PHILADELPHIA | Highrise Development Thread X

[PurpleWhiteOut]

So, city council passed their bill halving the value of the tax abatement. I imagine this will drastically alter any residential highrises that are in an early planning phase, since funding will change significantly. Commercial is unaffected, so I imagine office buildings will be fine.

https://whyy.org/articles/philly-council...off-fears-of-real-estate-doom-and-gloom/

[iheartphilly]

^
Am I correct that the tax abatement applies to the property, so it doesn't matter if you rent or buy. If you rent, then likely to see an increase in rent because the landlord would just pass the increase to the renter.

[PurpleWhiteOut]

Yeah. It was essentially a way to recoup on construction costs. For single family homes for example, the builder could sell for a higher upfront cost because the buyer would essentially be paying them the money they'd save on the tax break. It isn't really a tax break for the consumer the way it seems, but rather a way to make development more profitable. I'm not sure how this will affect mid- to high-rises, but they will likely have to reduce costs. In the same way, they could offset construction costs by having their taxes abated.

On the plus side, what does get built will contribute to the schools, so who knows

[cardeza]

Originally Posted by PurpleWhiteOut

So, city council passed their bill halving the value of the tax abatement. I imagine this will drastically alter any residential highrises that are in an early planning phase, since funding will change significantly. Commercial is unaffected, so I imagine office buildings will be fine.

https://whyy.org/articles/philly-council...off-fears-of-real-estate-doom-and-gloom/

I think the impact on whether or not residential buildings are built has been drastically overstated. It was created at a time when there was nearly zero demand for new construction in the city. The abatement is not a direct subsidy to the developer so I find all the talk about how construction will dry up a little absurd. It probably makes things a little tighter in terms of the numbers on rental properties (especially small buildings) but I dont see how it will much affect on single family home construction. None of the opponents have ever detailed any numbers to support their claims that these projects "Can't" be built without an abatement.

[ScreamShatter]

I would have never been able to buy without the tax abatement given my partners massive student loan payments that eat up $800/month. A lot of millennials are going to be impacted bc the abatements made buying possible with monthly payments less than or equal to monthly rent.

[Redddog]

Another short-sighted, bonehead move by Darrel Clarke and the idiots on the Council.

If Philly continues it's recent hot-streak, it'll be in-spite of these fools.

[Urbanthusiat]

I'm not worried too too much - I think the biggest effect will be a drop in land values as developers take higher taxes into account in their models. I'm not sure that it will stop builders from building, they'll simply pay less for land to make up for it.

[Londonee]

Originally Posted by ScreamShatter

I would have never been able to buy without the tax abatement given my partners massive student loan payments that eat up $800/month. A lot of millennials are going to be impacted bc the abatements made buying possible with monthly payments less than or equal to monthly rent.

This is a very real issue for Millenials and it could certainly affect demand. As our boomer brethren continue their feckless plunder we're left holding the bag.

That said, though I'm sympathetic, it's still a pretty good deal. Tax free for a year? 90% tax free year 2? 80% year 3 - where I live, that equates to tens of thousands of dollars of savings.

[Justin7]

Functions as follows:

The abatement reform bill, written by Council President Darrell Clarke’s office, would reduce the property tax break on new residential construction by 10% each year over the subsidy’s decade-long span. Only in the abatement’s first year would real estate taxes on a new building be fully zeroed out. (The abatement does not apply to land value, only the building.) The following year, the owner would owe 10% of the assessed taxes, then 20% until in the final year that would be paying 90% of the taxes owed.

SRC: https://whyy.org/articles/philly-council...off-fears-of-real-estate-doom-and-gloom/

[iamrobk]

A few things...

1. A bill made it out of committee but hasn't been passed yet. There will be another week and a half of public and non-public debate before it goes to a vote before the full council (where I expect a form of it will be passed).
2. The bill is still subject to change but it doesn't kill the abatement, it just phases it out 10% each year. So year 1 you get 100% of the abatement, year 10 you get 10%. In monetary terms it means you get half the value of the abatement that you did before.
3. I've heard rumors that the bill will be changed to lower the amount phased out each year but we'll see what happens behind closed doors.
4. If you like the abatement, it's better that Council deal with it now than after January when you have 4 new Councilmembers coming in, at least 1 of whom campaigned on wanting to eliminate the abatement altogether.
5. This doesn't affect anyone who currently has the abatement (I think this is a bit obvious and known but wanted to make it clear).
6. I'm personally undecided on whether I like the phase-out more than the cap they had also proposed. The cap likely would have been around $400k, which would mean properties selling below ~$550k would get the full value of the abatement (once you consider land values and the fact that taxable values are a bit below sale prices usually). I like the cap in that it was effectively a form of progressive taxation (or at least as progressive as we can get under the current state constitution) but I like the phase out because as a homeowner I think it's nice to get yourself used to paying the full property taxes over time so that when year 11 comes you're not suddenly hit with a huge increase in your mortgage payment.

[Londonee]

Originally Posted by iamrobk

A few things...

One other thing to note...I'm pretty certain renovations/full rehabs to existing homes - still gets the full 10year abatement.

So, there's a chance that enacting this will encourage buyers and developers to look for rehab projects as opposed to demos and build-from-scratch - like you'd see a lot in G-Ho. The affect should be increased preservation of existing housing stock.

[iamrobk]

Originally Posted by Londonee

One other thing to note...I'm pretty certain renovations/full rehabs to existing homes - still gets the full 10year abatement.

So, there's a chance that enacting this will encourage buyers and developers to look for rehab projects as opposed to demos and build-from-scratch - like you'd see a lot in G-Ho. The affect should be increased preservation of existing housing stock.

I haven't looked at the bill itself but the WHYY article says it does. I agree, will be interesting to see if that happens. At least in my neighborhood there are some nice, large older rowhomes I've (surprisingly, IMO) seen demoed for new construction and I can only assume it's because the developer ran the numbers and figured they could make a larger profit that way as opposed to just renovating it. Would like to see more of those preserved and so hopefully this will have that effect.

[cardeza]

Originally Posted by ScreamShatter

I would have never been able to buy without the tax abatement given my partners massive student loan payments that eat up $800/month. A lot of millennials are going to be impacted bc the abatements made buying possible with monthly payments less than or equal to monthly rent.

Your statement makes it sound like there is no housing available that isn't new construction.

[cardeza]

Originally Posted by Redddog

Another short-sighted, bonehead move by Darrel Clarke and the idiots on the Council.

If Philly continues it's recent hot-streak, it'll be in-spite of these fools.

There has been widespread pushback against the abatement for YEARS. Many citizens outside of "hot" areas are against it and have been. Some change was inevitable in this climate- the tax valuation increases are really what pushed people over the edge. Existing homeowners haven't been happy with facing 5 or 10% increases in value while owners of $500k homes are paying $1000 a year or less for a decade.

[ScreamShatter]

Originally Posted by Londonee

This is a very real issue for Millenials and it could certainly affect demand. As our boomer brethren continue their feckless plunder we're left holding the bag.

That said, though I'm sympathetic, it's still a pretty good deal. Tax free for a year? 90% tax free year 2? 80% year 3 - where I live, that equates to tens of thousands of dollars of savings.

Is it a good deal though? The taxes here were already some of the highest in the country and now they’ve passed a massive tax hike on middle class young people. Let’s not forget we have a transfer tax of 4.2% (national average is under 1%) of the house value which requires a huge increase in closing costs and now we are increasing the recurring costs on the monthly payment.

I don’t want to open a debate on taxes, but I’m sharing my perspective as someone who bought and the tax abatements were one of the only reasons I chose to put down roots in the city bc it helped offset all the other tax burdens. It’s a major factor in making it feasible for lots of us to buy.

[Londonee]

Originally Posted by ScreamShatter

Is it a good deal though? The taxes here were already some of the highest in the country and now they’ve passed a massive tax hike on middle class young people. Let’s not forget we have a transfer tax of 4.2% (national average is under 1%) of the house value which requires a huge increase in closing costs and now we are increasing the recurring costs on the monthly payment.

I don’t want to open a debate on taxes, but I’m sharing my perspective as someone who bought and the tax abatements were one of the only reasons I chose to put down roots in the city bc it helped offset all the other tax burdens. It’s a major factor in making it feasible for lots of us to buy.

It affects everyone the same - rich, poor, middle class, old, young.

Honestly, you make it sound like there's no other housing options out there. You could have done what us schlubs did - bought an older non-abated house at a cheaper price that we are slowly fixing and investing in - instead of getting a really expensive shiny brand new place? Crying tears over your marble counter tops and stainless steel appliances isn't going to get you too far when you take your talking points to the other 98% of the city who aren't abated.

Are you going to up and leave when your abatement ends?

[ScreamShatter]

Originally Posted by cardeza

Your statement makes it sound like there is no housing available that isn't new construction.

Realistically, a lot of Phillys housing stock is blighted or abandoned from decades of decline. Trends have changed for many people and the older housing stock doesn’t meet the wants and desires of many young families and buyers.

My only point is to speak my perspective about how tax abatements influenced my decision to buy. I looked into older properties and even renovating but it’s too expensive and doesn’t make financial sense for a lot of young buyers as the up front capital barrier is high and the mortgage interest rates on rehabs is often more expensive bc of risk. That’s why we see more older financially stable people renovating houses over Millennials. Those older people don’t have the student loans, likely have more money to put down, and also get tax benefits at the federal level bc they likely have higher tax brackets their wages fall into than Millennials so the tax reductions are greater.

Buying is complicated. The tax abatements were one program that helped younger middle class people. Now taxes are being hiked. It feels like the poor and the rich get all these benefits but the middle class never gets to have programs to help them get ahead. This program did that and now they are adding another $25k to $40k in debt to Millennials over a decade with the combo of land tax increase and tax abatements reductions.

[mcgrath618]

Originally Posted by ScreamShatter

Realistically, a lot of Phillys housing stock is blighted or abandoned from decades of decline.

Refurbishing or redoing older homes are exempt from this new rule and still get the full abatement.

I.E., you can refurbish a home to make it more appealing to younger buyers and still get 100% of the abatement for 10 years.

[ScreamShatter]

Originally Posted by Londonee

It affects everyone the same - rich, poor, middle class, old, young.

Honestly, you make it sound like there's no other housing options out there. You could have done what us schlubs did - bought an older non-abated house at a cheaper price that we are slowly fixing and investing in - instead of getting a really expensive shiny brand new place? Crying tears over your marble counter tops and stainless steel appliances isn't going to get you too far when you take your talking points to the other 98% of the city who aren't abated.

Are you going to up and leave when your abatement ends?

See my comment above. I address your points. I looked into the rehab option as the first option when I was buying. The mortgage cost ended up not being feasible. I also lived through a renovation of my moms 130 year old house, I knew the challenges and hidden costs to know the challenges.

Unfortunately, my partner and I have aging parents who live out of state. So we don’t have time to take on the renovation and ourselves. We also needed a space where we could bring our parents here to us, and having more space and lower maintenance costs of a newer house made me sense for our family. Renovating a house and trying to house parents with mobility issues wouldn’t be a good fit. This isn’t unique to me, 1/4 of Millennials are dealing with similar issues too.

Your comments are pretty insensitive as I’m not crying over my marble countertops. I don’t care about that in the slightest, but financially and family wise, Millennials have challenges that are different than other generations prior. And I’m being honest when I say I would never have been able to buy a house in philly that meets the needs of my family life if it weren’t for the abatements.

As for what’s next, I don’t know. The taxes in philly are really high. If we want to have children and we have to take on our parents being here more, that’s going to require a bigger house. There are plenty on the market in philly that I’d love to consider, but I’m not sure I can afford to both buy and sell a house again in Philly bc now I’ll be hit with the massive transfer tax of the sell and the buy plus the tax increase on property and land. So it might be more feasible to buy outside the city now than it was. I honestly don’t know.

[ScreamShatter]

Originally Posted by mcgrath618

Refurbishing or redoing older homes are exempt from this new rule and still get the full abatement.

I.E., you can refurbish a home to make it more appealing to younger buyers and still get 100% of the abatement for 10 years.

You only get the abatement on the renovated amount. The core house is still subject to taxes without relief program assistance. So you’d still be paying pretty expensive taxes to get a house in a safer area that is size wise the same as the newer homes. The. You have a higher mortgage rate bc renovations are viewed as risky by insurance companies, you have higher out of pocket expenses with maintenance in the house, and in my case, I have mobility impaired parents which makes daily life challenging enough, much less trying to navigate that around a renovation.

I honestly don’t know how I’m supposed to take on all this and never get any financial assistance to get ahead. The rich and the poor get so much help but the middle is left with no support. People telling me to work 50-60 hours a week, take care of my parents, and also renovate a house myself so I can have a moderately ok life is just deaf to the challenges that many of us are facing and trying to navigate. It shouldn’t have to be that hard. If Philly wants to continue to grow and thrive, we need policies that help build the middle class, and not tear us down.