In its last meeting of the year, the Philadelphia City Council passed a package of bills that will tax new residential construction and make major changes to the city’s property tax abatement program.
The revenue from the new tax and future reductions in the real estate tax break will be used to finance $400 million in city bonds to fund an initiative to fight poverty and increase access to affordable housing.
Long History of Tax Abatements
Since the 1990s, Philadelphia has incentivized development by allowing property owners to pay no real estate taxes on the value of new construction or renovation on commercial and residential properties for a ten-year period.
The new legislation does away with the residential tax abatement and enacts a tax equal to 1% of the value of new construction and renovation. For commercial property, it reduces the tax abatement by 10%.
The residential tax is projected to generate about $15 million in revenue by its second year and would eventually rise to about $30 million annually. Officials say if residential construction slows down by 25%, the tax will produce only $11 million in its second year, before rising to about $22 million in its fourth year.
The reduced tax abatement on commercial property is expected to initially produce about $1.3 million in annual revenue, before rising to $5-$7 million per year.
The legislation takes effect in January 2022.