Home › Articles › CHAP Halo Effect on Home Values
A 2020 PlaceEconomics study found that property values within 500 feet of CHAP credit projects grew faster than values 500 to 1,000 feet away and faster than the rest of the City. It also found that 46.5% of residential and mixed-use construction activity from 2002 to 2019 fell within 500 feet of CHAP projects.
I am Ed Drost, a Maryland State Certified Residential Appraiser. I read market studies the way I read comparable sales: for what the data supports, and for what it does not. The PlaceEconomics report on Baltimore's historic tax credit is useful for owners and investors, so here is a plain summary with the caveats. This is part of our Baltimore appraisal Q&A series. For the full process, see the CHAP Historic Tax Credit Guide.
What is the halo effect?
The "halo effect" is the idea that a restored building lifts the values around it. The 2020 analysis tested that for Baltimore by comparing assessed property values within 500 feet of CHAP credit projects with those 500 to 1,000 feet away and with the rest of the City, using assessment data from 2000, 2010 and 2019.
What numbers did the study report?
| Finding | Reported figure |
|---|---|
| Properties renovated with the CHAP credit | More than 3,500, with nearly $1.2 billion of private investment |
| Residential and mixed-use construction within 500 feet of CHAP projects (2002-2019) | 46.5% of $3.356 billion in permit value |
| Value within 500 feet, actual versus at the 500-1,000 foot growth rate | About $7.5 billion versus $5.2 billion |
| Preservation premium | $2.5 billion, as stated in the executive summary |
| Annual City revenue forgone | About $10 million |
| Time for the City to recoup a 10-year credit | Just over 7 years after expiration |
| Break-even share of projects that needed the credit | 51.7% |
| Jobs, last five years | Nearly 600 direct and indirect jobs a year and $36 million in labor income |
Note the wording on the first figure. Some summaries say "47% of Baltimore's residential construction." The report says 46.5%, and it measures the value of residential and mixed-use building permits.
What does it mean for the City and for you?
The study's argument is that the credit pays for itself. The City forgoes about $10 million a year, and the report says that if just over half of the projects would not have happened without the credit, the City collects more over 20 years than it would with no credit. It also says that if 20% of the preservation premium is due to CHAP investment, the taxes on nearby properties recover the $10 million annually.
For a homeowner, the practical point is that you are not rehabilitating in isolation. Clusters of work can raise the odds your block benefits, and the study found that the share of eligible properties using the credit rises where more eligible properties exist. The report also says CHAP investment rose during the Great Recession while other construction fell.
What can the study not prove?
- Assessments are not sales. The study uses assessed values. They are a proxy for market value, and they lag.
- Correlation is not causation. Owners may choose CHAP in areas that were already improving. The $2.5 billion premium is attributed to faster growth near projects, not shown to be caused by them. The report's own body does not show the full calculation of that headline figure.
- The break-even point is a model. The 51.7% figure depends on assumptions about what would have been built without the credit.
- It is an average. It does not tell you what your house will do.
These caveats do not make the study useless. They tell you how to use it: as evidence that restoration clusters correlate with stronger values, not as a forecast for any one address.
How would an appraiser use this for your house?
I do not apply a halo percentage to a house. I use sales. If three nearby CHAP rowhouses sold at higher prices per square foot than similar unrenovated ones, that is a comparable-sale pattern I can document and adjust for. The study gives context. The sales give the number. If you are weighing a rehabilitation, ask for an appraisal of the as-is and the finished value, and compare it with your total cost, using the credit formula to add the tax savings.
Common questions
What is the halo effect in Baltimore historic districts?
The idea that a restored property lifts values nearby. The 2020 PlaceEconomics study found faster value growth within 500 feet of CHAP projects than 500 to 1,000 feet away or elsewhere in the City.
What share of construction was near CHAP projects?
46.5% of residential and mixed-use construction activity from 2002 to 2019 fell within 500 feet of CHAP projects, measured by building permit value.
Does the CHAP credit pay for itself?
The report concludes it does, with a payback just over 7 years after expiration. That is a model, with assumptions.
Will my house go up in value if my neighbor uses CHAP?
The study shows an average pattern, not a guarantee. Sales of comparable nearby houses are the best evidence for a specific property.
How many projects used the credit?
More than 3,500 properties, with nearly $1.2 billion in private investment, according to the report.
Who wrote the study?
PlaceEconomics, with a July 2020 analysis of the Baltimore Historic Preservation Tax Credit.
Sources
- An Analysis of the Baltimore Historic Preservation Tax Credit, PlaceEconomics (July 2020)
- 10 Key Facts About the Baltimore Historic Preservation Tax Credit Program, Preservation Maryland
- Baltimore City Historic Tax Credit, CHAP
This article is general information, not legal, tax or financial advice. Program rules change and every project is different. Confirm current requirements with CHAP and the Baltimore City Department of Finance before you start work.
More articles
Can You Combine Baltimore CHAP Tax Credits With Maryland and Federal Historic Tax Credits?
CHAP and the Maryland homeowner credit can be used on one project. The federal credit cannot be used on an owner-occupied home. How the three compare.
Which Baltimore Neighborhoods Qualify for the CHAP Tax Credit?
Which properties qualify for CHAP, how local and National Register districts differ, and how to check an address on CityView.
What Happens When the 10-Year CHAP Tax Credit Expires?
What happens to your City tax bill and escrow when the 10-year CHAP credit ends, and how to appeal the assessment.