Boston’s unique tax structure has the city hurtling towards potential economic disaster.
The decline in commercial real estate could have catastrophic consequences for the city, according to Boston Magazine. Boston could enter an “urban doom loop” as a result of reaping more than 30 percent of its tax revenue from commercial property, which stands well above other major cities across the country, according to a report from the Boston Policy Institute and the Center for State Policy Analysis at Tufts.
A so-called doom loop could lead to a cut in services, leading people to abandon the city. Then, it becomes less attractive to investors as the negative cycle rages on. Foot traffic in the Boston Improvement District, for instance, is stuck at levels halved from the pre-pandemic numbers.
“The bleakest scenario is something like a return to the urban experience of the 1970s, a desiccated city where a lot of the energy has left and moved elsewhere,” said Evan Horowitz, author of the CSPA report.
The bottom appears to be falling out of Boston’s office market. Property sale prices in Boston’s central business district fell by more than 30 percent year-over-year in the fourth quarter, according to MSCI, the steepest drop among the major cities the investment data provider tracked.
The values of office buildings in the Financial District have taken big haircuts, including one on Broad Street that was sold for $3.9 million, 72 percent below what it had traded for five years earlier.
The vacancy rate of Boston’s offices is hovering around 20 percent and last year, the city set a record for the largest one-year increase in new office space availability, according to JLL.
The decline in office values has roots in the post-pandemic shift to remote work, but high interest rates and expensive building requirements in Boston don’t help matters, as it becomes more costly to build in Beantown.
Mayor Michelle Wu’s proposal isn’t helping either. She’s proposed a tax hike on commercial holdings, which would likely get passed on to the tenants trying to stick it out in Boston. The proposal has exacerbated tensions between the administration and developers.
Other solutions are hard to come by, including converting offices to residences, another pricey prospect. Some have called for investing in the life sciences sector — one of Boston’s top industries — tourism and artificial intelligence.
Read more
Politics
Boston
Boston mayor pitches commercial property tax hike
Politics
Boston
Sinking office values threaten Boston with $1B tax deficit
Commercial
Boston
New report: Most of Boston’s biggest offices have dropped in value