BOSTON — “Commercial values continue to decline slightly in FY24,” Boston Mayor Michelle Wu said during a Zoom announcement of the city's tax reform proposal.
That's like saying it's been raining a little bit lately.
How to combat the decline in commercial property values
The pandemic-era work-from-home trend appears to be here to stay for many companies, Boston's office vacancy rate has soared to more than 20%, and experts predict that a collapse in commercial real estate values could blow a big hole in the city's budget in the near future.
So the mayor is seeking state approval for a potentially large tax increase on commercial property, much to the dismay of investors.
“If we do nothing and commercial values go down, residential property taxes will go up significantly,” Wu said in an interview with WBZ. “We can't tolerate that, and we know residents and businesses can't tolerate that either.”
That's good politics. But is it good policy? “Your city has the lowest residential property tax rate in the region, and Proposition 2 1/2 has never been defeated. Why don't you consider raising housing revenue a little more?” WBZ-TV's John Keller asked the mayor.
“We're going to do everything we can to keep costs low for our residents, homeowners and renters,” she said.
“Pouring gasoline on the fire”
“It's a problem to have an industry squeezed like this,” said Greg Basil, CEO of the Greater Boston Association of Realtors, noting that the mayor's actions, which follow a series of costly environmental regulations on new development, are like adding fuel to the fire. “When the cost of doing business in Boston becomes unbearable, people are going to go and spend their money elsewhere.”
The mayor said he doesn't disagree: “I completely agree that we need to do everything we can to further support economic activity, simplify permitting processes, and create ways to create a more predictable operating environment for businesses.”
Wu is hopeful that the predicted surge in tax abatement applications from newly assessed properties won't happen, as workforce turnover eases and many property assessments become outdated. But if that's wishful thinking, a recent situation study by the Boston Policy Institute finds that “Boston is likely to face a cumulative revenue shortfall of more than $1 billion over the next five years. And with no clear outlook for recovery, these shortfalls could persist for decades, causing long-term declines in public services and economic vitality.”
Wishing everyone good luck is not a policy prescription, much less raising taxes on an industry already being hit hard by the market. Wu may have the political advantage in the short term (wealthy developers vs. distressed urban homeowners), but if this looming crisis doesn't resolve itself, Wu and the commercial real estate industry will have to find some common ground that makes economic sense or the city's cash cow will move elsewhere.
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John Keller