Developers Fear Boston's Building Boom Could Meet A Premature End
Greater Boston may continue to see more cranes in the sky and new businesses relocating into the city, but one developer says avoiding a solution to affordable housing could hinder future growth.
“I think if the music is going to stop for us, two things are driving it. One is affordable housing, and the other is transportation,” Boston Global Investors CEO John Hynes said at Bisnow’s Boston State of the Market 2018 event Tuesday. “The youth of this country is moving away from automobiles, and that’s putting pressure on transportation.”
The technology and life science sectors continue to rule Boston, as Amazon is adding as many as 4,000 jobs in the Seaport on top of its ongoing consideration to locate its second headquarters in the region. Massachusetts lawmakers sent a bill to Gov. Charlie Baker earlier this month that would pump nearly $500M in capital spending into the life science industry, and French drug manufacturer Ipsen announced it will move its main U.S. office from New Jersey to Cambridge.
While development initiatives from City Hall and the state make corporate relocations and expansions common news, Hynes said similar pushes need to take place to make the area a reliable, affordable place to live. The Tuesday event ended just as crowds at the nearby Copley Square MBTA station waited for shuttle buses amid the Green Line shutdown, and rents in Boston are now twice the national average.
“I think the city and state lost a tremendous opportunity in the last 10 years by not turbocharging the affordable housing obligations of the developers and leveraging those commitments into affordable housing projects throughout the city, particularly at transit-oriented stations,” Hynes said.
The city’s current affordable housing requirement for new developments call for 15% of the units in new market-rate multifamily projects to be reserved for affordable housing. Hynes argues that is outdated, and he has a model that would produce significantly more affordable units and bring the housing to areas that need it.
The developer told the audience his company has built 10,000 housing units in the Boston market, and 1,500 of those were city-mandated affordable units in costly neighborhoods. Under his own proposal, a developer would instead buy out the affordable unit requirement at $300K apiece, which equates to $450M. The developer would then leverage that with a 2X exchange-traded fund, creating a $900M housing fund. An ETF is an investment tool that trades like a stock but can maximize the gain or loss of value depending on the rate of leverage.
Hynes then proposed working with the city, state and MBTA to contribute surplus land in neighborhoods that are transit-centric and need housing and build non-high-rise buildings.
Rather than build 1,500 affordable units, Hynes said his plan would create 4,500 affordable units.
“The city and state have to get away from this social engineering criteria and instead work on backfilling the areas of the city that need help,” he added.
Nixon Peabody partner and former Boston City Council President Larry DiCara also supported bond programs that could create relatively cheap money for developers and municipal land donation. That latter comes at a time when private developers have not answered calls by the Massachusetts Department of Transportation to develop a 5.5-acre piece of state-owned land by South Station, citing high costs and development challenges.
Massachusetts Chapter 40R, a state zoning initiative, calls for dense residential and mixed-use districts that include affordable housing near train stations. Utilizing this tool in addition to creating opportunities to donate land would make it easier for affordable houses to be constructed near transit stations and for people to live and get to their jobs, DiCara said.
While panelists stressed the need for the region to do more, others expressed relief at how the country avoided affordable housing catastrophe during last year’s tax reform.
Trinity Financial Vice President Eva Erlich noted the tax reform law passed last year reduced the value of the Low-Income Housing Tax Credit, making it so an increase in city, state and federal subsidies is needed to close funding gaps. During negotiations of the bill, the House of Representatives proposed going even further by eliminating tax exemption on interest from the issuance of private activity bonds, which is a major producer of credits for low-income housing.
While she stressed there is still work to be done in bolstering the production of affordable units, Erlich was relieved the House proposal did not pass in the final iteration of the bill.
“I think it would have been disastrous if they had been eliminated,” she said. “It would have eliminated hundreds of thousands of affordable housing units. Thankfully they were preserved.”