Boston Projects $40M in New Growth as Construction Slowdown Threatens Tax Revenue

Signs of Boston's development slowdown are starting to appear in the city's budget.

The Boston Globe reported that the Wu administration projects only $40 million in additional tax revenue from new development in its recently released budget report for the coming year. This figure represents the smallest tax revenue amount since 2016.

High interest rates and escalating construction costs have slowed new development in Boston in recent years. Compounding these concerns, many Boston developers are shifting their focus to housing outside the city, including in Everett, Lynn, and Revere.

As he surveys the scene, Steve Poftak, CEO of the Boston Municipal Research Bureau, said he is particularly concerned that there are no indications of an imminent recovery. This point is particularly pertinent given consistently high office and lab vacancy rates. Additionally, only a few developments are anywhere close to groundbreaking.

These buildings, labs, and office spaces are essential to the city's finances. According to the Globe, property taxes factor into nearly three-quarters of Boston's annual operating revenue.

While the value of Boston's total real estate infrastructure rose last year to $228.6 billion, this increase is the smallest annual gain since 2011, less than 1%, to be exact.

The Globe also noted that the City of Boston anticipates a nearly $50 million projected deficit in its $4.8 billion operating budget next year.

The keywords here are anticipates and projects.

As the Globe noted, “In each annual budget cycle, the city forecasts how much revenue it will collect from construction and tallies how much growth actually took place in the prior year. 'Actual' new growth — the value of new construction, alterations, and additions that can add to a property's value — typically exceeds the budgeted estimate. In the last fiscal year, for example, the city anticipated $60 million in new growth; the actual amount came in at $79 million.”

A spokesperson for Boston Mayor Michelle Wu clarified that the $40 million for new development and the $37.2 million in building permit revenue estimated for fiscal year 2027 are projections. “The city is intentionally budgeting conservatively in inherently volatile areas like new growth and building permits under these economic circumstances,” a Wu spokesperson said in an emailed statement to the Globe. “These figures do not represent final outcomes.”

Tamara Small, CEO of the commercial real estate development association NAIOP Massachusetts, said that the current challenges facing the city are a wake-up call for Boston. 

“Boston must repeal policies that hinder development, look to other cities for ideas on how to encourage economic growth, and recognize that the actions taken today will affect the entire Commonwealth for years to come,” Small told the Globe.