Tax break for housing development before Luzerne County Council

The Luzerne County Council is scheduled to vote Tuesday on a real estate tax break request that differs from recent ones as it involves a residential housing project instead of warehousing or other large industrial construction.

Robert W. Gundlach Jr., of Allen Ridge Associates LLC, presented the request during a council work session earlier this month for a 90-acre site across from the Lehigh Valley Hospital in Hazleton.

The proposed plan for this “Allen Ridge Community” would include construction of the following, according to the paperwork presented to council:

• 11 single-family detached homes valued at $400,000 each

• 200 single-family attached townhomes valued at $300,000 per unit

• 48 single-family attached townhomes valued at $325,000 per unit

• 384 multi-family apartments valued at $150,000 per unit.

The break would be under the Tax Exemption and Mixed-Use Incentive Program Act, called MUIP, in deteriorated and blighted areas.

County real estate tax discounts would apply to the new construction portion and not the underlying land.

The proposal is for 100% county tax forgiveness the first three years and the following discounts the remainder of the decade: fourth year, 90%; fifth year, 75%; sixth year, 60%; seventh year, 45%; eighth year, 30%; ninth year, 15%; and tenth year, 10%.

According to Gundlach’s presentation:

While breaks for industrial and commercial development are most widely used, the mixed use option allowable by law is important for some communities, in this case Hazleton.

Hazleton and surrounding municipalities have a vast quantity of new warehouses and other commercial space under construction.

“But what they don’t have is new housing,” he said.

Gundlach said this project will bring new “affordable housing” to the city’s downtown area with 1,500-square-foot homes in the range of $260,000 to $270,000.

He acknowledged disagreement about whether this range can be deemed affordable but said all prices associated with construction have skyrocketed since the COVID-19 pandemic, including building materials, site improvements and insurance costs that all factor into the price of a house.

Prices would be higher but were kept to the stated range by creating a “very dense project” that allows the contractor to reduce site costs and “build in an economical way,” he said.

A tax incentive is necessary because private developers are not eligible for government subsidies or grants available to nonprofit entities, he said.

The county portion of the overall real estate taxes is approximately 15%, he said. The county currently receives approximately $3,500 a year in taxes on the land and would bring in a projected $600,000 annually after the tax break expires, he said.

Council questions

Councilman Chris Perry asked if the tax abatement gets passed on to the residential buyers, and Gundlach said yes.

For example, the buyer of a structure assessed around $265,000 would save a total of $10,525 in county taxes over the ten-year period, based on the current millage rate and proposed tax break percentages. The total savings would be $13,719 for city taxes over the decade and $21,926 for school taxes if the district participated.

The incentive makes the houses in Hazleton more attractive, Gundlach said, noting the city must compete with suburbs.

Housing is in demand “with all of these warehouses,” Gundlach said. Hazleton has more than 5 million square feet of commercial development in the works, and there is more than 10 million square feet pending in Hazle Township, he added.

“I think in total about 30 million square feet is on the books throughout that region,” Gundlach said.

Perry pointed out the Hazleton Area School Board denied the tax break for its portion of real estate taxes, which are 65% of the total tax bill.

Gundlach said he was disappointed and surprised and will be asking the school board to reconsider.

Council Vice Chairman Brian Thornton asked if the project will still proceed without school board approval.

“We haven’t pulled the plug on it yet,” Gundlach replied.

The Hazleton City Council approved the break in January for its taxes, which make up 20% of the total tax bill.

Councilman Jimmy Sabatino directly asked why the school board turned down the project.

Gundlach said he received no response but saw a published comment that a board member was disappointed the housing was not more affordable.

Initially there was discussion about selling the houses for approximately $300,000, but they were scaled back by eliminating two-car garages and limiting living space to 1,500 square feet, he said. These modifications should allow pricing of $260,000 if agreeable subcontractors are available in this marketplace, he said.

Sabatino said he does not consider $260,000 to $270,000 affordable housing and asked if the plan could be reformulated to achieve a $150,000 to $175,000 range.

Gundlach said he’d “love to do $150,000 housing,” but that is not possible for a private developer. Construction alone is about $120 per square foot and does not include site improvements, grading, roads, curbing, blacktop, street lighting, insurance, permitting/financing costs, realtor fees and other expenses, he said.

“We could never build a home for less than $260,000 in today’s world. It just is impossible unless somebody’s subsidizing it,” he said.

Sabatino asked if some of the apartment units could be swapped with stacked homes or condominiums for those seeking to buy at a lower price.

Gundlach said stacked structures would be approximately 1,000 square feet and sell in the range of $220,000, but city approval would be required for such a plan alteration. This option was not pursued because Allen Ridge Associates believes the demand in this market is for traditional townhomes with three bedrooms and 2.5 bathrooms, he said.

Councilwoman Patty Krushnowski said prospective buyers must have living wage jobs to afford these properties and asked what rent will be charged for the apartment units.

Gundlach said he will prepare an estimate for council before its voting meeting.

Krushnowski also inquired about increased traffic.

A full traffic study was completed and approved by the city, with no issues, Gundlach said.

Councilman Harry Haas thanked Gundlach for his interest in the city and said he’s frustrated because a tax break is now being requested to address a housing shortage created largely due to an “overabundance of warehouses” that had received tax breaks he often opposed.

“This is the alarm I’m trying to sound,” Haas said.

Gundlach said the houses will help the city’s downtown businesses and generate tax revenue for many decades.

Over the last five years, 29 new homes were constructed in the city, but the city population has increased by nearly 5,000 over the last decade, he said.

The council’s voting meeting is at 6 p.m. Tuesday in the county courthouse on River Street in Wilkes-Barre. Instructions for the remote attendance option are posted under council’s online meetings link at luzernecounty.org .