University City rent to rise with property tax increase

Property values in University City are on the rise, which means higher rents for students and higher taxes for homeowners.

The Actual Value Initiative, which was passed by Philadelphia City Council last year, entailed a reassessment of the value of every property in the city.

A Daily Pennsylvanian analysis of the results of the re-evaluations reveals that the taxable market value for houses in the area surrounding Penn — from the Schuylkill Expressway to 43rd Street and from Baltimore Avenue to Market Street — will increase by an average of 177 percent from fiscal year 2013 to FY 2014, which begins July 1. The increase in property value will likely mean higher taxes for area residents.

While the final tax rate will depend on the budget that City Council passes later this spring, the mayor’s office has estimated it will need to be at least 1.34 percent for the system overhaul to bring in as much money as the current tax system. The rate will depend on the types of relief the city decides to provide for property owners — the more relief given, the higher the baseline tax rate will have to be to remain revenue-neutral. Assuming a 1.34 percent rate, owners of houses around Penn will be taxed an average of about $7,600 annually.

Grace O’Donnell, a realtor who works at O’Donnell Real Estate in University City, estimated that some of her clients could see their taxes quadruple under the new system, given the proposed minimum tax rate. For student renters, higher taxes translate directly to higher rents.

“In the case of a rental property, every time the city imposes a new charge, that gets forwarded to the tenant,” O’Donnell said.

Elizabeth Campion, another area realtor who works with around 30 student clients per year, estimated an annual tax increase of about $2,000 for most of the properties with student renters — which translates to roughly a $67 monthly rent increase for a triplex.

“There’s not a huge profit in real estate in the early stages when there are mortgages in play,” she said. “To break even in the beginning, you need to cover your costs. So if taxes go up $1,200 a year, if it’s a house, [renters] should expect to pay $100 more a month.”

Campus Apartments, which manages many University-owned houses in the area, did not respond to multiple requests for comment.

Potential tax increases could also hurt long-time area residents, especially older residents who live on a fixed income. O’Donnell predicted some residents would be forced to move elsewhere as a result.

“These are people who budgeted their lives accountably and planned realistically,” she said. “I’m talking about grandparents being forced to sell their homes and move away from their families.”

The increase in assessed property values is largely a result of using outdated valuations in previous years. Kevin Gillen, senior research consultant at the Fels Institute of Government who was hired by the city of Philadelphia to develop the valuation models used in AVI, said many houses that have not been sold recently have not been evaluated for over a decade — which means they have been undervalued. Neighborhood changes over that time have caused values to increase.

“Those that have bought in the past 10-plus years are the ones who have really driven the revitalization,” he said, noting that many of those residents are Penn employees.

In addition, he cited the emergence of the Penn Alexander School as another factor in increasing property values. Property values inside the school’s catchment zone — the geographical area from which the school draws students — are about $100,000 higher than comparable properties outside the catchment zone. The DP analysis shows taxable market values for homes in the catchment zone will increase an average of 268 percent as a result of the new system.

Many higher-income homeowners who have moved to the area recently may not feel as much of an impact as long-time residents.

Campion noted that many of the recent buyers were “overqualified” and chose the area for “intangibles,” such as Penn Alexander or an easy commute.

“So the actual increase in value will be annoying and feel frustrating, but it may not have a true impact on the intangibles in play,” she added.

While values for commercial properties will increase, many businesses may actually see a tax decrease, Gillen said. Anytime construction or renovation is done, the property value is reassessed. As a result, “assessments on commercial property have really kept up” with actual market values, he said. City Council is likely to pass a lower rate than the one commercial property owners currently pay, so businesses may end up paying less in taxes.

“In general, there will be a shifting of the tax burden away from commercial properties and toward residential properties,” Gillen added.

O’Donnell said she expected community backlash as a result of the higher property value assessments. “The ability of the city of Philadelphia to realistically determine the market values of property is in question,” she added.

A neighborhood meeting on the tax initiative is scheduled for Wednesday at 7 p.m. in Griffith Hall at the University of the Sciences.

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