Revisiting the Vacancy Tax Discussion

Since August of last year, I have spent some time engaging in research around how our community can encourage continued growth by making it less desirable to have vacant commercial property in the borough, which continues to be a challenge across our community.

As I noted in the August musing:

“For commercial underdevelopment, the building owner can let the property sit vacant for as long as they want without any repercussion for underutilizing the space. It is, after all, their building. No one can make them take on a tenant. For rental units and rental housing, landlords can refuse to upgrade their property while still raising rents. After all, property values continue to go up throughout most of the area.”

Originally, my first inclination was to engage in a split rate tax system that would allow us to tax vacant commercial land at a different rate. This would be effective but would take years to develop and deploy. Every single commercial property would need to be re-assessed and that just isn’t really feasible. So, where do we go from here?

It turns out that other communities across the U.S. and Canada have begun to execute similar programs without tying it to taxes. Communities like Hartford, San Francisco, Altoona, New York, Williamsport, and Vancouver have all begun to explore ideas in detail to help resolve some of the vacancy issues they are experiencing. Notably, Vancouver decreased their vacant property by 15% after the introduction of a vacancy fine and was able to dedicate $29 million from those fees for further development or rehabilitation. (Note: Vancouver went beyond commercial property and applied this to residential vacancy as well…which is not something I am advocating for.) 

While all the communities listed above have taken different details to their vacancy problem, the challenge is all the same: providing an incentive for commercial property owners to be active in the communities they own property in and not allow buildings to sit empty while they use it as a tax write-off.

Personally, the Williamsport Model seems to make the most sense for Lansdale. Commercial owners of vacant property (60% unleased or more) must register their vacant land with the municipality. They then engage with the municipality for a waiver of the fee showcasing how they intend to apply their business model and highlight how their rental price is in line with the average of the community, or how it will be changing to do so. If the waiver is approved, the property is not penalized for a period of three years. After three years, if the building remains vacant, fines begin to grow for every consecutive year the building remains empty. This model encourages active engagement with the municipality to make sure everyone is successful without penalizing a business that happens to not find a tenant that year.

If we were to deploy a model like this, we should do so in coordination with the hiring of a professional Main Street Manager and tie the fine to the square footage of the vacant property. The Main Street Manager could help identify the vacant spaces and work directly with property owners to identify prime businesses for their space and avoiding any additional penalties. This role also will be able to make recommendations for the waiver process and help council make the right decision on when to grant, or deny, waivers. As for the fine, it makes sense to connect the volume of unused property to the fine to ensure equity in all applications.

The goal of this two-pronged approach would be to create a working relationship with people who have invested in our borough and are looking to have their property be successful. Additionally, it will make it clear that absentee owners who are not engaged in actively renting their spaces, or renovating their spaces, will face penalties for holding back commerce in the borough.