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March 8, 2023
The Greater Boston Chamber of Commerce opposes the administration’s proposed change to Boston’s Inclusionary Development Policy (IDP). The Chamber is deeply concerned that the City is advancing a policy that has no clear goals, makes housing development infeasible, and comes at a time when the City is also pursuing other policies that will negatively impact housing production in Boston.
No Goals
The City’s proposal omits the specific outcomes and goals it seeks to achieve with this policy change. The City’s Housing Conditions and Real Estate report, which accompanied the IDP change, states that the administration will establish new housing goals as they update City housing policies and programs. The only other time a goal is referenced in the report is to describe a goal of increasing homeownership rates among BIPOC households.[1]
The outcomes that the City wants to achieve through such a major policy change should be specific and measurable. Clear-cut goals will allow the City and other stakeholders to track the success of the program, determine whether changes need to be made, or if a new policy is more appropriate to pursue. For example, this proposal could project the number of new IDP units created, the impact on housing production, or how success or failure is going to be measured.
Feasibility Concerns
The City’s feasibility analysis fails to cover many critical aspects of the proposal, shows that even modest changes to the IDP can lower or eliminate project feasibility, and bases the analyses on a series of assumptions. As a result, the study inadequately analyzes the effects on project feasibility and housing development in Boston.
The feasibility analysis presented with the proposed IDP changes does not actually analyze the administration’s proposed policy changes. In particular, the administration seeks to change the IDP from a percent of units set aside as affordable to a percent of square footage set aside as affordable. However, the feasibility study examines the impact of increasing the required percent of units set aside as affordable from 13% to 20%, without analyzing the impact from a switch to the square footage measure.
Depending on how much square footage IDP units account for in a development, the move to a square footage metric could be a significant change that impacts housing production. The city’s own remarks suggest that the majority of IDP units are now smaller-sized – studios and one bedrooms – so shifting to a square footage measure may ultimately increase the total share of a project that is dedicated to IDP compliance than it would under a unit measure.[2] This would have a significant effect on a project’s financial feasibility. However, without the analysis for the square footage measure, we do not know exactly what impact this policy change will have on future development.
Regardless of the distinction between units and square footage, the feasibility study clearly demonstrates that even modest changes to the city’s existing IDP policy will make it harder and, in some cases, infeasible to build because of financial metrics. For large projects in the inner core, the study concludes that at a 20% IDP unit set aside standard, projects may have to seek cost relief in order to be financially viable.[3] For small projects in the City’s outer core, a developer must seek cost relief to remain financially viable at a 20% IDP unit set aside standard.[4] These findings signal to housing developers that investing in housing may not be a viable option going forward. For some, this could mean the difference between building and staying out of the market.
The analysis also applies material assumptions across all projects, each of which must be met to reach feasibility. Most notably, project feasibility depends on a 10% rent premium on new units.[5] That assumption cuts against what the city needs: the already high cost of market-rate housing in Boston will be driven up further just to make future projects viable.
With these assumptions in place, many projects, such as mid-sized developments of 125 units in both the inner and outer core of the City, hover on the edge of feasible versus infeasible. Furthermore, according to the study, many projects still “may not be financially viable to all investors.”[6] Driving away housing developments from the market undercuts what appears to be the intent of the policy: to add more affordable housing units. If the City’s goal is to increase the number of income-restricted units, making housing developments less feasible is the wrong approach.
Ultimately, the city – and the region – need to increase housing supply. If changes to the IDP make building housing in Boston infeasible to developers, then this proposal will have the opposite impact by decreasing future housing production.
Additional Housing Proposals
The City is actively proposing or has implemented policies at odds with the IDP changes or raise the cost to develop and maintain real estate in Boston. It is unclear whether the City’s feasibility analysis considers any of these additional policy actions.
For example, the City is pursuing rent stabilization but its own feasibility study for IDP shows that 10% premiums on market-rate rent is necessary to make housing development feasible. As a result, the IDP changes would require that new housing development financing be structured in a way that is diametrically opposed to rent stabilization and creating affordable market rate housing.
The Chamber fully agrees that housing affordability is a major challenge to attracting and retaining members of our community. We have consistently advocated for ways to increase housing production and supply such as the Housing Choice Act to meet the housing needs of the region. The proposed changes to the City’s IDP will make it more difficult for the region to meet its housing needs at a time when talent has more mobility than ever.
[1] Boston Housing Conditions & Real Estate Trends Report 2022, Page 39.
[2] Boston’s Inclusionary Development Policy: Background and Zoning Proposal, City of Boston, Page 15, “Under the new policy, rather than require a set number of inclusionary units, requirements will be calculated in square footage, to allow for more flexibility and the production of family-sized units.”
[3] Boston’s Inclusionary Development Policy (IDP) Analysis, RKG Associates, Inc. Page 62.
[4] Boston’s Inclusionary Development Policy (IDP) Analysis, RKG Associates, Inc. Page 58.
[5] Boston’s Inclusionary Development Policy (IDP) Analysis, RKG Associates, Inc. Page 52.
[6] Boston’s Inclusionary Development Policy (IDP) Analysis, RKG Associates, Inc. Pages 59-60.
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