Bill Toland, Post-Gazette Currently under construction, 414 Water Street is one of the newest entrants in Baltimore's booming downtown housing market. Click photo for larger image.

BALTIMORE-- Soaring above Baltimore's Inner Harbor and entertainment district is the building now known as 414 Water Street. Offering 31 stories of luxury condos within walking distance of downtown and the remade harbor, it's among the city's latest entrants in the growing field of downtown housing.

Nearby is the Ritz-Carlton condo project, set to open this fall, and around the bend in the bay, rising from the former warehouse district called Harbor East, is the sold-out Vue condominium. By the end of the decade, more than 3,000 new urban housing units could be on the market -- or already occupied -- in Baltimore, a city that has historically faced some of the same industrial blight issues as did Pittsburgh.

But in Baltimore, you'll find no sweeping 10-year tax abatements encouraging new construction and residential conversions. They did it the old-fashioned way here, by listening to the market, then creating a menu of smaller tax breaks for builders -- there's a grant fund for historic building conversions; there's also a gap loan pool for developers who can't quite gather the financing they need. And on a case-by-case basis, the city will negotiate so-called PILOTS, or payments in lieu of taxes, for developers who can't meet the tax burden.

The menu of options works better for Baltimore than the Philadelphia model, a one-size-fits-all, decade-long tax break. Philadelphia's version "makes a lot of sense from a fairness standpoint," in that the same discount opportunities are extended to everyone, said Bob Aydukovic, the vice president of economic development for the Downtown Partnership of Baltimore, Inc.

"But Baltimore has a different view of how it does public-private partnerships. It's not a blanket, it's an investment," he said.

The buyers followed the investment. The same slate of buyers attracted to downtown housing in other cities -- childless young professionals and empty-nesters downsizing their lifestyle -- were attracted to the compact downtown of what many refer to as Charm City, and the immediate downtown population has doubled here in just six years.

Cleveland more aggressive
Cleveland, meanwhile, has been charting a different course, wooing city residents and developers with an aggressive 15-year property tax waiver on the home value -- as in Philadelphia, the land is still taxable. That applies to new construction; rehabbed homes get a 10-year tax break.

Previously, the city had offered shorter abatements and smaller tax breaks in various city neighborhoods. The current plan, offering full abatements across the city on new building value, was enacted in 1999.

Cleveland, as a result, has seen its total housing value increase by $370 million over the life of the abatement program, Cleveland State University researchers estimate. The same study says Cleveland, its county and its schools reap $1.50 for every dollar of city property tax that is abated. New housing starts number about 1,000 each year -- in the late 1980s, fewer than 50 new homes were built each year in Cleveland, a city of about 478,000.

"We also found that over 60 percent of the people who built new homes would not have built them without the abatement," said Sabra Pierce Scott, a city councilwoman and head of the council's community and economic development committee.

In both cities, there are varying degrees of backlash.

Like many parts of the country, Baltimore is already seeing a slump in its housing sector, and is worried that there will be too many units on the market when it's all said and done. In Cleveland, city council is trying to decide what to do with the abatement program -- retire it, extend it, tweak it or reduce the 15-year duration -- now that the authorizing legislation is set to expire this summer .

The city is also finding out that, once developers are hooked on the tax breaks, they want to keep getting their fix. "I will not build without tax abatement," developer Doug Price told The Plain Dealer of Cleveland. "Without tax abatement, I will never get the loans to finance the project."

Mrs. Scott, the councilwoman, said she didn't expect the abatement program to be changed substantially, and in fact it might be expanded to target certain groups -- extra incentives, for example, directed at school teachers who live outside of the city.