SERIES: "Where do Boston City Councilors stand on Housing?" Higher Income-Restricted Unit Rules go into effect Oct 1
Mayor Wu makes clear there will be no delay; Councilors support the new requirements; New study shows IZ requirements prevent huge amounts of new housing
On Monday, September 23, this was the lede in the Boston Business Journal:
A Massachusetts real estate industry group has asked Boston officials to delay new affordability requirements for market-rate apartment and condo projects, saying that implementing the rules will lead to a further drop-off in housing construction.
On Wednesday, industry got its answer: in a speech to the Greater Boston Chamber of Commerce Mayor Michelle Wu made clear that there would be no delay.
This is not the only rule change from the Wu administration that builders in Boston want to have delayed, it is the most important for multi-family developments. That is because of the bold-face change, which will increase the percentage of income-restricted units that must be included in all projects from the current 13% up to 17%. With Mayor Wu’s announcement on Wednesday, those new, higher requirements will go into effect on October 1.
To understand where Councilors stand on this issue, BPI has broken it down into three parts:
What is being implemented on October 1.
A major new study that came out earlier this year from UCLA concludes implementing the new, higher requirements could mean Boston produces just half of the market-rate homes it otherwise would, and that the benefits from increasing income-restricted requirements are wiped out when rents are steadily increasing.
Where Boston City Councilors stand on this issue. This specific policy was announced more than a year ago, so City Councilors filled out the 2023 questionnaire with much more specific knowledge available to them than was the case for ADUs or Article 80 modernization.
There is varying terminology and several acronyms to describe the policy of requiring home-builders to include as part of market-rate projects a specific percentage of housing units that can only be rented or sold to people who meet specific income ranges and go through a number of other state-mandated processes.
Abundant Housing Massachusetts (and City Hall policy staffers) call it IDP for Inclusionary Development Policy in their 2023 questionnaire;
The academic paper from UCLA uses the most common term for this policy, IZ for inclusionary zoning; and
BPI prefers the term income-restricted.
Here is the question from AHMA 2023 questionnaire:
WHAT IS GOING INTO EFFECT ON OCTOBER 1?
These new, higher requirements to include income-restricted units in multi-family developments have been on the table for nearly a year. NAIOP Massachusetts, the “real estate industry group” referenced in BBJ’s article, provided a timeline in a letter they sent to the Boston Planning & Development Agency Board:
On October 1, the City of Boston’s new Inclusionary Zoning regulations will take effect. The regulations were approved by the BPDA Board in July 2023, and the Zoning Commission voted to approve them in November 2023 with a delayed effective date.
The delayed effective date the Zoning Commission choose was October 1, 2024.
The increase in the percentage of units that are income-restricted is the bold-face change this policy makes, but there are a number of other changes included in this new policy. As can be seen from AHMA’s question, the policy also lowers the threshold for the size of the project that is subject to the policy from 10 units to 7 units.
When the policy was approved last year Sheila Dillon, who serves as both Boston’s Director of Housing and the Director of the Mayor’s Office of Housing, said “if we see that this [policy] is not going to work then we’re going to have to you know, move on it and other things.” There are reasons to think this policy may be delayed, with Boston seeing the fewest homes under construction in more than a decade, and growing evidence that this specific policy of requiring market rate developers to build and manage income-restricted units actually hurts affordability goals.
UCLA STUDY SHOWS IZ COULD HURT AFFORDABILITY
In April 2024 Shane Phillips of the UCLA Lewis Center for Regional Policy Studies published a paper that estimates the potential impacts of different income-restricted requirements on market-rate and below-market-rate housing production.
There were two really important findings in his report.
The first is that rent growth, like the kind currently happening in Boston and across Massachusetts, wipes out the value created by requiring developers to build income-restricted units:
“Even small increases in rent growth in the unrestricted rental market would be enough to negate the value of private IZ subsidies. For example, compared to a no-IZ scenario, additional rent growth of just 0.8 percent per year in the 16 percent scenario would negate the value of private subsidies from IZ.”
The second is way more important - Philips finds that the requirements to include income-restricted units in private sector developments actually decreases the total number of market-rate units built in the community with those rules:
“Increasing the affordability requirement from 0 to 1 percent has a dramatic impact on market-rate housing production, which falls by approximately 71,400 units. The number of market-rate units continues declining after 1 percent IZ, but less steeply. Between 1 and 16 percent, each percentage point increase in requirements is associated with a reduction of between 4,600 and 11,900 market-rate units. By 17 percent, market-rate production is cut by nearly half (49 percent), and at 25 percent IZ total production is lowered by half.
Philips is saying that at Boston’s current 13% requirement for income-restricted units, construction of market-rate units is reduced by 1/3. At the 17% level the Wu administration is planning to implement on October 1, market-rate housing production is cut in half. These results go a long way toward explaining why Boston, and surrounding communities with similar rules, have built so few new homes in the 21st century, despite high and rising rents.
While the specific unit numbers and percentages in Philips’ study are based on a model for Los Angeles, this study has clear implications for Boston and for Massachusetts more broadly. Massachusetts is in the midst of a housing crisis, and this is clear evidence that requiring private sector developers to include income restricted units may be making the problem worse.
WHERE DO COUNCILORS STAND ON THE IZ INCREASE?
Inclusionary Zoning is a major issue in Boston, but it has come up just once as a stand alone topic in this year’s Council meetings. That discussion earlier this year means that there are nine Councilors who have staked out positions on this issue either in the questionnaire or at Council meetings in 2024.
Here are the answers the seven Councilors who filled out the questionnaire gave to Question 8:
While the seven Councilors who filled out the questionnaire agree that they support Mayor Wu’s proposal, three of the seven went further. Here is what Councilors Louijeune, Mejia, and Santana wrote about setting the required percentage of income-restricted units higher than 17%:
Council President & Councilor-at-Large Louijeune wrote:
“I would also like to see yearly reviews of the IDP numbers for reassessment, and for research on whether having more automated and predictable increases can help us tame land speculation.”
Councilor-at-Large Mejia wrote:
“I support this increase and our office has called for a much larger increase. In my first campaign [in 2019] I called for 50% IDP.”
Councilor-at-Large Santana wrote:
“I would be open to reviewing data and recommendations to increase this further over time.”
In the Council’s regular meeting on March 6, Councilor Breadon joined those three Councilors in calling for going above the 17% with docket #0488 - she is Speaker 17 and begins speaking at the 3:53:02 mark in the transcript:
This resolution expresses the City Council's intention to build on the new inclusionary zoning requirements by encouraging developers to pursue the voucher program to deepen affordability for residents at lower AMI levels, and to seek periodic review of future adjustments to the affordability levels beyond 20%, beginning no later than 2026, after studying housing affordability, demand, and costs to inform feasibility.
In that discussion, two Councilors who did not fill out the questionnaire spoke about the issue, and both expressed hesitation with going above the Mayor’s increase.
District 3 City Councilor John FitzGerald was the first person to express concern about the increased requirements - he is Speaker 11 and starts speaking at the 04:04:11 mark in the transcript:
“But in the same docket, we've got commercial property tax falling and worried about stifling growth, which, you know, increasing IDP could stifle development as well. And I know we talk about new growth being part of our budget, a significant portion of our budget. With falling tax assessments on downtown buildings and potentially having developers be less inclined to to create more housing, with all the things we're talking about rising, I just sort of caution against overall the, sort of, the dichotomy of the things that are on this agenda. We need to pay people more and do this, but we also have to realize that there are tough times coming and that there's potential cuts to the budget, and we've gotta make some hard decisions in the future.”
District 8 City Councilor Sharon Durkan, who also did not fill out the 2023 questionnaire, shared Councilor FitzGerald’s hesitation, saying - she is Speaker 10 and begins speaking at the 04:04:10 mark in the transcript:
“Given that our current IDP levels that we voted on are not yet in place I like look forward to continuing the conversation but also in a way that allows for discussion and also allows for that was the reason why it was we voted on. It wasn't immediately put in place was because there are barriers right now with interest rates to folks even being able to afford [to build].”
The concerns about construction expressed by both Councilors were borne out with the news that housing construction in Boston is at its lowest point in a decade.
The BPDA Board and the Wu administration have until next week to delay implementation of the increase requirements.
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