Housing Policy Summary

Since it was signed in August, I have been working to quantitatively assess the reach of our recent major housing bill. This post summarizes findings which point to an important conclusion: Even with ambitious state investment in subsidized housing, we can subsidize only about 10% of the new housing units that we need to bring down rents and home prices. High rents and home prices are driving our young people out of Massachusetts. We need to make Massachusetts a place that attracts developers to build enough market housing that the laws of supply and demand put meaningful downward pressure on rents and home prices.

Vocabulary

Housing finance is complicated. In the discussion below, we will divide the universe of all housing in Massachusetts into three broad categories. The categories sometimes blur into each other, but not to a degree that distorts the points made below.

• “Public housing” is rental housing owned by any of the 242 local public housing authorities in Massachusetts. Some public housing is supported by state funds and some by federal funds and some by complex combinations of state and federal funds.
• “Subsidized housing” is privately-owned but subsidized with tax credits, soft debt, grants, rental assistance or other assistance from any level of government. Subsidized housing units are mostly rental units with reduced rents, but also include a few owner-occupied units. Note that subsidies may support construction, operation, and/or maintenance.
• “Market housing” — private housing housing built and operated without direct government financial support, including
  • owner-occupied units (including single-family homes as well as condominium units in multi-family buildings)
  • privately owned rental units, mostly rented at market rents. A market project could include some units with reduced rents where inclusionary zoning applies.

We use the terms “housing” and “housing units” interchangeably and both terms include single-unit/family as well as multi-unit/family dwellings.

Quantitative points

It is useful to understand how big each of these categories is and how they are trending:

1. There are a little over 7 million people in Massachusetts, living in a little under 3 million housing units, of which approximately 1 million are rented.
2. Massachusetts has low rental vacancy rates and a shortage of housing units available for purchase.
3. To accommodate expected growth and to alleviate our current housing shortage, we need to build about 200,000 housing units across all categories during the current decade. This is an historically achievable pace, but we have been running somewhat behind that pace for the past few years.
4. We have approximately 70,000 public housing units in Massachusetts — roughly 2% of all our housing units.
5. Our supply of public housing is stable — we are not adding to it; the challenge is to maintain it. Our recent housing bill elevates real maintenance spending for public housing considerably above historical levels.
6. We have approximately 300,000 subsidized housing units in Massachusetts. These are mostly rental units and comprise roughly 30% of our rental housing units and 10% of all our housing units. Our count of subsidized housing units includes approximately 85,000 housing units that are nominally market housing units but are occupied by tenants with mobile housing vouchers.
7. We have been producing approximately 2,000 to 2,500 subsidized housing units annually in recent years. Available statistics are incomplete as to how many of these are new units, as opposed to rehabilitated units.
8. Our recent bill substantially increases direct funding for development of subsidized housing and we have separately increased tax credits for subsidized housing. However, despite our substantial investment, inflation in construction costs is large enough that we should expect to roughly continue our current level of subsidized housing production.
9. All together, all forms of housing support through our recent bill or existing state and federal programs will likely subsidize production of roughly 12,000 units over the next five years.
10. In other words, out of the 100,000 housing units that we need to produce over the next five years (really we need to produce more to catch up with anemic production for the past few years), roughly 90% will need to come from market housing production.

Policy points

The level of state housing subsidy (tax credits, soft debt, grants) that we have committed to over the next five years is politically maximal — we cannot expect to increase state housing spending, nor can we expect much more help from the federal government. Our recent housing bill does include a number of policy measures to support market housing production: funding for local infrastructure improvement, authorizations for development of public property, statewide approval for accessory dwelling units, and measures streamlining local zoning. The Governor’s Secretariat of Housing and Livable Communities has estimated that these measures could help add approximately 21,000 additional units over the next five years. Of course, the other high profile policy measure designed to increase housing production is the MBTA zoning bill that we passed in 2021 and was recently upheld as enforceable by the Supreme Judicial Court. It is perilous to guess how much housing production will result from any of these measures. I do not mean to discount the possibility of success; just to acknowledge that there are many variables (notably, interest rates) that interact with any particular policy measure, making consequences hard to predict.

Three things are clear:

• Most of our housing production has to come from market housing development.
• Private housing capital is mobile. I have reached out to a number of developers to gain a better understanding of what drives their production decisions and most of them invest in multiple states and/or countries, depending on where the project opportunities offer the highest returns and lowest risk.
• There is a general perception, hard to quantify but well supported by credible anecdotes, that while Massachusetts offers great investment opportunities, Massachusetts is a complicated place to do business and that housing production approvals are much slower and more uncertain than in many other places. Delay and uncertainty discourage housing investment.

We need to be looking for additional ways to simplify the development process (including the construction process) for market housing. It is important to acknowledge that Massachusetts has made the development process complicated for lots of good reasons — tenancy preservation, local neighborhood planning, local fiscal considerations, wetlands and open space protection, climate goals. Our conversation about how to simplify will continue over the years to come. Central in that conversation will be the issue of density: Whether, where, how, and at what scale we can fast track apartment buildings. Apartment buildings offer the best chance of simultaneously meeting housing and climate goals. An important contribution to that conversation will come from the Governor’s Commission on Unlocking Housing Production.

While I am cautious about any proposal that might make Massachusetts less attractive to housing production (like rent control, TOPA, and the transfer tax), I was pleased to support measures in the Affordable Homes Act to help:

• Tenants — eviction sealing, expanded condo conversion protections, new voluntary alternative to up-front security deposit, Office of Fair Housing, protections for tenants in local housing development
• Homebuyers — buyers’ right to inspection, increase in homestead exemption, foreclosure prevention pilot program, condominium board process improvements, registered land administration improvements.
• Veterans — supportive housing program, preference in inclusionary zoning
• Seasonal communities — geographic equity in spending, seasonal communities designation, seasonal communities advisory council

One additional measure that we unsuccessfully proposed last year, which I hope we can return to this year, is the prohibition of forced payment of brokerage fees by tenants.

Data gaps

Available data from the Census may be misleading as to which income groups are experiencing the greatest housing shortage. The American Community Survey — the annual Census data product that explores issues like rent burden — may not accurately capture the economic situation of tenants. In particular, it appears not to adequately reflect the housing subsidies that many of the lowest income tenants are receiving. As a result, studies based on the Census data tend to define our housing problem as one that mostly affects extremely low income people. A line of research that I hope to continue to develop tends to support a view that the greatest gap is for moderate income people. I also hope to improve visibility into the mix of units that we are subsidizing; available data are incomplete and there are many fair questions to ask about how to help the most people through the housing subsidy investments that we are making.

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