Worcester Regional Chamber of Commerce: Inclusionary zoning right move for housing in city

The Worcester Regional Chamber of Commerce is in support of inclusionary zoning, a requirement for new multifamily developments to build certain numbers of affordable units. The chamber supports the draft ordinance proposed by the city administration, and we believe that it will provide residents with affordable housing and developers with the necessary incentives and options to make it work for their project budgets.

Part of the ongoing public discussion with inclusionary zoning has circulated around mandating that multifamily developers only build affordable units for households earning 60% area median income or lower, as opposed to including both 60% AMI and 80% AMI together. Based on our research and conversations with stakeholders, we cannot support excluding households earning at the 80% AMI threshold from being able to benefit from this zoning.

The sliding scale method that the draft ordinance employs – 10% of units at 60% AMI or 15% of units at 80% AMI or some combination thereof – provides enough options for developers to make decisions according to the overall size of individual developments and the makeup of units with different numbers of bedrooms.

The fact that the city is either using HUD’s Fair Market Rents or the monthly cost that does not exceed 30% of the household’s income – whichever is lower – as the rent limit for both 60% and 80% AMI is a significant factor in ensuring both are viable options to construct. This effectively brings the developer’s revenue impact of constructing 60% AMI and 80% AMI much closer together. With this strategy, many different combinations of unit sizes and income levels are possible, and it brings 60% AMI into serious consideration for developers.

Because the city will set a limit at whichever rent is lower between the two rates, developers can elect to build a mix of both 60% and 80% AMI for their affordable housing requirement at the same exact cost as it would take to build all 80% AMI units. And for developers that get enough subsidies from local, state and federal sources, constructing all 60% AMI is possible as well.

As a result, we will likely see many developers opting to mix in both 60% and 80% AMI, and we are confident that the city administration will encourage developers, as will the chamber, to build at the lower AMI levels when it makes no difference to the project budget. This is the best path forward to ensure meaningful additions to housing at the 60% AMI level, since just 60% alone will take a much larger amount of subsidy citywide and will end up being a deterrent to development.

Excluding the 80% or lower AMI level prevents more than 10,000 low-income households in Worcester from being able to benefit. Crucial occupations for our economy and community such as health care assistants, mechanics, transportation workers, social workers, health care social workers, guidance counselors and others all earn within this level of AMI.

It is also important to note that every new development will require some type of subsidy to accommodate the required affordable housing’s impact on their project budget. Lenders and equity investors will not fund projects that are not financially feasible, so even if developers wanted to be in Worcester, they would not be able to build here without significant taxpayer-funded subsidies. Incentives and zoning relief can offset some of the costs, but not all. Zoning relief measures, such as easing dimensional and parking requirements, can only go so far.

Inclusionary zoning has the illusion of being free to the taxpayer. But publicly funded subsidies are required for below-market affordable housing, especially with construction costs and interest rates seeing the highest increases in decades.

Even some market-rate developments in Worcester require subsidies to make them possible. Just as an example, the two largest underway multifamily developments in Worcester, the ones being constructed by Madison Properties and Wood Partners, both have tax increment exemption agreements with the city and are accessing state-level tax credits. This program is referred to as the Housing Development Incentive Program, a state subsidy for market-rate development in gateway cities like Worcester where rents are far below the Boston area’s rents.

Tax increment exemption agreements, however, are not applicable for every project. Housing Development Incentive Program tax credit allocations for this program are completely backlogged due to a lack of funding, with $57 million worth of credits waiting for years to be allocated to developers. The Chamber has advocated and worked with legislators to try and fully fund the Housing Development Incentive Program, but the program’s inability to provide subsidy is something to consider for inclusionary zoning.

To effectively combat Worcester’s housing crisis, the primary objective should be to build more housing in general. Worcester only constructed 10,000 units of housing for 25,000 new residents in the last decade.

And currently, out of the 75 most populous metro areas in the United States, the Worcester area has the eighth lowest rental housing vacancy rate. This is driving our affordability issues.

Production of new housing will alleviate upward price pressures, improve the quality of housing, and – when combined with investments in rental assistance and first-time homeownership – can help lower-income households that are facing unthinkable circumstances like displacement.

While inclusionary zoning can be a great complementary tool, it has to be employed the right way to actually provide meaningfully affordable housing opportunities. The city’s draft ordinance, created using input from other municipalities with inclusionary zoning, subject matter experts, researchers, and community members, is how we successfully implement inclusionary zoning.

David Sullivan is director of economic development and business recruitment at the Worcester Regional Chamber of Commerce.