The Walsh administration this week plans to sharply hike the fees that developers of office, lab, and other large commercial buildings must pay to support affordable housing and job training programs.
The additional money could add tens of millions of dollars a year to city coffers, capitalizing on a life-science building boom to help fund badly needed affordable housing. But there also are worries that it could dampen a post-pandemic recovery for construction in Boston, and set a precedent for even higher assessments.
On Thursday, Mayor Martin J. Walsh will ask the Boston Planning & Development Agency to increase so-called linkage fees on large new commercial buildings by 42 percent, from $10.81 per square foot to $15.39. That compares with the 8 percent hike Walsh signed off on in 2018, and comes after the Legislature last month passed a measure giving Boston the freedom to increase such fees more frequently, and by larger amounts.
It also takes place as Walsh — who has overseen a surge in construction over the last six years — prepares to leave office to become President Biden’s labor secretary, and as the city grapples with high unemployment brought on by the pandemic, on top of a long-running housing crisis exacerbated by fears of an increase in evictions.
“It is critical that we are leveraging Boston’s development market to maximize funding for affordable housing and workforce training, while balancing the economic reality of COVID-19,” Walsh said in a statement. “By increasing linkage requirements we will substantially increase revenue streams to fund the affordable housing and workforce training programs that will help our residents recover and thrive in a post-COVID economy.”
But the post-COVID Boston could be a less-desirable place to build, if the market for office towers and high-end condominiums suffers. Some people in the development industry worry the higher fees could give investors another reason to stay away.
In the context of massive projects that often are budgeted at hundreds of millions of dollars, an extra $5 per square foot is relatively minor. For example, the higher linkage fees would add about $4 million to the $900 million it might cost to build a one million-square-foot downtown office tower
But every added expense matters, said Greg Vasil, CEO of the Greater Boston Real Estate Board. With office vacancy rates the highest they’ve been in a decade ― and more companies considering shrinking their space ― the higher fees could be another barrier to building in an already costly market.
“It’s not a big number, but it’s another piece of the pie,” Vasil said. “And if I’m a developer I don’t know what that means to my investors. They might say they’re not as bullish on Boston.”
It’s a risk city officials are willing to take.
Linkage is one of three major programs the city uses to fund affordable housing, and is typically used to help finance new buildings that are rented or sold to low- and middle-income residents. Last year, it generated $51.7 million for housing and job training. If the new rates had been in effect, the BPDA said, that figure would have been $73.6 million.
Sonal Gandhi, deputy chief of staff at the BPDA, said the agency came to the new rate by calculating what linkage would have been had the program kept up with construction costs since it was launched in the 1980s, rather than being restrained by state law to the rate of overall inflation ― a limit removed by the Legislature last month. She said the agency in recent years consulted with developers and housing advocates as it analyzed the program. Gandhi said she’s confident that higher linkage fees won’t squelch development.
“We have uncertainty in the market right now, but we also have an urgent need for additional resources,” she said. “This increase is something the market can bear.”
If approved by the BPDA board Thursday, the fee increase would still need to be OK’d by the city’s Zoning Commission and be signed off on by the mayor — be that Walsh or soon-to-be-acting-mayor Kim Janey. But it could take effect by the end of next week, covering all commercial projects larger than 100,000 square feet that haven’t started the BPDA’s formal review process. That would include millions of square feet of planned projects ranging from the Seaport District to Dorchester to Allston.
The money will be put to good use, said Joe Kriesberg, president of the Massachusetts Association of Community Development Corporations, who represents neighborhood-based nonprofits that often tap linkage funds for affordable housing and economic development programs. The pandemic, and related eviction crisis, has highlighted the need for quality affordable housing, he said, and has thrown tens of thousands of Bostonians out of work. Many of those residents will need to be trained for new careers, he said.
“This is money we desperately need to rebuild our economy coming out of COVID,” Kriesberg said. “The timing is excellent.”
Tamara Small, CEO of real estate trade group NAIOP Massachusetts, agreed that the city needs to tackle its affordable housing challenge, and retrain laid-off workers. She predicted that her members will swallow hard and pay the extra fees. But, she warned, asking too much more could drive them away.
“There’s a point where you can still make it work,” she said. “But this is about as far as that envelope can be pushed.”