Staring down the barrel of a statewide housing shortage that has helped push prices to record levels, the Healey administration pitched a major boost to a tax credit designed to encourage much-needed production. 

But as Gov. Maura Healey and Lt. Gov. Kim Driscoll continue to make their case for expanding the Housing Development Incentive Program in a sweeping tax package, the program geared toward creating market rate housing faces growing scrutiny over whether it does enough to help the neediest Bay Staters. 

The Massachusetts Law Reform Institute in recent weeks has spotlighted its research concluding that HDIP dollars are disproportionately concentrated in a few “hot markets” with rents unaffordable for lower-income families, and Sen. Lydia Edwards used a hearing last week to voice her “critiques” of the program. 

“About $89 million so far we’ve committed to, throughout the program, to HDIP. That increase is necessary. However, only 2 percent of units built have been affordable. Only 2 percent,” Edwards said after noting she was encouraged to see a growth in program dollars. “So, what we’re finding is that many cities and towns are using HDIP to build senior housing to the exclusion of families, exclusion of people who need affordable units.” 

 Program Accused of ‘Luxury’ Effect  

The HDIP program, created by lawmakers and former Gov. Deval Patrick in 2010, provides both state tax credits and a local-option real estate tax exemption to developers who construct or substantially rehabilitate housing in Gateway Cities with populations between 35,000 and 250,000 that have below state average median household incomes and rates of educational attainment. 

Regulations governing HDIP make clear that it aims to incentivize addition of new market-rate units rather than protected affordable housing, but housing attorney Judith Liben argued in a report for MLRI that the program “is far removed from its original proposed concept that called for mixed-income housing targeted to distressed areas.” 

Liben researched HDIP’s progress over its decade-plus of action and concluded that the tax benefits have primarily fueled development of “market rate and often luxury housing” in Gateway Cities. 

“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,” Liben wrote in the report, which MLRI published in December and has circulated in recent weeks. 

HDIP projects have been concentrated in a few areas, too. Liben, an MLRI Access to Justice Fellow, wrote that only three cities with large projects – Worcester, Springfield and Lowell – accounted for 48 percent of HDIP units approved across all 26 Gateway Cities. 

She zeroed in on Worcester in particular, calling it a “booming city” newly home to the Boston Red Sox’s Triple-A affiliate “and many high-end projects with no need for millions of dollars in HDIP credits to attract developers.” 

“Yet Worcester has received more HDIP credits than any other Gateway municipality. Its eight projects (1,085 units total) make up 27% of the total HDIP funded units statewide and will receive 16% of the commonwealth’s total credit awards and reservations to date. One is a 228- unit project ($2.25 million in credits) adjacent to Polar Park — a developer magnet. The others include a 312-unit project ($3.8 million in credits), a 371- unit project ($1 million in credits) and a 7-unit project ($900,000 in credits),” Liben wrote. “As HDIP tax breaks for luxury housing pour into the city, local residents fall further behind.” 

Liben highlighted several examples of projects she said received HDIP credits and are now fetching sky-high prices. Worcester’s Chatham Lofts got HDIP support before opening in late 2021, and apartments there now rent for $3,000 for a luxury studio, up to $2,450 for a one-bedroom unit and $3,600 for a two-bedroom unit, according to Liben — well above Worcester’s median one-bedroom rent of $1,237 and two-bedroom rent of $1,658 for new leases. 

Several HDIP developments in Lowell now list one-bedroom units for rent starting around $2,100, compared to the city’s median one-bedroom new lease rent of $1,219, and climbing as high as $3,467. And Liben pointed out the “first ever million-dollar condo” in Salem is in an HDIP-supported building. 

Liben urged lawmakers to pause HDIP awards and reform the program to include some affordable housing requirements. 

Driscoll: Gateway Cities Want Expansion 

Massachusetts is well short of the housing supply it needs, both at affordable prices for lower-income families and at market-rate, driving costs into the stratosphere. In February, the median single-family home price statewide was $520,000. 

Healey, who also wants to create a standalone housing secretariat in the executive branch to focus more resources on the key problem, targeted an HDIP expansion in a nearly $1 billion annual tax relief bill. The report notes that the state legislature in 2022 approved a “sweeping” HDIP expansion in an economic development bill before retreating from it when the state’s fiscal picture changed. 

Healey proposed quintupling the annual cap on HDIP credits, from $10 million to $50 million, in the first year and then setting the cap at $30 million each year after that. 

“It’s an incredibly effective tool to jumpstart housing production by closing funding gaps to help support new rental housing, and new homeownership opportunities in our Gateway Cities,” Driscoll said at a Revenue Committee hearing about the bill on Tuesday. “We’ve already seen how impactful this program is. It’s led to the development of thousands of housing units in downtown areas and around transit hubs. It’s been so successful that the demand is outpacing capacity, which is why we’re proposing a significant boost.” 

Gateway City mayors have made it “loud and clear” they want a higher cap for the program, Driscoll said, tapping into her own years of experience as mayor of Salem to make her case. 

The former Salem District Court site was poised for redevelopment, Driscoll said, but during the demolition process, the property owners discovered “significant extra burdens” including a stormwater pipe clogged with concrete. 

“Today on this downtown site stands a completed mixed-use project – 61 condominiums, 10 percent of which were sold at below-market affordable rates, offering a homeownership opportunity in a vibrant downtown to community members who often never envisioned being able to purchase their own home,” she said. “None of this would have been possible without the $2 million HDIP funding request matched up by over $35 million in private funding, making for a strong public-private investment in our Gateway Cities.” 

Edwards Seeks Affordability Requirements 

Driscoll signaled an openness to amending the program even as she called for its expansion. 

Edwards, a Boston Democrat, suggested that the credits “need to come with guidelines for what you need to build.” 

“We need to meet the moment … but also say the moment requires more family housing, everybody to take advantage of the tax credit, these units need to be more affordable,” she said. “We cannot build this way. We cannot have HDIP continue this way.” 

Driscoll replied that Edwards was “spot on that we want to make sure as we think about making these investments, that we’re able to shape them more directly.” 

In past years, she said, many Gateway Cities did not have policies on the books calling for more inclusionary housing developments, and local leaders might have been “just happy to have the investment because so many places did not have market-rate development at the scale that we saw in Boston, Cambridge, Somerville or other places like that.” 

“We can get better at this and how we’re shaping it,” Driscoll said. “The one thing I hope is not lost is that typically, our Gateway Cities have only had low-income housing or affordable housing development … And this program really offered, as you well know, the opportunity to have that mix, to be able to have your downtown center have market-rate units that can support vibrancy, as well as the communities that can support communities. And how we get better at that, I think, is definitely a conversation we want to engage in.” 

HDIP Foes Do Battle with Healey Admin on Beacon Hill

by State House News Service time to read: 5 min