Developers will have to pay nearly double the current fees to put up luxury buildings in Boston’s hottest neighborhoods, with the money going to expand the city’s stock of affordable housing, according to an executive order to be signed Wednesday by Mayor Martin J. Walsh.
For the first time in nine years, the city is revising the formula that requires most companies constructing market-rate housing to either include apartments for lower- and middle-income Bostonians or help fund them elsewhere. The fees will climb for builders that don’t include affordable units in their own projects.
It’s a plan city officials hope will better harness high-end demand to finance much-needed middle-class and affordable housing, without choking off new construction. The rates will not change in places where new development is sparse.
“We’re very quickly, as all the stats show, becoming a city of those who have it, and those who don’t,” Walsh said. “We’ve got to change that dynamic.”
The 15-year-old program has financed about 3,600 apartments and condos. Currently, most large developments set 13 percent of their units at below-market rents or pay $200,000 apiece for the same number of units into a city housing fund. But that $200,000 hasn’t budged since 2006, even as construction costs here have soared. With a building boom driving rents upward, city officials have been looking for ways to generate more funds.
“How far can we push developers without crushing development,” said Sheila Dillon, Walsh’s housing chief. “That’s what we’re trying to figure out.”
The city spent a year meeting with both developers and housing advocates, and came up with the new plan. Walsh said he’ll sign it as an executive order Wednesday and send it to the board of the Boston Redevelopment Authority on Thursday. It will take effect Jan. 1.
The plan splits the city into three zones — a high-end area including downtown, the Seaport, and the Fenway; a middle area including Jamaica Plain and Allston-Brighton; and a lower-cost area covering the city’s southern neighborhoods and much of East Boston.
It will lift cash contributions from the high-cost neighborhoods to $380,000 per unit, while keeping them flat in the lower-cost areas. And it will keep the 13 percent requirement across the board if developers put affordable units in their buildings.
City housing officials couldn’t estimate how much more money the new rates will generate; that depends on development. But they’re hopful this approach — unlike the current system, which sets the same rates citywide — will better reflect the wide variations in building across the city.
“It’s not a one-size-fits-all,” Walsh said. “Developments are very different in different neighborhoods.”
The city needs to find ways to develop more affordable housing, but anything that makes building more expensive risks squeezing out projects that are already tough to pull off, said David Begelfer, chief executive of the commercial real estate trade group NAIOP Massachusetts.
“We’re reaching a point right now where there is some uncertainty as far as how high rents can go, how high construction costs can go,” he said. “Adding additional costs at this point might kill the golden goose.”
Some tenant advocates had pushed for deeper affordability requirements; 25 percent of units set at below-market rents, for instance, and at lower rents. Still, said Joe Kriesberg, president of the Massachusetts Association of Community Development Corporations, the new plan is a big improvement over what came before.
“The higher cash-out amounts make a lot of sense,” he said, referring to the money developers can opt to put into the fund. “We need more money to produce more housing, to serve more families. If we’re going to allow a developer to go off-site we ought to be able to serve more families.”
The new rules will likely prompt more high-end developers to keep more of their affordable units in-house, said Matthew Kiefer, a development attorney with Goulston & Storrs, rather than pay to fund apartments elsewhere.
“This creates a bit of a disincentive for doing too much of the cashing out,” Kiefer said. “That was [the city’s] exact intent.”
And while the plan should help generate more housing, Kiefer said it w’ll take a multipronged approach to hit Walsh’s goal of 53,000 new apartments and condos by 2030, and to meaningfully ease housing costs in one of the most expensive markets in the nation.
“For this to be successful it has to be one component of a larger strategy,” he said. “But now that the first piece has been done the next pieces can happen.”
Indeed, Walsh and Dillon said there’s more to come on their housing agenda.
They hope the conversations about crafting a new inclusionary development policy help make the next rounds of negotiations easier. It’s a compromise, said Walsh.
“Not everyone is going to love this,” he said. “Some people will say we haven’t gone far enough. Others will say it’s too far. But this is something that’s going to happen.”