Industry Braces for Impact of Tax Abatement Changes in Philadelphia

Philadelphia had a record-setting year for new construction in 2019, according to the number of permits issued by the city’s Department of Licenses and Inspections. The majority of the more than 2,100 permits issued were for single-family housing and most was in Center City’s surrounding neighborhoods. But developers fear a change in the 10-year tax abatement, which was passed at the end of last year, will slow the market and development.

Philadelphia has had a 10-year tax abatement of real estate taxes for new residential construction since the 1970s. It allowed developers to be tax-free for 10 years and was enacted to boost construction in the city. After a contentious debate, however, the legislation passed an amendment to the abatement. Now, the first year will provide developers with a 100 percent exemption on taxes, but there will be a 10 percent decrease per year after that. After 10 years, the tax exemption would end.

In a compromise to those opposed to the change, the new abatement won’t be implemented until December 31, 2020. There is some speculation this could produce a mini-boom of residential housing before the abatement ends in his current form, or boost new commercial real estate projects, according to Joseph Gibson, a researcher at commercial real estate services and investment firm CBRE.

One prominent building already under construction—the Arthaus condominiums from Dranoff Properties—will not escape the new tax law. The 108-unit, 47 story building at 309 South Broad Street is scheduled to be completed in 2021.

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