Should state dollars be used to jumpstart market-rate housing construction? 

THERE IS BROAD agreement that Massachusetts desperately needs to build more housing, but should state government be subsidizing the construction of market-rate units?

That question is at the heart of a fierce debate taking shape over a program launched more than a dozen years ago to spur housing production and economic growth in the state’s Gateway Cities. It’s been playing out through dueling op-eds and policy reports and is about to face scrutiny on Beacon Hill where the Healey administration is asking the Legislature to expand the program, while some lawmakers are looking to remake it into a vehicle for producing more affordable housing. 

Since it was launched in 2010, the Housing Development and Incentive Program, or HDIP, has provided about $90 million in tax credits to developers of roughly 2,700 housing units. Supporters say the $10 million annual expenditure has been a small, but efficient, driver of housing production, particularly in historically “weak market” urban centers outside the Boston region, where developers often need help making even market-rate projects financially viable. 

Critics say it is irresponsible to use taxpayer dollars to help juice market-rate construction without also requiring affordable units as part of HDIP projects, especially as the housing market has taken off in some Gateway Cities. 

Those advocates point to a report issued late last year by the Massachusetts Law Reform Institute arguing that the housing program is out of step with regional needs. “As the affordable housing crisis in Gateway Cities spirals out of control, HDIP millions subsidize only unaffordable housing, with rents that can be shockingly high and no limits on increases,” wrote Judith Liben, a housing attorney and author of the report. 

HDIP’s tax credits are only available for projects in Gateway Cities, a set of 26 mid-sized urban centers across the state. The program offers limited-term tax credits or tax exemptions to developers who are doing new construction or substantial rehabilitation for multi-unit market-rate housing projects. 

With a 200,000-unit shortfall of housing across the state, Gateway City leaders say urban downtowns outside of Boston are struggling because sky-high construction costs are stalling needed redevelopment. While it may seem like new construction is popping up everywhere, “in our downtowns and neighborhoods, we continue to wrestle with a number of long-vacant lots and buildings, empty storefronts and quiet upper floors,” wrote Liz Murphy and Aaron Vega, economic development directors in Fitchburg and Holyoke, in a recent CommonWealth op-ed.

HDIP is the only state program targeting market-rate housing, while Healey’s proposed 2024 budget includes half a billion dollars for affordable housing programs.

On a basic level, HDIP is not pitched as an affordable housing initiative, but as one tool in the toolbox for increasing housing supply across income brackets. In fact, projects approved for HDIP funds can have no more than 20 percent of their units set aside as lower-cost affordable housing and no affordable housing is required. 

In practice, just 2 percent of units built through the program qualify as “affordable” housing, according to the Mass. Law Reform Institute report. 

What’s more, the report says, some of the market-rate projects built through the program now charge rents far above the median in their community. It cites a Malden project with rents for two-bedroom units as high as $5,935 per month, and a Quincy development where market-rate rents are as high as $2,815 for a one-bedroom apartment and $3,230 for a two-bedroom unit.  

The HDIP program has received strong backing from MassINC, the public policy research center that shares a parent organization with CommonWealth. “HDIP is the state’s most efficient housing development program to date,” MassINC said in February. The research center said the program has yielded 2,687 new units in Gateway City downtowns and transit areas, at a cost to the state of less than $24,000 per unit. It estimated that the proposed funding increase could lead to 12,500 new homes over the next decade and investment of nearly $4 billion in Gateway Cities.

So far, that benefit has not been equitably spread throughout the Gateway Cities, Liben wrote in her report for Mass. Law Reform. Worcester, Springfield, and Lowell have accounted for almost half of all HDIP units approved, she wrote. 

Even if the projects so far have been concentrated in a handful of communities, there is broad support for the HDIP program in Gateway Cities. Leaders of the communities argued for more HDIP funding in a February Boston Globe op-ed.

“HDIP is a powerful tool to jump-start additional housing development that contains a mix of market-rate and affordable units based on project agreements negotiated by local government,” the city leaders wrote. “In this way, HDIP offers a cost-effective path to build much more housing than the government or private sector could do alone. In fact, the program’s modest subsidy unlocks housing units at about one-twelfth the cost of traditional programs. This relaxes pressure on the housing market and makes housing more affordable for everyone in Massachusetts.”

Not all Gateway City officials are on board with the idea of expanding the program in its current form. Leaders in Chelsea recently decried the lack of any affordable housing requirement in the HDIP and called for modifications to the program to ensure some units for lower-income tenants. “It’s imperative that these changes are codified before the program experiences an unprecedented increase in funding,” they wrote.

Fitchburg and Holyoke leaders said their communities already contend with concentrated areas of low-income housing. More than 75 percent of downtown Fitchburg housing units are income restricted, they say, something that HDIP’s market-rate focus can help to balance. 

“Holyoke faces similar challenges as we struggle to repopulate our downtown with a mix of affordable, workforce and market rate housing opportunities,” they wrote in their recent op-ed. “Since Holyoke lacks housing options for a range of incomes, we often find that people leave the city as they move up the economic ladder.”

One key HDIP supporter is a former Gateway City mayor who is now one of the state’s most prominent voices. Lt. Gov. Kim Driscoll, who served almost 17 years as mayor of Salem, has raved about HDIP’s benefits. 

The administration is proposing $50 million for the program for this year to clear a backlog of developer interest in launching projects, to be followed by an annual appropriation of $30 million each year afterward. 

For her part, Liben, the Mass. Law Reform housing attorney, said she “wanted to start a discussion” on the HDIP program with her recent report. “There are troubling aspects and it could be fixed,” she said. “I didn’t say ‘end it.’” She thinks HDIP could be transformed to better respond to the increasingly dire housing affordability crisis.

Liben’s report also criticizes the state for failing to put out statutorily required reports on the HDIP program each December, which would make it easier to evaluate the program’s impact. 

The Department of Housing and Community Development is currently “reviewing reporting requirements” for the program.

Three bills responding to the issues raised by the Mass. Law Reform report are before the Legislature’s Joint Committee on Housing, proposing similar changes to the HDIP formula. 

One of them, put forward by Sen. Jamie Eldridge of Acton and cosponsored by Housing co-chair Sen. Lydia Edwards of East Boston, would require 20 percent of the units in HDIP projects to be made affordable. 

While he is open to adjusting the affordable housing ratio, Eldridge said he feels strongly that affordable units must be included inside HDIP projects. He also pointed to Gateway Cities like Quincy and Worcester, which have seen lots of market-rate construction without significant state funding, unlike communities like Holyoke. 

“A day doesn’t go by without a developer proposing a high-end development project without any subsidies,” Eldridge said of Worcester’s housing boom. “So I would argue that, why would we want to use taxpayer dollars for development there if it’s already happening without taxpayer dollars. We could use those precious dollars for others.”

The Legislature will have to decide which version of the HDIP story to tell.