There’s an old saying that is often used about the value of real estate: “Location, location, location.” What it means is that the value of a property is determined by the desirability of its physical location — for example, one that provides easy access to employment and transportation.
Keep in mind, however, that the desirability of a location is socially constructed. In other words, any particular property’s value depends not just on the owner’s investment, but also on actions taken by many others, including community organizations, businesses, churches, local government, and neighbors.
The same holds true for Philadelphia’s gentrifying neighborhoods. Home values are rising there not just because some builders and rehabbers are investing their dollars, but also because these places have value beyond the buildings located there. Not all sections of the city are gentrifying, only those that offer convenience, walkability, character, parks, access to downtown and culture, and an urban “vibe” that is increasingly attractive, especially to millennials. Those features are the product of actions and investments over time by many who have helped create the communities now experiencing rising property values.
The improvement of neighborhoods is a good thing for Philadelphia. It is attracting investment that bolsters the tax base that supports municipal services. But there is concern that new development is driving up housing costs for low-income residents who can no longer afford to remain in their homes. That’s why the Philadelphia Coalition for Affordable Communities (PCAC) believes the city must act to ensure that development flourishes without displacing longtime residents.
The PCAC proposes an antispeculation tax that would increase by 1.5 percent the realty transfer tax applied to “flipped properties” — those bought and resold in Philadelphia within 24 months — with the proceeds going into the Philadelphia Housing Trust Fund to help create more affordable housing. This tax would neither delay nor discourage new development, but would take advantage of the rapidly accelerating real estate values in gentrifying areas to benefit the larger community.
Savvy developers know that they could build in nongentrifying neighborhoods, but it would be less profitable than building in a “hot” area. Thus the difference in the sale price is not the construction, but the place.
The antispeculation tax recognizes that a significant part of the value of those neighborhoods has been driven by factors much larger than developers and builders who just recently recognized them as prime locations. It would make perfect sense for the wider community — led by our City Council — to tap into rising values through smart taxes that allow more people to share in the prosperity.
Having spent many years researching and writing about economic development and urban policy, I believe that the tax increase is justifiable. Those who buy a property to resell it within two years are betting that they can benefit from rising real estate values. In a market economy, their action is perfectly rational behavior. It is equally rational to recognize that a substantial part of their profit is created by broader trends that are contributing to that area’s rising tide.
I encourage members of City Council to take a serious look at the PCAC’s antispeculation proposal. For the benefit of their constituents, they should tap into the value of their districts’ improving neighborhoods.
Carolyn T. Adams is professor emeritus in the department of geography and urban studies at Temple University. firstname.lastname@example.org
For more on the antispeculation tax, visit www.phillyaffordablecommunities.org.