PHILADELPHIA | Highrise Development Thread IX

[3rd&Brown]

Originally Posted by MSFHQ

Northern liberties used to be a dump, now it's thriving in part because of these abatements helping people to afford and buy in Philly. The city has a high wage tax and unfriendly business practices. Why on earth would we want to make it more costly for people to buy in this city.

I'm in favor of the abatement, though I don't think tweaking it would be the end of the world. You could make the abatement less lengthy in established areas (7 years in Rittenhouse, say) and length-ier in areas in dire need of development (Strawberry Mansion, for example) to spur even more development (say 15 years).

I could see an overlay where Vine to South is 7 years, Girard to Washington is 10, and everything outside of that area is 15+.

I think it's been made abundantly clear in the numerous multitudes of studies that on balance, the abatement brings in more money than it foregos. I mean, the transfer and wage taxes alone on the people who take the abatements has to more than make up for the marginal difference in taxes that would have been otherwise received (if the buyer didn't move to the city).

That being said, to be the devil's advocate...I'm not sure the abatement helps buyers as much as we think it does. If anything, it helps developers charge more and land owners sell their property for more, but it doesn't decrease costs for buyers.

It's quite simple, actually.

If I'm buying a million dollar house with a $12,000 tax bill, in essence, I devote a $1,000 per month to my carrying costs.

If I buy a million dollar house with a $0 tax bill, I have no carrying cost for property taxes (though in reality, there are always nominal taxes because the property is still taxed at its assessed value prior to the improvements).

Now, if I remove the abatement, imposing a $12,000 tax bill, really what happens is the value of the home decreases by the equivalent increase in carrying costs. My million dollars in purchasing power essentially becomes $900,000, and my overall costs (mortgage + taxes) stay the same.

Conversely, if I take my $900,000 home and eliminate the taxes on it, the typical buyer who might be able to carry a $1,000,000 (or more) note would theoretically jump into the market and potentially bid the price on this home up to a million dollars to reflect the $120,000 in tax savings they'll accumulate in the ten years.

You see it all the time. Abated properties sell for more than equivalent (unabated) properties. In the end, it's really the developer who benefits.

Though I have to say, it is a good marketing gimmick to get wealthy suburbanites into town. And that alone probably makes it worth it, IMO.

If there were any restrictions, I'd say that there should be some sort of attachment/sunset clause attached to the buyer to prevent them from jumping from one abated property to the other over the course of many years...

I do see people (not many...but some) in my neighborhood selling at about 6-7 years to jump into another abated property, thus resetting the clock.

[Jelly Roll]

Originally Posted by 3rd&Brown

That being said, to be the devil's advocate...I'm not sure the abatement helps buyers as much as we think it does. If anything, it helps developers charge more and land owners sell their property for more, but it doesn't decrease costs for buyers.

It's quite simple, actually.

If I'm buying a million dollar house with a $12,000 tax bill, in essence, I devote a $1,000 per month to my carrying costs.

If I buy a million dollar house with a $0 tax bill, I have no carrying cost for property taxes (though in reality, there are always nominal taxes because the property is still taxed at its assessed value prior to the improvements).

Now, if I remove the abatement, imposing a $12,000 tax bill, really what happens is the value of the home decreases by the equivalent increase in carrying costs. My million dollars in purchasing power essentially becomes $900,000, and my overall costs (mortgage + taxes) stay the same.

Conversely, if I take my $900,000 home and eliminate the taxes on it, the typical buyer who might be able to carry a $1,000,000 (or more) note would theoretically jump into the market and potentially bid the price on this home up to a million dollars to reflect the $120,000 in tax savings they'll accumulate in the ten years.

You see it all the time. Abated properties sell for more than equivalent (unabated) properties. In the end, it's really the developer who benefits.

Though I have to say, it is a good marketing gimmick to get wealthy suburbanites into town. And that alone probably makes it worth it, IMO.

I agree with you but wasn't the point to help jump-start new construction not help home buyers? The financial feasibility of the project would be impacted by the $100,000 difference. Just like the amount the borrower is going to qualify for in loans is also going to be affected by the $100,000. Given the amount of leverage in the US housing industry 10% difference in final sale price is definitely going to make a big impact on whether or not new construction is feasible. Yes, the profit goes towards the developer but would the new construction still be able to be built without it? The only real way to tell would be on a case by case basis but in every case it would make construction easier just due to the way financing works in the US.

[Philly-Drew]

Oh no! Are we back to talking about the tax abatement again?

Hopefully not too many more posts.

[Flyers2001]

Originally Posted by MSFHQ

Northern liberties used to be a dump, now it's thriving in part because of these abatement's helping people to afford and buy in Philly. The city has a high wage tax and unfriendly business practices. Why on earth would we want to make it more costly for people to buy in this city.

Also, property tax it just on part of it. People who live in the city, but work outside will now be subject to the wage tax. They'll pay the extra 2% sales tax. They will eat out in then city, create a vibrant community and perpetuate the cycle of development.

I'm also tired to worshipping at the alter of children. Philly schools suck because they are unsafe and the parts either aren't able to participate in their child's education or they don't care. The schools in the city receive plenty of money, which is spent in ways I personally disagree with.

IMO, the city is improving because it is becoming more affluent. If you want to send more money to the schools then raise that money in ways that do not impact new affluent buys. I support the tax on cigarettes or soda, but making it more expensive to own in this city is just silly.

No denying the SDP is a friggin mess. There is no amount of money from property taxes collected that will change it. The SDP believe they have money issues in the sense they don't receive enough, the educated know the money issues stem from the way its being spent.

The Catholic schools may not be thriving as they use too, but there is still a huge amount of kids that attend those schools even as their parents pay property and wage tax being dumped in public schools.

I personally have no issue with the abatement's. I don't believe it is the reason new development is spawned, but it can certainly be the primary reason new homeowner's purchase a certain home in a certain area.

[DIESELPOLO]

Originally Posted by Philly-Drew

Oh no! Are we back to talking about the tax abatement again?

Hopefully not too many more posts.

Ha! Thanks, Inga!

[mja]

Originally Posted by Flyers2001

No denying the SDP is a friggin mess. There is no amount of money from property taxes collected that will change it. The SDP believe they have money issues in the sense they don't receive enough, the educated know the money issues stem from the way its being spent.

When's the last time you've opened up the SDP's book and taken a look?

I can assure you that the SDP doesn't get even remotely close to enough money. Just look at class sizes - there are classes at schools like Central, a rock star school - that have been forced to balloon to 50. Of course, there aren't enough chairs in the classrooms so they go down to the auditorium or sit on the floor or on windowsills or the teacher's desk. Meanwhile in Lower Merion they have freaking sushi chefs in the cafeteria. Go take a look at per pupil spending in both districts. Lower Merion has practically twice as much to spend per pupil as Philadelphia does, despite Philadelphia having far more really expensive kids to educate (special education, ESOL, etc.).

That isn't due to some gross waste on the part of the SDP. All the fat was already cut just after Ackerman left. For the last two years the district has had to figure out which limbs they can live without.

[PhiLaw]

New Divine Lorraine Website!

http://thedivinelorrainehotel.com/

[1487]

Originally Posted by PhillySteaks

Assumptions are part of every financial projection model. That is why it is called a model. You tweak assumptions to understand the relative sensitivity. In this case, perhaps bullish assumptions were decided upon based on growth factors and other economic indicators.

In this case, I'm assuming assumptions were derived from available market data, as well a range in values. I read the study, it's not all that bad.

They knew the conclusions they were trying to reach when they started the study. And the study presumes that NOTHING would be built without the abatement, a tenuous assumption to say the least. Their premise is either you have the abatement as it currently exists and you development or you dont have the abatement and you get vacant land. Reality is hardly that simple.

Love all the comment from folks who say the abatement should never be modified because schools don't need any more money than the generous amount they are given. I guess you folks are unaware that every high ranking district surrounding Philly spends FAR more per pupil.

[allovertown]

Originally Posted by 1487

Love all the comment from folks who say the abatement should never be modified because schools don't need any more money than the generous amount they are given. I guess you folks are unaware that every high ranking district surrounding Philly spends FAR more per pupil.

Thank you!

Love to come here for news about projects here in Philly but things always tend to get pretty disgusting when we stray into other topics. It's very clear that some here care a lot more about buildings than people.

[PhiLaw]

Originally Posted by 1487

They knew the conclusions they were trying to reach when they started the study. And the study presumes that NOTHING would be built without the abatement, a tenuous assumption to say the least. Their premise is either you have the abatement as it currently exists and you development or you dont have the abatement and you get vacant land. Reality is hardly that simple.

Love all the comment from folks who say the abatement should never be modified because schools don't need any more money than the generous amount they are given. I guess you folks are unaware that every high ranking district surrounding Philly spends FAR more per pupil.

Operative word is per pupil. Overall spending on the School District of Philadelphia, including employees and students, is extremely high for world standards (taking PPP into account) and on par with US standards. The problem is the allocation of those resources.

If I make $100,000 per year, and spend $99,000 on "stuff" and don't have enough left to eat, it is disingenuous to say I can't afford food. I need to reallocate my income to proportionately cover all necessities.

The Budget is approximately $2.6 billion, with a student population of around 130,000. This comes to $20,000 per student. Lower Merion School District spends around $24,000 per student (based on projected enrollment of 8,700 this year). Indeed, this is $4,000 more per student, but remember this is probably the best public school district in the country. Philadelphia's $20,000 in available dollars per student is on part with most suburban school districts in the country, let alone urban ones. The revenue shortfall narrative is not as black and white as the media portrays it to be.

[MSFHQ]

I'd support ending the abatement if the money went to making Philly more business friendly, but increased school spending isn't going to make this city better or fuel growth.

Philly isn't NYC or Chicago. It needs to incentivize people to build. Once you have momentum you can ratchet it down, but if you do it before you could stall things.

Either way I agree we should change topics.

[PhiLaw]

On to the next topic. Here's to hoping this new zoning bill from Poplar to Washington Ave gets passed:

http://philly.curbed.com/archives/2014/0...le-taller-and-denser-limits-expanded.php

[Philly Fan]

Eastern edge of campus to become pedestrian-friendly

University City District is conducting research to revitalize the streets at the threshold of Penn’s campus

http://www.thedp.com/article/2014/09/eastern-edge-of-campus-to-become-pedestrian-friendly

[PhillySteaks]

Originally Posted by 1487

They knew the conclusions they were trying to reach when they started the study. And the study presumes that NOTHING would be built without the abatement, a tenuous assumption to say the least. Their premise is either you have the abatement as it currently exists and you development or you dont have the abatement and you get vacant land. Reality is hardly that simple.

Love all the comment from folks who say the abatement should never be modified because schools don't need any more money than the generous amount they are given. I guess you folks are unaware that every high ranking district surrounding Philly spends FAR more per pupil.

Where exactly did I state "the abatement should never be modified because schools don't need any more money than the generous amount they are given". I'm a bit confused? I was talking about a financial model that I'm assuming some don't understand? And yes, when building models you generally are well aware of the outcome before the projections are made. It's called a Hypothesis.

The example was taken of a case study for 1(one) developoment which, I agree would not have been built without the abatement. Hence, it'd be Vacant Land if not built. For those who say, oh the developer can take a little more risk and be rewarded a little less obviously don't understand business101 so shouldn't be commenting. In financial modelling, assumptions are tweaked based on a sensitivity range of relative market data. Pretty plain and simple. Starting to get a wee bit aggressive in here for me, but all beind said and done the cancellation of the abatement would not close the funding gap. I've said my piece.

[1487]

Originally Posted by PhiLaw

Operative word is per pupil. Overall spending on the School District of Philadelphia, including employees and students, is extremely high for world standards (taking PPP into account) and on par with US standards. The problem is the allocation of those resources.

If I make $100,000 per year, and spend $99,000 on "stuff" and don't have enough left to eat, it is disingenuous to say I can't afford food. I need to reallocate my income to proportionately cover all necessities.

The Budget is approximately $2.6 billion, with a student population of around 130,000. This comes to $20,000 per student. Lower Merion School District spends around $24,000 per student (based on projected enrollment of 8,700 this year). Indeed, this is $4,000 more per student, but remember this is probably the best public school district in the country. Philadelphia's $20,000 in available dollars per student is on part with most suburban school districts in the country, let alone urban ones. The revenue shortfall narrative is not as black and white as the media portrays it to be.

charter schools are funded by the same $2.6B. Your numbers are way off if you exclude the 70k or 80k charter students. Trust me, I pay attention to the details of this stuff. Redo your math and then tell me how close the numbers are to lower merion. And dont tell me Lower merion doesnt spend the bulk of its money on salaries, benefits and pensions. ALL school districts spend MOST of their money on those things. National figures are useless for obvious reasons. Since housing and healthcare costs tend to be somewhat similar in a given metro area you are much better of comparing expenditures per student within that area. In other news by national standards the cost of an apartment in center city is way too high. People here get paid more than folks in most southern cities but less than folks in NYC or DC. The buying power isnt as different as the salaries suggest. 20k per kid gets you a lot more in alabama than in philly.

[br323206]

Originally Posted by PhiLaw

Operative word is per pupil. Overall spending on the School District of Philadelphia, including employees and students, is extremely high for world standards (taking PPP into account) and on par with US standards. The problem is the allocation of those resources.

If I make $100,000 per year, and spend $99,000 on "stuff" and don't have enough left to eat, it is disingenuous to say I can't afford food. I need to reallocate my income to proportionately cover all necessities.

The Budget is approximately $2.6 billion, with a student population of around 130,000. This comes to $20,000 per student. Lower Merion School District spends around $24,000 per student (based on projected enrollment of 8,700 this year). Indeed, this is $4,000 more per student, but remember this is probably the best public school district in the country. Philadelphia's $20,000 in available dollars per student is on part with most suburban school districts in the country, let alone urban ones. The revenue shortfall narrative is not as black and white as the media portrays it to be.

For this past year the numbers were $26,500 per student for LM and $20,100 per student for Phila. That is $6,000 per student difference, but also an anomaly. The spending per student at Phila SD over the five years before that was $13,600 per student. The average at LMSD was $25,880 per student. That is about double what was being spent in Phila. Also, on average Phila spends a much higher percentage of their funding on instruction.

Yes, there is a shortage of funding at Phila SD. Coupled with the fact that the district has a ton of disadvantaged and special needs students, that means that no matter how well managed the SD is, they are not starting on a level playing field with wealthy suburban districts like LM. It is a fact.

[br323206]

Originally Posted by PhiLaw

Operative word is per pupil. Overall spending on the School District of Philadelphia, including employees and students, is extremely high for world standards (taking PPP into account) and on par with US standards. The problem is the allocation of those resources.

If I make $100,000 per year, and spend $99,000 on "stuff" and don't have enough left to eat, it is disingenuous to say I can't afford food. I need to reallocate my income to proportionately cover all necessities.

The Budget is approximately $2.6 billion, with a student population of around 130,000. This comes to $20,000 per student. Lower Merion School District spends around $24,000 per student (based on projected enrollment of 8,700 this year). Indeed, this is $4,000 more per student, but remember this is probably the best public school district in the country. Philadelphia's $20,000 in available dollars per student is on part with most suburban school districts in the country, let alone urban ones. The revenue shortfall narrative is not as black and white as the media portrays it to be.

For this past year the numbers were $26,500 per student for LM and $20,100 per student for Phila. That is $6,000 per student difference, but also an anomaly. The spending per student at Phila SD over the five years before that was $13,600 per student. The average at LMSD was $25,880 per student. That is about double what was being spent in Phila. Also, on average Phila spends a much higher percentage of their funding on instruction.

Yes, there is a shortage of funding at Phila SD. Coupled with the fact that the district has a ton of disadvantaged and special needs students, that means that no matter how well managed the SD is, they are not starting on a level playing field with wealthy suburban districts like LM. It is a fact.

Source: http://www.openpagov.org/education_revenue_and_expenses.asp

[MSFHQ]

Yawn. Can we get back to a relevant topic? My heart can only bleed so much.

In other news plan Philly has the proposed map of bike share locations. I was in NYC this last weekend and the Citi Bike share was super popular. Should be great for the city.

[1487]

Originally Posted by MSFHQ

Yawn. Can we get back to a relevant topic? My heart can only bleed so much.

In other news plan Philly has the proposed map of bike share locations. I was in NYC this last weekend and the Citi Bike share was super popular. Should be great for the city.

I dont think every person is ever going to be interested in every post by someone else on any internet forum of any kind. That's sort of the way it goes.

[Londonee]

Originally Posted by MSFHQ

I'd support ending the abatement if the money went to making Philly more business friendly, but increased school spending isn't going to make this city better or fuel growth.

I've suggested for a long time that they employ something identical for businesses willing to relocate from outside the city. A 10-year tax free incentive. Same concept as the property abatement.

They would have to develop several stipulations about % of employees in the city to qualify. For example, you wouldn't want to provide the tax incentives necessarily for a 500person company who only moves 10 employees to the city, yet claims HQ status, etc.

Also, limitations on current city companies moving to the suburbs for a year or two or two then move back to the city to enjoy 10 years tax free.

As many of us know, there are quite a few suburban companies who are considering the jump to CC yet are nervous for all the obvious financial and political reasons...something like this would make that decisions much, much easier and I think if done well we'd see a flood of companies moving into town.