this issue,” said Matt Ruben, president of the Northern Liberties Neighbors Association. “There are a lot of people who are afraid that their property taxes are going to increase by huge amounts without warning.”

What’s happening in the fast growing neighborhoods is a market change, not a government change.

More people want to live in Northern Liberties, so land values are increasing. There’s only so much land in No Libs, and there’s only so much housing square footage on that land, so the neighborhood can’t accommodate everyone who might want to live there, and this is pushing up rents. Higher land values, resulting from more people wanting to live there, are increasing the tax assessments on land in the neighborhood.

Or rather, this should have increased the tax assessments there, except that the city’s assessment system is totally broken, and reassessments happen infrequently. The city’s data on property values has lagged behind the actual values.

So I’m not sure why we should feel bad that people who own expensive land have been paying too little in taxes.

The real reason we should feel bad for the average taxpayer in a high-demand neighborhood like Northern Liberties is that they are being victimized by groups like the Northern Liberties Neighborhood Association, who have used the political process to create a housing shortage.

Here is NLNA boasting about their efforts to create a housing shortage and high rents in No Libs:

The Northern Liberties Neighbors Association is proud of what they have been able to accomplish with zoning in the past five years. The association’s zoning chair, Larry Freedman, pointed to three crowning achievements by his group in the area of zoning. First of all, the association was able to battle accessory dwelling units, or single-family houses that are turned into multi-family houses. “We fought against R10 [multi-family residential] zoning, and were able to convert it to R10A [single-family residential] zoning,” said Freedman. This means any homeowner looking to rent out part of a dwelling, even to parents, would have to struggle to apply for a variance […]

The third zoning change that Freedman rattled off was a tightening of height restrictions for commercial uses. Previously, C3 designations were popular for businesses in Northern Liberties, which meant they had no height restrictions. However, Freedman and his fellow zoning committee members convinced the Zoning Code Commission to switch many buildings classification to C2, which meant there were height restrictions. This meant slightly lower density, and less of a downtown feel.

So what NLNA did was hijack the zoning process – adding height restrictions, and limiting multi-family housing – to reduce the amount of housing that can be built in the neighborhood, which, of course, increases rents.

It also increases the average landowner’s property tax bill. NLNA prevented more multi-family housing like apartments and condos from being built. A multi-family building reduces property taxes because it spreads the property tax bill across a bunch of people, rather than just one household. By pushing the housing market in No Libs toward single-family homes, NLNA effectively increased the amount of property taxes that each household must pay, since there’s only one household per land parcel instead of several.

Going forward, if people want to reduce the tax burden on households in high demand neighborhoods, they need to stop NIMBY groups like NLNA from restricting the supply of housing, and thus the number of payers that are available to pay the property tax bill for each land parcel. The more payers you add, the lower the tax rate can be.

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