In all areas of Philadelphia, developers are rushing to convert old office buildings and factories and to construct new buildingso all to create luxury apartments, condominiums, and commercial uses that will benefit from Philadelphiais 10-year real estate tax abatements on improvements. Abatements are available in every area of the City. It works this way: Build a new house, renovate a shell, or improve commercial property and you pay no property taxes on the new structure for 10 years -- Tax abatements are limited to the value added due to improvements, and land values remain fully taxable during the abatement period. According to data from the Department of Licenses and Inspections, about 12,000 new residential units have been built since the abatement went fully into effect in 2001. The New York Times reports:
Tax Breaks Drive a Philadelphia Boom - January 9, 2006
AFTER years of losing population, the downtown region, known as Center City, is booming, with developments going up and old buildings being transformed into lofts and condominiums.
The construction, fueled by tax breaks, has succeeded in halting the city's 40-year population decline. Center City, which has the nation's third largest downtown residential population, behind New York and Chicago, is experiencing its fifth straight year of increased housing starts, both new and rehabilitated units. Center City's population grew to 88,000 by the end of 2005 from 78,000 in 2000. Even more striking, the number of households rose by 24 percent, according to figures compiled by the Center City District, a business-improvement group.
That downtown Philadelphia has been experiencing a residential boom is no big surprise. Cities across the country have benefited from the real estate development frenzy of the last few years. But the changes have been accelerated here by the use of tax breaks for residential developments. Philadelphia is one of the only places to offer a citywide 10-year tax-abatement program. The program, which started with residential conversions in 1997 but expanded to new construction in 2000, holds the tax assessment at a property's predevelopment level for 10 years.
It is important to note that Philadelphia is continuing to lose population. Between 1990 and 2000, Philadelphia's population fell from nearly 1.58 million to 1.51 million, a loss of nearly 70,000 residents. In 2004, the cityis population was estimated to have further declined to 1,470,151. Though Philadelphia as a whole is still losing residents, Center City has the third-largest downtown population after New York and Chicago. Since 2000, downtownis population has increased 11.5 percent, from 78,902 to 88,000. Experts say it could reach 96,000 to 105,000 by 2010. In 1998, there were 172 new residential units built in Center City. In 2004 there were 1,753. Since 1998, Center City has added nearly 6,500 residential units - most of them conversions from old office space to condos or apartments. There are 6,000 more residential units in the pipeline due to be completed before 2008. While it is unclear whether Center City is benefiting at the expense of other city neighborhoods, it has created critical mass downtown. Retail occupancy in Center City is now at 90 percent - 3 percent higher than 2004. This year, the Urban Land Institute listed Center City among the nation's top 10 for urban retailing.
Since 1950, the story of Buffalo has been one of decline. Loss of jobs, loss of people, and the physical and financial deterioration that results. The only way to change this story is to reverse the cycle of loss. Increase population, increase the number of jobs, increase the number of taxpayers and businesses. Tax incentives are one such tool. In 2005, the City of Buffalo implemented property tax breaks for increased value generated by residential renovations (up to $80,000) but could be expanded to include all new investment and new construction. It is a program worthy of discussion.
Sources: NYTimes and Philadelphia Enquirer