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This is 7563 Battersby St. in Mayfair (left), at the prominent corner of Ryan Ave and Battersby Street.

Back in late December, the U.S. Drug Enforcement Agency and the FBI raided this bucolic Northeast twin and charged two Dominican nationals for running a massive stash house with 12 kilogram blocks of heroin, more than enough to supply all of Philadelphia’s junkies for weeks; over $2MM worth of supply was kept there.

But this story isn’t about Luis Manuel Gomez Rodriguez and Jose Antonio Rosario Reyes the two stash house workers.   This is about the property owners, Guang-Hui Ren and Lin Yun Ren.

The Rens acquired this house in 2009 as outside investors.  Sometime in early-to-mid 2015 they applied for a Homestead Exemption, while the house was still being rented out:

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Meanwhile, over at L&I, there is still a rental license on the property, albeit now just-expired and the rental license clearly shows that the Rens live over in Voorhees, New Jersey:

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Looking at the address in New Jersey, it points to this:

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I don’t know about you but I’m not entirely convinced that Mr. and Mrs. Ren have given up their fully-detached cottage to take up residence in a semi-detached in Mayfair.   The City seems to believe whatever story the Rens told them when they filed their Homestead Exemption, but I’m not convinced.

Given the timing of the Homestead Exemption application it was filed BEFORE the house was raided for its $2 million dollar heroin stash while the Rens were still renting it out.

I’m not the only one who has noticed this discrepancy.   Loads of other people looking into property issues have been noticing more and more rental properties similar to this one—claiming the Homestead Exemption to skip out on paying some Real Estate Taxes with renters living inside the building.

The Homestead Exemption is only eligible to Philadelphia Residents who own their own properties and use them as their primary domicile.   You can rent out part of your home and still claim the Homestead Exemption, but not all of it.   Your Homestead Exemption is reduced proportionally by the amount of the house you actually use as your primary residence.  The part which you use as income is still subject to full taxation.

This is a fraud which can easily be thwarted if L&I sent copies of rental license applications it’s granting over to the Office of Property Assessment.   This can be done on paper or sent over as an electronic list.   A simple change to the Homestead Exemption law should allow the Office of Property Assessment to automatically delete a Homestead Exemption whenever a new rental license is filed where the applicant tries to claim the full $30,000 exemption.

This is a computer fix that literally takes a couple of hours.

Can City Council do it?

Multiple rows of filing cabinets in an office or medical establishment, overflowing with files. Narrow depth of field to emphasize the "neverending" feeling

A very few of you haven’t yet received a notice from the City’s Office of Property Assessment informing you of some changes made to your assessment on your property.   Most of you already have.  Philadelphia is comprised of 578,000 property lots and notices are going out to owners of 475,000 of them.

If you look at the notice carefully, you’ll observe that your total assessment likely did not change but a lot of the value of your property has been shifted over to the Land Assessment.   Improvements (which are buildings) were decreased to compensate for the shift to land.

Here’s the explanation OPA gave during testimony in front of City Council during budget season:

This year, OPA is seeking to improve the level of accuracy and uniformity of the assessment of the land component of the City of Philadelphia’s over 470,000 residential parcels, and on the 40,000 non-commercial/industrial vacant land parcels. OPA’s modeling unit, with the assistance of experts from the City’s Land Bank as well as a nationally respected modeling consultant have, at the neighborhood level, closely examined the relationship of the land component of each parcel to existing market values with regard to the land’s contributory value. Where appropriate, OPA has adjusted the land to improvement ratio in a manner that is more reflective of what the market indicates it should be, and in some cases revised the overall market value of the parcel itself.

Approximately 475,000 Change of Assessment notices will be mailed within the next week to taxpayers who may see a change in the overall assessed value or (for partially abated properties) a change in the taxable assessed value, or (in most instances) simply a change in the land-to-improvement allocation that results in no change in the taxable assessment. OPA will continue to allow property owners seeking to challenge a reassessment to file an informal appeal, or First Level Review directly with the Office of Property Assessment within 30 days of the Change of Assessment notice date.

Many critics of our City’s real estate assessment system have noted that land values are in actuality higher than what the City assesses them to be.   This is important for a few reasons:

  • Empty lots sell for more, usually way more, than what the City assesses an empty lot to be
  • We’re not taxing vacant lots as much as we should have
  • When comparing a house in original condition vs. new construction, it makes no sense to draw a market comparison between two completely different houses where the ONLY thing that makes them comparable is the land they sit on

This is bad news to some of you investment-squatters who snap up and cling on to empty lots just outside gentrification zones or deep inside redeveloping areas.  The City is finally taking its first steps at correcting that error and if you don’t pay tax on the higher land assessments you will be looking forward to more aggressive tax collection and Sheriff Sale efforts.

Did the City forget to reassess a property near you?   You can let the OPA know about it by searching the property here and then clicking on this button on the City’s website:

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You can rat out as many properties as you like.

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In a report published today by the Philadelphia Coalition for Affordable Communities, proponents have put together their first  high-gloss policy brochure to  combat housing unaffordability in Philadelphia.

The brochure is heavy with emotional appeals and anecdotals, but within it on two pages are the crux of their legislative agenda:

Capture

The answer is a 50% increase in the Real Estate Transfer Tax and an additional penalization surcharge placed on land transactions that occur quicker than 24 months apart.

The Transfer Tax

Let’s start with this proposal.   The Mayor’s budget for this year has this to say about the money it collects off the Real Estate Transfer Tax:

FY16 of areas in the city where residential properties may have been under or overvalued. Because of only conducting a partial reassessment, tax base growth is anticipated to be only 1.5%. The next citywide reassessment of all properties will occur for FY17. The Realty Transfer Tax base is projected to have strong 20.0% growth in FY15 and 10.0% in FY16.

The City is currently estimating that RTT revenues will be $222 million dollars by next year [Mayor’s budget here].   This is because the 10 year tax abatement for new construction is expiring on a lot of property that was built during 2005 and 2006 and the City swept through neighborhoods with AVI and reassessed a lot of property upwards.

While the RTT is set at 4%, it’s split between 3% for the City and 1% for the state.  By raising the City’s portion to 4.5% (bringing the gross tax to 5.5%) and all other things being equal, this represents an increase of revenue of roughly $111MM, or $333 million dollars.

Speculation Penalty

But if you read carefully, the policy statement from PCAC says that they only want the higher surcharge to apply to real estate transactions quicker than 24 months apart.  That is: if a developer (or anyone) purchases a piece of real-estate and then it is sold on the open market less than 24 months later, then the homebuyer pays the higher rate.

This type of condition is legally unworkable in Pennsylvania because our constitution will not allow for it.   Specifically, in the PA Constitution under Article 8 Section 1:

All taxes shall be uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax, and shall be levied and collected under general laws.

This sets up two real estate transfer tax rates.  While there have been exceptions carved out to support property tax credits for longtime homeowners, the indigent and veterans, there have been no exceptions carved out like this for the Transfer Tax.   Harrisburg would have to get involved here–a very Republican-dominated Harrisburg, where the Pennsylvania House has not been this Republican since World War I.

The only realistic way to use the RTT as a funding vehicle in the short term is to ignore the state constitutional problem and just raise the RTT on everyone.

Is Affordability a Real Problem?

It depends.  It certainly is on the minds of many.  Even CNBC is running a clickbait article right now commenting on how home sales and prices have picked up pace but overall wages are still flat from the Great Recession.

Let’s use this map that PCAC put in their brochure:

Arbitrarily-drawn "Gentrification Blobs"
Arbitrarily-drawn “Gentrification Blobs”

Well, now PCAC has defined with these generic blobs the specific areas of Philadelphia that they’re primarily concerned with.   Outer communities like Germantown, East and West Oak Lane, Lawndale, Kingsessing, the entire Northeast, Center City… we don’t really give a shit about these areas.

Those areas outside the gentrification blobs have their own affordability mixtures.  There practically is no new construction of homes in Frankford because that’s been a marginal neighborhood for 15 years, so why invest in it?   Germantown isn’t even on the radar and there HAS been new housing development up there, plus publicly-funded and tax credit funded housing.

Should these areas of the city see the RTT jacked up while also get zero benefit out of it?

Half of Kensington is not bubbled in on this map and it faces a severe problem with gap-toothed blocks where slumlords have kept their fingers on problem properties while working families have the capacity to purchase the property, but cannot because there’s no mortgages for extremely low house prices.

The median house sales price in Philadelphia is below $140K according to Trulia and home sales have never come close to 4,000 a month:

Source: Trulia.com
Source: Trulia.com

Of course if you cut out the entire city and just focus on the brown blobs in PCAC’s map, you’ll get a flat sales picture but a steadily increasing home price.  Like in Point Breeze:

Capture

 

The median sales price in Point Breeze has yet to crack $200K.  If you’re in the mood to buy existing homes and not new construction, and that includes rehabs, Philadelphia is still quite cheap, even in most gentrifying neighborhoods.

If you’re going for a 3b/3b new construction with all-granite, built-in units and a roofdeck like this $420K house in Point Breeze, well of course that’s gonna cost higher.  DUH.

House Prices May Actually Go Down Soon

One thing no one in City Hall is paying much attention to, or housing advocates for that matter, is that the Federal Reserve is still on target to begin raising interest rates.

For instance, at 3.5% on a 30y mortgage for a $155K home, the mortgage payment comes out to $690.

Jack that interest rate up to 4.5% and the payment skyrockets to $785.  Homebuyers pay extremely close attention to the interest rate on their mortgages, including paying a bribe known as “lock-in” to keep the rate from changing while the borrower is in the process of buying the house.

When interest rates go up, house prices start to go down as home sales slow up and those who are selling their homes have to wait longer and longer for a buyer.

While We Talk About Gentrification We Still Keep Our Blinders On

Image from PCAC brochure
Image from PCAC brochure

One of the other specie that’s inside PCAC’s brochure is the appeal to emotion.  On Page 9 is the short story of a community garden in Mantua that was cultivated on some vacant lots.  The volunteers worked very hard to keep it up and they had lobbied their member of City Council, who is no stranger to dispensing property to favorite groups, that they had a very particular interest in the property.  From the story:

To try to save the garden, Khenti visited her councilperson’s office. “We overwhelmed them with proof of our 17 years tending the garden. We gave them press releases, mural project receipts, attendance sheets from children’s classes, garden awards, and a petition from the neighbors of approximately 200 signatures.” But it wasn’t enough to save the garden.

In spring 2014, the garden uprooted its perennials to make way for the 6-unit apartment building that stands there today.

Well Jesus-fucking-Christ we all know God-damned well that the councilwoman they’re talking about is Councilwoman Jannie Blackwell.

And it’s not like this isn’t a new pattern with Blackwell… she took a royal dump on James Dupree–even slamming him with eminent domain.  Blackwell even feigned ignorance over the property involved in the performance art known as “Funeral For a Home“… that she actually had anything to do with her approval of a redevelopment project which is why the home was demolished in the first place.

Jannie Blackwell doesn’t give a shit if you’re an awesome artist or you’re a great gardener doing good for your community.  She’ll flush you down the toilet.

But I guess that’s why PCAC made sure not to mention her by name because they must be terrified of her, or something.  Whatever.

Findings

I’m really disappointed with PCAC right now.   Short of an unimaginative revenue generation scheme, albeit it’s one that will probably be politically possible if the constitutional issues are ignored, there’s very little substance here to show how housing affordability is going to actually be fixed according to the dire scenarios that they have laid out.

Further, some of the real problems with blight in Philaelphia are not addressed at all and they don’t even attempt to go there.   For instance, there’s no suggestion that we should direct housing funding to capture shells and rehab these for cheaper than new construction and rebuild broken-blighted communities in Southwest Philadelphia and North Philadelphia.

And lastly this doesn’t really touch at all on the lifetime Philadelphia homeowner who decides to sell their home in the open market, nor there is any data here that attempts to answer who is selling and for what reasons.  If for instance seniors are selling their homes to help pay for end-of-life care, which many do–how much of that goes on vs. a homeowner who is forced to sell because the cost of living has climbed too high?   What makes a landlord raise their rent and what usually triggers that?

Maybe PCAC will come back later with some better analysis of what’s actually going on within Philadelphia and identify where the need truly is rather than rely on national statistics, glossprint and appeals to emotion.

Until then, I’ll throw this report on the pile of other things I unfortunately wasted my time to read and declare “meh.”

 

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Jared Brey at PlanPhilly informs us of the new non-profit and labor coalitition that has just been set up entitled Development Without Displacement, which is basically set up to be a thinktank to grab the attention of City Council during next year’s election cycle.

At the core of this effort is what it says on the tin:  how do we get the nice things gentrified neighborhoods have about them, without doing any gentrification at all?   In other words, how do residents get upgraded homes, neighbors willing to come out for block clean ups, make the vacant lots disappear and transform into homes, businesses, community gardens and parks, the police respects the people who live in the community and Stop Snitching goes away—how do we get people to get those bars off their front windows?

If you’re thinking these questions are anything new, it isn’t.  It’s been imported to us directly from the other city going through gentrification headaches…

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that other city…

 

And now we circle back to… why did these neighborhoods get so bad in the first place?   Why didn’t government action do anything to help these neighborhoods and now we have exchanged one real crisis of a downward-spiraling neighborhood with the high anxiety and apprehension that someone’s indigent grandmother will have her teeth stolen in the middle of the night as the gentrification brigade cart her off to Timbuktu to make way for a Starbucks?

The answers will lie with what the primary group, Womens Community Revitalization Project, thinks.  (DISCLAIMER: We actually participated in a lawsuit against them in the past involving a very poorly-planned design for emergency rental housing).

The private market real estate community should certainly pay attention here and start talking to WCRP straight away about what ideas they have been reading on the Twitterverse and want to implement, because they’re likely to start the #hashtagactivism any minute.

There certainly are some ideas that we saw with AVI, like tax exemptions for long term homeowners.   The PHILALOAN program that connects Philadelphians to home improvement loans should certainly come back to life, as well as come with built-in abatements to get poorer residents to participate in upgrading their property while immunizing them from the cost of gentrification.

And certainly we should talk about the 1970s subject of rent controls, especially for certain standards of housing which target the bottom working class, and whether it’s worth it to ‘go there’ again.

All I can say now is… I’m certain next year will be very interesting, indeed.

gentrification

CNN has been all over Spike Lee’s comments about gentrification. [CNN]

When it comes to Philadelphia however, much of Spike Lee’s griping is misplaced.   Generations of homeowners in Philly have long-banked on their cheap, depressed home values.  Why were our home values so cheap for so long?   Our public schools have sucked for a very long time.

Gentrification pressure in Philly affects less than 1/3 of the city’s total surface area and its rate of expansion is mostly kept in check by our horrible public schools above all other things.  And if anything, our public schools now suck more than ever; public opinion regarding the SDP has reached its lowest levels imaginable.

That basically means all of the gentrification we see in Philadelphia is missing a major factor that would cause it to explode here:  schools.   Everyone who has kids here either leaves Philadelphia or finds some other solution around the schools problem in order to stay here—or just doesn’t have kids.  Those with their kids in the School District of Philadelphia are either lucky their children are in one of the few performing schools the District has, or their kids are at the mercy of a system they can’t avoid.  That puts definite limits on the homebuying populations for sure.

The Penn-Alexander School catchment in West Philly. House prices in this zone have shot up to a premium over all the areas just outside it.

You only have to look no further than the Penn Alexander School to see what fixing schools does to house prices:  parents pack into the school catchment which caused the area around Penn Alexander to shoot up a $100K prevailing premium over areas of West Philly just outside the school catchment.

But also consider this:   There are 4.4 million people living in Philly’s collar county suburbs and only 1.5 million living in the city proper.  If schools were suddenly fixed tomorrow, it’s likely that the cheapest homes in Mantua would be $450K.   Chew on that for a minute.  Your cheap house is mostly riding on the back of shitty schools keeping the bulk of parents who have means away.

But that never stopped the whining.  In fact, just last week there were pleas to the United Nations to declare gentrification a human rights violation. [DN]

But hold-up, those of you whining about gentrification.   It appears the NYTimes has dubbed Philadelphia one of America’s most progressive towns when it comes to dealing with the bellyaching over housing price changes. [NYT]

Now, about your suburban slumlord who smells the gentrification coming towards his rental property he was renting out for $600/mo and collecting a string of code violations on for a decade who might decide to sell his house to a rehabber and cash out, leaving that rental at the sake of increasing valuations?  Nobody has come up with a solution for that yet.

Got ideas on what to do about private market rentals in Philly that are impacted by gentrification?  Sound off in the comments.