Boston's mayor has big plans for affordable housing

Boston Mayor Martin Walsh called affordable housing "the biggest economic challenge our residents face."
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Calling housing "the biggest economic challenge our residents face," Boston Mayor Martin Walsh announced a five-year, $500 million affordable-housing initiative in his State of the City address.

With Boston among many cities and states scrambling for answers to rising rental prices and the effects of gentrification, Walsh's approach has drawn widespread attention.

Boston's booming economy and growth in high-paying sectors such as tech has spawned worries over rental prices. A mass transportation crisis and traffic congestion have worsened the problem.

Nationally, economic growth combined with historically limited housing production have spawned a crisis, even among triple-A rated cities. Moody's Investors Service and S&P Global Ratings each rate Boston triple-A.

Walsh, mayor since 2014, said Boston will double its operating and capital budgets to $100 million for affordable housing.

The five year plan, according to the mayor, will add thousands of homes affordable to a range of incomes, from the most vulnerable to the middle class.

He intends to sell the 1,000-space Lafayette Garage in Downtown Crossing and work with the state legislature to enact a transfer fee — which Walsh and the City Council approved — of up to 2% on private real estate sales above $2 million within the city.

"What the City of Boston is trying to do is leverage its local resources with an approach using a scalpel," said Gilbert Winn, chief executive of WinnCompanies, a Boston-based multifamily development and management company. It is one of the largest owners and the largest manager of affordable rental housing in the U.S.

"They're using a flexible approach because it's getting harder for the state and federal governments to contribute resources."

Winn called the garage sale a viable option. "Boston has been very successful the last five years or so at selling specific assets," he said.

To Michael Marz, vice chairman of Hilltop Securities Inc., Boston's approach is precedent-setting.

"I'm not surprised to see Boston doing that, and I think you'll see a lot more of that across the country in the housing space," Marz said. "We're putting a lot of energy trying to figure out a solution. Boston is interesting. Good for them and it's a good idea to come up with the equity."

Marz expects a bigger role for a sector traditionally an afterthought in the nearly $4 trillion municipal bond market. "By anyone's measure, this will be a greater segment of the municipal market, even in taxables," he said.

Podcast: Bob Labes of Squire Patton Boggs and Bond Buyer Northeast Regional Editor Paul Burton discuss affordable housing strategies.

Housing challenges extend well beyond Boston.

In New York, City Comptroller Scott Stringer, a presumed mayoral candidate in 2021, recently assailed the housing policies of Mayor Bill de Blasio as a "gentrification industrial complex," and announced his own initiatives.

They include universal low-income requirements for new development and a call for the state to eliminate the 421-a tax subsidy, which Stringer said costs the city $1.6 billion annually and enables developers to game the system and cherry-pick neighborhoods. Stringer also wants a land bank, which would use city capital funds to convert vacant lots into housing units.

Rhode Island Gov. Gina Raimondo has proposed $25 million for affordable housing as part of a $269 million bonding measure for a November referendum. It includes a transfer-tax increase.

In Connecticut, Gov. Ned Lamont, looking to counter exclusionary zoning, said recently that state transportation upgrades in suburbs could hinge on local approval of affordable housing developments.

German capital Berlin, where rents doubled over a decade amid a property boom, passed a five-year rent freeze with an income limit on landowners, though opposition leaders say they will challenge the left-leaning government's law in court.

"Government responses to lack of affordable housing runs the gamut," said Greg Sullivan, research director at Boston's Pioneer Institute and a former Massachusetts inspector general.

"Mayor Walsh's initiative to increase housing in Boston is very, very interesting and deserves nationwide attention. The cities of Boston and Cambridge are among the economic hot spots in the country. But we're looking at serious impediments to our ability to grow."

Higher rents that push some people outside of a core city combined with serious traffic congestion and few viable transit options make for an alarming mix, according to Sullivan.

"We need more affordable housing, not the traditional distribution for low-income people, but affordable to millennials, to young people, couples starting out in life."

Affordability struggles go beyond millennials, said Hilltop's Marz.

"'We see teachers and firefighters, the largest skilled labor force ... there is no affordable housing for them. There are double-income families who are above the 80% threshold [for 4%]. We're seeing it in Texas, the West Coast, the East Coast."

Marz was referring to the 4% credit under the low-income housing tax credit program — also called the 30% subsidy — which covers new construction that uses additional subsidies or the acquisition cost of existing buildings. The Tax Reform Act of 1986 created the provision, which became permanent seven years later.

In Massachusetts, the planned conversion of the 81-year-old Mary Ellen McCormack complex in South Boston to a modern, mixed-use community, with WinnCompanies running point, could provide a national blueprint.

"Mixed-use is certainly becoming a bigger part of our business portfolio," said Winn senior vice president Brett Meringoff.

The planned $1.6 billion renovation and expansion at the McCormack will feature both market-rate and low-income tenants and include retail and shopping. Its 27-acre site sits within walking distance of the Andrew Square and JFK/UMass stations on the Massachusetts Bay Transportation Authority's Red Line.

"The Mary Ellen McCormack is a great example of how [U.S. Housing and Urban Development] and federal solutions are not the remedies to improve the quality of life for residents and meeting the needs of communities," said Gilbert Winn. "The old model of waiting for HUD to fix whatever needs to be fixed is not working.

"The 4% tax credit particularly lends itself to mixed income."

Expansion could raise occupancy to 10,000 there by tripling the number of apartments to more than 3,000.

"When you hear about rental units, the number sounds impressive, but when you translate it into a property with 10,000 people, that's not just a building or a collection of buildings. That's a community," said Bob Labes, a partner with Squire Patton Boggs. “In a well-design mixed-income project, you can't tell who's market rate or low-income, or rental or single-family.

"In mixed-income projects, developers have learned how to finance the affordable units with tax-exempt bonds and low-income housing tax credits, while financing the market rate units with conventional debt," Labes said. Because the market-rate units generate higher rents, he added, that can support a higher interest rate conventional loan and may not need the subsidy generated by the low-income housing tax credit.

"This means that communities get more new housing for the same amount of volume cap."

State lawmakers on Beacon Hill would need to approve the transfer tax under home-rule provisions. Some of Boston's neighboring communities, notably Brookline and Somerville, have filed similar petitions with the commonwealth, prompting some housing advocates to call for a broader bill.

"I think there's probably a pretty reasonable chance it could pass if it's a local option," Sullivan.

Still, NIMBYism, that acronym for "not in my back yard," holds sway in many suburban communities, Sullivan added, citing fears of per-pupil cost effects on taxpayers. On average, Massachusetts school districts spend roughly $15,100 per student for each school year.

Gov. Charlie Baker referenced zoning restrictions in his State of the Commonwealth speech last month. "They’re a wall between the well off and the up and coming," he said. "They punish families and young people who are not already ‘in the market.’ And they make it almost impossible for local communities to do what makes sense for their residents."

"In mixed-income projects, developers have learned how to finance the affordable units with tax-exempt bonds and low-income housing tax credits, while financing the market rate units with conventional debt," said Bob Labes of Squire Patton Boggs.

A report on Monday by regional planning agency Metropolitan Area Planning Council cited insufficient affordable options for families with children are limited in the 13 cities and towns in Boston's inner core.

According to the study, only 39% of homes with three or more bedrooms are occupied by a family with a child under age 18, while 14% percent are occupied by a single person; 24% house two adults with no children; and 23% house three or more adults with no children.

"The results shed light on one aspect of Greater Boston’s overburdened housing market, demonstrating that there is no one cause of the lack of family housing," the report said.

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