Philadelphia's Recovery Is Being Jeopardized

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Philadelphia, a city known for its high homeownership rate, has been undergoing a significant transformation over the past two decades. This transformation, marked by growth and development, has seen the city bounce back from decades of decline.

The city's recovery was primarily due to a ten-year property tax abatement on new residential construction, a policy introduced by the Philadelphia City Council. This abatement, first applied to office-to-residential conversions in Center City in the late 1990s, lifted home values and closed the appraisal gap that had long stalled construction.

Over the period from 2000 to 2023, Philadelphia added more than 60,000 housing units. Most of these new units were in the form of townhomes, which have been a key factor in the city's homeownership growth. Contrary to popular belief, these townhomes have largely replaced vacant lots or decrepit structures, not displacing longtime residents.

In reality, nearly all new townhomes were inhabited by families, making them an accessible path to homeownership and wealth-building. This is evident in the statistics, as Philadelphia has more minority homeowners today than in 2000, and their accumulated wealth rose by roughly $10 billion thanks to higher property values.

However, the city's development strategy has not been without its challenges. The Philadelphia Neighborhood Transformation Initiative (2001) spent heavily with little to show for it. Similarly, the $400 million Neighborhood Preservation Initiative (2021) and the new $2 billion Housing Opportunities Made Easy program aim to micromanage development with subsidies, a strategy that raises concerns about waste, politicization, and corruption, as evidenced by the Norcross trial in Camden.

One of America's most remarkable urban comebacks, Philadelphia's growth has been predictable, radiating outward from Center City, spreading block by block into surrounding neighborhoods. The city's population, which had been declining for five decades, finally grew again, by 1 percent in the 2000s and 5 percent in the 2010s.

Despite these successes, the city faces challenges. The second abatement halving in 2022 to five years and the imposition of a 1 percent development tax caused permitting for townhomes to collapse. This underscores the importance of sustainable and effective policies in maintaining the city's momentum.

Tobias Peter, a senior fellow and codirector of the American Enterprise Institute's Housing Center, has been a vocal advocate for such policies. His work focuses on finding solutions that promote affordable housing, economic opportunity, and community development, all key components in Philadelphia's ongoing revitalization.