Boston Is Losing Billions in Commercial Tax Revenue: What Happens Next?

Boston's commercial tax problem isn't temporary. It's structural. And the city is about to be forced into choices it's been putting off for years.

When people hear about empty office buildings, they usually think this is short term. They assume workers will come back, offices will refill, and things will return to normal. But that's not what's happening.

Boston depends heavily on commercial property taxes to pay for basic city services. When billions of dollars don't come in, that gap doesn't just disappear. It gets pushed somewhere else: more pressure on homeowners, tighter city budgets, slower services, and policy changes that affect housing costs and daily life.

Those effects are already starting to show up.

After over ten years working in Greater Boston real estate, watching how city decisions turn into real consequences for buyers, renters, homeowners, and neighborhoods, this moment feels different.

What Most People Get Wrong

Most people assume empty offices are a temporary problem, similar to past recessions where office demand eventually recovered. After the 2008 financial crisis, office markets took a hit but recovered. During the dot-com crash in the early 2000s, vacancy rates spiked but within a few years, new companies moved in and the office market rebounded.

Some people point to return-to-office mandates as proof that office demand will come back. Amazon announced employees need to be in five days a week. Other companies followed.

The problem is that's not what the data shows, and it's not what companies are actually doing with their real estate. Even companies with return-to-office mandates are reducing their total square footage. They're bringing people back, but into smaller, redesigned spaces.

This isn't a short-term dip that reverses when confidence returns. The structure of how people work has changed, and that change is permanent.

What's Actually Happening to Boston's Tax Base

Boston relies heavily on commercial property taxes, more than most cities. Commercial properties (office buildings, retail spaces, hotels) have historically contributed around 40 percent or more of total property tax revenue, even though they represent a much smaller portion of total properties.

That's because commercial properties are assessed at much higher values than residential properties. A single office tower can generate as much tax revenue as hundreds of homes.

When those properties lose value, the city collects less money. Office property values in Boston have dropped significantly. Buildings worth hundreds of millions of dollars a few years ago are now being reassessed at much lower values: drops of 30, 40, sometimes 50 percent or more for certain office properties.

Lower assessed values mean lower tax bills for property owners, which means less revenue for the city. Many property owners are filing appeals, arguing their buildings are worth less than the city's assessment. Some appeals succeed, and the volume alone creates pressure on city finances.

Some property owners are even walking away entirely, handing buildings back to lenders rather than continuing to pay on underwater loans. When that happens, buildings can sit in limbo while ownership and financing get sorted out, and during that time, tax revenue stays depressed.

The math is simple: when billions in commercial value erode, the city faces a major revenue shortfall, and the burden shifts unless the city makes offsetting changes. That gap doesn't close on its own.

Why This Is Structural, Not Cyclical

Hybrid work is here to stay. Companies have spent years experimenting with full remote, full return-to-office, and everything in between. Most have landed somewhere in the middle, and what they've learned is they don't need as much office space as before.

Employees want flexibility. Companies want to save money on rent. Hybrid schedules mean fewer people in the office on any given day. So companies are downsizing their office footprints: not renewing leases for entire floors, consolidating space, redesigning layouts for hoteling and flexible seating.

A company that used to need 100,000 square feet for 500 employees now needs 60,000 square feet. That means less square footage leased, less demand for office space, and lower property values.

New demand isn't filling the gap. Boston isn't seeing a wave of companies that need massive office headquarters. Tech companies that used to lease big spaces are now remote-first. Startups are staying lean. Even growing companies are doing it with smaller physical footprints than they would have ten years ago.

The old model where every growing company needed a downtown office doesn't hold anymore.

Where the Pressure Goes Next

Budget gaps don't disappear. The city still has to pay for schools, police, fire departments, road maintenance, trash collection, and all basic services. If commercial property taxes aren't covering those costs, the money has to come from somewhere else.

Residential property taxes: If commercial properties are contributing less, homeowners may end up contributing more to make up the difference. That doesn't mean your tax rate automatically doubles, but it does mean upward pressure on residential tax bills over time. Boston has some flexibility in how it sets tax rates between commercial and residential properties, but there are limits.

City services slow down: When budgets get tight, cities delay projects. Road repairs take longer. Park maintenance gets pushed back. Permit processing slows down. Libraries reduce hours. Community centers cut programming. It's not dramatic, but it's noticeable: potholes that don't get filled for months, playgrounds that need repairs but stay broken, streetlights that burn out and stay dark. These small quality-of-life issues add up.

Policy changes: Cities start looking for new revenue sources or ways to encourage development. That might mean zoning changes, tax incentives for conversions, or new fees for parking, construction permits, or business licenses. Cities in budget trouble often nickel-and-dime their way to filling gaps.

Trade-offs in development priorities: When the city has less budget flexibility, it makes harder choices about what gets funded. New infrastructure projects might get scaled back. Affordable housing initiatives might get delayed. Projects already in the pipeline might lose funding or get stretched over longer timelines.

These aren't just line items in a city budget. They're decisions that affect how your neighborhood functions, what your tax bill looks like, and what the city prioritizes going forward.

Boston's Policy Options

There are no easy fixes. Every option has consequences.

Office-to-residential conversions: Turn empty office buildings into apartments or condos, creating housing supply and generating property tax revenue from residential use instead of commercial. But not every office building can be converted economically. Floor plates are too deep, plumbing and electrical systems weren't designed for residential use, and retrofit costs can exceed demolition costs.

Office buildings have large, open floor plans with central cores. Residential buildings need smaller units with kitchens and bathrooms, windows in every unit, and different mechanical systems. Making that conversion work often requires gutting the entire interior and rebuilding from the structural shell.

Even when conversions make financial sense, they take years for permitting, construction, and financing. Conversions help, but they don't solve the problem quickly or replace billions in lost commercial tax revenue in the near term.

Zoning and density changes: Allow more housing in more places, make it easier to build, and increase density in currently restricted neighborhoods. More housing means more residents, more property tax revenue, and more support for local businesses.

This is probably the most impactful long-term solution, but zoning changes are politically difficult. Neighborhoods resist density. Community meetings turn contentious. Changes move slowly. People who already live in neighborhoods often oppose new development, worrying about parking, traffic, and changing neighborhood character. In Boston, neighborhood groups have significant influence over what gets built and where.

Adjusting the tax structure: Boston could shift more tax burden onto residential properties or look for new revenue sources like fees or local taxes. But those changes are unpopular and come with risks. Raise residential taxes too much and you push out homeowners, making Boston less affordable when affordability is already a major issue. There are also legal and political limits to how much Boston can adjust its tax structure without state approval.

Boston will probably use some combination of all these approaches. But what matters more than the policy itself is execution: whether these plans actually happen, how fast they happen, and whether they create intended results.

What This Means for You

If you're a homeowner: Long-term property values in Boston will still be driven by demand, location, and quality of life, but trajectory matters. Neighborhoods that adapt well (where conversions happen, new development fills gaps, street life stays strong) hold value better. Neighborhoods that stagnate (where empty storefronts pile up and services decline) require more careful watching.

Stay aware of your property tax situation. Reassessments happen. If the city shifts more tax burden to residential properties, you'll see that in your annual tax bill. If property values in your neighborhood rise while commercial values fall, your share of the total tax burden increases.

If you're a buyer: This moment creates both caution and opportunity. Avoid neighborhoods overly dependent on commercial activity that's disappearing. But recognize that some of the best long-term value comes from being early in neighborhoods about to shift positively.

Look for neighborhoods where residential demand is growing, where new restaurants and shops cater to residents (not office workers), and where development pipelines are active with projects actually getting built. Don't assume everything stays the same. A neighborhood that was hot five years ago because of office development might not be the best bet going forward.

If you're a renter: Conversions don't mean instant relief on rent prices. More supply helps, but it takes time, and new construction usually comes in at higher price points first. Converted office buildings often target the luxury market because that's what makes economics work for developers.

You will see neighborhood change: buildings that were offices become residential, street-level retail shifts, the feel of certain areas evolves. Coffee shops that closed at 3pm start staying open later. Restaurants that catered to lunch crowds pivot to dinner service. That change can be good but isn't always predictable.

Boston's Next Phase

Boston has reinvented itself before. It went from a manufacturing city to an education and healthcare hub, from losing population in the 1970s to becoming one of the most expensive markets in the country. That didn't happen by accident. It happened because Boston adapted: leaning into its universities, becoming a life sciences hub, investing in infrastructure and neighborhoods.

This is another inflection point. The question isn't whether Boston survives (it will), but what kind of city it becomes next. Does it become more residential and less commercial? Denser and more affordable, or more exclusive and expensive? Does it maintain services and quality of life while navigating major revenue shifts, or struggle with budget gaps for years? Does it make building housing easier, or stay locked in restrictive zoning that keeps supply tight?

Those answers will be shaped by policy decisions, market forces, and how quickly the city adapts. Cities don't collapse overnight. They change slowly, and then all at once. Right now, we're in the slow part. But the choices being made now will determine what the "all at once" moment looks like.

Five years from now, we'll look back and see this as the moment when Boston's trajectory shifted. The question is whether it shifts in a way that makes the city stronger or creates more problems down the road.

Need help navigating how these shifts affect your move, buying, or selling decision? Download our Boston Relocation Guide to understand how housing, policy changes, and neighborhood dynamics are evolving. Schedule a consultation to discuss your specific situation and timing.