When the Land Bank buys residential properties, is it depleting Nantucket’s tax base?
That is the question some are asking as the Land Bank, flush with cash, has started to buy some high-end residential properties in addition to the traditional open space parcels it has targeted in the past.
The Land Bank does not pay property taxes on any of its real estate holdings, and 2022 will go down as one of its biggest years for property acquisitions.
With a war chest of $50 million amassed during the real estate boom of 2021, the Land Bank has acquired 10 new properties through the first 10 months of this year, spending $42 million and adding just over 24 acres to its portfolio.
After each of these acquisitions and our subsequent reporting on them, the Nantucket Current has received a handful of messages decrying the Land Bank for taking more properties off the town’s tax rolls - especially properties like 76 Millbrook Road and 244 Polpis Road. Both are waterfront parcels with existing homes that the Land Bank plans to “undevelop” by moving the structures off the properties.
So we asked town assessor Rob Ranney for the combined tax bills paid by the 10 properties acquired by the Land Bank this year. Using last year’s tax rate and assessments, Ranney determined that the 10 Land Bank acquisitions removed approximately $91,000 in annual property tax revenue from the tax base. That is about 0.1 percent of the roughly $90 million the town of Nantucket raised in tax revenue last year.
The impact of removing that tax revenue is spread out across all of Nantucket’s property taxpayers. However, that loss will be more than offset by the amount of tax revenue added each year from so-called “new growth,” which is generated by new construction, renovations and other increases in the property tax base during a calendar year. Over the past four fiscal years, Nantucket has averaged about $1.2 million in additional tax revenue from new growth.
Still, some island residents - including Nantucket Planning Board member Nat Lowell, believe the removal of more and more residential properties from the tax rolls by the Land Bank is problematic, especially given the fact that so much of the island’s land is already untaxed.
“The trophy homes are paying 90 percent of the taxes from the 35 percent of the land that pays taxes - only 35 percent of the island is paying property taxes,” Lowell said. “What are the benefits of the Land Bank owning so many properties that are already developed? The growth is what pays the bills. If you have a structure built on a property that is already developed, tell me why that has to come off the tax rolls? We’ve already protected Nantucket. I just don’t want to keep removing existing taxed and existing developed property without a real solid understanding as to what we’re doing.”
Lowell suggested the Land Bank could develop a type of deed restriction for residential properties it acquires - not necessarily for affordable housing - but one that would keep them occupied and on the tax rolls.
The Land Bank has heard the argument on property taxes before, executive director Jesse Bell said. Both she and Land Bank Commission chair Neil Paterson said beyond the new growth offsetting any losses in tax revenue resulting from ongoing Land Bank acquisitions, adding new conservation land typically increases the assessed values of surrounding properties.
“When the Commission considers whether to purchase a property, their focus is more on the public benefit(s) to be gained rather than town tax revenue to be lost,” Bell said. “However, to be fair, whatever tax revenue is lost should be offset by the costs associated with providing that property with additional town infrastructure and services, particularly if those properties were developed to their maximum potential (which they likely would be) if the Land Bank didn’t acquire them. As a community, I think many of the issues we are experiencing now stem from years of private development outpacing our ability to accommodate it.”
A handful of the Land Bank’s recent acquisitions have included waterfront properties with existing homes, a result of its stated goal to secure more public access to the water, and also a function of the fact that there simply isn't a lot of vacant land remaining to acquire on Nantucket. For those new Land Bank properties with existing residences, the plan is to move the structures for potential use by its own employees, or offer them to the town’s Affordable Housing Trust and/or the non-profit Housing Nantucket. If none of those are an option, the Land Bank would declare the properties surplus and put them out to bid, as it recently did with structures at its 113 Madaket Road property.
For Paterson, the Land Bank Commission chair, each acquisition is carefully considered and he said he takes a critical eye when it comes to the public benefits that can be achieved.
“When the Land Bank takes anything with a house on it, we tend to be very careful, especially now,” Paterson said. “We have a severe need for our own employee housing...As far as the tax rolls? Yeah, we do think about that. We’re buying properties that can’t be subdivided into four affordable housing units. I personally take every single thing into account, and we’ve got to be aware of the optics of what we do.”
Paterson specifically mentioned Washington Street, where the Land Bank now owns numerous properties along the waterfront.
“What we do benefits everyone and those fortunate enough to own properties on the other side of Washington Street? We’re actually raising their values, and they have a greater tax bill now,” Paterson said.
The Land Bank continues to receive its revenue from the 2 percent transfer tax on most island real estate transactions that was established in its enabling legislation approved by the state in 1983. Since then, it has acquired more than 3,400 acres on Nantucket, and along with the island’s other private conservation organizations, protected more than 60 percent of the island from further development.
That success has prompted questions - like those raised by Lowell - about its strategy moving forward. While voters overwhelmingly rejected a proposal to divert a portion of the Land Bank’s revenue for affordable housing initiatives at the 2021 Annual Town Meeting, its record income in 2021 and recent acquisitions of residential properties have spawned more questions about what the future holds for the public agency.
"The Land Bank is a powerful organization which has undoubtedly done a tremendous job in providing access to open spaces for us all to enjoy,” said Jen Shalley Allen, a principal broker with Fisher Real Estate. “Yet with a real estate market that's nearing $5.5 billion in trailing three-year sales, they arguably have more power than ever to continue to transform the island. I believe as a community we need to start asking for a more publicly defined goal and a more transparent purchasing process. What is the target percentage for conserved land? How much of future purchases will be for existing residential or commercial properties versus vacant land? What is the due diligence process for establishing market value? Let's start asking more questions as it seems we may be at or nearing a tipping point.”
For real estate appraiser George Riethof, the most significant effect of the Land Bank buying already developed properties isn’t necessarily the loss of tax revenues, but rather the “hyperinflation” of property values at the high-end of the market.
“Lately, the Land Bank has astonishingly stated out loud that it intends to move to a model of ‘de-development’ of improved properties,” Riethof said in a message to the Current. “The Land Bank has always been able to buy improved properties, but that provision was intended to be able to buy an otherwise under-improved piece of land with a small depreciated cottage, shed, etc, i.e. a property with economically-obsolescent improvements, and revert it to vacant land. It was never intended to permit the Land Bank to buy up otherwise suitable residential properties and revert them to vacant. This further hyperinflates property values: those are properties that would otherwise compete with other available residential properties. By removing them from the market, property values manifestly rise at an unnatural rate.”