Philadelphia's Resurgence Faces Potential Threat

Philadelphia's Remarkable Urban Revival: A Decade of Transformative Growth

Over the past two decades, Philadelphia has undergone one of America's most remarkable urban comebacks, thanks in large part to a ten-year property tax abatement on new residential construction. This initiative, which began in the late 1990s, has been instrumental in attracting residents and investment, expanding the tax base, and reversing decades of population decline.

The abatement began with tax breaks on office-to-residential conversions in Center City. This move was followed by the expansion of the abatement citywide to vacant lots in 2000. The results of this policy were transformative, with growth radiating outward from Center City.

In the ensuing years, Philadelphia added more than 60,000 housing units, with much of it being modest townhomes. These townhomes, mostly inhabited by families, became an accessible path to homeownership and wealth-building. In reality, nearly all new townhomes replaced vacant lots or decrepit structures.

The abatement lifted home values and closed the appraisal gap that had long stalled construction. This led to a surge in total property tax collections, with expired abatements alone generating $137 million annually by 2023. The city, no longer needing to maintain thousands of vacant lots, saved millions.

School spending rose in line with state spending, reflecting the increased population and the influx of new residents. The abatement also allowed Philadelphia to compete with its suburbs for the first time in decades. After five decades of decline, the city's population finally grew again in the 2000s and 2010s.

The turnaround was not without its myths. One such myth was that new townhomes weren't affordable. On a per-bedroom basis, they were actually cheaper than condos in large apartment buildings.

The abatement's effectiveness can be seen by comparing Philadelphia's progress with that of Camden, New Jersey, which relied on a top-down subsidy program. While Camden struggled, Philadelphia thrived.

Moreover, census data show little evidence of accelerated displacement among lower-income or minority residents in older rowhouses. The city also expanded homestead and senior exemptions to protect low-income households.

The codirector of the American Enterprise Institute's Housing Center, associated with the report on the revival of Philadelphia, was Ed Pinto. The abatement, combined with these protective measures, has resulted in Philadelphia having more minority homeowners today than in 2000, and those owners saw their accumulated wealth rise by roughly $10 billion thanks to higher property values.

In conclusion, the property tax abatement in Philadelphia has been a significant factor in the city's remarkable urban revival. It has not only spurred economic growth and population increase but also provided a pathway to homeownership for many families. The city's success serves as a model for other urban areas seeking to revitalise and grow.