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Cambridge ups affordable-housing requirement for new developments
By adamg on Wed, 04/05/2017 - 8:16am
In addition to calling for the president's ouster, the Cambridge City Council on Monday voted to increase the percentage of apartments or condos that have to be marketed as affordable in new housing projects from 15 to 20%, Wicked Local Cambridge reports.
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A good resource for Cambridge and related news
A good resource for Cambridge and related news
https://twitter.com/search?f=tweets&q=stannenb
Hypocrites or just plain stupid?
The three best ways to drive up local housing costs/hurt affordability:
1) irrational limits on zoning
2) increases in "affordable" housing requirements
3) residential exemptions (or increases to residential exemptions)
Well done! (if you like higher housing costs)
The 20% make the other 80%
The 20% make the other 80% more expensive to offset the cost.
There's no free lunch!
No
The housing market is based on demand, not building cost. A developer is going to list units for the maximum amount they think they can sell it for, irrespective of their costs to build it. If anything else having low-income units lowers the sale price of the non-restricted units since some snobs won't want to live near people classified as low income.
Cambridge has extremely strong demand and fairly low new development. A difference in ~100 fewer "full price" units won't affect the average sale price for the city as a whole.
So no, it won't make it more expensive, it just won't make it any less expensive.
They put the affordable units somewhere else
They get around that by building the affordable units away from the high end
If they can
That assumes the developer will be able to find another property elsewhere in Cambridge to stick the low income units. There's not many spaces left to the develop which is the root of the problem.
margins are slimmer than you think
This notion that developers are making profits hand over first is simply false. Building in Boston is extremely expensive, and many times these developments are barely hitting the required revenues on the developers pro-forma.
So yes, essentially capping the price of a percentage of units will force the other units to become more expensive.
That's very true at all. The
That's very true at all. The margins can be huge. It depends on the development.
They are making a lot of money on with high margins on many of the condos they sell.
Yes (and no)
While you are correct that the units will be sold at the then market price - if you got rid of the affordable requirement - you increase the margins (short term anyway) of the developers. Given reasonable zoning - if there are higher profits to be made - that should stimulate supply - driving down prices (and margins) in the long term - say over a full development cycle of 10-15 years.
Unfortunately, there does not seem to be a councilor in Boston or Cambridge that passed a freshman economics class, so we get crap like this and higher housing costs with almost no development in the mid price ranges and supply remains tight (although I spoke with someone renting in Cambridge yesterday that the luxury housing boom may be busting at least a little - her landlord would lower her rent by 10% if she were staying in the unit - and as she said - that's without even negotiating or shopping).
Supply
Given the other regulations (Zoning, historical, community opposition, etc) it's not clear the low-income requirements are suppressing the supply to the point of there being notable changes in market prices. If developers were able to build 20 unit buildings in zones that only allow duplexes, then you'd see major changes.
TL;DR: The low-income requirements is only one of many factors suppressing supply.
With so much density already,
With so much density already, the regulations on additional development are sometimes necessary.
There's hardly any open land
There's hardly any open land to keep building on, unless you want endless congestion and sprawl far in each direction. Housing can't just always be added everywhere.
This is Actually Underselling It
With today's construction costs, it isn't like affordable units break even. Actually their prices put them significantly below what it cost to build that unit.
So it isn't like these developers are giving away 20% and making money on the 80%.
It's more like 20% of the units are given away as affordable, 40-50% of the units are sold at market rate just to subsidize and break even on the 20% affordable units. Then the developer is left with 30-40% of units with which to make any money whatsoever.
And I know people like to wish that builders will create housing on the goodness of their heart. But they take a huge amount of risk building these and if they only have 30% of their end product which can even conceivably make money, that doesn't leave a lot of upside to entice someone to go through all that work. Nor does it provide any downside protection in case construction hits a snag or the market dips.
You can charge $1570/month in
You can charge $1570/month in rent for 2 people in an affordable unit (typically a 1BR for 2 people) in Cambridge right now. Plenty of market rate construction is going on that is profitable at those prices.
Ok, Let's Do the Numbers Then
$1570/month works out to be $18,840 per year.
Standard expenses for rental units are around 25% of rental income. (It should be more for affordable units, as fixing a sink costs the same at $1570/month vs $3000/month but we'll be charitable and leave it at 25%.
That leaves an annual net income of $14,130 per year for this unit.
Typically, properties in these neighborhoods are valued by cap rate (typically between 5-6%). Now that's for market rate units, people are often willing to pay that much because they're projecting that it will appreciate and earn more income later. Affordable units don't but we'll still be charitable and value it as a 5.5% cap rate.
So $14,130 per year at a 5.5% cap rate is worth $256,909.
A typical new construction unit in a decent sized development costs somewhere between $350,000-$450,000 each, including land, construction, permitting costs, carry costs, everything. Given the high land cost of Cambridge, the high real estate taxes, and difficult of building in an urban area, I'd put it most likely at the high end of that range. But even if we take the lower...
So now, after all is said in done, you have spent 3 years and $350,000 to build a unit that's only worth $260,000 in the absolute best circumstances.
So to answer your question, no. It is not profitable in those rent ranges.
Upper class uses progressivism to kill middle class
The upper class uses progressive policies to attack their social competition, the middle class, and replace them with a population of servants who are no social threat.
They get away with it because the upper class has no "income". They don't do what's defined as "work".
Progressives just operate as a tool for the very rich in these cases.
It's also why the gentry don
It's also why the gentry don't want the peasantry armed or capable of affording lobbyists, political advertising, or lawyers.
soap box, ballot box, jury box, cartridge box
Lose the right to any of those and you very quickly cease to be free
Yeah right
Because your 9 mm glock is going to be so effective against the US Army.
People seem to forget that
People seem to forget that the people defeated the US military with mostly just small arms in both Vietnam and Iraq (we won the war against Saddam, and lost the war against the people).
A popular insurrection is not a linear war that is decided just by the amount of troops, planes, and tanks you have.
Aside from that, I highly doubt the US military would move on a truly popular armed uprising in the US as an effective unified force - it would have mutinies and defections of its own. See what happened to the Soviet military during the Soviet collapse.
So yes, a strong 2A allows the people to reserve the right to overthrow their government, thus leading to a stronger and more just democracy.
I can't even...
...my head is too busy hitting the table.
Your seminar on Marxism
needs polishing, me thinks. The middle class is not and never has been social competition to the bourgeois; they're simply labor, along with the rest of us work-a-day proletariat. Economic competition, maybe, but only if they let the middle class claw their way any higher up the hierarchy. By, for example, becoming landed gentry.
This is a deeply ridiculous thing to say, and you know it. Explain to me how, exactly, affordable housing requirements contribute to the economic improvement of the upper class, when you just finished arguing that it lowers the margins made by developers and in turn drives land prices down?
The residential exemption
The residential exemption helps make the majority of units more desirable as owner-occupied then as rental properties. How is that bad? In this market, there is no need for investors to own existing stock. There are plenty of buyers looking for a primary residence.
Think about it
Most people don't shop for a home by price. They shop by how much they have to spend on housing each year/month (which is why all the affordability indices and ratios are built off of income-not price)
So you have two identical houses in one market that has a residential exemption and a neighboring market without it. All else equal. What happens?
2 buyers decide they want the house in the market with the exemption. Buyer one says - oooh - $2500 savings on my taxes on say a $400k home. I'll bid $400k and put the savings in my pocket. Buyer 2 comes in and says - ooh - I'll pay a bit more in mortgage from my tax savings and bid say $420k. boom - buyer 2 gets the house with say an extra $1250 in mortgage payments - saving half the tax credit. Except - then buyer 3 comes by and says - hey I'll pay $440k for the house and put ALL the exemption toward buying the house.
so now you have 3 roughly equally qualified buyers - but the one that gets the house needs an extra $8k for a downpayment and is carrying an extra $32k in debt. If there's a downturn in the market - that can really destabilize a neighborhood (happened through most of America in the last housing boom which was on our doorstep before the financial crisis. It hadn't arrived - so we didn't get killed. All that pent up demand - and supply - has come here to roost in the past 10 years. IF there's a downturn - it won't be pretty - and part of the blame will be on the braintrust at City Hall.)
2 caveats - take the exemption if you are eligible - and if you are already a homeowner - the recent bump in the exemption is a windfall for about 15-20% of residents (less of a windfall than you might think though because the true value of the exemption decreases as your home becomes more valuable - disappearing entirely somewhere +/- $1 million). Screws everyone else - but they are either too rich to notice/care or they tend not to be voters.
In regards to residential
In regards to residential exemptions. They are not created to entice new home owners to come in. They are created to protect those home owners who bought at 200k and now their home is worth 700k but they are still working the same job they were working when they bought the home. Especially in towns/cities that had a rise in residential value versus that of commercial and industrial this could really start digging into their bottom line. It would seem unfair that someone could buy a home but then be forced out because the taxes became too much of a burden. Although these exemptions work best in areas with LOW home ownership since the burden then falls onto rentals which in many areas tend to be where the real poor people live. If you have 70 percent home ownership and dump the taxes onto the rentals then what happens is their rents go way up until a ceiling is hit and then the taxes spill back over into the owner market hitting those on the higher price points become trickling back down. That is why triple deckers and massive homes in Greater Boston see tax increases year to year even as exemptions are put in , because that spill over wipes out any savings they get from being owner occupants.
But it barely does that
If you own a $700k home, the actual benefit is a few hundred dollars at best. In the meantime you've driven up taxes for 75-80% of the population, made it more difficult for people to buy in, especially at the low end, and made home ownership more expensive and riskier for anyone that has bought in after implementing the exemption - now almost 100% of homeowners.
Well intentioned. Terrible policy.
I think the flaw in your
I think the flaw in your example is that it omits buyer #4 which is an investor looking for a rental property. That buyer will bid up the price in the town that doesn't offer the exemption. That same investor is at a disadvantage in the town that does offer the exemption.
To me, this is the biggest effect of the exemption. It makes a housing unit more likely to be owner occupied, and less likely to be investor owned. In Boston, that's a good thing.
Except the numbers don't support that theory
After decades of having the residential exemption, 70% of Boston's units are renter occupied -a number that hasn't changed in years. I guess you could argue it would be 80% without the exemption, but it certainly hasn't increased home ownership.
The big issue is that it tends to benefit single family homeowners with houses valued at 400-800k. Who owns homes like that? The mayor, city council and city employees. You wanna get elected in this town? Rule number one is take care of city employees and you are about half way home citywide and in many council districts.
Fake news
70% of Boston's units are not renters.
History of Boston Renter Fraction
Date US Massachusetts Boston, MA
2014 36.90% 38.40% 38.80%
2013 36.50% 38.46% 39.29%
2012 36.09% 37.76% 38.72%
2011 35.42% 37.87% 38.66%
2010 34.65% 37.77% 38.33%
2009 34.13% 35.79% 36.56%
2008 33.36% 35.46% 36.29%
2007 32.80% 34.91% 35.24%
2006 32.73% 35.08% 35.71%
2005 33.10% 35.95% 36.15%
http://www.deptofnumbers.com/rent/massachusetts/boston/
https://www.census.gov/quickfacts/table/PST045216/00
I think you are quoting alternative facts
Not sure how the census bureau quotes those numbers - but the assessing department has long informed me that only 30% of Boston households (about 80,000 units now) claim the residential exemption - i.e. - owner occupied - and several thousand of those even probably don't qualify (owners have moved out and are now renting). Trying to find an outside source -but this is a number that has been shared with me on multiple occasions by the assessing department (the 30% - I applied that to the current housing stock of about 275,000 units)
If you check the "quick facts" from the census bureau for Boston - it puts owner occupied units at about 34.3%
Alternate facts??
It says it right there, in the census "quick facts" you're quoting (without a link).
Owner-occupied housing unit rate, 2011-2015
63.9%
Umm - no
I think you may have the inverse or the national number. The Boston number is here:
https://www.census.gov/quickfacts/table/PST045216/2507000,25
And owner occupied rate - 2011-2015 is 34.3 (so sue me for rounding to 70% rentals! :-))
Alternative headline
Cambridge to price out the middle class.
So what you're saying is ...
You don't know who "affordable housing" is aimed at. Hint: It's neither the very poor nor the very rich, who would otherwise be the only people getting into new units in Cambridge these days.
Total Misunderstanding of How Development Works
These councilors and others like them (Somerville did the same thing and the BPDA just raised the affordable even more in Jamaica Plain) just really don't understand the barriers and inflection points they create by making these policy changes.
Everyone seems to think developers pick an area, design a project and then lock themselves into doing that no matter what restrictions a city puts on it. When really, making large scale changes like this really effect housing production in a significant way.
Sure, the massive 1000+ unit developments will probably be unaffected. But on the smaller end, things change big time. Maybe the developer builds 9 huge, high end units on a lot that otherwise could've handled 18 units because there's no point in building 18 if you have to give away 4 of them for less than it cost to build.
Eventually, if you increase the restrictions enough, people will just move on to the next town. Cambridge may believe itself to be a unique snowflake of a town but if there's more money to be made in Medford or Arlington, builders will jump ship in a heartbeat. Then nothing gets built in Cambridge and everyone has to move to Medford and Arlington to find a place to live affordably, wondering all the while why Cambridge doesn't build more affordable housing and demand the council increase the requirements further...
No, they won't just move on
No, they won't just move on because other towns have regulations to prevent too much over development. It's not all about what they can build what money can be made. Towns have their own concerns. Many other towns are tightening things up as well. Focusing only on what developers can build is not the only thing that matters in towns.
"if there's more money to be
"if there's more money to be made in Medford or Arlington, builders will jump ship in a heartbeat." Vlad, this is exactly what many of us want to see happen. Towns/cities like that are close to the urban core but are lower density compared to, say, Cambridge and Somerville, which are already some of the densest municipalities in the United States. More development in those towns would hopefully finally spur more infrastructure & transit expansion since the new density would require it and the new residents (especially if they are wealthy and inclined to exercise political power) would demand it. Cambridge already has better infrastructure (e.g., the Red Line) than the surrounding towns/cities, and the potential for expansion is limited.