Ryan homes development. Photo by Abbey Marshall
Akron is passing on the opportunity to collect millions of dollars in property taxes in hopes of spurring housing development.
Akron in 2017 launched a 100% residential property tax abatement. The owner of any qualifying newly constructed home or home renovation does not have to pay property taxes for 15 years after construction, which can amount to tens of thousands of dollars in savings.
Officials say it’s starting to work: Hundreds of property owners have applied for the tax abatement, and hundreds more likely will when homes currently under construction are finished.
The city boasts that, since the program launched, more than 400 new housing units have been built within city limits or will be completed by fall, up from just 14 units in 2015. At least 60 additional homeowners have applied for tax abatements after making renovations to their homes. Total construction costs tallied in the 153 abatement requests — both new and additions/renovations — have mounted to $52.8 million so far.
And there are hundreds of additional homes under construction that will, presumably, apply for tax abatements after construction is complete.
While the city is focused on reeling people back from the suburbs, the program comes with trade-offs — primarily, giving up the ability to collect nearly $2 million in new property tax revenue per year.
And the program’s benefits have largely been concentrated in neighborhoods where housing markets are already stable.
“We had this exact conversation with City Council, and my response was, 100% times zero is still zero,” says Jason Segedy, the city’s director of Planning and Urban Development. “If there is no house, we’re not losing any tax dollars. It’s not as simple as saying, ‘the city is losing these property taxes,’ because these projects by and large weren’t being built. We were getting zero tax dollars from houses that don’t exist.”
This story is part of “Home in Akron,” a project by the Akron Media Collaborative based on community feedback from a series of 2019 town hall meetings across Akron. Throughout 2020, we’ll be exploring the complex issues confronting Akron’s housing and rental markets and the impact on citizens and the city’s goal of growing its population. The collaborative includes journalists from the Akron Beacon Journal, The Devil Strip, WKSU, Your Voice Ohio, News Channel 5 and Reveal – The Center for Investigative Reporting.
Is the tax abatement program working?
The goal of the tax abatement program, officials say, is simple: To help spur population growth by offering alternatives to Akron’s suburbs.
Akron’s population peaked at nearly 300,000 people in the early 1960s and has been shrinking since, falling below 200,000 presently. City officials, setting an ambitious goal of growing the population to 250,000 by 2050, are now asking: how does Akron bring back people from the suburbs and foster economic development within city limits?
The city cites the sheer number of new homes under construction as a positive indicator.
Development in Akron plateaued after the population boom, with 64% of homes in the city built before 1960 and more housing built during the Great Depression than since 2000. In 2015, just 14 new houses were built in Akron.
That number has skyrocketed since, with more than 400 housing units completed and an additional 1,200 in the planning, design and construction phases, the city says.
“[The property tax abatement program] is kind of set up as a way to lure people of means back in from the suburbs so the city can capture their income tax,” says Kyle Julien, the recently departed director of urban planning at the East Akron Neighborhood Development Corporation, a nonprofit developer. “That’s important. We currently have a lot of people driving into the city from the suburbs, and we don’t want that trend to continue.”
Who is using property tax abatements?
The tax abatement program, Segedy says, is designed for just what Julien describes: winning middle- and upper-income households back from the suburbs.
Early adopters of the program are primarily developing single-family homes that are much more expensive than the majority of homes within city limits.
About 58% of 153 applications filed between the launch of the program and Aug. 24 involved single-family housing units, with a median value of $271,500 built by both for-profit and nonprofit developers. That is high-end in almost all of Akron: At present, the median price for a home listed for sale in Akron is $116,000, according to data from real estate brokerage Redfin.
Segedy notes that in comparison to the suburbs, a house priced in the mid-$200,000s isn’t all that expensive. According to Redfin, the median price for a home listed for sale in Cuyahoga Falls is $154,000; in Green, $243,000; and in Stow, $207,000.
About 8% of the tax abatement applications, or 13 out of 153, came from nonprofit community developers like Habitat for Humanity and the East Akron Neighborhood Development Corporation.
Those who want to upgrade older and existing homes are eligible for tax write-offs if they complete a renovation that totals $5,000 or more, such as new roofing, windows, garages and more. Renovations accounted for 60 applications, totaling about $17.5 million — $9.8 million of which accounts for 17 housing units at the East End, the old Goodyear Heights campus being converted to a 1.4 million square foot, mixed-use property for offices, medical and retail uses, hotel rooms, restaurants and apartments.
More than half of renovation applications have come from just four neighborhoods: Northwest Akron, Fairlawn Heights and Merriman Hills, where home values are already among the highest in the city; and Cascade Valley, home to the Northside development, where owners received tax abatements to build out seven units.
Segedy himself applied for a tax abatement after he added a sunroom to his home. He called his participation a good test of the program, which requires a two-page application and a $50 fee. The city processes applications and passes them along to the Summit County Fiscal Office for approval.
“In the case of an addition, the tax value went up slightly, so it knocked a little off of what our taxes would’ve been,” Segedy says. “It won’t make a giant difference in your property tax bill, but it’s still a nice incentive.”
The city hopes that the tax abatement will encourage people to put money into their houses with the hopes of getting it back once the market is stronger.
“We need to start where we can start,” Segedy says. “The alternative is that there are no new houses built anywhere in Akron. That doesn’t help anyone.”
What are the trade-offs?
Though the city is hoping to boost population growth and housing development, Akron stands to lose out on approximately $30 million in new property tax revenue over 15 years — and that’s without any additional applications.
“There’s a trade-off here that needs to be thought through,” Julien says. “The city is primarily funded through income taxes, but we have a lot of entities funded through property taxes getting a short side of this deal.”
Those entities include Akron Public Schools, which are the primary recipient of property taxes at about 66% of the bill. The city only receives about 13% of Akron residents’ property taxes, with the rest going to the Akron Zoo, metro parks, city libraries, Summit County Developmental Disabilities Board and others, according to a sample property tax bill provided by the city.
Akron Public Schools relies on local property taxes for about 35% of its funding. If Akron’s population were to grow and more students were to enroll at APS schools, the district says it could handle them, even without additional property tax revenue.
“Largely, our property tax base has not grown since the 2008 recession because of the depressed home values, so stimulating that growth will give us more revenue once we’re able to collect,” says Ryan Pendleton, the Chief Financial Officer and treasurer of APS. He also notes that, while enrollment has been stable for about five years, schools are operating with buildings at about 85% capacity to accommodate changes in enrollment.
The tax abatement is viewed as a down payment for a larger return on investment, he says. Though the city won’t be netting new property taxes for 15 years, theoretically, many more people will live within the district once the abatements expire, and schools will get a boost in funding that didn’t exist before.
In the meantime, Pendleton says the district receives about $4,800 from the state per student enrolled. State funding currently accounts for about 65% of APS funding.
The city is primarily funded by income taxes, so it hopes to see a spike in the tax dollars it collects if higher-income families buy homes within city limits.
Tax abatement has few benefits for renters, though it has helped non-profit developers
But what about the people who already live in Akron?
According to data from the U.S. Census Bureau, between 2000 and 2018, median rent in Akron jumped 48% while incomes rose just 29%. Adjusting for inflation, renters have lost $4,074 in purchasing power as rent has kept pace with the annual cost of living.
People who own their homes have done much better, financially, than renters. The median income of owner-occupied homes is up 41%, from $41,679 in 2000 to $58,586 in 2018. And since 2010, monthly housing costs have risen 15% for renters while falling 16% for owner-occupants.
The proportion of Akronites who are renting is rising, too. In 2000, 40.6% of the roughly 90,000 housing units in Akron were rentals compared to 49.4% of the 85,000 units that remained in 2018.
The tax abatement program was never designed to fully address those issues, Segedy says.
According to a review of tax abatement applications, new home and apartment construction in neighborhoods where housing markets aren’t already stable are almost exclusively tied to Habitat for Humanity, the Urban Neighborhood Development Corporation and the East Akron Neighborhood Development Corporation. These nonprofit development companies are latching onto the program to provide homeownership options to those who may otherwise be unable to secure mortgages.
Habitat for Humanity, which acts as both financier of its projects and mortgage servicing company to qualifying buyers, has used the tax abatement program 11 times so far with eight others under construction expected to apply, according to Rochelle Sibbio, president of Habitat for Humanity of Summit County.
“I just think that it’s a wonderful opportunity for low-income families,” Sibbio says. “When you look at what payments are on a monthly mortgage (in Akron) versus homes we’re building in other parts of the county, the payments are generally $200 less a month in Akron” because of the property tax abatement.
Segedy argues that the tax abatement program may still aid renters. Apartment developers can apply for tax abatement and could theoretically “implement lower rent costs from the property tax savings,” he says.
“The program isn’t really intended for low-income groups, but it does help with rental projects for sure,” adds Julien, citing a recent application for Middlebury Commons, a 40-unit apartment building for low-income seniors.
“That’s a big deal,” he says. “It’s very expensive to develop new buildings. Our margins as developers for affordable rental housing are pretty slim, so to get that 15-year break is incredibly helpful.”
Though the majority of tax abatement applicants have been located in neighborhoods with higher median income levels, Segedy remains optimistic that those numbers will change as additional projects are built. For instance, he cites the LeBron James Family Foundation’s I PROMISE apartment building on Cedar Street, which is expected to apply after it is built.
Segedy believes that bringing wealthier people back to the city will have trickle-down effects, too. He argues that retail businesses have left Akron over the last few decades, taking jobs with them. If Akron’s population grows — especially its population of comparatively wealthy homeowners — he believes it could bring those job opportunities back to the city.
“I think getting new housing in Akron is very important, whether or not low-income people are the people living in it,” Segedy says.
What does the future of the program look like?
Segedy says the indicator of success of the program is that the city “gets rid of it.”
“I can’t wait for the day we get rid of it,” Segedy says. “Cities don’t want to lose out on tax dollars. Our position has been: we need this as an incentive for now.”
The tax abatement, still in its infancy, has lots of room to be altered based on results. For example, Segedy says, if the real estate market takes off in certain neighborhoods, the city could remove those areas from the program to attempt to spur growth in other parts of Akron. They could also change the number of years homes are exempt from property taxes.
He also notes that the program is not intended to fix every housing issue Akron faces — for instance, the problem of old homes that are expensive to renovate. He calls urban revitalization a “long game.”
“We will know the strategy is working if our population begins growing again in the 2020s, if we see a modest uptick in our artificially low housing prices and property values — $60,000 houses now becoming $80,000 houses, et cetera — which will mean more wealth and equity for existing homeowners in Akron,” Segedy says.