2017 property tax assessments shift more value to land

This month property owners began receiving their 2017 assessments. For some the new assessments were bewildering, particularly because the city has changed its approach to assessing land value.

PlanPhilly got a first look at the numbers from the Office of Property Assessment (OPA) to better understand what these assessments mean and identify big-picture trends.

What is the city doing?

Since the Actual Value Initiative (AVI) brought the city’s property assessments closer in line with market values in 2012, OPA is committed to keeping assessments current. Property values change with the market from year to year, and there’s also an ongoing process of updating OPA’s values for greater accuracy.

OPA doesn’t go out and assess each individual parcel every year. They use models of the different “Geographic Market Areas” to spot and correct assessments in a targeted way in the years between full assessments.

Last year their big project was to identify parcels with a high COD, or “coefficiency of dispersion,” which is a measure of how significantly properties with similar physical attributes differ in value within the same Geographic Market Area (GMA). Properties with a COD that’s much higher or lower than the median are more likely to be incorrectly assessed. The smaller the COD, the more likely that the assessment is correct.

This year, OPA’s main project was updating land assessments, which, as Isaiah Thompson reported in 2013, appeared to be greatly under-assessed in some appreciating areas.

“When we first did AVI, we had quite a few phone calls, surprisingly, from folks who were wondering if they had misread their assessment because their land component was so low that they essentially had a huge decrease in their taxable assessment,” says Michael Piper, OPA’s chief assessor.

Since then, there’s been some evidence of significant appreciation in Philly land values. A land valuation model recently developed by economist Kevin Gillen and Guy Thigpen, director of analytic services for the Philadelphia land bank, to guide disposition of city-owned parcels observed a large jump in the city’s median land values in just the last two years.

So how significantly are land values under-assessed?  It depends who you ask. But it matters because under-assessed land essentially amounts to a tax break for speculators. Properties receiving the 10-year abatement on improvements still pay taxes on land value, so if land values are under assessed that means some tax-abated properties are likely underpaying property taxes. Mayor Jim Kenney and Councilwoman Helen Gym pledged to fix the land values during the 2015 campaign (though the OPA review was already underway at that point.)

This year’s land-value oriented reassessment “focused on all residential parcels, not just abated parcels,” said Piper. “But the folks who will probably see some increase in their taxable assessment were the ones who were curious about how they were getting by with such a low taxable assessment for so long.”

Next year, OPA will focus on updating values for commercial properties, which date back to late 2011 and early 2012, and another complete reassessment is planned for 2018. The city is in talks with a vendor to purchase a Computer Assisted Mass Appraisal system that would make conducting citywide assessments less arduous.

Only 14.34 percent of properties saw increases in their total taxable value, and 1.21 percent saw decreases. About 92 percent of properties saw their land assessments increase, but in most cases this did not translate into an increase in their total assessment.

OPA is focused on the “contributory value” of land, which may be different for older and newer properties. Piper said the value of older structures tends to decrease with age, with locational attributes accounting for an increased percentage.

“Picture two properties on the same street, side by side. One is a brand new structure, the other is one that’s older and in bad shape. The value of the property with the new structure, in most cases, is going to tend to be more about the improvement itself. Whereas for the older property, the contributory value is going to shift toward land over time,” Piper explained.

The idea is that, as properties grow older, more of their value will come from land and proximity to amenities, since the building itself is more like a car or a boat that depreciates over time.

Council Districts 1, 2, and 5 saw most of the net increases

As was the case with AVI, the Council districts with the hottest real estate markets (generally in greater Center City) also saw the most growth in tax assessments. Again, supermajorities of properties saw no change in taxable value, but for the 14.3 percent that did see increases, they were mostly concentrated in those three districts, with a smaller bump in District 10 in the Northeast.

The net increase in taxable value for the properties in the batch OPA reviewed this year (about 520,000 parcels out of 579,000) was around $1.7 billion overall since last year.

Most increases weren’t very large

Most of the increases in taxable value were under $400, but here again we see that the three Council districts with the strongest real estate markets also saw the highest increases.

How much value was shifted to land?

About 92 percent of properties saw a shift toward land, and only about 8 percent saw a decrease in land value. For a little over half of the properties OPA reviewed, that shift — which was most commonly not a net increase in taxable value — was somewhere between $14,000 and $30,000. Land values tend to observe a “long tail” pattern, as Kevin Gillen pointed out, so it’s likely that a small minority of high-value properties saw outsized increases.

In keeping with the pattern, the 1st, 2nd, and 5th Council districts saw the most pronounced increases.

Unanswered Questions

The data released by OPA [Excel] raise plenty of questions, as do the property-level data just released by the Office of Innovation and Technology. Among them: What are the trends among tax-abated properties? How did different types of properties fare? Is vacant land getting a break?

On the last point: It’s still too early to say how vacant land values stack up. Some of the commentary online after the assessments first went out focused on comparisons of vacant lots that didn’t see their assessments increase, with nearby houses that saw their land assessments jump. OPA won’t have its vacant land assessments completed until at least June.

“We are still working on the vacant lots,” says Piper, “When we finished our modeling exercises, and ran the numbers, and looked at them several times, we weren’t comfortable with the way they were coming out and translating from one GMA to another GMA.”

Vacant lots will still be a part of the 2017 reassessment project, but those notices won’t go out for another two or three months.