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Boston city councilor’s plan to hike taxes on luxury apartment buildings sparks developer backlash
Councilor Brian Worrell released a plan that calls for raising the tax rate on large and/or luxury apartment buildings and lower tax bills for the “average” Boston homeowner and small landlord.
A Boston city councilor wants to lower the annual real estate tax for homeowners and small landlords, but homebuilders argue the plan would be a death knell for housing creation in Boston at a time when developers are already turned off by the rising cost of doing business in New England’s largest city.
Councilor Brian Worrell released a plan late last week that calls for raising the tax rate on large apartment buildings — 30 units or more — or luxury properties, the Boston Herald first reported. While the plan would raise the tax bill on large apartment building owners, Worrell said his plan would mean a lower tax bill for the “average” Boston homeowner and small landlord.
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“This is a pro-growth and pro-people [proposal],” Worrell told Boston.com. “I think if Boston is not more attractive and affordable to people, then we have a bigger problem for developers.”
According to materials released by his office, Worrell’s plan would lower the annual property tax bill for the average Boston homeowner and small landlord by nearly $1,000 while recategorizing apartment buildings with 30 or more units as commercial properties.
The proposal would establish a 10 percent “housing exemption” on commercial properties to reflect the public benefit of housing and create an additional 50 percent affordable-housing exemption for large apartment buildings that keep most units income-restricted. The new commercial rate would be phased in for corporate owners of large buildings over three years, and the plan calls for shortening standard tax-agreement terms for new construction from 15 years to seven — allowing the city to issue shorter, more flexible tax breaks for developers.
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Advocacy groups including the Massachusetts Affordable Homeownership Alliance, Dudley Street Neighborhood Initiative, and the Massachusetts Senior Action Council praised the plan as a way to stabilize neighborhoods and help longtime residents stay in their homes.
But the development community isn’t convinced the measure will make Boston more affordable or competitive. Critics of the plan say it would effectively double the tax rate on multifamily building owners.
“Based on the phone calls, text messages, and emails that I have received in the past 24 hours, I think the industry is very confident that if the goal is to stop housing production and investment in Boston, this is the way to do it,” Tamara Small, CEO of NAIOP Massachusetts, a commercial real estate development association, said on Friday. “This would be extremely bad for a city that is facing a housing crisis right now. We need more production. We need more development. We need more investment, and there is no upside to doing this if we want to truly tackle that problem.”
While the 30-unit threshold is easy enough to grasp, the definition of when exactly an apartment building falls under the “luxury” banner is less clear. Worrell suggested luxury could be tied to amenities like a doorman, elevator, or pool, but he acknowledged a formal definition isn’t set.
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The immediate focus, he said, is the 30-unit benchmark, and his office will pair the proposal with seven-year tax agreements aimed at keeping developer interest within city limits.
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Any such change would require more than a City Council vote. Because of the state’s property-tax rules under Proposition 2½ and Boston’s classified tax system, the city would need to pass a home-rule petition and win approval on Beacon Hill — the same statehouse path Boston Mayor Michelle Wu had to pursue for her own tax-shift proposal that failed last year.
What’s being debated comes at a time when the Boston Policy Institute projects the city is heading for a $1.7 billion budget shortfall amid the city’s declining office market. At the end of last week, Wu reiterated a call for the Massachusetts Legislature to repeal Prop 2 ½ and do away with laws requiring municipalities to get permission from the State House to levy new taxes.
Worrell said the goal is to stabilize the city’s finances without overburdening owner-occupants and small landlords who supply naturally affordable housing. He further framed it as a long-term fix that protects homeowners from the ripple effects of falling commercial values.
Developers warn the policy would accelerate flight to the suburbs. Mike Procopio, a Greater Boston builder who increasingly avoids city projects, said it would reduce new construction because most projects “will not pass to a lender’s standards” if they’re taxed at commercial rates.
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He added that owners would simply raise rents to compensate and that his firm is “killing deals every day over taxes.”
“The core Boston high-rise developers are now out in the burbs,” he said. “Developers are like water. They’ll flow to where there’s the least resistance.”
The proposal is expected to come before the City Council this week before any potential state review.
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