Idea for fixing the housing shortage

At this month's Planning Department meeting, the city approved 33 units of housing. 33 total, down from around 400-500 per month under Walsh. On top of this, the mayor has revealed herself as a economic flat-earther by embracing the strictest rent control proposal in the country if passed. It is genuinely shocking how bad Wu is on housing and how much damage she has done in five years. It will be very difficult for Boston to economically recover from the first half of this decade.
 
When housing is so expensive and such a struggle for so many in the city, it plays well politically to bolster the inclusionary ordinances, rent control initiatives and broadcast that your highest priority is "affordable housing." Unfortunately, this seems to lead to the insidious result of less supply and overall more expensive housing.
 
Oregon recently passed a state law requiring municipalities fully fund and inclusionary zoning (IZ) requirements they have. Portland has done this primarily through a set of property tax exemptions that end up being in the $200k - $250k range per affordable unit. The seems like it would be a huge success here, and could get a pretty broad coalition around it.

www.sightline.org

Oregon’s New Path to Inclusionary Housing: Fully Funded and Flexible | Sightline Institute

An environmental justice champion led the push to end counterproductive, unfunded mandates.
www.sightline.org www.sightline.org
 
I don't know if this is the way to go for Massachusetts. If IZ requirements suddenly dropped to 0 (by being 100% subsidized by municipalities), we would end up with a wave of developers making profits hand-over-fist for a decade before supply stabilized as market rate rents decreased to the cost of building.

A more graduated, phased approach over a longer period could be a better way to handle it.

Other options to decrease the cost of building affordable units (no parking minimums, allowing them to be 10-20% smaller than market rate units) would require 0 dollars from municipalities while also helping developers make things pencil out.
 
3decker said:
I don't know if this is the way to go for Massachusetts. If IZ requirements suddenly dropped to 0 (by being 100% subsidized by municipalities), we would end up with a wave of developers making profits hand-over-fist for a decade before supply stabilized as market rate rents decreased to the cost of building.
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Developers would make profit hand-over-fist... by building out much needed housing, a significant portion of which would be income-restricted? That sounds like a phenomenal situation where everyone wins. I want new housing more than I hate developer profits, and I wish that more people, especially outside of this forum, shared that view.
 
BeansTheCat said:
Developers would make profit hand-over-fist... by building out much needed housing, a significant portion of which would be income-restricted? That sounds like a phenomenal situation where everyone wins. I want new housing more than I hate developer profits, and I wish that more people, especially outside of this forum, shared that view.
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I think you're missing what I'm saying.

Everyone would not win. Municipal tax dollars are not play-money funbucks. I am fine with extraneous developer profits, but not when they are coming from the pockets of taxpayers. We could get the same amount of housing built out with less subsidy because of how much pent-up demand there is.

All I would want is to provide enough subsidy to get the MA construction sector working in high gear, not so much that they make out like bandits.
 
I would think it would lead to municipalities being much less cavalier about arbitrary IZ mandates and more market rate construction rather than a boom in affordable housing
 
Good point.

I think the big question would be how you square this with 40B and Prop 2 1/2. As it stands, this would create a system where a municipality has to collect 0 property tax from 10% of their units to reach safe-harbor status, and yet somehow not raise tax revenue more than 2.5% per year to make up for that.
 
3decker said:
Good point.

I think the big question would be how you square this with 40B and Prop 2 1/2. As it stands, this would create a system where a municipality has to collect 0 property tax from 10% of their units to reach safe-harbor status, and yet somehow not raise tax revenue more than 2.5% per year to make up for that.
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There does not need to be no property taxes on IZ units indefinitely. The taxes just need to be reduced enough, for long enough, to pay for the units. In the Portland example earlier, those property tax exemptions are for 10 years and are either for the increased property value or just the value of the IZ units. Just to make this clear, the city does not need to spend any money, or even temporarily reduce property tax collections. They would only need to temporarily delay an increase in property taxes. More information on the program here: https://www.portland.gov/phb/multe

For Prop 2.5, this specific tax increase could and should be exempted. Assuming the requirement is coming from the state, that's pretty straightforward to just include it. I'm also confident if Prop 2.5 was the only thing in the way of a city implementing this, the legislature would be happy to exempt them. The usual arguments for Prop 2.5 don't apply because this is for new growth
 
BeansTheCat said:
There does not need to be no property taxes on IZ units indefinitely. The taxes just need to be reduced enough, for long enough, to pay for the units. In the Portland example earlier, those property tax exemptions are for 10 years and are either for the increased property value or just the value of the IZ units. Just to make this clear, the city does not need to spend any money, or even temporarily reduce property tax collections. They would only need to temporarily delay an increase in property taxes. More information on the program here: https://www.portland.gov/phb/multe

For Prop 2.5, this specific tax increase could and should be exempted. Assuming the requirement is coming from the state, that's pretty straightforward to just include it. I'm also confident if Prop 2.5 was the only thing in the way of a city implementing this, the legislature would be happy to exempt them. The usual arguments for Prop 2.5 don't apply because this is for new growth
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Ok, what I don't understand is how a short-term property tax exemption on IZ units could ever fully subsidize them.

Rough math:

- $900k market rate unit with $300k subsidy
- 1.3% property tax rate exemption on $900k = $11.7k per year
- 5% interest rate on $300k subsidy loan = $15k per year

So with current interest rates (which are higher than 5%), there is no way even a full property tax exemption on IZ units would subsidize them enough to pencil out.

You could assume higher market rate prices and lower subsidies, but even then:
- $1000k market rate unit with $200k subsidy
- 1.3% property tax rate exemption on $1000k = $13k per year
- 5% interest rate on $200k subsidy loan = $10k per year
TVM calculator says 30 years to pay off that loan

And in a place like Cambridge with low residential property tax rates? It's lights out.
- $1000k market rate unit with $200k subsidy
- 0.67% property tax rate exemption on $1000k = $6.7k per year
- 5% interest rate on $200k subsidy loan = $10k per year

You would need to eat into property taxes on market-rate units to be able to pay for it, no way around it.
 
3decker said:
Ok, what I don't understand is how a short-term property tax exemption on IZ units could ever fully subsidize them.

...

You would need to eat into property taxes on market-rate units to be able to pay for it, no way around it.
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That's a completely valid point, given how low property taxes are in much of the state. But again, what's wrong with eating into the taxes on market rate units? The city never faces a decline in revenue, just a postponement. And if a city wants that revenue faster, they can reduce their IZ requirements. This was mentioned before, but it just forces cities and towns to decide if the immediate tax revenue or IZ units are more important. Because right now, far too many are deciding that they would rather have neither.
 
It's not about a decline in revenue, it's about an increase in expenses. The situation a lot of towns in MA find themselves in is this:

- Immediate need for affordable housing (need to reach 10% threshold for 40B exemption)
- Immediate need for revenue (e.g. 100 unit building adds 30 kids to the school system, that's 450k in expenses the town has to foot now, not 10 years down the line.)

You can't square that circle.
 
The commonwealth providing coverage for most of the educational expense of students in those IZ units is one approach. It’s probably gameable, but it spreads the larger social good across the whole commonwealth.
 
If you're "eating into the taxes on market rate units" as Beans put it, you would need to subsidize those students as well. That's a lot of money for the state to suddenly start ponying up with no funding source.

And that doesn't even get into all the other increases in services a municipality has to provide: fire, police, DPW, admin, etc. Does the state pay for that too? Why even call it municipal subsidies if the state is going to pay for everything?

Again, the impasse here is 40B requirements with municipal costs. If we wanted this to work like Portland, the state would pretty much just have to scrap 40B entirely.
 
Just ran across a new (?) page on the Boston city website on development costs and modular housing. The good news is that there is an acknowledgement the city is paying a premium for construction over the private sector, the bad news is that they only seem to identify off-site construction as a solution.
 
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