AVI Homestead Exemption May Bail Out Wealthy Rittenhouse Landowners

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Great catch from Isaiah Thompson:

The bill, which passed out of committee yesterday and has the support of Council President Darrell Clarke, would exempt homeowners of ten years or more from paying taxes on more than three times their current assessed value. In other words, if your property assessment quadruples, you’d only pay taxes on triple the assessment. The idea, of course, is to protected longtime homeowners whose neighborhoods have seen gentrification, the effect of which has been effectively masked by the city’s broken and frozen assessment system.

Here’s the catch: the exemption makes no distinction as to a resident’s home value, income, or other measures of actual wealth and ability to pay.

In other words, while gentrification relief will offer huge relief to folks like lifetime Fishtowners whose property values are about to skyrocket, it will also protect high-income longtime Rittenhouse Square residents — all paid for by an estimated 2% hike in the real estate tax for the average city taxpayer.

Here’s the breakdown:

According to numbers supplied to Council by the administration, the average residential property in Rittenhouse is valued at about 177K, but really worth about 554k, which would become its actual assessed value under AVI.

Because the value will more than triple (177k X 3 = 531K), the Rittenhouse homeowner qualifies for gentrification relief, and wouldn’t have to pay taxes on more than triple the current assessment, or about $23,000 worth of value).

Politicians prefer tax exemptions to just giving people cash, since the politics of giving people cash are terrible, but in reality they’re exactly the same thing. Here you see a great example of the kind of silliness that happens when you try to hide the spending behind some formula: some of the richest landowners in Philly are going to get a big tax break.

Personally, I think the Homestead Exemption is dumb because I don’t buy that “property rich, cash poor” is actually a thing.

Expensive land is expensive because other people are willing to pay a lot for it. That is, they’re willing to give you cash in exchange for the land. Just as the Rittenhouse landowners are rich because they own land that people are willing to pay a lot of money for, so too are the landowners in gentrifying areas.

The better approach to “gentrification relief” is to upzone gentrifying neighborhoods, and tax land value instead of buildings.

Let developers add as much square footage of housing as people want, instead of restricting the housing supply at some artificially low level through height limits, setbacks, and minimum parking requirements. This would spread the tax burden across more payers, making individual tax bills cheaper.

Taxing land values instead of buildings would also transfer a big chunk of the tax burden away from rowhomes and multi-family buildings that take up most or all of the lot area, and raise taxes on vacant lots, surface parking lots, and other value-subtracting land uses.

Update: Darrell Clarke’s office clarifies that means-testing property tax relief is actually prohibited by the state. The city is trying to get the law changed in Harrisburg, but it’s unlikely to happen this year.

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