Boston's Inclusionary Zoning Increase Another myopic anti-growth housing policy
The greatest challenge facing both the city of Boston and the Greater Boston area today is housing supply and affordability. I’ve written about this topic in more detail here, but the basic gist is that demand to live in and around Boston is enormous–a very good thing in its own right, as it reflects the incredible economic opportunities and cultural assets we have–but the supply of living space is unable to match demand, largely because of overly restrictive land use regulations, including zoning.
The only sustainable way to address this problem is to increase the total supply of housing. Everything else is just window-dressing (e.g. policies that target short-term rentals, which represent a very small share of the total housing stock), or downright counterproductive (rent control, which benefits a lucky few while harming many more by reducing investment in new housing supply).
For the private sector, solving this supply gap means building more housing of all types, but ideally with a focus on dense multifamily projects near transit. This type of housing can provide high-quality, low-cost, energy-efficient living for far more people than would be possible with single-family housing while also minimizing negative externalities like road congestion or the carbon emissions associated with driving.
For the public sector, this means removing artificial barriers to the creation of new housing like single-family zoning or arbitrary and time-consuming review processes and minimizing other factors that disincentivize housing production. At the state level, Massachusetts has made some big steps in this direction over the past few years, most notably the MBTA Communities zoning reform, which requires municipalities to permit multi-family housing by right near MBTA infrastructure. [1]
Boston, however, is exhibiting some concerning trends. The city approved 2,647 net new housing units in 2022, down 60% from 2021 and 74% from 2020–a massive drop. As discussed here, broader macroeconomic factors play some role in this drop, but they don’t explain the degree to which Boston lagged behind the rest of the metro area during this period. The obvious differentiating factor is the Wu administration’s extractive attitude towards the real estate industry. Instead of seeking to create the conditions necessary to enable increased investment in needed real estate assets across all sectors–housing, retail, office, lab, etc–the administration seems inclined to treat the real estate sector as a piggy bank for funding its policy priorities. Whether or not you think this is a justifiable approach, the practical reality is that it’s not effective at achieving its stated aims, nor is it helping to resolve the underlying housing supply issue. In fact, based on the data, it’s already making things worse, and that trend seems likely to continue without policy changes.
This pattern has taken many forms. Some policies, like the proposed increases to inclusionary zoning requirements and linkage fees, target new construction in particular, reducing expected profits and, therefore, also the likelihood of developers deciding to go ahead with a given project in Boston. Others, like rent control and the transfer tax, would apply to new and old buildings alike, reducing both the incentive to invest in upgrades and maintenance and the ability of current owners to sell to new ones who can put the property to more productive use.
Collectively, these policies are like a flashing neon sign warning both developers and property operators to steer clear of Boston at a time when it is critical for the city and its residents to continue building new housing and investing in the upkeep of the current stock. Major institutions are already pulling their investment dollars from the Boston market in favor of less onerous regions. Implementing these policies might increase the city’s take (in terms of either revenue or below-market-rate units) on a per-unit basis, but given the degree to which they suppress the total quantity of units, the number of tax dollars and subsidized units available to the city could actually decrease–think of the famous Laffer curve. This is a huge problem for a city that derives 73.7% of its tax revenue from property taxes; even a small decrease in the city’s ability to raise revenue from real estate would have severe consequences for its ability to fund essential services like education and public safety.
Boston is fortunate to have a remarkably dynamic economy that enables it to fund ambitious public service projects, but it can’t take this state of affairs for granted. Many large investment firms already refuse to fund new projects in the city because of the risk presented by policies like the ones mentioned above; their number would only increase if those policies were actually implemented. Top global companies are located here because of the region’s top-tier human capital, but if workers can no longer afford to live here, that too will change. A city’s leadership of an industry can change quickly–Detroit was once the car capital of the world, but collapsed over the course of a few decades as its economic competitiveness deteriorated. San Francisco produced more wealth in a shorter time period than any other city in history, and yet in the last few years has suffered dramatically, arguably as a direct result of poor policy decisions. Boston has similar leadership in healthcare, biotech, and education. We should all hope that Boston makes better decisions and chooses not to follow the same path.
by Chris Lehman
↑1 For more context on this policy and its implementation, check out Amy Dain’s excellent coverage of the issue here.
