VOCAL Neighbors

Top five reasons why district-based landmarking is not good for West Town

1) Landmarking adds a costly layer of bureaucracy to any building-related project (whether a store owner changing his windows, a condo association repairing a roof, or a developer putting in a single family home, and whether old or new construction), and the added expense, delay and hassle of directing all permits through landmarks commission is one that cannot be recouped, and is borne by the property owners.

2) Landmarking will stop gentrification and growth in an area. This is a good thing only for those people who want to keep out "those people," whether for elitist or racist reasons. For business owners, slowing gentrification means fewer new homes, residents, and growth -- so businesses will relocate elsewhere, or will be slow to come to the area in the first instance. For developers, they will go to other neighborhoods where they can operate profitbly, and depart the neighborhood. For homeowners, both effects will drop your property values, and will also deter those who would otherwise buy property for invest and hold purposes in the area. Narrowing the market of people looking to buy your home necessarily drops what you can get for it in the open market.

2a) And, with time, slowing the teardown/rebulding process means that you have a higher proportion of abandoned or rental properties in your area. This is death to property values. (And particularly so in an area transitioning away from being a high crime area -- abandoned or cheaper rental property is an invitation to blight, and introduction of a criminal element).

2b) And, slowing the ability to turn lower-end-use properties into either higher end single family homes or condo developments means that you do not have the market forces that drive prices higher over the long run. If a rising tide lifts all boats, landmarking suppresses the tide from ever coming in.

3) Landmarking fixes the property tax base at an artificially low level. By preventing properties from being turned over into their highest and best use, the city loses all kinsd of tax revenue -- and this effect is permanent.

3a) Owners of newer construction will most likely feel the biggest brunt of the property tax increase. An example: assume you have two small old wood frame homes with an assessed value of $200K each. That leads to city property tax revenues of roughly 4K total (property taxes are usually about 1% of the fair market value of a home). Without landmarking, these homes are torn down, replaced with a condo 3-flat and single family home, and in five years the 3-flat condos collectively are worth $1.2 million and the SF home is worth $1 million. That leads to property tax revenues of $22,000, an $18,000 annual increase. And the tax revenue increases are paid almost equally by each individual property.

Now, assume that your city government will, in fact, spend at the $22,000 level, not the $4,000 level. (Not a stretch of the imagination required for that one, is there?). Landmark before both properties are developed, your FMV will stay stagnate, if not deflate. Landmark after your condo development was built, but before your single family home is built, you have the condo owners paying $12K with the old property still at $2K, for a combined $14K. Where is the extra $8,000 in lost revenue going to come from? Well, assume that the tax rate is increased to compensate. The new construction, having such a disproportionately larger value, will not share the added burden equally with its neighbor (i.e., 4K each). Rather, it will bear six times the added property tax burden. Here's the math:

What tax rate do you need off the FMV of the property to arrive at $22K for our two properties (condo property worth $1.2 million and old SF home worth $200K)? The answer is about 1.6% of the FMV. (22,000 is 1.6% x $1,400,000). Multiply 1.6% times our 1.2 million, you get $19,200. The old undeveloped house pays $3200. In other words, over $6,000 in property tax revenues are generated from the cond folks that they would not have had to pay had the second property been developed.

Take-home-message comparison then?

Both properties developed with condos and new SF home, which occurs without landmarking: condo owners pay $12,000 in property taxes, SF home pays $10,000. About equl tax burden for each lot.
One condo property developed, old home is landmarked: condo owners pay $19,200 in property taxes, an over 50% effective increase in property taxes, even if the tax "rate" only goes up to 1.5% of the FMV. Old home pays $3200. Tax burden of the condo lot is six times higher than that of the old home lot.

4) City of Chicago district-based landmarking takes away one of the major economic incentives for preserving an older home at the federal level (charitable donation of a facade). (See archived posts on this blog for details), and is not required for you to participate in the one state program available to homeowners for historic preservation of their homes.

5) Homeowners insurance. Good luck getting the lowest rates on homeowners insurance if you are in a landmarked district. We've talked to insurance brokers. It won't happen. (Again, see archived post on this blog for details as to why).

posted by The Grants @ 2:05 AM