In 2000, Philadelphia implemented a bold program to spur investment in real estate, the 10-year tax abatement. It exempts the value of all improvements to real estate from taxation for 10 years.
The abatement has been credited with promoting needed new construction and improvements to Philadelphia's housing stock. It has also been viewed as a windfall for developers and wealthy owners of million-dollar condominiums. Through our many engagements with community groups and public officials, the Building Industry Association of Philadelphia (BIA) identified several misconceptions about the abatement, as well as its continued necessity.
In order to lead a more informed discussion about the program, the BIA commissioned a study to analyze the most up-to-date data from the Philadelphia Office of Property Assessment, looking closely at the size, distribution, and fiscal impact of tax-abated properties. Seventeen years after the program was implemented, we hope the data will provide insight into its scope and economic impact.
Among the findings, the abatement:
Is widely used across Philadelphia's neighborhoods. Since its implementation, nearly 20,000 properties have received abatements; 15,607 are active. The majority of these properties are located outside of Center City, and every neighborhood has some abated properties.
Benefits a wide range of homeowners across the income spectrum. The typical abated property is a single-family home with an assessed value between $200,000 and $300,000; 67 percent are assessed at $400,000 or less. Twenty-five percent meet the federal guidelines for "affordable" or "workforce" housing. Less than 3 percent of abated properties have a value exceeding $1 million.
Generates significant additional revenue for the city - and will continue to do so. Philadelphia realizes an additional $48.1 million annually in real estate tax revenues from properties with expired abatements. After all current abatements have expired in 2026, the city should realize an additional $169.4 million in annual real estate tax revenues in that year and every year afterward.
Triggers reinvestment, helping to grow the real estate tax base. Since the abatement was implemented, overall homebuilding activity in the city has more than tripled, increasing by 376 percent, while slipping an average of 11.25 percent in the suburbs. Abated properties now make up 11 percent of Philadelphia's total assessed value of real estate, increasing taxable real estate by $12.2 billion.
The less quantifiable impact of the abatement is visible in the enhanced quality of life throughout many revitalizing neighborhoods. In flourishing Center City, where the largest concentration of abated properties occurs, the program has helped serve as a catalyst for restaurants, shops, and businesses to serve the growing downtown population.
The abatement also generated renewed interest in many neighborhoods as residents seek quality homes and discover the advantages and cost savings associated with the program. Abated properties are dispersed throughout the city, with significant concentrations in South and West Philadelphia, Manayunk, Northern Liberties, Fishtown, and Kensington.
The real estate tax is also the largest source of city tax revenues to the school district and the abatement helps grow this revenue stream in both the short- and long-term by promoting the expansion of Philadelphia's base of taxable real estate.
The abatement is often derided as a special-interest program for developers and investors in million-dollar condominiums. Our hope is that these data-driven findings will make a positive contribution toward a more constructive and informed public conversation.
The numbers are clear: the benefits of the abatement are widespread. It has catalyzed investment and building activity and benefited a wide range of homeowners throughout the city. It has helped increase the stock of affordable housing, attracted new residents, contributed to neighborhood renewal, and added significantly to city tax coffers.
The abatement is good for the city's homebuilding industry (which BIA has represented for 80 years), good for Philadelphians, and good for Philadelphia.
James Maransky is vice president of the Building Industry Association (BIA). JMaransky@ebuiltinc.com