Affordable Housing Institute : US

For every silver lining, there must be a cloud.  For a city, a growing economy is great in many ways — more economic activity, more jobs, more real estate property taxes, more valuable parking spaces (!) — but bad in at least one: by driving up housing prices and land values, it expands the affordability gap.  To cope with this, cities as diverse as London and Boston try all sorts of tricks, from inclusionary zoning (mandating a certain percentage of homes be affordable), to redevelopment areas and tax increment funds, to ‘linkage,’ whereby:

 

developers seeking permission to build market-rate housing developments of 10 or more units to include so-called work-force housing [called, in the UK, key worker housing].  Half of these units would be reserved for moderate-income families earning up to 80 percent of the Boston-area median income, and the other half for families earning from 80 to 120 percent of the Boston-area median income.

 

But as prices vary widely — condos in Boston can run as high as $12 million! — the plan offered an alternative:

 

 

allowing developers to cash out of the set-aside by paying a fee.

 

But even as the residential real estate market has soared, the cash-out fee of $52,000 per unit remained unchanged, creating an increasingly powerful incentive for developers to cash out rather than pay the much higher cost of mixing affordable units into their plans.

 

Now, after inquiries by the Boston Globe, [Boston mayor Tom] Menino has directed that the fee be almost doubled, from $52,000 to $97,000 per unit. Menino signed an executive order making the change on Feb. 3.

 

Linkage has been successful in raising material sums:

 

The cash-out fee has generated $5.9 million for the BRA and commitments for an additional $4.4 million, which the agency is using to help increase the supply of affordable rental housing and condominiums.

 

In effect, therefore, linkage is a tax on land, or more properly, a tax on zoning entitlements, since its effect is to interpose a city coffer in between a landowner who wants to sell and a developer who determines its land price to buy by penciling out a property’s total value and subtracting development costs.  Setting the linkage payment is dynamic, the ‘right’ amount depends on what the market will bear:

 

Mark Maloney, executive director of the Boston Redevelopment Authority (BRA), said the agency was holding off on an official announcement until it could gauge the reaction of developers.

 

”I don’t want the mayor to make a significant announcement that’s pro-affordable housing and have the development community say, ‘OK, but we can’t develop any more housing because of it,’ ” Maloney said. ”I don’t think that’s going to happen, but I haven’t done that work yet.”

 

How much linkage is enough?  Should the linkage match the cost-value gap? 

 

Aaron Gornstein, executive director of the Citizens Housing and Planning Association, a nonprofit umbrella group for Massachusetts housing organizations, said the BRA’s cash-out fee should be raised to $150,000 for high-end housing developers. That would cover the full cost of public subsidies typically required to build an affordable housing unit beyond the hot downtown, South End, and Fort Point neighborhoods.

 

Can it be paid in kind rather than in cash?  Are all sites the same?

 

In East Boston, where Winn Development has proposed building a 400-unit luxury condominium development known as Clippership Wharf, the BRA has allowed the developers to fulfill their affordable housing obligation by including 20 moderate-income units on site and paying nearly $1.6 million to another developer that is converting the nearby Maverick Street public housing project into a mixed-income development.

 

”They improved the neighborhood,” Maloney said, explaining the BRA’s willingness to approve the arrangement.

 

Inclusionary zoning has been around since the 1970s and in the past decade has been adopted in a number of cities, including Boston, San Francisco, Denver, Santa Fe, and Cambridge, according to PolicyLink, an Oakland, Calif.-based nonprofit research group that tracks the issue.

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