What Gateway Cities need is more market-rate housing

SIXTEEN GATEWAY CITY mayors and managers recently penned an opinion piece in The Boston Globe urging the Legislature to scale up the successful Housing Development Incentive Program, a tool designed to build more workforce housing in small cities across the state. MassINC estimates that doing so can create up to 12,500 units of housing, bringing $4 billion worth of direct housing investment over the next 10 years to the places that need it most—small downtowns served by public transportation, from Pittsfield to Fall River.

However, several local leaders and municipal officials from Chelsea offered a different view in CommonWealth that seems to contradict that advice. To be clear, the authors do not oppose the Housing Development Incentive Program, or HDIP. They support the program but endorse legislation that would require at least 20 percent of each project to be income-restricted affordable units.

That might sound appealing, but doing so would be devastating to nearly all Gateway Cities, especially communities like ours in Holyoke and Fitchburg, where private multifamily housing investment would dry up. It would also sabotage the purpose of HDIP, which was designed to facilitate market-rate housing in challenging areas and build functioning real estate markets. HDIP very efficiently builds workforce housing at a public cost of about $23,000 per home versus over $400,000 or more per income-restricted affordable unit. A requirement to include income-restricted units fundamentally changes every project’s ability to find financing.

Income-restricted affordable units need to be part of the state’s housing strategy, but they are not the main solution to our housing shortage. Analysis by CHAPA, the state’s leading affordable housing advocate, suggests that Massachusetts must build 200,000 new homes by 2030, and that 140,000 of them need to be market-rate.

Many people in the Boston area remain unfamiliar with conditions in other regions of the state, where the reality is different. In our downtowns and neighborhoods, we continue to wrestle with a number of long-vacant lots and buildings, empty storefronts and quiet upper floors.

Outsiders might think that nobody wants to build in Holyoke and Fitchburg because they don’t see much obvious development, but this could not be further from the truth. We have many property owners who would like to renovate their buildings, and many developers eager to build more housing. But the gap between construction costs and rents in our communities makes it all but impossible to finance. Banks often won’t provide loans for market-rate housing because it’s too risky. The numbers don’t add up when debt exceeds rents and property value.

Here’s a recent “success story” from Worcester, a city hailed as experiencing a boom: One recent housing project cost $31 million to complete, whereupon it was immediately assessed at a value of only $17 million. Under these conditions, successfully completing a project can feel almost miraculous.

If we can’t build market-rate housing, what’s the alternative? We’re living it—you have to get in line for state affordable housing dollars. When this happens, three things result:

1. We concentrate poverty, which reduces health and quality of life;
2. Our downtowns stagnate because we lack a mix of incomes that can support restaurants and other small businesses; and
3. We build very little new housing, because income-restricted housing projects are complicated to finance, there’s a years-long wait for funding, and permanently subsidized units are very expensive.

Fitchburg’s downtown illustrates these challenges. In an area where over 75 percent of the existing housing units are income restricted, there is significant potential to convert vacant upper story office space into new homes, but we desperately need financing tools like HDIP to make these conversions work. Holyoke faces similar challenges as we struggle to repopulate our downtown with a mix of affordable, workforce and market rate housing opportunities. 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.

Furthermore, building income-restricted affordable housing requires experienced developers with deep pockets to manage state and federal program requirements, and to hold a property for years before it generates any revenue. This means we’re boxing out our local developers, the minority-owned and family companies who are part of the community. We’re preventing them from building wealth and improving their hometown.

HDIP is the state’s only program that provides a small subsidy to developers in order to help them secure financing for market-rate housing deals. The numbers don’t lie. To date, 91 percent of all HDIP funding has supported housing projects outside of metro Boston in exactly the places that need this kind of investment.

HDIP may be one of the only state programs tailored to the needs of regions outside the metro area. It’s certainly one of the most successful, a rare example of a program not looking for a “fix.” Expanding it, as Gov. Maura Healey proposes, will support a renaissance in small city downtowns. Former governor Charlie  Baker and legislative leaders were poised to pass it last year before the $3 billion tax rebate paused further tax changes.

The fact is that we, as a state, need to build more housing at all income levels in order to make housing more available and affordable overall. The high end of the market will take care of itself, while government will continue to invest as much as possible in the lower end, but we also need to unlock the middle.

The existing market-rate housing in Gateway Cities, most of it built decades ago, provides many affordable homes for families displaced from Greater Boston. Let the Legislature expand HDIP under its current rules so that we can build additional market-rate housing that supports local businesses and new jobs, stabilizes our tax base, and enlivens our downtowns.

Liz Murphy is the executive director of community development and planning for the city of Fitchburg.  Aaron Vega is the economic development director for the city of Holyoke.