When tax abatements expire, property values don't suffer, study shows

Philadelphia's current housing boom is certainly attributable to the 10-year tax abatement, yet the very mention of it can lead to complaints that the abatement favors the very rich - both buyers and developers.

Real estate agents and developers don't see it that way.

In fact, at a fall meeting of the Building Industry Association of Philadelphia, members not only vowed to support the tax abatement but also advocated that it be expanded.

"Why take the bread out of the oven before it is baked?" asked developer Carl Dranoff, who with Center City District executive director Paul Levy and developer Ron Rubin lobbied the Rendell administration for the abatement in the mid-1990s.

"It is an annuity for the city, bringing in $2 for every $1 it forgoes," Dranoff said.

Without the abatement, said Noah Ostroff, of Keller Williams Philly Realty, "many buyers wouldn't be able to afford as high-priced a home, and developers wouldn't be able to sell for the higher prices, in turn, not allowing developers to pay the land prices needed to make the deals make sense."

"Each $1,000 in property taxes per year is equivalent to about $18,000 of buying power for a buyer on a 30-year mortgage," Ostroff said.

Jeff Block, of Berkshire Hathaway Home Services Fox & Roach Realtors, said the abatement has led to, and will continue to lead to, "increased revenue to the city that is greater than the amount of revenue decrease from the abated taxes."

A study by Kevin Gillen, senior research fellow at Drexel University's Lindy Institute for Urban Innovation, shows that of 22,432 residential properties granted abatements since 2000, 6,911 abatements have expired.

Gillen's study was a response to public concern that the expiration of abatements - a number of them for homes built during the boom of the mid-2000s - would result in a "significant liquidation" of those properties and an exodus of their owners from the city.

The economist also mentioned a fear that there would be a significant devaluation of those properties, to the detriment of the city's tax base.

To answer those concerns, Gillen used comprehensive property-level data from the city's Office of Property Assessment and sales data from the city Recorder of Deeds, which include dates and prices.

The study was limited to single-family residential properties - houses and condo units - because they comprise 96 percent of abated units and "have sufficient turnover to facilitate an analysis of transactions volume and pricing over time," Gillen said.

Has the turnover rate of properties with expired abatements been significantly different from that of the city's overall housing market?

The data don't show it.

Gillen found that the majority of units with expired abatements, 58 percent, remained with their original owners. The sales rate of units with expired abatements was only slightly higher than the sales rate of housing citywide.

Has the value of properties with expired abatements changed significantly following their expiration?

Gillen found that about half of all abated units experienced price increases between sales, while about half the units experienced price decreases. Over the long term, he said, properties with expired abatements seem to exhibit the same rate of return as the typical Philadelphia home.

In short, the data do not provide evidence that there has been a significant or fundamental drop in the value of properties following the expiration of their tax abatements, Gillen said.

Dranoff said too many people have "short memories" about how stagnant Philadelphia was before City Council approved the first tax abatement for renovations in 1997 and the one for new construction in 2001.

"The city was dead, with obsolete office buildings left vacant when firms moved to newer buildings farther west," he said.

"A large project was someone painting his front porch."

aheavens@phillynews.com

215-854-2472@alheavens