Evergrey
Mar 11, 2007, 7:17 AM
I thought this was an interesting report on how Philly has used tax abatements to spur center city housing development... and how this can be applicable to a smaller city like Pittsburgh... which shares similarities... but also differs in several key ways.
Pittsburgh is currently building several thousand rental and owner-occupied units in the downtown area... which has been mostly devoid of the residential component for decades. The city politicians have proposed two competing tax abatement packages to spur residential development in the core and elsewhere in the city.
http://www.post-gazette.com/pg/07070/768560-53.stm
How tax cuts saved Philadelphia
10-year abatements lead to boom in housing
Sunday, March 11, 2007
By Bill Toland, Pittsburgh Post-Gazette
PHILADELPHIA -- Philadelphia in the mid-1990s was like New York City two decades before it, a city in need of reclamation. People were leaving at a rate of 1,000 a month, and there were worries it might become the "next Detroit," hollowed out by suburban flight and job losses.
Then, 10 years ago, Philadelphia approved tax breaks on offices and hotels that were converted into condos. The builders and subsequent unit owners still had to pay property taxes on the old value of the property, but the improvements would be tax-free for 10 years. In 2000, the abatement was extended to new commercial and home construction, not just conversions.
What followed was a residential construction boom unrivaled by any period in the city's history, except for the antebellum era, when Philadelphia's housing stock grew in order to accommodate rapid post-Civil War population growth. The city now has close to 4,000 separate housing units under abatement -- $15 million penthouse condos, $500,000 luxury condos, entry-level condos and all styles of condominiums in between, not to mention new single-family homes in the outlying areas such as Manayunk.
All the activity has re-energized places like Chinatown, the 10 or so square blocks of groceries, restaurants, apartments and other commercial establishments that have been home to Asian immigrants for a century-plus. And it's led to the refurbishment of buildings like the Ten Ten, a former Chinatown hotel that's been converted into a condominium tower along the neighborhood's Race Street. Among its residents is Delaware County Community College communications professor David Paterno, lured to the city partly by the tax break and the solid brick bones of the Ten Ten.
The 37-year-old estimates that he saves more than $1,200 a year on property taxes, and says it's tough to imagine leaving his new digs and the Center City. Even "if I had to pay the full amount now, I wouldn't move," he says.
Message for Pittsburgh
As Pittsburgh eyes similar tax breaks to woo city residents, its hard to ignore the Philadelphia story. Young professionals and empty-nesters are moving to the state's largest city for the tax breaks, and, it's hoped, they will stay for the museums, nightlife, sidewalk cafes and convenient commutes even when the abatements expire, which will begin to happen next year. Philadelphia leaders say the 10-year experiment with tax abatements has helped fuel $4 billion in construction activity since 1997, causing a residential building boom that saw housing permits in Philadelphia in 2004 outpace those granted in surrounding counties. That hasn't happened here in decades.
Moreover, a study for the city's Building Industry Association estimates that so-called "spillover" tax benefits from the abatement program will total $285 million over the next 25 years as more people move into the city and pay local wage and sales taxes -- more than double the estimated $121 million foregone through 2005 from abatements.
Predictably, the activity hasn't come without social costs and tensions. Take Chinatown. The Ten Ten, the nearby Pearl Condominiums, the hospital-turned-Metro Club Condominiums and other smaller projects reflect a gentrification wave that is luring wealthier residents and pushing up rents and property tax assessments. The concern is that the overall cost of living eventually could exceed the budgets of those who have called Chinatown and neighborhoods like it home for generations.
"A lot of Chinese immigrants who are coming in aren't making the kind of incomes needed to afford these new condos," said Greg Heller, an urban planner with an office a few blocks from Chinatown. He, not to mention the neighborhood's 4,000 residents, worries a day may come when the Asian community that has made Chinatown home for 130 years might be forced elsewhere, leaving in their wake just foreign pictographs on buildings and a bevy of restaurants and souvenir shops for tourists.
City leaders haven't done enough to "make sure you retain the existing backbone of the community," Mr. Heller said. Goosing the construction market, without planning for what may happen next, affects a neighborhood's historical stability, the very thing that made Chinatown a destination for America-bound immigrants in the first place.
Here's where the hard feelings come in: Hypothetically, "I've lived in a house, a neighborhood, real hardscrabble, for all my life ... then some guy bought [a] vacant lot and puts two McMansions on it. These out-of-towners came in and paid $750,000 for those mansions. And those jerks aren't paying any taxes on it," said Brett Mandel, executive director of a citizens' group and former financial policy guru for the city controller's office.
"Nothing will be a salve to that," he said. And yet without the abatements, the neighborhood surely would miss out on investment opportunities that otherwise wouldn't have looked Chinatown's way. "The tax incentives are fantastic for development," said Lance Silver, principal with Silver & Harting real estate, which developed the Ten Ten. The tax break "made it very competitive" to invest in Chinatown's dilapidated residential market.
Both the successes and the unintended consequences are issues Pittsburgh leaders will need to weigh as the city starts considering proposals for 10-year abatements for new and rehabilitated residential buildings. Mayor Luke Ravenstahl wants to waive the first $2,700 in city property taxes for 10 years on new housing units built Downtown and in 20 other neighborhoods. Councilman Bill Peduto would waive up to $150,000 in city taxes on major housing developments -- rather than on individual units -- in Downtown and five surrounding neighborhoods.
Both approaches, Mr. Heller, the urban planner, believes, risk putting politics before policy, coming as they do in the rush of an election year.
"You need to figure out a long-term strategy," he said. If the tax breaks succeed in spurring development in Homewood, does Homewood retain its identity? What happens when the abatements expire -- do you phase the new tax collections in gradually, or all at once? Does the new money go straight to the general fund, or into a pot dedicated to housing initiatives? Should the city attach an affordable housing component to the tax abatement?
But development-starved cities sometimes intentionally step around those conversations, he said. "You say, 'We're in desperation phase here. We need to take any development we can get.' "
If Pittsburgh hopes to replicate Philadelphia's success, it must be wary that Philadelphia has some built-in advantages that Pittsburgh won't be able to exploit. For one, Philadelphia is well positioned to capture buyers from New York City and, to a lesser extent, Washington, D.C., who have money to spend on the East Coast, but have been priced out of the largest metro markets. New Yorkers, in fact, have taken to calling Philadelphia the "sixth borough" in recent years. Pittsburgh, obviously, isn't so positioned.
Second, Philadelphia's suburbs are saturated with housing. Bucks, Chester and Montgomery counties are rebuffing some developers because of their own crowding and traffic concerns. In the Pittsburgh region, places such as Butler, Beaver, Washington and Westmoreland counties -- despite lots of development in places such as Murrysville, Cranberry and Peters -- haven't reached a saturation point yet.
Third, when it came to reinvigorating its downtown, Philadelphia was able to build upon the existing housing stock since its flat and sprawling downtown already was a residential hub. "There was a lot of pent-up demand for decent housing in the city, said Ed Dodson, a retired Fannie Mae executive.
Boon for empty-nesters
On the other hand, Pittsburgh shares some demographic similarities with Philadelphia, including a high percentage of senior citizens and early baby boomers who wouldn't mind living close to Downtown, but would prefer something new to something old.
This tax break caters to them especially, since one of the disadvantages to living in both Pittsburgh and Philadelphia is the big wage tax. But if your wage-earning years are over, and you also get out of paying property taxes for 10 years, that's a deal that can't be matched by even the suburban communities with low millage rates. "The abatement that either candidate is proposing in Pittsburgh is perfect for empty-nesters," said Joshua Vincent, director of the Philadelphia-based Henry George Foundation's Center for the Study of Economics.
Pittsburgh, because of cheaper land and home prices, might be better positioned than Philadelphia to convince individual buyers to invest via the abatement program. Philadelphia's program failed in that regard, and even the outlying single-family homes were financed by major developers, said Vern Anastasio, a Democrat running for city council in Philadelphia's District 1. He's also a real estate lawyer.
"That's where my rub with the 10-year tax abatement comes in," he said. The tax break meant he was "able to stay in the neighborhood I was born and raised in." He bought a property on the cheap, and built his own house, but he was an exception, not a fair example of the program's impact.
Those familiar with the Philadelphia experience also caution against trying to force housing into the underdeveloped parts of Pittsburgh, as both Mr. Peduto and Mr. Ravenstahl hope to do by limiting the tax breaks to neighborhoods such as the Lower Hill, Uptown, Knoxville, Lincoln-Larimer and Allentown.
Philadelphia's abatement program, for example, has so far failed to force development in the area north of Center City, even though that was one of the goals. "Take the subway north about five stops" from Center City, Mr. Vincent said. "Make sure it's daytime. Get off the subway, just walk five blocks in any direction, and you'll see a wasteland. It's Dresden after the bombing."
That's because the housing market doesn't mind being pushed from behind, but doesn't like it when you grab the wheel.
"It's just plain tough to get people to build in areas that aren't driven by the market," said Mr. Mandel. "The truth is, the market is a powerful thing. If the market is not demanding that something get built, good luck."
A citywide abatement is maybe a better way to go, he said.
Or maybe it isn't. Pittsburgh, which is much smaller geographically than Philadelphia, must be more careful about forfeiting potential revenue than its eastern brother.
"Philadelphia doesn't have to do all of the right things, and they can still survive and even partially thrive," said Mr. Dodson. "Pittsburgh is in a much more precarious position. Pittsburgh has to do all the right things."
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(Bill Toland can be reached at btoland@post-gazette.com or 1-412-263-2625. )
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Pittsburgh is currently building several thousand rental and owner-occupied units in the downtown area... which has been mostly devoid of the residential component for decades. The city politicians have proposed two competing tax abatement packages to spur residential development in the core and elsewhere in the city.
http://www.post-gazette.com/pg/07070/768560-53.stm
How tax cuts saved Philadelphia
10-year abatements lead to boom in housing
Sunday, March 11, 2007
By Bill Toland, Pittsburgh Post-Gazette
PHILADELPHIA -- Philadelphia in the mid-1990s was like New York City two decades before it, a city in need of reclamation. People were leaving at a rate of 1,000 a month, and there were worries it might become the "next Detroit," hollowed out by suburban flight and job losses.
Then, 10 years ago, Philadelphia approved tax breaks on offices and hotels that were converted into condos. The builders and subsequent unit owners still had to pay property taxes on the old value of the property, but the improvements would be tax-free for 10 years. In 2000, the abatement was extended to new commercial and home construction, not just conversions.
What followed was a residential construction boom unrivaled by any period in the city's history, except for the antebellum era, when Philadelphia's housing stock grew in order to accommodate rapid post-Civil War population growth. The city now has close to 4,000 separate housing units under abatement -- $15 million penthouse condos, $500,000 luxury condos, entry-level condos and all styles of condominiums in between, not to mention new single-family homes in the outlying areas such as Manayunk.
All the activity has re-energized places like Chinatown, the 10 or so square blocks of groceries, restaurants, apartments and other commercial establishments that have been home to Asian immigrants for a century-plus. And it's led to the refurbishment of buildings like the Ten Ten, a former Chinatown hotel that's been converted into a condominium tower along the neighborhood's Race Street. Among its residents is Delaware County Community College communications professor David Paterno, lured to the city partly by the tax break and the solid brick bones of the Ten Ten.
The 37-year-old estimates that he saves more than $1,200 a year on property taxes, and says it's tough to imagine leaving his new digs and the Center City. Even "if I had to pay the full amount now, I wouldn't move," he says.
Message for Pittsburgh
As Pittsburgh eyes similar tax breaks to woo city residents, its hard to ignore the Philadelphia story. Young professionals and empty-nesters are moving to the state's largest city for the tax breaks, and, it's hoped, they will stay for the museums, nightlife, sidewalk cafes and convenient commutes even when the abatements expire, which will begin to happen next year. Philadelphia leaders say the 10-year experiment with tax abatements has helped fuel $4 billion in construction activity since 1997, causing a residential building boom that saw housing permits in Philadelphia in 2004 outpace those granted in surrounding counties. That hasn't happened here in decades.
Moreover, a study for the city's Building Industry Association estimates that so-called "spillover" tax benefits from the abatement program will total $285 million over the next 25 years as more people move into the city and pay local wage and sales taxes -- more than double the estimated $121 million foregone through 2005 from abatements.
Predictably, the activity hasn't come without social costs and tensions. Take Chinatown. The Ten Ten, the nearby Pearl Condominiums, the hospital-turned-Metro Club Condominiums and other smaller projects reflect a gentrification wave that is luring wealthier residents and pushing up rents and property tax assessments. The concern is that the overall cost of living eventually could exceed the budgets of those who have called Chinatown and neighborhoods like it home for generations.
"A lot of Chinese immigrants who are coming in aren't making the kind of incomes needed to afford these new condos," said Greg Heller, an urban planner with an office a few blocks from Chinatown. He, not to mention the neighborhood's 4,000 residents, worries a day may come when the Asian community that has made Chinatown home for 130 years might be forced elsewhere, leaving in their wake just foreign pictographs on buildings and a bevy of restaurants and souvenir shops for tourists.
City leaders haven't done enough to "make sure you retain the existing backbone of the community," Mr. Heller said. Goosing the construction market, without planning for what may happen next, affects a neighborhood's historical stability, the very thing that made Chinatown a destination for America-bound immigrants in the first place.
Here's where the hard feelings come in: Hypothetically, "I've lived in a house, a neighborhood, real hardscrabble, for all my life ... then some guy bought [a] vacant lot and puts two McMansions on it. These out-of-towners came in and paid $750,000 for those mansions. And those jerks aren't paying any taxes on it," said Brett Mandel, executive director of a citizens' group and former financial policy guru for the city controller's office.
"Nothing will be a salve to that," he said. And yet without the abatements, the neighborhood surely would miss out on investment opportunities that otherwise wouldn't have looked Chinatown's way. "The tax incentives are fantastic for development," said Lance Silver, principal with Silver & Harting real estate, which developed the Ten Ten. The tax break "made it very competitive" to invest in Chinatown's dilapidated residential market.
Both the successes and the unintended consequences are issues Pittsburgh leaders will need to weigh as the city starts considering proposals for 10-year abatements for new and rehabilitated residential buildings. Mayor Luke Ravenstahl wants to waive the first $2,700 in city property taxes for 10 years on new housing units built Downtown and in 20 other neighborhoods. Councilman Bill Peduto would waive up to $150,000 in city taxes on major housing developments -- rather than on individual units -- in Downtown and five surrounding neighborhoods.
Both approaches, Mr. Heller, the urban planner, believes, risk putting politics before policy, coming as they do in the rush of an election year.
"You need to figure out a long-term strategy," he said. If the tax breaks succeed in spurring development in Homewood, does Homewood retain its identity? What happens when the abatements expire -- do you phase the new tax collections in gradually, or all at once? Does the new money go straight to the general fund, or into a pot dedicated to housing initiatives? Should the city attach an affordable housing component to the tax abatement?
But development-starved cities sometimes intentionally step around those conversations, he said. "You say, 'We're in desperation phase here. We need to take any development we can get.' "
If Pittsburgh hopes to replicate Philadelphia's success, it must be wary that Philadelphia has some built-in advantages that Pittsburgh won't be able to exploit. For one, Philadelphia is well positioned to capture buyers from New York City and, to a lesser extent, Washington, D.C., who have money to spend on the East Coast, but have been priced out of the largest metro markets. New Yorkers, in fact, have taken to calling Philadelphia the "sixth borough" in recent years. Pittsburgh, obviously, isn't so positioned.
Second, Philadelphia's suburbs are saturated with housing. Bucks, Chester and Montgomery counties are rebuffing some developers because of their own crowding and traffic concerns. In the Pittsburgh region, places such as Butler, Beaver, Washington and Westmoreland counties -- despite lots of development in places such as Murrysville, Cranberry and Peters -- haven't reached a saturation point yet.
Third, when it came to reinvigorating its downtown, Philadelphia was able to build upon the existing housing stock since its flat and sprawling downtown already was a residential hub. "There was a lot of pent-up demand for decent housing in the city, said Ed Dodson, a retired Fannie Mae executive.
Boon for empty-nesters
On the other hand, Pittsburgh shares some demographic similarities with Philadelphia, including a high percentage of senior citizens and early baby boomers who wouldn't mind living close to Downtown, but would prefer something new to something old.
This tax break caters to them especially, since one of the disadvantages to living in both Pittsburgh and Philadelphia is the big wage tax. But if your wage-earning years are over, and you also get out of paying property taxes for 10 years, that's a deal that can't be matched by even the suburban communities with low millage rates. "The abatement that either candidate is proposing in Pittsburgh is perfect for empty-nesters," said Joshua Vincent, director of the Philadelphia-based Henry George Foundation's Center for the Study of Economics.
Pittsburgh, because of cheaper land and home prices, might be better positioned than Philadelphia to convince individual buyers to invest via the abatement program. Philadelphia's program failed in that regard, and even the outlying single-family homes were financed by major developers, said Vern Anastasio, a Democrat running for city council in Philadelphia's District 1. He's also a real estate lawyer.
"That's where my rub with the 10-year tax abatement comes in," he said. The tax break meant he was "able to stay in the neighborhood I was born and raised in." He bought a property on the cheap, and built his own house, but he was an exception, not a fair example of the program's impact.
Those familiar with the Philadelphia experience also caution against trying to force housing into the underdeveloped parts of Pittsburgh, as both Mr. Peduto and Mr. Ravenstahl hope to do by limiting the tax breaks to neighborhoods such as the Lower Hill, Uptown, Knoxville, Lincoln-Larimer and Allentown.
Philadelphia's abatement program, for example, has so far failed to force development in the area north of Center City, even though that was one of the goals. "Take the subway north about five stops" from Center City, Mr. Vincent said. "Make sure it's daytime. Get off the subway, just walk five blocks in any direction, and you'll see a wasteland. It's Dresden after the bombing."
That's because the housing market doesn't mind being pushed from behind, but doesn't like it when you grab the wheel.
"It's just plain tough to get people to build in areas that aren't driven by the market," said Mr. Mandel. "The truth is, the market is a powerful thing. If the market is not demanding that something get built, good luck."
A citywide abatement is maybe a better way to go, he said.
Or maybe it isn't. Pittsburgh, which is much smaller geographically than Philadelphia, must be more careful about forfeiting potential revenue than its eastern brother.
"Philadelphia doesn't have to do all of the right things, and they can still survive and even partially thrive," said Mr. Dodson. "Pittsburgh is in a much more precarious position. Pittsburgh has to do all the right things."
--------------------------------------------------------------------------------
(Bill Toland can be reached at btoland@post-gazette.com or 1-412-263-2625. )
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