When affordable housing hits home
Taxpayers, not homebuyers, should be subsidizing under-market price housing. Everything's a crisis.
Who doesn’t want affordable housing? And who pays for it?
Last week, I wrote about woke language. Affordable housing has been around long enough that it doesn’t really sound woke. However, it emerged as a presumably friendlier term than “public housing” or even “subsidized housing.” However, the term is a euphemism for those forms of below-market-rate rents and home purchases.
To create more affordable housing, some local, county, or state governments are changing zoning requirement to encompass “inclusionary zoning,” a regulatory framework that encourages — or, sometimes, requires — home builders to set aside some of the new homes they build for residents who could not afford them at the market price.
Everything’s a “crisis”
Justification for what has been dubbed “bold and decisive” acts requires convincing residents of a “crisis.’” President Trump has justified many of his Executive Orders by citing a crisis here and a crisis there, when they are simply problems that can be rationally addressed. The housing advocates in Cambridge, Massachusetts, use similar language. Here is one of the City Council’s most passionate members:
You know, we are going through a housing crisis. It’s the No. 1 issue from everyone from the governor to the former vice president Harris, former president Obama, to all of our senators.
The number 1 issue! Number 1 in America?? Hyperbole much? Perhaps a problem in some localities. But number 1?
Who pays to make housing more affordable for some?
To provide housing that is less costly than the market price, it must be subsidized to make up the difference between the market-driven income and the lower returns if rents or home purchase prices are lower than the supply/demand equilibrium price.
The subsidy could come directly from taxpayers, in the form of payments to a landlord to make up the difference, such as Section 8 vouchers from the U.S. Department of Housing and Urban Development. It might be housing developed or managed by a not-for-profit organization, such as Habitat for Humanity or Mercy Housing. In this case, the subsidy is provided by those donating their money or time. And yet, in a third model, cities and states may establish programs to buy or build housing and act as de facto landlords. Here in Cambridge, that would be the Cambridge Housing Authority.
And then there are programs under the inclusionary housing rubric that put the burden of subsidies directly on developers, often by offering them a carrot in exchange for their cooperation. However, in reality, the subsidy is a transfer from those paying market rates to those enjoying the more affordable rents or purchases. And, as I will explain here soon, there may be a non-monetary cost to others that stems from the affordable housing carrot.
I’ve written twice about why there is a perceived housing “crisis” in parts of the U.S. Two years ago, I pointed out that the demand for housing has expanded considerably greater than the growth in our population would have indicated. The reasons are social changes, including young adults moving out of their parents’ house at earlier ages. Single-parent households exacerbate the problem. Instead of a couple (and maybe kids) living together in one unit, there is demand for two units. In some cases, it also results in not having the combined income of two wage earners. A single parent often cannot afford what two would have.
I also found that there is a plentiful supply of affordable housing. It’s often just not where many people want to live. For example, the median price for a house in Cambridge is between $1.2 and $1.3 million. That’s because there’s no room to build in its six square miles and there are many people who want to live here. (Though maybe fewer if Trump evicts Harvard.) If one is willing to settle in Pittsfield, 134 miles west near the New York border, one can put a very nice roof over one's head for under $300,000. Why so cheap? You can answer that.
In this post from last June, I pointed out.
…that we recognize that when a developer must sell or rent some units at less than their cost plus usual profit, that results in the remaining market rate units having to be priced slightly higher to make up the difference.1 They become slightly less affordable. The market rate buyers rather than taxpayers cover the subsidy. At the margin, that could make a unit that would otherwise have been affordable to some buyers or renters now unaffordable.2
My expectation is that there will never be enough affordable housing, at least not where it’s wanted. So much for the forest level view. Let’s get down with the trees.
Cambridge is a low-rise city. With a handful of exceptions, the tallest buildings are clustered on the city’s edges, mostly around the MIT campus at the East end, just across the Charles River from Boston, and at the western boundary. Within the interior, the city’s zoning had restricted most residential housing to three stories, whether single-family housing or apartments.
The population density in Cambridge is 18,512 per square mile, compared to 13,918 in Boston. Fewer than 7% of dwelling units in Cambridge are single-family homes. That’s compared to 57% in Massachusetts and 17% in New York City. So Cambridge is already very dense, with most of its 118,000 residents in multi-unit buildings.
To solve the “crisis,” suspend due process for the majority
This past February, after years of lobbying by developers and subsidized housing advocates, the Cambridge City Council passed legislation that flattened the zoning for residential neighborhoods. There were no longer requirements to provide for any parking—after all, the bicycle coalition had already pushed through mandated bike lanes on 25 miles of local streets, with the attendant loss of hundreds of on-street parking spaces in the city. So no more NIMBY objections were available.
The new ordinances allowed up to four stories anywhere in Cambridge and added a sweetener for developers: if the lot was at least 5000 square feet and they designated 20% of the space as “affordable,” they could add 50% to the building—six floors.
The vote for the inclusionary zoning was 8-1. Of the eight who supported the measure, six live in homes that are completely protected on both sides by houses, with no nearby empty lots or parking areas that a developer might purchase on the cheap. Thus, they had little skin in the game—the likelihood that they could be put into shadow themselves.
On the other hand, two weeks ago, my neighbors and I learned that one of the first such applications of the new zoning would be directly in front of my house. A six-story building, with 29 apartments, on a bare minimum 5050 square foot lot that requires tearing down a solid 100-year-old brick house with four apartments. As I live in the local conservation district, the Historic Commission must approve a demolition permit. However, under the new zoning, it has little grounds to deny it. The architecture of the old building is not particularly noteworthy, and no notable figures appear to have lived there over the decades.
Yes, this could have been a case of NIMBY. However, much as in Trump’s Washington, it seems that Cambridge has eliminated due process for us abutters.
The Pancake of Inclusionary Zoning
Is taking a position against “affordability” a bit like opposing motherhood and apple pie? I’m of the persuasion that if we choose to vote for legislators who want to provide direct subsidies (Section 8-like) or manage public housing, I can roll with that. I think the notion of palming this responsibility off to renters and home buyers is performative: it gives those representatives bragging rights, with no cost to the city or state, along with a potentially nice payoff in the next election from developer support.
However, far more unsavory is an approach like that in Cambridge, which is unleashing out-of-scale development in neighborhoods that we had expected would maintain their residential scale.
Indeed, chief among the many concerns is the fear that indiscriminately allowing six-story buildings anywhere in Cambridge would disrupt the low-rise character of much of the city and fundamentally alter the historic character of neighborhoods that were previously dominated by small multi-family homes and low-rise apartments.
Another concern is that it would encourage the demolition of older, existing, so-called “naturally occurring” affordable housing with relatively affordable rents to build larger, more expensive condominium developments. This is precisely what has begun on Ellery Street, with the plan for a six-story building that will replace the apartments renovated about 10 years ago.
Next door to the proposed high-rise is Swissnex, the two-story Swiss consulate. It recently installed solar panels. An analysis of the shadow pattern of the proposed building would leave those energy generators in shadow for a greater portion of the afternoon in the summer, thereby lessening their efficiency. That could be repeated throughout Cambridge. This conflicts with one of the city’s top priorities: encouraging the use of green energy.
One of my neighbors, a retired architect, speculated that having a massive structure obstructing current views of trees and sky could likely reduce the value of the houses behind it (including mine) by about $100,000. Selfish? Maybe, but that’s not spare change.
Projected Impacts on Quality of Life
At the time the ordinances were being debated, city officials and experts predicted the transformation would be gradual rather than immediate. One “expert,” who was speaking from his experience in Charlotte, NC, predicted that ”building permits wouldn't start flowing” just because of the eased zoning. “It was important to take a bold, decisive act and then watch how the response is in real time, knowing that it's going to be a lot slower and incremental than you think.” However, this is Cambridge, where a developer can sell condos at four times the price of those in Charlotte (population density: 2,837). We can see the results in real time: within three months, developers in Cambridge had already prepared a specific proposal, with few legal barriers in their way.
The objective of adding more housing units is supposedly to lower prices, thanks to increased supply. That assumes demand doesn’t increase in parallel. Greater density—in what is already one of the densest population cities in the country— introduces challenges of increased traffic and parking pressure, exacerbated by removing 60% of existing parking places on nearby streets to make way for bike lanes.
While affordable housing advocates have dreams of a few hundred additional available units, the history of development in Cambridge suggests that the overwhelming number of condos or rentals will be luxury units, which in turn will raise real estate values, taxes, and rents, and potentially even displace residents. Again, speculation isn’t needed. The going rate for sales of new construction condos is about $1,000 per square foot.
Cambridge is a textbook example of pushing square pegs into round holes
As evidenced by the “expert” from Charlotte, rules of thumb that may have general applicability may not stand up when one drills down to specifics. For example, proponents of increasing the density further have argued that more people can support more restaurants, more shops, and better jobs. However, within 1/2 mile from my house—in walking distance—Yelp identifies 168 restaurants with almost any variety of cuisine, from fine dining to fast food chains. There are three shopping districts. Besides large employers such as Harvard and MIT, which are within walking distance, there are the biotech and computer tech offices of Moderna, Akami, Google, Microsoft, Takeda, Biogen, Sanofi Genzyme, Merck, and Novartis, to name a few. The jobs available in Cambridge can't get much better.
In the process of trying to solve the housing issue—again, not a crisis—and talked into to being bold and decisive, Cambridge has all but voided due process for entire neighborhoods, who are basically under the thumb of developers who can drop in, build big and, at their discretion, ugly, and then move on. Left with the consequences are residents who bought or rented their homes expecting that existing zoning would maintain the low-rise and tree-lined quality of their neighborhoods. In swapping four existing apartments, there will be 29 with newly clogged streets, long shadows, blocked sky, and a few shrubs in place of mature trees.
I try to check myself from falling into knee-jerk NIMYism. NIMBY suggests someone in favor of some policy, like clean energy, but, “Oh don’t put a windmill farm where I can see it.” In this case, I’m not a proponent of privately subsidized affordable housing anywhere. Let the taxpayers choose to fund programs to subsidize housing. There are such programs. I’ll support those.
Can you tell I’m angry?
I suppose some readers of a progressive bent may counter that the developer should eat the lower revenue and accept a lower profit. But if we want to encourage developers to risk their capital—many have failed—they must be allowed to aim for a return that encourages them to engage in the often long and expensive process of housing development.
For example, suppose a family figured that if it really skimped, it could stretch its budget to pay $2000 a month in rent. They find a new development they liked, which required setting aside 20% of its units for a local “affordable” program. Market conditions would have dictated $2000 for this apartment. However, because it had to price some units below market, at, say $1800, the remaining units were priced at $2150 per month, making it out of that family’s price range.
Ben your assessment of both the question of what is affordable and the cross subsidy inherent in inclusionary unit requirements in Cambridge and other cities are spot on. When it costs $1,000 a square foot to build but some units can only earn $500 a square foot in rents everyone else in the building pays the balance or the building doesn’t get built.
Regarding your comments on the zoning change in Cambridge, where I also live, I am in done disagreement. The Cambridge zoning ordinance is a mess. The result of policies made based on existential fear rather than good planning. The fact that residents for years have exercised excessive powers over what an owner can do to her or his property has led us to a set of regulations that are arbitrary, capricious, confusing, opaque and often contradictory. Given the dearth of residential properties on 5,000 square foot lots you and your neighbors are uniquely unlucky. However it is important to remember that the minimum residential lot size to in Cambridge has been 5,000 square feet for decades, while most residential properties, well over 50%, are on lots smaller than 5,000 square feet.
Do I like what the Council did? Sort of. My preference is to scrap the existing code and replace it with a simple code based on resource analysis and clear goals. I also hoped the council would admit that there is a limit to how much housing can and should be subsidized and build a system to move existing inclusive units, over time, to market units.
Regarding your situation it is curious that the owner, after rehabbing the four unit building, is either redeveloping the property or has sold it to a developer. If the later the amount of the purchase must have been significantly more than rents could produce, the purchase settled debts in excess of rents from the rehab that still needed to be paid, or the owner just got tired of being a Cambridge landlord. If the former the owner has decided to make a risky investment but has enough equity in the property to make it worthwhile. Either way the owner is exercising a right that has too often been limited in Cambridge or has resulted in years of expensive delays, reviews, etc. based on a few people’s fears rather than good planning.
Ben, your anger is well deserved.
Tony