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Wednesday, March 19, 2008

Townes at Trexler Park: Taxpayer Subsidized Rental Properties

Yesterday, I told you all about that public-private partnership between Allentown Mayor Ed Pawlowski and developer Nic Zawarski & Sons. Zawarski greases Ed's palms with $13,350 in campaign dough, and Ed smooths the way for special little projects like The Townes at Trexler Square.

As nearly every billboard along Route 22 will tell you, these properties are are in the KOZ, a special program that makes them virtually tax free. No real estate taxes, no local earned income tax, no state income tax. Although this program is scheduled to end soon, don't fret. Governor Rendell and friends are working on an extension, not because a KOZ does any good, but it sure helps rake in that campaign cash.

And as you can see from this picture, courtesy of The Allentown Commentator, this program is already a failure. Designed to draw new home owners to the downtown, it appears to be attracting more renters instead. That's no surprise to blogger extraordinaire Pamela Varkony. Owner-occupiers "openly admitted they are planning to rent their properties, 'down the road'. I'll bet that road is going to end just as soon as the KOZ tax shelter is over."

14 comments:

  1. Gee, the Fluff Experts over at the Morning Call, Lehigh Valley Style Magazine and WFMZ didn't mention these units being used as rentals. This type of alternative angle is why I read LVR daily. Nice job.

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  2. What are they asking in Rent?

    Sure homeownership is ideal but as along as they are bringing in people with good incomes they are still a success (to a lesser degree). Rental subsidies will not work in a high-priced two-bedroom home.

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  3. I don't know the rental. A condition of the KOZ should be that the homes be owner-occupied. These people with good incomes will have childrten that burden A-town School District.

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  4. "These people with good incomes will have childrten that burden A-town School District."

    Actually quite the opposite. The people most likely to rent these are going to be people not interested in owning a home but who still have money to pay for what is likely the highest rent in the city (200k, new house with all the fixin's will likely require 1200-1500 in monthly rent). They are likely married young professionals, gay couples or empty nesters. None will have kids. Also, the homes are 2 bedrooms. Not exactly large family living.

    All that said, the KOZ's should require homeownership for the homes (deed restrictions perhaps). For mixed use development that's a different story.

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  5. Geoff,

    What about a working single mom?
    I would think this would be a nice place for a woman recently divorced who works in the city, has one or two kids.

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  6. Geoff,

    The Townes consist of both two and three bedrooom townies. I'd agree young couples or empty nesters are the most likely renters. But some will have children. A family of three can easily stay in a 2 bedroom home. I did for a time. And like I said, some of these are three bedroom homes. This will clearly result in the burden on the school districts.

    More and more school districts are waking up and refusing to agree to these handouts for developers.

    If you're going to do something like this, there should at least be a clawback agreement that permits the city and school and state to reclaim all tax breaks if the owner stops occupying the place.

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  7. Bernie, none of the homes have three bedroom. If you look at the floor plans they all have two, unless someone sleeps in the downstairs study.

    The point Goeff is making is well taken. No one who can afford not to be crammed into a two-bedroom place is going to pay to do so. People shop for the space they need before the extras when renting.

    That is why 4-5 bedroom rowhomes in Allentown are so marketable despite the questionable conditions. Also, HUD pays assistance on a per bedroom basis so these places clearly will not attract any subsidized renters.

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  8. Bernie and Dottie,

    It is conceivable that some very small families might consider these has homes. You gave some examples, but I'm not sure that the examples you give will be able to afford the rent associated with these homes.

    Let's assume each house costs $200,000 and that the property owner either took out a 30 year mortgage (6.5%) or invested his own 200k (and would expect the same return as a 30 year mortage). This creates an annual Debt Service of $14,400. Let's put our operating costs for years 1 and 2 at 3,000 (does not include taxes, but rather the cost of maintenance, management fees, sewer, water, etc). Also, assume that every year the owner puts 1500 aside in reserve deposits to cover unexpected costs (fairly small considering age of homes).

    Add all of this up and we will get 18900 in costs to rent this property. Costs alone will require 1575 in rent. No landlord covers costs alone. Figure they expect 10% return per year. The monthly rent would have to be about 1732. Is it conceivable that a couple or single monther with one or two children could pay this rent. I guess it's possible, but there are more affordable options in the area. For 1732 a month, in center city you can rent a 4-5 bedroom house (perhaps at an even lower cost).

    The math I just gave you was for years 1 and 2 when the tax incentives are there. Add the taxes and rent will increase to almost 2,000/ month (assuming other costs don't go up).

    I'll concede that it's possible that we see a few kids in this project, but I'm not convinced that the market realities will support that posibilities. There are simply too many viable alternatives unless money is no object. I don't know many single working moms or small families that meet this description.

    Oh, I agree that there should be clawbacks. This is probably better than deed restrictions.

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  9. KOZ's shouldn't apply to any housing. It should only apply to commercial development - stores, manufacturing, service businesses, etc.

    KOZ's were meant to create jobs. Eliminating taxes for wealthy property owners is ridiculous.

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  10. Putting more housing into high crime areas is counter intuitive. This basic tenet of urban renewal is lost to the out of towners who are currently in control of city hall.

    Scott Armstrong

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  11. Anon 1:11, If you click on the link to The Townes at trexler Square in my blog posting, you'll see that it speciafically states there are two and three bedroom homes. If I am mistaken, then why does Nic & Sons advtersize these homes like that?

    And I was not referring to Section 8 subsidized renters. My point is that some of these families will have children, and those children cost money to educate but the ASD will receive no tax revenue. Other homes will in effect be subsidizing these kids.

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  12. Geoff,

    By the way, it's been a long time since I've heard from you. We have to grab lunch or dinner sometime soon. You and I are more in agreement than disagreement on this topic.

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  13. 830 W. Walnut St Unit 13, Allentown City, PA $1,400

    ...from the west End Associates web site.

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  14. wow... I'll admit to being surprised at that price (it's lower than I expected). Either way, until Dec, I paid 600 for a 2 bedroom apartment in the neighborhood.

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