Frequently Asked Questions
Developers are making huge profits by building $700,000 condos in our neighborhood. Shouldn't they be able to afford much higher ratios of deeply affordable housing?
Development in JP is fairly profitable, but not as much as you might think. It is also fairly risky because costs are unpredictable and the approvals process for a large project can sometimes take years. Even the JP Neighborhood Development Corporation (JPNDC), one of our local non-profit, affordable housing developers, has stated in their public presentations that construction costs average between $400k and $450k per unit so the costs of these subsidies can add up quickly, especially if we want to provide housing that will be affordable to people making the median income for the JP/Rox study area, which is around $35,000 per year. Most in JP become too unprofitable to attract investors once affordability ratios rise above around 18% of units being affordable to people making 60% of the area median income (although there is quite a lot of variability).
Why don’t we just demand that developers take lower profits?
Housing development is a form of investment, and like any investment, it must turn a profit in order to attract investors. In fact housing developers have quite a few ways to avoid paying for affordability ratios that they deem too costly, but all of them ultimately result in fewer units of housing (both affordable and market rate) being built overall. In fact this is already quite commonplace in JP: In order to trigger the requirement that a project include some number of affordable units, it must have more than 9 units and it must require some form of variance from the zoning code (usually height, parking, floor area ratio, or all of the above). If the combination of high affordability requirements and short building height limits makes it more profitable to build 9 or fewer units within the existing zoning requirements, developers will usually choose to do so. The result is a fairly low density building, often with an entirely or mostly paved yard, and zero affordability. Final sale prices are also generally very high because the existing zoning’s floor area ratio limits, height restrictions, and parking requirements tend to favor a smaller number of units with greater per-unit square footage. (Some examples in the neighborhood of “as of right” projects like this: 44 Forbes St, 1-5 Danforth St, 213 Lamartine St, 266 Lamartine St with many more currently under construction).
What do YIMBYs think about developers splitting up large projects into multiple smaller ones so as to avoid affordability requirements?
Although this tactic tends to be frowned upon by public officials and members of the public alike, it is generally considered legal. In fact this tactic is just a particularly egregious version of something that happens all the time, which is that a developer will downsize a proposed project to 9 units or less and then just develop another project somewhere else in the area. It’s only when the projects are in close proximity to one another that anyone tends to notice what’s going on. This behavior is really an inevitable byproduct of the way our inclusionary development policy (“IDP”) is set up. When the IDP requirements were last officially updated, it was assumed that projects with more than 9 units would garner enough additional profit to more than offset the cost of making 13% of the units affordable to those making 70 percent of the area median income. Over the years, however, as the cost of construction has gone up and the city has pushed developers to include higher levels of affordability, the number of market rate units required to offset the cost of the affordable units has also increased. As that number goes up, the number of medium sized projects that would actually be more profitable as several smaller projects also increases. Right now the cutoff for this seems to be around 18 total units. So for example, the expected profit from a building with 21 units (18 percent of which are affordable), is greater than that of 3 buildings with 7 units each, but the expected profit from a building with 18 units (18 percent of which are affordable) is less than that of 2 buildings with 9 units each. If you look around at projects currently underway or in review around JP, you will notice that there are very few (usually zero) with unit counts below 18, probably for this exact reason.
No. This is a myth. It is often assumed that when a new development opens up and advertises astronomically high rents (which, it’s important to note, the initial tenants in those buildings rarely end up paying), landlords of adjacent buildings will see that prices in the neighborhood have gone up and they will jack up the price of their existing units. The MAPC conducted a study in 2017 showing that for units built prior to 2011 (aka. “Existing stock”), rents had been relatively stable even while the sticker prices of new units coming on the market appeared to steadily rise. In reality there are a lot of factors that go into deciding what tenants are willing to pay for an apartment (size, access to transit, walkability, quality of the fixtures, etc) and proximity to new luxury developments just doesn’t rank high on the list.
Doesn’t building $700,000 “luxury” condos actually make existing housing less affordable?
The answer to this is really two fold:
First, the effects of building (or not building) luxury housing do, for lack of a less politically volatile phrase, tend to trickle down to the middle class. When wealthy buyers can’t find the housing they want ready-made, they don’t just move to another city. Instead, they tend to buy older “fixer upper” units, far cheaper than what they could afford, and then pour money into renovating them. In fact condo-flipping, which has become a fairly robust industry here in Boston, is built around doing exactly this: Buying housing that would be “naturally” affordable to the middle class, fixing it up with lots of nice, new features, often with upgrades to utilities, appliances and parking, and selling it to much wealthier buyers. By building luxury housing directly, we remove some of the incentive for people to flip these older units, which means they remain available for middle class people to buy and rent.
Second, and this is sort of related to the first part, homes, like cars, tend to be more expensive when they’re new. The average price of a new car sold in the US in April of 2017 was $33,560. For someone earning the US median income of $51,939, a $34,000 car is pretty much out of the question. So how can this be? It turns out that most Americans don’t drive new cars, they drive used ones. By the same token, most middle class people do not live in brand new houses, they live in used ones. We need to keep building new homes so that we can ensure that there will be a steady supply of used homes later on down the road.
But we have a shortage of middle class housing. How does building $700,000 luxury apartments actually help?
Apart from subsidized housing, parking is one of the most expensive requirements that we impose on new development in Jamaica Plain. A covered parking space adds an average of $25,000 per space to the cost of a project and underground parking can add an average of $31,000 per space with costs jumping much higher if excavated soil requires toxic waste processing (as is often the case with parcels along Washington Street). But construction cost is really only one way that parking adds to the overall cost of housing in the area. Perhaps the biggest factor is how parking requirements tend to limit the overall size of the project that can be built. Because of its high cost and low revenue stream, developers (especially those that expect to build some amount of affordable housing), tend to avoid building multi-story or underground parking facilities.
How does parking affect the cost of housing?
It is often said in planning circles that the best transportation plan is actually a good land use plan. The goal of a good land use plan should be to help as many people as possible get around entirely by walking. To do this we need to make sure that we allow enough office space so that employers could locate here, enough housing so that there is a reason for employers and retailers to locate here, and enough retail space to provide all of the services that people living in that housing are going to need, and to keep retail rents affordable so that all kinds of retailers can locate here. Setting it up this way helps make it so that more people who live here do not have to get on the train or drive a car to go to work, buy groceries, or go to the hardware store.
Of course some people are still going to need to leave the neighborhood sometimes, so it is also important to consider that the Orange Line is expected to receive 154 new train cars starting in 2018. This is a substantial increase from the nominal capacity of 120 cars in use today, and an even bigger effective increase once you count the number of cars that are regularly taken out of service because of their extreme age. In short, Orange Line service should improve markedly once the new train cars start to arrive.
Lastly, the region is growing whether we like it or not. People who cannot find housing in the city will usually end up living in the suburbs where they will be forced to drive to work. They will, of course, be doing this on roads, most of which are paid for out of the same coffers that would otherwise be used to improve service on the MBTA. In other words, by making it harder for people to locate near the train and get around on public transit, we do not eliminate the problem, we just shift it to an area where it is even more expensive to address, both in terms of dollars and pollution.