Boston Mayor Michelle Wu is revisiting the possibility of offering tax breaks to encourage new housing construction amid an ongoing slowdown in residential development. The city is exploring short-term property tax abatements aimed at projects that could commence construction within the next 18 months, according to several local developers familiar with discussions who spoke anonymously.

This potential policy shift marks a departure from Wu’s previous emphasis on affordable housing, which has been prioritized in Boston’s development agenda. Under current regulations, market-rate projects are required to allocate at least 20% of units as affordable housing, and the city has historically been reluctant to provide direct subsidies to such developments. However, rising rents and a recent dip in new housing supply have prompted officials to reconsider strategies to expedite stalled projects.

Developers have cited several challenges contributing to the slowdown, including high construction material costs, increased financing expenses, and stricter requirements related to affordable housing and energy efficiency implemented under Wu’s administration. Many industry sources say that reducing property taxes could improve the financial viability of projects, particularly by supporting the return expectations demanded by large institutional investors like pension funds and insurance companies.

The city currently has more than 20,000 approved housing units awaiting construction, and officials hope targeted tax abatements can help alleviate this backlog. A city spokesperson noted that high borrowing costs, linked to persistently elevated interest rates, have made it difficult for otherwise viable developments to break ground. The proposed abatements would be among several tools the city is offering to developers to jump-start stalled projects.

Specifics regarding the number of developments considered for tax breaks or potential units to be built have not been disclosed. Housing development costs in Boston vary significantly but often range between $600,000 and $1 million per unit, depending on project size and location.

The city has employed other incentives in recent years, such as substantial abatements for converting obsolete office buildings into apartments—with tax reductions of up to 75% for as long as 29 years. Despite these efforts, some office conversion projects have stalled financially, and a few such properties are currently scheduled for auction.

Mayor Wu’s contemplation of abatements for traditional market-rate housing was initially mentioned in late 2023, with particular attention to revising Boston’s zoning code. However, after feedback from developers suggested proposed tax breaks were insufficient to overcome financial barriers, Wu indicated the city lacked resources to implement abatements at a scale sufficient to meaningfully drive down rents or accelerate construction.

Budget constraints remain a concern for the city. Recent forecasts predict the lowest revenue from new construction in a decade, and there are ongoing budget pressures across municipal departments, including potential staffing cuts in Boston Public Schools.

Developers who have engaged with city officials on this issue generally agree that the proposed five- to ten-year abatements may be too limited in duration to significantly impact project feasibility. Some have compared these proposals unfavorably with the lengthy office conversion abatements and similar tax exemptions in other cities, like New York’s 40-year program.

Nevertheless, many industry stakeholders view the city’s renewed willingness to consider abatements for market-rate projects, including those with affordable housing requirements, as a positive development, albeit one progressing slowly. Some developers expressed cautious optimism that this could mark the beginning of a more supportive environment for housing construction in Boston.