Response to Administration Proposal “Incentives and Strategies for Housing Production”

Response to Administration Proposal “Incentives and Strategies for Housing Production” Barry Bluestone Ted Carman Eleanor White March 6, 2004 Confidential: Please control distribution

Critique of Adminstration Proposal

1. State Tax Credit • This simply reauthorizes an existing program for the production of affordable housing • This does not provide any additional incentives beyond current ones for the production of needed housing

2. Establish CPA Trust Funds • This will provide some additional funding for housing • But only a minority of communities have passed CPA • The additional funds in the trust would incentivize only a small number of additional housing units

3. Zoning Relief for Overlay Zoning Districts • ANR – Permitting municipalities to invoke more rigorous standards over public ways could actually inhibit housing production and make housing more expensive in non-OZD areas • Grandfathering – Will stimulate opposition to OZDs by those affected outside the OZD in town, making it more difficult to pass OZDs

3. Zoning Relief for Overlay Zoning Districts (con’t) • Mandatory Clustering – Will stimulate only minimal new construction • Impact Fees – Does provide more revenue to towns passing OZDs, but added revenue will hardly cover added local costs and will conceivably increase the developers’ cost of producing new housing • In sum, modifications to 40A, while potentially desirable in themselves, can reduce total housing production and stimulate significant opposition to the passage of OZDs

4. Incentive Payments • Current proposal offers one-time $4,000 incentive for each unit of market rate housing and $8,000 for each unit of affordable housing • Problem: One-time incentive payment does not cover on-going costs of additional services related to new housing for most communities. Thus, this is unlikely to be a sufficient incentive to create enough OZDs to effectively increase the supply of housing

Affordable Housing • The Romney Proposal does not include any funding for subsidizing the production of additional affordable housing. • The Romney Proposal has no mandated affordable housing in the OZDs • Without state subsidies and without mandated affordable housing, there is little likelihood of meeting the housing needs of first-time homebuyers or younger workers

CHTF Approach Superior • Up-front density bonuses plus 100% assumption of school costs should provide sufficient incentive to create a surplus of zoned land to meet housing needs and moderate housing price increases • Includes mandated affordability within OZDs and provides funds for underwriting subsidies for this housing • Includes funds for community technical assistance for development of OZDs • The annual average cost of the CHTF Plan (for housing inside OZDs, including subsidy for affordable units) is $57 million (over ten years) vs. $50 million for Romney plan (without affordability)

School Costs Analysis • Based on actual housing built in 1999, not denser, less expensive housing as envisioned in CHTF proposal • Based on unrealistically low estimate of school aged children per new housing unit • Based on assumption that all additional revenue goes to schools, not for other local public services

Re-analysis of A&F Report - I • Given the report’s assumptions of # of additional school kids, use of current assessed values on new homes, and that all additional local revenue is used for schools, 171 communities out of 243 (71%) can afford to build new housing • HOWEVER, only 50 communities (23%) can afford to build new housing if local revenues must also cover other additional public service costs (based on existing split in revenue use)

Re-analysis of A&F Report - II • MOREOVER, if new housing under CHTF proposal is more affordable and assessed at 90% of current new housing, only 153 communities (63%) can afford new housing – if all additional revenue goes for schools • AND, If assessments are 90% and revenues are split between schools and other local needs, only 43 communities (18%) can afford to build new housing

Re-analysis of A&F Report - III • WORSE YET, if new housing under CHTF proposal is more affordable and assessed at 90% of current new housing and the number of school-aged kids is .74 per unit, only 66 communities (27%) can afford new housing – if all additional revenue goes for schools • FINALLY, If assessments are 90%, the number of school-aged kids is .74 per unit, and revenues are split between schools and other local needs, only 25 communities (10%) can afford to build new housing. (All of these are low-income communities where the state is already picking up the overwhelming majority of school costs

SUMMARY: Percent of Communities that can afford to build new housing (N=243) Source: Simulations based on Carlos DeSantis, “Fiscal Impact of New Housing Development” (Mass Executive Office of Administration & Finance) 10/28/03

Conclusion • Additional school costs are indeed a serious barrier to communities that might otherwise be willing to permit the construction of higher density housing • Dealing with this barrier head-on is likely to be the only effective way to incentivize enough new housing construction in the Commonwealth to meet current and projected housing needs

Response to Administration Proposal “Incentives and Strategies for Housing Production”