By Alfonso Costa Jr.
According to a recent report from ATTOM Data Solutions that studied 4,579 of the nation’s more than 8,760 Opportunity Zones (OZs)[1], median home prices increased in 75% of the OZ census tracts year-over-year in the first quarter of 2021. More specifically, two-thirds of all studied OZs saw prices rise at least 10%.[2] While these statistics may not come as a surprise due to the country’s ubiquitous hot housing market that has been witnessed over the past year (stemming from a confluence of factors such as low interest rates, high demand, and low supply), it is important to have the conversation of how local policymakers can protect Opportunity Zone residents from rising home values and related property tax increases that could potentially displace current homeowners.
The impact of increased home values and property tax hikes in Opportunity Zones
There is an obvious argument to be made that an increase in home value lends itself to an increase in equity (and thus on a path towards building greater wealth), but that ignores the aforementioned topic of property tax hikes that serve as an additional ongoing cost burden for households that may not be experiencing a proportionate growth in their wages or income. Many will say that homeowners could choose to sell their homes and take the newly-generated proceeds to live somewhere else, but it is important to differentiate a “choose to sell” scenario versus a situation where families are essentially being “forced to sell” because of rising costs.
What can local government do to improve this social OZ dilemma?
Policymakers typically grapple with this critical dilemma whenever trying to simultaneously attract unprecedented investment into historically-disadvantaged communities while providing the existing population the ability to remain in the community. Justifiable fears of gentrification and displacement are broached by constituents and neighborhood advocates alike. But there can be ways for local government officials with Opportunity Zones in their jurisdiction to accomplish both the generation of new investment and equip people with the means by which to keep their homes. One such approach may include the “freezing” or “capping” of property taxes for existing homeowners, not too dissimilar from the City of Philadelphia’s Longtime Owner Occupants Program (also known as “LOOP”).
The role of the LOOP program in Philadelphia
For many decades, Philadelphia’s property tax system had been the focus of much criticism, with characterizations ranging from “outdated” to “unfair” due to assessments failing to reflect actual property values or being drastically unlike comparable nearby properties. Pennsylvania differs from most states in that it does not have any state law or state-level administrative regulations governing the mechanics or frequency of local property taxation. Instead, each county determines its own reassessment timetable and assessment method. In order to mitigate the reality of rising property values and accompanying tax increases (in response to the City’s Actual Value Initiative or AVI, which was implemented to make the property assessment process more transparent and just, while concurrently raising additional revenues for the city) former Philadelphia Mayor Michael Nutter introduced the LOOP program in 2013. The relevant legislative bill explicitly mentioned the issue of gentrification when stating the purpose of LOOP: “The Council of the City of Philadelphia therefore deems it to be a matter of sound public policy to provide a Real Property Tax exemption program to relieve the economic burden that gentrification brings to longtime homeowners, thereby enabling them to remain in their homes and neighborhoods.”[3]
How LOOP can help vulnerable homeowners that qualify
Under LOOP, certain homeowners receive a real estate tax discount through a cap on homeowners’ assessments in 2014 and beyond at no more than 300% of the 2013 assessment. For context, due to the previous decades-long-outdated property valuation system, some homeowners experienced a 1,000% increase in assessments year-over-year after the inaugural AVI implementation in 2014. Eligibility for the LOOP program includes requirements (all of which a homeowner must satisfy) such as: having owned and occupied the property as a primary residence since at least 2003; the property assessment must have tripled from 2013 to 2014; and the household income limit must be 150% of the Area Median Income (AMI) or less. While the program is not without its flaws, many can agree with the core notion of creating policies that actively protect those who are made vulnerable due to surrounding circumstances which are no fault of their own.
Keeping the focus on the original purpose of Opportunity Zones
At the time of their designation, Opportunity Zones had an average poverty rate of more than 32%, which was almost double the rate of approximately 17% for the average United States census tract. In fact, one in four Opportunity Zones had a poverty rate over 40% compared to one in 15 census tracts nationwide, and the homeownership rate in Opportunity Zones was approximately 15 percentage points lower than the national average.[4] These sobering statistics should serve as a stark reminder that local leaders and policymakers have a tremendous responsibility in facilitating inclusive growth and protecting the homes of those who live in Opportunity Zones—otherwise the initiative’s original intent will have been crafted in vain.
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