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February 1, 2023
The Greater Boston Chamber of Commerce opposes the proposed changes to the city’s linkage policy. While the goals of the policy – greater affordable housing units and job training – are laudable, in practice these proposals will undercut both aims. The fee increase, square footage exemption reduction, and change in payment schedule will increase costs to a level that threatens to slow housing and commercial development in the city. Less housing development risks driving up costs for all residents and slowed commercial development limits the city’s ability to support economic growth and create jobs for residents. For the first time, the policy also creates higher linkage fees for a particular commercial use, singling out a growth sector for disparate treatment and disincentivizing a key contributor to the local economy.
Cost Increases for Developing in Boston
This proposal raises the cost of development in Boston by significantly increasing fees, reducing the square footage exemption, and accelerating the fee payment schedule. This combination compounds cost increases for commercial developers beyond the fee rates themselves and poses real risks to future commercial and economic growth in the city.
The proposal substantially increases linkage fees by 50%, up to $23.09 per square foot from the current rate of $15.39. For lab developments the increase is even sharper: the proposed increase would double the linkage rate to $30.78 per square foot. In Quarter 4, 2002, the asking lease rates for office space in Boston averaged $62.36 annually [1]. If these increases are adopted, the linkage fee would be equal to more than one-third of the first-year lease value.
Reducing the square footage threshold that triggers linkage fees and reducing the exempted square footage from the policy also raises costs for developments in the city. Currently, the policy applies to buildings above 100,000 square feet and applies the fee to square footage above 100,000 square feet. The proposal cuts this threshold and exemption in half, to 50,000 square feet. Not only does this mean a larger swath of buildings are subject to the fee, but new developments at or above 100,000 are now responsible for 50,000 additional square feet of fee payments which, when combined with the proposed fee rates, adds more than $1.1 million to project costs.
Creating a frontloaded fee payment schedule, instead of the current phased payment schedule, places additional pressure on developers seeking to invest in Boston. Most of Boston’s linkage fee payments are dedicated to affordable housing and are currently required to be paid over a seven-year period. The proposal would require half of the housing fees to be paid upon building permit issuance, a substantial shortening of the payment period. The impact is even more acute for developers building outside of downtown, where the first housing fee payment is currently two years into construction or at the certificate of occupancy.
Affordable Housing
The Chamber shares the city’s desire to address the housing shortage. The city should pursue policies that incentivize housing development, not penalize development through fees and mandates. According to the city’s Nexus Study, the city of Cambridge has a linkage fee of $33.34 that is completely devoted to affordable housing and a lower square footage threshold than Boston. Cambridge has in recent years consistently imposed higher linkage fees than Boston, instituting regular increases resulting in $12.00 linkage fees per square foot in 2015, $15.95 per square foot in 2018, and then $20.10 in 2021.[2] Yet despite higher fees, from 2018-2022 Cambridge only saw a 2% increase in the cumulative number of affordable units built and a 33% decrease in the cumulative number of market rate units built compared to the previous 5 year period.[3] This lack of housing development, affordable or market rate, demonstrates that higher linkage fees in conjunction with other aggressive affordability requirements may not result in increasing affordable housing options for residents.
Discriminatory Fees Based on Industry
The proposal for the first time bifurcates linkage fees in a way that directly discriminates against a particular building use, in this instance laboratory developments. Boston’s Nexus Study references high investment returns for developers on lab space, but this reflects recent trends and is in no way guaranteed to continue in the future.[4] Recent indicators show that nearly 80% of the 40 million square feet of lab space either proposed or permitted in Boston could be curbed due to economic headwinds.[5]
All industries go through business cycles of growth and contraction. The tremendous growth in lab demand and development in the past few years in Boston is a success that we should celebrate. Instead, this policy singles out the industry and adds an additional cost the future developers and employers could view as punitive, giving an advantage to Boston’s global economic competitors. Furthermore, targeting solely lab development sets a precedent that other industries will be similarly singled out if they grow in Boston. These are industries that the Commonwealth wants to cultivate, such as clean energy, AI, robotics, and other potential job growth industries.
The city should avoid punishing new industries that thrive in the Boston area. Massachusetts is home to one of the most highly educated workforces in the world, and is continuously innovating new types of jobs and industries. When innovation leads to a high growth industry, Boston should seek to keep that growth here, not push employers to scale in lower cost competitor states that will welcome the jobs and tax revenue.
The Broader Context
The context in which this proposal is presented matters, too. Along with increased linkage fees, proposals on rent control, transfer fees, net-zero emissions requirements, inclusionary development policy requirements, BERDO regulations, and other regulatory proposals create higher barriers to entry for developers.
Other factors are also at play. Economic headwinds are cooling the market for new developments and employers are reviewing how much existing space they need. Inflation, elevated interest rates, and high construction costs are already slowing investment activity and elevating cost pressures for potential developers. Authorizing dramatic fee increases in this context risks slowing development further.
The Chamber urges the Boston Planning & Development Authority to reject the proposed updates to the linkage policy.
[1] https://www.colliers.com/en/research/boston/2022-q4-office-market-report-boston-colliers
[2] City of Cambridge; City Council Agenda, Sept 20, 2021.
[3] Boston’s Inclusionary Development Policy (IDP) Analysis, RKG Associates Inc. Page 14.
[4] Boston Housing and Jobs Linkage Nexus Study, Karl F. Seidman Consulting Services
[5] Newmark, Boston’s Life Science Market Research Q3 2022.
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