Tax Abatements: Philly’s Gift to the Rich

By Matthew MacDermant

Philadelphia has kept tax abatements in effect since 2000. Developers and homeowners use the program to avoid taxes for ten years on property improvements. An “improvement” is anything that increases a property’s value, such as a renovation or new home construction. Developers and homeowners still pay taxes on land, but new structures and improvements are exempt.

The abatements are a neoliberal program that subsidizes Philly’s real estate industry. Arguments in favor of abatements and similar policies rest upon a narrative that says developers, realtors, and affluent transplants are saviors to a blighted Philadelphia. The story goes something like this: “Philadelphians are clueless about how our city should be managed. We are helpless in the crisis of urban decline. We should turn over our collective wealth to wise investors. They will save us!”

Neoliberalism is based on the premise that what is good for business is good for everyone. Jobs, economic growth, and a shiny high-tech future await if we cut taxes. This is the same thinking used to justify the tax breaks on Amazon’s HQ2 or in Camden with the subsidies for Subaru, American Water, and the 76ers.

Have abatements worked as intended?

Construction projects in the 2000s increased 177% compared to the 1990s, while in the suburbs, there was a decline of 28%. Tax cuts make the city an attractive real estate investment. Abatements decrease mortgage payments for affluent homebuyers. Many neighborhoods have experienced a boom of new middle class residents, and Philly’s population has grown 4.2% since 2000.

The middle class swell and construction boom produced a wave of gentrification, with all the new businesses, corporate expansion, coworking spaces, and start-ups that follow. Jobs! Growth! Fancy New Buildings! This is Philadelphia’s renaissance after a five-decade decline! Unfortunately, that isn’t the full picture.

Success for whom?

If we judge the abatements by traditional economic standards, it looks like a great program. A broken real estate market once devoid of outside investment is now a gold mine that has brought prosperity to the city’s new middle class. Supporters consider this an economic miracle. Upon closer examination, however, we find that market-based approaches to coerce growth are at odds with the interests of most Philadelphians.

Policies that transfer public wealth and power into private hands are fundamentally undemocratic. Neoliberal programs like abatements transfer power and wealth to the rich, while ignoring pressing needs that are unprofitable to meet. These policies tend to make inequality, segregation, and poverty even worse. There is growth, but it never seems to trickle down far enough to benefit those on the bottom three-fourths of the income scale.

This is not an argument against urban renewal. The city has been neglected for decades. Hundreds of thousands of our neighbors suffered from the fallout created by white flight (when racist federal housing policy encouraged and helped white people move to the suburbs), redlining, and removal of funding to cities during the 20th Century. Neoliberal programs like abatements are not, however, about renewal. They are about making Philly attractive to investors, the affluent, and corporations. For those with wealth, the city is reborn to a new golden age. For ordinary Philadelphians, the city remains in the same state of poverty, insecurity, and neglect that preceded the boom.

Peeling back the veneer for a closer look

Philly is the poorest large American city. Nearly 26% or 400,000 people are living on an income of less than $12,752 (individual) or $19,749 (parent + two kids) a year. Abatements do not help these Philadelphians. We’ve had 18 years of tax breaks and growth, but things are still the same.

More than half of Philadelphians live in perpetual struggle. The annual household income required to comfortably afford a home at the median list price of $210,000 is $55,000 to $60,000 for those paying the full amount in taxes and not spending more than 30% on housing. Unfortunately, the city’s median income is only $41,449. The average rental is $1,523 citywide, which is more than 50% of the median household income after taxes. Abatements spur gentrification, which in turn increases rents, home prices, and tax bills. This is good news for investors, but it is painful for those without assets.

Twenty-eight percent of those in poverty are homeowners. Rising home values mean taxes are going up. Programs exist to mitigate the burden, but thousands live in homes with tangled titles. These are homes, likely once owned by now-deceased relatives that due to legal issues like not having a will, leave the current residents without proper legal ownership. Tangled titles prevent homeowners from reaping assistance, and as a result, many will eventually face foreclosure. Meanwhile, because of tax abatements, developers avoid taxes on brand new houses on the same block where the victims of foreclosure have lived their entire lives.

More than half of Philadelphians pay more than 30% of their income on housing. And 82% of those in poverty receive no housing subsidies at all. Without adequate public housing, 28% live in unlicensed rentals under “handshake agreements.” Evictions, infestations, unsafe conditions, even a lack of heat or water are common for the 17% of those in poverty who live in moderate-to-severely inadequate housing conditions.

Amid the boom since 2000, Philly lost 20% of its affordable rentals. 42,900 households languish on the Philadelphia Housing Authority waiting list to receive housing subsidy and placement. The city needs an affordable housing boom, but City Hall has taken no action. Abatements make this situation worse.

Housing is a human right

In neoliberalism, homes are synonymous with real estate. And yet, real estate is not about homes at all. Homes are alive. They are places where friends gather, families are raised, memories are made. Real estate is a financial instrument; buying and selling, speculation, profit. Abatements fuel real estate. They reinforce the capitalist hierarchy; the dictatorship of the rich.

Housing is a human right. It should not be commodified. It should be owned and democratically managed by residents and their communities. Vacant lots and abandoned homes are not “investment opportunities.” They are part of the community. Developers cash in by buying up cheap property to flip for profits. They are not investing in a neighborhood or renewing anything. They serve themselves and the investors who wait like vultures for the next place to plunder. It is theft. Still worse, it is colonialism, an imperialist resource and power grab. Abatements are merely a local manifestation of the capitalist-imperialist mindset that has oppressed so many for so long. They renew neighborhoods by producing more inequality, more poverty, more injustice. We must ask: renewal for whom?

To imagine a world without housing injustice, we must look beyond real estate, beyond abatements, beyond capitalism.

Art by Evelyn Pandos

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