and 312 subsidized-interest improvements. Several Assessors requested federal guidelines on the subject. Investors in 236 and 221(d)3 programs without exception preferred paying property taxes as a percentage of gross rents to paying a tax based on market value. They stressed that payment based on gross rent carried certainty regarding tax liability and the assurance that taxes would not increase unless rent levels increased. In conclusion, assessors and investors alike felt that a simple, uniform standard was needed for the assessment of federally assisted housing. Investor's currently involved in these projects noted that the difficulty of accurately forecasting property tax burden seriously altered the effectiveness of these programs. Once these projects are once completed, an unexpected change in property tax assessment can damage the prospects for continued successful operation. CHAPTER VII UPWARD TRANSITIONAL NEIGHBORHOODS The potential disincentive efforts of property taxation are greatest in the Upward Transitional Neighborhoods, where property upgrading normally would be most vigorous. More than half the upward transitional properties in our sample had been rehabilitated with a median per unit expenditure of $2,300. In older cities where little space remains for new construction, this rejuvenation of the existing housing stock accounts for most of the increments in the cities' property base. Our sample revealed that city authorities are understandably reluctant to impose on Upward Transitional Neighborhoods a tax burden that might destroy their growth or propel white residents out of the city into the suburbs. Table VII.1 shows the median effective tax rate in each city's upward transitional neighborhood as a proportion of the legally prescribed rate for the city as a whole. A value less than one indicates that the median effective tax rate of the upward transitional properties in the sample is less than the legally prescribed tax rate for the city as a whole. This was found to be the case for each of the ten cities in our sample. TABLE VII.1 * MEDIAN EFFECTIVE TAX RATES IN UPWARD TRANSITIONAL Notes: Source: Effective tax rate is tax as a percentage of investor reported market value. Legally Based on material previously presented in table 11.3 and 11.4 The tables summarize information obtained from 288 owners regarding 420 individual properties in ten cities. 127 Property taxes may discourage neighborhood upgrading in two ways. The level of taxation may be so high that affluent whites, of the kind who are responsible for rediscovering "chic" downtown neighborhoods, prefer to reside outside the city. Dramatic restoration of aged and blighted housing stock is almost exclusively a white phenomenon, undertaken by families whose alternative residence is the suburbs. If the city's tax burden becomes too high or its service quality too low, the city is apt to lose these people and with them the housing investment they would have undertaken. Table VII.1 indicates that most cities have gone to considerable lengths to keep the level of taxation in upward transitional neighborhoods from becoming burdensome. The second potentially discouraging effect of property taxation is a marginal effect. If improvements to the housing stock are assessed for the incremental value they add to a property, the additional tax burden will lower the rate of return to such improvements, and discourage investors from undertaking them. This marginal effect can occur at any overall level of taxation, though evidently the discouragement to investment will be most severe in those neighborhoods where incremental improvements are taxed at a high rate. The Neighborhood The typical Upward Transitional Neighborhood from our sample was a well-defined geographic neighborhood composed of old, architecturally interesting housing stock. Often constructed as single-family homes, the structures over the years had been converted to more intensive use and permitted to fall into disrepair. At some point, the neighborhood was rediscovered by young professionals and foresighted developers who valued access to downtown and recognized that by upgrading this old stock they could purchase high quality housing at much lower prices than was possible in new construction. The first entrants typically were small investors who intended to live in the neighborhood; not until neighborhood revival was well underway did large investors enter the area. As the quality of housing changed, so did the residents of the neighborhood. Young, white affluent professionals displaced older, poorer residents, many of whom were non-white. Three examples of the Upward Transitional Neighborhood included in our sample were: 1. College Hill/Fox Point, Providence College Hill contains a large number of 18th century merchants' homes 2. 3. portion of the stock by new multi-unit structures. Aggressive "up-graders" in the Fox Point neighborhood have had the area approved for Section 312 loans, and are exerting pressure on other owners to make use of the subsidized loans. At times this pressure has led to conflicts between the new residents, bent on rapid upgrading, and the Portuguese community, which sees the transformation of the housing stock as threatening its living patterns. Lincoln Park, Chicago In the 19th century Lincoln Park was populated by beer barons and retail merchants. In later years, their lavish homes were converted to boarding houses or cheap multi-unit rental stock. Lincoln Park became a point of entry for poor white migrants to Chicago. The revitalization of Lincoln Park occurred as a spill-over from Old Town, a well publicized restoration project of the 1950's which, according to Lincoln Park residents, became over-commercialized. Some of the original residents of Old Town moved into Lincoln Park. One device they used to delimit the area was the deliberate exclusion of bars and package stores, which residents viewed as essential to upgrading the neighborhood. Of the upper transitional neighborhoods included in our study, Lincoln Park was one of the furthest along in development. Large-scale rehabilitation of the housing stock has been completed in many parts. Younger, wealthier residents have now moved into the neighborhood, giving it an artsy, swinging reputation. By now, much of the rehabilitation activity is in the hands of large-scale real estate operators. Couch, Portland The housing stock in Portland is of more recent vintage than is true of most other cities in our study. The predominant housing style in Couch is the wooden frame, single-family home, constructed between 1900 and 1930. Rehabilitation here is a more recent phenomenon than in Providence or Chicago, and, up to now, it has been carried out on a smaller scale. Several large homes, which had been converted to boarding houses, have now been converted back to single-family dwellings. Much minor repair and cosmetic rehabilitation have been carried out on other structures. No large realtors have entered the neighborhood. Investment has been delayed in part by fear that adverse zoning changes would destroy the residential character of the neighborhood. Adding to this uncertainty was the possibility that large sections of the area would undergo urban renewal in the form of an expansion of the Good Samaritan Hospital. In the judgment of residents both changes would destroy the residential character of the neighborhood. Property values have gone up greatly in the neighborhood as a result of the competition for land use, and the speculation against possible influences of urban renewal. |