Boston is a victim of its own success. With some of the highest land and construction costs in the nation, and a housing market that can’t keep up with demand, the city’s housing prices are rising faster than household incomes. In light of diminishing state and federal resources for affordable housing, it’s understandable that Boston wants to increase its own requirements for affordable housing development.
After an inclusive study process, Mayor Walsh has ratcheted up Boston’s inclusionary housing policy in response to the city’s flourishing market. To increase affordable housing production without chilling the private investment that produces it, the policy must be implemented thoughtfully, and its effects must be monitored so that it can be adjusted as needed. Moreover, it should be only one component of an overall housing production strategy.
The policy, in place since 2000, requires developers of 10 or more units that require city land, financing, or zoning relief to designate 13 percent of their units on-site as affordable; or create affordable units on another site equal to 15 percent of the units in the sponsoring project; or pay into an affordable housing fund administered by the City.
The policy works in a strong housing market, where returns from market-rate housing support the cost of providing affordable units without any public subsidy. Since the market is not equally strong in every neighborhood, the recent policy changes divide the city into zones of high, average, and low housing prices, and calibrate requirements accordingly. The 13 percent on-site requirement remains unchanged but, to encourage on-site affordability, the off-site option has been increased to 18 percent in the first two zones and to 15 percent in the third. The pay-out option has been increased substantially as well.
To be effective, the policy must be implemented in ways that take real estate economics into account. For instance, it is more expensive to produce an affordable unit in a high-rise steel or concrete building in the downtown core than in a lower-scale wood-frame building in an outlying neighborhood, so developers can often create even more affordable units off-site in these lower-cost locations. Creating off-site housing in mixed-income and mixed-use projects in areas that currently don’t have strong housing markets, rather than requiring it to be in the same neighborhood as the sponsoring project, would also help stimulate economic development and create jobs in underserved neighborhoods.
Similarly, by allowing a broader range of income levels for eligible renters or purchasers of affordable units, the city could meet a strong demand for workforce housing while also allowing developers to provide a greater number of units.
Inclusionary units are an increasingly important component of affordable housing creation, responsible for over 2,000 affordable units and $74 million in affordable housing funds for completed projects since 2000. This means that everyone involved in the housing market —developers and affordable housing advocates alike — has a stake in implementing the program with measures that preserve development feasibility. However, inclusionary units will only be part of the solution. Boston also needs more market-rate housing production to meet demand.
Walsh’s 2014 housing report calls for 53,000 housing units by 2030, an ambitious but achievable goal. Since most of this demand will be satisfied by private housing investment, the city is identifying housing growth areas outside the downtown core, and zoning them for higher densities, lower parking ratios, and other measures to help contain costs. It can also provide expedited permitting for projects that conform to this new zoning. Downtown developers can also be matched with neighborhood builders to increase infill housing production in outlying neighborhoods.
Beyond the inclusionary development policy, we also need workable incentives for middle-income housing above the target range established for inclusionary housing. The city can provide property tax relief so projects designed for middle-income renters can meet return targets required to attract capital. City and state-owned surplus land can be made available for housing development, with appropriate zoning in place and reduced sale prices to support greater affordability. Lastly, the building trades can offer special wage rates for middle-income housing construction. Otherwise, only open-shop construction would allow developers to service this market.
Measures such as these that align affordable housing policy with development feasibility can harness Boston’s success to meet its multi-faceted housing needs.
Sam Tyler is president of the Boston Municipal Research Bureau. Matthew Kiefer, a land use attorney at Goulston & Storrs, is the Research Bureau’s chairman.