When you ask Crystal Miller whether Harbortown’s qualification as a
Neighborhood Enterprise Zone, or NEZ, influenced her condominium
purchase last year, she responds with a resounding yes.
“The Neighborhood Enterprise Zone status was quite attractive to me. I
looked at homes in Farmington Hills and Westland first, but when I
checked out some places downtown and discovered how much I could save
on property taxes because of the NEZ, my home search turned to finding
a place in the city that I wanted to live,” she says.
A Northwest Airlines flight attendant for the past 13 years, Miller, a
divorcee, lived in a 2,000-square-foot house in Southfield with her
aunt before relocating to a one-bedroom condo on the East Riverfront.
She says the property taxes on her Southfield home were about $5,000 a
year. Although her new home is significantly smaller in size, the
property taxes for her 750-square-foot condo were $750 in 2005 — a
clear savings.
Like Miller, a growing number of new Detroit homeowners have been wooed
by the city’s Neighborhood Enterprise Zones, geographic boundaries that
entitle homeowners in qualifying lofts, condominiums and houses to
receive reduced property taxes for a fixed period of time, usually 12
years. According to the State of Michigan’s NEZ Activity List, Detroit
granted NEZ status to more than 1,270 properties in 2004 and 2005 alone.
Are NEZs really that beneficial for homeowners?
Mike Shore of the Michigan Economic Development Corporation believes
they are. He says Neighborhood Enterprise Zones are a win-win for
homeowners and distressed urban communities like Detroit because they
encourage development in areas that might not otherwise be developed.
With property tax rates among the highest in the state, it’s difficult
for an urban community like Detroit to compete with the constant slew
of houses being built in third- and fourth-ring suburbs, but programs
like Neighborhood Enterprise Zones even the playing field for Detroit
by making city living an affordable alternative to the often
cookie-cutter housing found in the newer ‘burbs.
“With NEZs, homeowners can buy more house than they could elsewhere …
and when the demand for housing increases, you get construction of
higher-quality homes,” he says, adding that NEZs help preserve local
architecture because they make it easier all the way around to
redevelop older structures.
NEZ 101
Once a homeowner receives a NEZ certificate – the document issued after
the NEZ zone has been designated and the application process is
approved by local and state governments – the property is officially
classified as NEZ and the homeowner is exempt from regular property
taxes and is now responsible for paying a special tax, known as the NEZ
Tax.
There are certain factors that go into determining the NEZ rate, but it
basically boils down to the classification of the property – whether it
is a new facility, a rehabilitated facility or a qualifying homestead.
According to Jon Grabowski, president of Esquire Properties in Detroit,
calculating the annual property tax savings for NEZ-qualified homes
labeled as new construction is fairly easy: the NEZ tax rate is about
one-half of the previous year’s statewide property tax average.
Grabowski explains that homes and condominiums in rehabilitated
structures are a little trickier, though, because the rate is based on
the value of the property before it was redeveloped.
“Rehabilitated properties vary significantly,” he says. “I
usually estimate that homeowners in these types of NEZ properties will
pay about 40 to 60 percent of the regular tax rate, but it varies.”
Grabowski adds that homeowners in 200 River Place pay
about 91 percent less than what their regular taxes would be based on
current property values, while homeowners in Garden Court pay about 56
percent of what they’d pay if the units were not in a NEZ zone.
“It’s definitely a selling point down here,” he says.
Lisa Debs, owner of Detroit Urban Living, agrees with Grabowski on that. “An NEZ can make or break a deal,” she says.
She also agrees that NEZ taxes can vary greatly on rehabilitated
properties. “If land wasn’t included in the NEZ tax rate, the property
tax for a unit at The Carola (in Brush Park) would have been $1.06 in
2005. With the land added in, the rate came to $735 for the year,” she
says.
Attracting consumers
Though he would have preferred the $1.06 a year, a property tax rate of
$735 per year is still low enough to attract people like Kevin Morin, a
26-year-old Bloomfield Hills native who’s looking in Detroit for a new
place to live.
Morin works downtown and has spent quite a bit of time over the last
year checking out different properties. “As a consumer, it seems like
the NEZ makes everything work out in terms of how much you’re spending
just to live here,” he says, explaining that the tax savings he would
get by living in a NEZ-qualified property in Detroit would help cancel
out the other out-of-pocket expenses of city living, such as higher
auto insurance premiums.
Though he hasn’t made a decision yet, Morin is intrigued by the NEZ and
feels it’s a good tool in helping the city measure up to other local
areas, such as Royal Oak, which attract the area’s young professionals. He
also sees the transferability of the NEZ certificate from one buyer to
the next until the 12 year period is up as an added selling feature.
Though Morin has limited his search of Detroit properties to condos and
lofts thus far, amendments to the NEZ legislation that were signed on
Jan. 3 by Gov. Jennifer Granholm could mean he’ll check out some houses
in Detroit, too.
Under the newly amended law, the scope of the 1992 Neighborhood
Enterprise Zone Act is expanded to include not just new and
rehabilitated residences, but qualifying homestead facilities as well.
As with the other two types of NEZs, qualifying homesteads must meet
certain criteria to be considered for NEZ status. For instance, the
home has to have been purchased after December 30, 1997 and it must be
in a subdivision that was platted before January 1, 1968. Though it has
its boundaries,
it does open up more reasons to move to Detroit.
“For me, it’s really a no-brainer. I’ll make my choice based on the best value and savings,” Morin says.
NEZ FAQ
What is a NEZ?
A Neighborhood Enterprise Zone (NEZ) is a geographic boundary in
an eligible community that allows tax abatements for homeowners for a
period of time, usually 12 years.
Why were NEZs created?
The State of Michigan created NEZs to increase residential development in areas where it otherwise might not occur.
Does having an NEZ certificate mean I don’t have to pay property taxes?
No. NEZ certificate holders are exempt from regular property taxes, but
pay a special tax known as the NEZ Tax. For owners of new construction,
the taxes are one-half the statewide average property tax rate. Owners
of rehabilitated housing pay taxes based on the value of the property
not including land before the rehabilitation.
Can homes in any area of the state be considered for NEZ qualification?
No. Only communities deemed as “eligible distressed areas” by the state
can utilize the NEZ program. Public Act 346 describes the criteria a
community must meet to qualify as an “eligible distressed area”. As of
January 3, 2005, there were 122 areas, 96 cities, 25 townships and 1
village in Michigan classified as “eligible distressed areas”.
Photos:
Harbortown
The Elllington
200 River Place
The Carola
All Photographs Copyright Dave Krieger
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