Everywhere one looks these days it seems construction cranes are returning to the downtown Boston skyline after a marked absence during the economic downturn of the past few years. From the resurrection of the former Filene’s parcel in Downtown Crossing to new high rise, multi-use projects taking shape in the Back Bay, Chinatown and the Seaport District, real estate developers are beginning to show confidence again in the Boston real estate market.
While many Boston area developers of large headline-grabbing projects are familiar with the complex permits and approvals process they must adhere to when shepherding their projects through the public approval process, smaller developers, developers looking to expand their business into larger projects and out-of-state developers who may be taking a second look at the Boston market may not be aware of some of the hurdles they will face.
One of these hurdles is the possibility that developers may be required by the city to include affordable housing as a component of their project.
Affordable Housing Policy
Generally speaking, there is a diminished market incentive for developers to invest in the creation of affordable housing because the return on that investment is generally lower than what can be achieved in a development that does not include an affordable housing element. The City of Boston recognized that because of this, without some government intervention, the city could face a shortage of affordable housing for its residents. The city therefore, devised a policy to distribute the cost of developing affordable housing to private developers of large housing projects within the city.
In February 2000, Mayor Thomas Menino issued an executive order that required any project undertaken or funded by any agency of the city or developed on city property that proposes 10 or more housing units to make no less than 10 percent of those units affordable to moderate-income and middle-income households. Additionally, the Mayor’s order required any developer of private property proposing a project with 10 or more housing units, and seeking relief of any kind from the Boston Zoning Code, to make 10 percent of the units in those projects affordable to moderate- and middle-income households. If developers choose to include the requisite affordable units on or off-site, 50 percent of those units must be affordable to households earning less than 80 percent of the metropolitan-area median income and no more than 50 percent of those units may be affordable to households earning between 80 percent and 120 percent of the metropolitan-area median income.
Additionally, the units must be comparable in size and quality to the average of all market-rate units in the development, and developers will need to ensure long term affordability of these units.
Off-Site Options
While the city prefers to see affordable units included on-site, the mayor’s order does allow alternatives for these developers. Rather than including affordable housing elements within their projects, developers can instead provide a number of affordable units off-site, at a different location, equal to 15 percent of the total number of on-site units in the project. Another option is making a cash contribution to an affordable housing fund in an amount equal to an estimate of the development cost for each affordable unit of housing , multiplied by 15 percent of the total number of units within the proposed project.
Originally, this Affordable Housing Cost Factor was $52,000 per unit, but it has been adjusted each year, and currently stands at $200,000 per unit.
Developers proposing to use one of the alternative methods of meeting the city requirements must also demonstrate a need to use such alternatives and the benefit such alternatives would provide to the city.
The Boston Redevelopment Authority (BRA) further defined the guidelines for any applicant seeking approval of the BRA for a new project that triggers this affordable housing policy. The BRA reviews and approves proposals for meeting the city’s affordable housing goals.
Affordability Guidelines
So what makes a unit affordable, and where does the city draw the line when determining the income levels for moderate and middle-income households?
The city uses federal guidelines to determine these numbers. As of 2012, if the affordable units proposed will be rental units, they can be rented to a family of four with a maximum income of no more than $68,450; the maximum rent that can be charged for a two-bedroom unit for such a family is $1,237. If the affordable units will be sold, they should be affordable to a family of four with a maximum income of no more than $78,250; the maximum sales price for a two-bedroom unit for such a family would be $197,100. These numbers vary depending on the size of the units and the number of family members.
Meeting the affordable housing policy guidelines of the Boston Redevelopment Authority is just one of the many considerations a developer of a large mixed-use or residential development in Boston should be aware of. Developers of these projects would be wise to consult with their attorney early and often throughout the development process, as the permits and approvals process for such projects within the City of Boston has its own complex legal framework.
