Most churches are also located in some of the prime real estate of top tier cities and I always wondered how they were able to afford paying $1500+/Sq.M in a prime, central area.
About the charity work - I know for a fact the charity work the churches do cost less than 10% of the income they make, I got this number from a former church member who was a top level guy in his church. Given that churches are anyway structured like a business entity internally and manage money like a proper business, why shouldn't they be taxed as one?
It makes no sense to not tax them no matter how you try to justify it. If they did get an exemption, so should Mc Donald's for giving away a free Cola bottle with every $20 meal you get.