With high interest rates, rising construction costs and high commercial vacancies all slowing development, Boston Mayor Michelle Wu is proposing changes to the city’s affordable housing requirements in an effort to get more projects off the ground.
The proposals would ease some financial obligations for developers while maintaining the city’s commitment to creating affordable housing.
“In the face of continued economic headwinds exacerbated by federal actions, we are making targeted adjustments to help more projects move forward and create more affordability,” Wu said in a statement announcing the proposals this week.
City officials said the adjustments are meant to make projects financially feasible in the current economic environment, helping developers secure investors and financing without abandoning the city’s affordable housing goals.
“When we analyze these changes, it does help developers realize feasibility, allowing them to get investors and allowing them to go to the bank and finance their projects,” said Sheila Dillon, Boston’s chief of housing.
Dillon said the city decided to look at how it could update the program after hearing from developers over the past year and a half that affordability requirements were putting “an additional strain” on their market-rate projects.
“We wanted to continue to ensure that our market rate development was contributing to our affordable housing issues in the city of Boston,” said Dillon, “So we’re looking for ways that we could update the program and still ensure that we’re getting resources to house our more vulnerable residents.”
Boston’s Inclusionary Zoning program requires certain developers to contribute to affordable housing as part of their projects. They generally meet the requirement by including income-restricted apartments or condominiums in their buildings.
In some cases, developers can instead make payments into the city’s affordable housing fund.
Those payments help offset the difference between the market price of a home and what an affordable unit would go for, creating funds for the city to support affordable housing elsewhere.
Under Wu’s proposal, the so-called “condominium payment-in-lieu fee” would drop from 75% to 50% of that price difference.
Mayor Wu also wants to temporarily increase the minimum project size that would trigger the requirement from seven units to 10.
Dillon said the city saw a drop in smaller developments after lowering the threshold to seven units in 2024. In the four years before the change took effect, Boston averaged 144 permitted units a year with seven to nine units. Since the threshold took effect, only eight have been permitted.
“I am hopeful that this small change will actually unleash a lot of the smaller projects that we were seeing at a healthy rate prior to the change to a seven-unit threshold,” Dillon said.
The proposals also address large commercial developments. Currently, those projects are also required to pay fees into an affordable housing fund based on the size of their project. The Wu administration wants to spread out those payments over a longer timeframe, reducing the amount developers must pay upfront and easing the initial financing pressure.
For some developers, the changes could make the difference between moving ahead with a project or putting it on hold. Phil Cohen, a principal at Boston Communities, a developer of affordable and mixed-income housing, hopes generates more resources for affordable housing.
“Boston needs more affordable housing, and thus requires more inclusionary funding. We believe these changes will lead to more market-rate development which will help satisfy this need.” said Cohnen.
But some housing policy experts question whether these adjustments to developer fees will do enough to address the city’s affordability and construction challenges.
Evan Horowitz, executive director of Tufts University’s Center for State Policy and Analysis, said Boston’s reliance on developers to help subsidize affordable housing sets up an unavoidable tension: The city needs the funds, but the reality is that builders won’t build if they can’t make a profit.
“One path the city’s on says, ‘we do this by forcing developers to subsidize that housing.’ And the developer is saying, that’s fine, but then we can’t build. Like, that’s, that’s the impasse we’re at.” Evan Horowitz, executive director at the Center for State Policy Analysis at Tufts.
He argued that in the push and pull between developers’ bottom line and the need to pay for affordable housing, these changes may not move the needle much.
“This is one of those cases where both sides may be able to live with this, but it doesn’t actually change the status quo on the ground in a significant way for anybody,” Horowitz said.
City officials expect to present the proposals to the Boston Planning and Development Board later this week. The changes would also need review by the City Council.
