The Avalon at Prudential apartment tower in Boston’s Back Bay. A proposal by Boston City Councilor Brian Worrell to levy higher taxes on apartment buildings is raising concerns. iStock photo
Another showdown looms between Boston City Hall and the real estate industry.
And it’s over – what else? – taxes, as city pols scramble to head off spending cuts amid a collapse in the value of downtown office towers, long a cash cow for city coffers.
This time last year, the debate was over Boston Mayor Michelle Wu’s ultimately ill-fated proposal to hike tax rates on half-empty office buildings amid projections of a huge revenue shortfall in coming years.
The proposal is still out there, and who knows? Wu may very well attempt to resurrect it amid what could be another round of tax rate hikes in the coming weeks.
But for the moment, all eyes are on Boston City Councilor Brian Worrell’s controversial proposal that would put the squeeze on multifamily towers.
Wu Ally Fears for New Housing
The proposal by Worrell, chair of the council’s powerful budget-writing Ways & Means Committee, would jack up taxes on large and mid-sized apartment buildings with 30 units or more.
Worrell’s plan and its soak-the-rich affect took some hits at a hearing last week from fellow progressive Sharon Durkan, who represents the Back Bay, Beacon Hill, the Fenway and Mission Hill.
Both Worrell, a district councilor for parts of Roxbury, Dorchester and Mattapan, and Durkan are allies of Wu, with Durkan having served as the mayor’s campaign treasurer at one point.
“We urgently need to build more housing, not create barriers that will make it harder to do so,” Durkan said, per Banker & Tradesman’s Steve Adams in a story published on B&T’s website Thursday. “I have serious reservations about disincentivizing housing construction. It feels like this proposal is a gut punch at the wrong time.”
That said, we are likely to hear more about Worrell’s plan over the next month or two, if for no other reason than Boston is grappling with a looming revenue problem.
As Ways and Means chair, Worrell has a front-row seat on the potential $1 billion-plus loss in tax revenue Boston faces in the coming years as office skyscraper values tumble thanks to the collapse in office demand.
The city councilor’s apparent solution: Doubling the real estate taxes paid by high-end and other apartment towers and buildings in the Seaport, Back Bay, downtown and other neighborhoods.
“Large and luxury apartment buildings do not pay as much in taxes per unit as condo units and small landlords,” Worrell’s proposal states.
Industry Against It
Apartment building owners and other real estate types are already rallying against the plan amid speculation that Worrell may be floating a trial balloon for Boston Mayor Michelle Wu and her administration.
In a statement, the Small Property Owners Association said the city should look at cutting expenses and spending.
The city’s revenue gap is now estimated to be anywhere from $1 billion to $2 billion, per the Boston Policy Institute.
“This extreme proposal would do significant harm to Boston renters and landlords, deter investment in much-needed new housing stock, and enable the City of Boston to continue its recent pattern of unchecked spending increases,” SPOA said.
A Shrewder Play?
Last year, Wu angered Boston’s business and real estate leaders with her controversial and ultimately unsuccessful plan to close the city’s growing revenue gap from the collapse of the downtown office market.
Wu’s plan essentially involved wringing more money out of those already struggling office towers and buildings and their tenants by jacking up commercial tax rates, which critics argued would make a bad situation catastrophic.
Worrell’s proposal is a shrewder political play as it makes the argument that Boston’s higher-end apartment towers and buildings, far from hurting, have been riding a wave of higher rents.
In his proposal, the District 4 councilor said the additional revenue would enable the city to reduce taxes on both smaller landlords and home and condominium owners.
Pushing back, real estate industry leaders contend the proposal would force apartment building owners to pass on the cost to their tenants in the form of double-digit rent increases.
“The argument included in this proposal that higher taxes don’t cause higher rents is laughable,” SPOA said in its statement. “This argument is contradicted by many credible research papers and basic common sense.”
And with property taxes the single largest expense for apartment building owners, doubling this line item could financially destabilize some properties and even push them into foreclosure, the lobby group said.
Scott Van Voorhis
Beacon Hill Could Stop It
Meanwhile, at a time when new housing production in Boston has plunged, doubling taxes on larger apartment properties would create yet another disincentive for developers interested in building new apartments in the city.
If it’s any consolation, Worrell’s tax hike proposal faces a formidable political obstacle: It needs the state Legislature to pass a home rule petition to make it possible.
Wu tried and failed to pass a different home rule petition last year that would have given her a green light to raise all commercial property tax rates.
In fact, some see the Wu administration’s fingerprints all over the proposal Worrell has been circulating.
“This looks like a city document based on the financial analysis and the proposed home rule petitions,” Greg Maynard, founder and executive director of the Boston Policy Institute, told me in an interview for my Substack, Contrarian Boston.
Trial balloon or not, get ready for what could be another brutal battle between Boston’s hard-pressed real estate industry and the Wu administration.
Scott Van Voorhis is Banker & Tradesman’s columnist and publisher of the Contrarian Boston newsletter; opinions expressed are his own. He may be reached at sbvanvoorhis@hotmail.com.
