Last month, Boston overtook San Francisco as the second-most expensive housing rental market in the country after New York City. According to Zumper, Boston is experiencing a spike in rental prices because of the lack of housing units and zoning laws that favor pricey single-family homes. Nearly half of all renters in Greater Boston spend more than 30 percent of their household income on rent, with the share of renters of color in that category even higher. This lack of affordable housing threatens the city’s booming bioscience and tech industries by pricing workers out of the housing rental market.
All of this factors into Mayor Michelle Wu’s plan to create more reasonably priced housing in Boston. A key plank of her effort is to reform the city’s housing policies. Inclusionary zoning requires developers to set aside a certain percentage of housing units for low- to moderate-income families when they are constructing market-rate housing. It is potentially an attractive way to get the private sector to subsidize affordable housing.
Boston’s existing housing rules require developments of 10 or more units to either set aside 13 percent of the units as affordable (on or off site) or to make payments to the city’s affordable housing fund. Wu wants to bump this figure up to 20 percent of square footage. She also wants to lower the threshold to developments of seven units or more and to require affordable units to be offered at just lower income levels. The goal is to spur developers to set aside more space for affordable housing.
Wu and like-minded policy makers in Boston, Cambridge, Brookline, Quincy, Newton, and Somerville (all of which have some form of inclusionary zoning policy) are understandably attracted by the idea of creating communities with diversity of incomes and affordable housing. Yet, nationwide, design and implementation of inclusionary zoning policy remains haphazard and often is not well-grounded in prospective analyses of its potential effects.
Our recently released research into inclusionary housing efforts in Revere and Lynn suggests that such inclusionary zoning policies are likely to produce only modest impact and risk backfiring unless they are carefully designed. Three findings are especially relevant to Greater Boston.
Inclusionary zoning policies need to include cost-saving sweeteners if they are to result in more housing actually being built. Such inducements can include reducing or eliminating parking requirements or adding density bonuses — both of which push down overall development costs and mitigate the risk that inclusionary zoning policies simply suppress new market-rate housing construction. Such deals may still require additional investments by the city; for example, in exchange for allowing developers to reduce parking spaces, the state may need to expand public transportation. At its heart, the effort relies on developer interest — which in turn depends on market conditions.
These policies are unlikely to create affordable units for the lowest income levels. Even under the most optimistic scenarios of land and construction costs, developers are unlikely to meet minimum profitability if they are required to build rental units below approximately 30 percent of an area’s median income. If developers cater to renters who are already approaching the area median income, the value of the effort may be limited. The Goldilocks zone appears to be around 50 percent to 80 percent of area median income — a level at which the city’s sweeteners can incentivize builders to create more affordable units.
Policies must be carefully tailored within each locality’s economic context. The value to developers of various incentives may differ, depending on land and construction costs, local ordinances, and neighborhood preferences, all of which directly affect developers’ profits. The implication is that most Greater Boston cities likely include a number of “sub-zones” which each may require their own specific incentives and have their own Goldilocks affordability levels. Moreover, inclusionary zoning policies need to be monitored and adjusted periodically as local conditions change.
Affordable housing is rightly one of Greater Boston’s highest priorities. But Wu, the Boston City Council, and policy makers in surrounding cities should be cautious in the design and implementation of inclusionary zoning policies. Inclusionary zoning may help create more housing units at affordable rents in specific circumstances, but it won’t answer the call for more housing for very-low-income renters. The success of inclusionary zoning policies depends on whether private developers participate.
Addressing the overall housing shortage needs a comprehensive approach, including wider investment in regional transportation and increased direct housing subsidies. Otherwise, the state risks both failing to protect low-income residents and exacerbating the housing crisis for residents of all income levels.
Linda Bilmes, Justin de Benedictis-Kessner, and Brian Iammartino are faculty members at the Harvard Kennedy School, where Rozalyn Mock is a student.