How much is a vacant lot worth? That depends — on where it is, what it’s next to, what will get built on it.
It also sometimes depends on whether you’re asking a prospective buyer — or the city.
Take, for example, three vacant lots on the 1100 block of South 22nd street, in the city’s Point Breeze neighborhood, purchased last September by Philadelphia developer Ori Feibush.
Feibush, whose run-ins with authorities over various land and development issues are notorious, is not exactly shy when it comes to criticizing the city. But this is the first time he’s denounced it for undertaxing him.
In an Inquirer op-ed this week, Feibush accused the administration of drastically undervaluing its land in the recent citywide assessment that is the central part of the city’s Actual Value Initiative.
Three lots on South 20th Street illustrate his point: Feibush bought them in September from the Philadelphia Redevelopment Authority for a total of $115,000.
But when the city released its new assessments under AVI a few weeks ago, the same three parcels were valued at only $46,200 — not each, but total — less than half the price the city had already sold them to him.
Because land and “improvement” value are usually tied together — you can’t generally buy a house without the land it sits on — the distinction between the two components of a property’s value is often a moot point. Either a property is valued at close to what it sells for, or it isn’t.
But a vacant lot — because it has no improvements to assess — provides a window into how the city values land itself. And an analysis by AxisPhilly of recent vacant land sales indicates that seeming discrepancy between the “value” of the lots on South 20th Street and the amount they sold for isn’t just an aberration.
A few blocks away, for example, on the 2000 block of Annin Street, is a property that sold as an empty lot in August for $45,000; the city still values the land at $9,600.
On the 1500 block of Bouvier Street, in an area of booming development around Temple University’s campus, is a parcel that sat vacant for years, valued by the city at just $1,500 until it was reassessed under AVI this year at $5,600 — but it had already sold, three years ago, for $27,000 — four times its current assessed price.
In a review of 436 sales, between 2008 and 2012, of parcels listed by OPA as “vacant,” we found that 40 percent had sold for more than double the value the city assessed them at under AVI this year; 17% had sold for quadruple that price or more.
Red dots = sales price more than four times assessed value
Yellow dots = sales price between two times and four times assessed value
Blue dots = sales price up to double assessed value
Green dots = sales price below assessed value.
In an interview Wednesday, Philadelphia Chief Assessor Ritchie McKeithen dismissed the idea that vacant lots have been systemically undervalued and explained that assessing vacant lots is more complicated than assessing finished homes. For a variety of reasons, McKeithen said, “You will never really get a pure market transaction” when it comes to vacant land.
Kevin Gillen, an economist who’s consulted for the city on AVI, said AxisPhilly’s findings were news to him — but concedes that valuing vacant land can be particularly tricky: “State law doesn’t let you use just market value,” he pointed out. And the of “what is a comparable parcel,” can be extra-complicated.
Tricky or not, assessing land — vacant land, especially — has implications not only for revenue but also for the city’s ongoing struggle to put tens of thousands of vacant lots back into productive use.
Besides bringing in less tax revenue, lower-valued land makes it cheaper for investors, speculators, and slumlords to “land bank” — that is, to sit on vacant, often blighted land, as long as they want to.
It’s an issue that Washington, D.C. recently tackled head-on with a “blight tax,” which has reportedly accelerated the rate at which vacant land is made productive.
John Kromer, a former director of housing for the city, who’s written several books about development and housing in Philadelphia, wasn’t surprised to find that sales of vacant land may be outpacing official expectations.
“The word is out that Philadelphia is a value housing market,” Kromer said, pointing to a special series of auctions of vacant land by the Philadelphia Housing Authority last year. “The place was packed,” Kromer points out. “And those properties were not gems!”