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Those sounds emanating from City Council chambers the other week were sighs of relief.
Council got the analysis of AVI it had ordered up — with details about winners and losers in each of the 10 Council districts — and the result was not bad. Not bad at all — if you look at it in political terms, and those are the only terms Council cares about.
For most of City Council’s 10 members who represent districts, the impact of AVI on their constituents will be negligible overall (emphasis on the word overall.) For eight of them, taxes on the majority of their homeowners will decrease, remain the same or go up by less than $200.
There are two exceptions to this rule.
In Councilman Mark Squilla’s First District, which includes several hot neighborhoods east of Broad Street, where 70 percent of homeowners will be paying more than a $200 increase — sometimes significantly more.
In Councilman Kenyatta Johnson’s Second District, which includes a lot of hot neighborhoods on the west side of Broad Street, 55 percent of homeowners will pay more than a $200 increase — again, some of them significantly more.
In the city as a whole, 45 percent of homeowners will see no increases or get decreases in their taxes; 22 percent will pay an increase of $200 or less; and only seven percent will see their taxes go up $1,000 or more. (There are 471,000 homes in the city, so seven percent is equal to 35,000 residences.)
In short, most homeowners have missed the AVI bullet. Their houses are now assessed at something approximating market value — which was the goal of AVI — yet it had little or no impact on their real estate tax bill.
Full disclosure: I am among the seven percent. My home in Bella Vista went from a market value of $100,000 to $350,000 and my tax bill will go from $3,000 a year to somewhere around $4,250 a year. So, I am outraged! Actually, I am not all that angry. My AVI value is still about $50,000 less than I could sell my house for tomorrow (Note to real estate agents: I do not plan to sell my house, so don’t call.) So, in a way, I dodged a bullet, too.
If you need further proof that AVI has not ignited a taxpayer revolt, consider this figure. The city re-assessed a total of 579,000 properties, including all homes, commercial and industrial properties, and vacant land. When owners got their new values in the mail, they also got a form they could use to challenge their new assessment. About 50,000 did.
(Postscript: In an earlier version, I had the number of appeals at 27,000. That was incorrect. That was the number as of April 4th. More came in after that first deadline.)
City officials were relieved — they had expected a higher appeal rate.
Of course, it’s not a good thing to have 50,000 people furious over their reassessment, but it’s far better than having, say, 500,000 angry people. That would be a political monster, and would have scared Council into backing away from AVI.
This doesn’t mean people are happy with paying higher taxes. And neither does it mean that mistakes weren’t made. But it does mean that most people feel they don’t have grounds to appeal, and that mistakes weren’t made at a big enough volume to undermine the overall legitimacy of the re-assessment.
Why is it that AVI, in bringing properties close to market value, did not result in significant tax increases for the majority of people?
Here’s a phrase you won’t read often: You can thank the Great Recession.
As AVI aficionados can tell you, market value is determined by using a formula that includes a number of factors (age and condition of the home, for instance) but the main one is sales data — the sale price of comparable homes in your neighborhood.
The city used six years worth of home sales data in determining AVI. That six-year period included all of the years of the recession, which began in 2008,when home sales and prices dropped, not only in Philadelphia but nationwide.
In other words, the new assessments are based in large part on depressed home prices.
A chart compiled by Kevin Gillen, the real estate guru at the Fels Institute, tells the tale. The red line of median home prices in the city since the 1980’s shows incremental gains until 2001, when values take off in a sharp upward arc. Then comes 2007 and the red line flutters down, like a kite falling from the sky.
We haven’t recovered from that swoon yet.
“We are at our bottom and we’re struggling to come off it,” Gillen told me last week. “Deflation [of home prices] has stopped. Sales and prices have stabilized. But, on a citywide level I have not seen a rebound.”
So, how come my home in Bella Vista got socked? Because neighborhoods in and around Center City have been seeing housing prices rise for 10 years or more.
That rise may have stuttered or fallen a bit during the recession, but the AVI re-assessment of 2012 is capturing the increase in value that began in 2002. The recession stopped the rapid rise, but did not wipe out the gains in value my home experienced in the earlier part of the decade. So, those neighborhoods which experienced the most sustained and steepest growth in prices are feeling the pain of much higher assessments today. By now, you know who you are.
It’s important to remember, though, that AVI is not a one-act play.
The goal this year was to bring the entire city up to date. But, reassessments will continue to be done every year. Next year, new values will capture new sales prices. Gillen does expect for prices and sales to rise in the future. We’ll see changes — albeit incremental ones — in our values nearly every year in the future as AVI continues to reflect state of the current real estate market.
This makes a strong argument for Council to pass AVI and be done with it. This is likely the best it will get, in terms of the ratio of winners to losers. And as the housing market recovers from the recession, AVI will take a bigger bite out of property owners.