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Response to Administration Proposal “Incentives and Strategies for Housing Production”

Response to Administration Proposal “Incentives and Strategies for Housing Production”. Barry Bluestone Ted Carman Eleanor White March 6, 2004 Confidential: Please control distribution. Critique of Adminstration Proposal. 1. State Tax Credit.

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Response to Administration Proposal “Incentives and Strategies for Housing Production”

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  1. Response to Administration Proposal “Incentives and Strategies for Housing Production” Barry Bluestone Ted Carman Eleanor White March 6, 2004 Confidential: Please control distribution

  2. Critique of Adminstration Proposal

  3. 1. State Tax Credit • This simply reauthorizes an existing program for the production of affordable housing • This does not provide any additional incentives beyond current ones for the production of needed housing

  4. 2. Establish CPA Trust Funds • This will provide some additional funding for housing • But only a minority of communities have passed CPA • The additional funds in the trust would incentivize only a small number of additional housing units

  5. 3. Zoning Relief for Overlay Zoning Districts • ANR – Permitting municipalities to invoke more rigorous standards over public ways could actually inhibit housing production and make housing more expensive in non-OZD areas • Grandfathering – Will stimulate opposition to OZDs by those affected outside the OZD in town, making it more difficult to pass OZDs

  6. 3. Zoning Relief for Overlay Zoning Districts (con’t) • Mandatory Clustering – Will stimulate only minimal new construction • Impact Fees – Does provide more revenue to towns passing OZDs, but added revenue will hardly cover added local costs and will conceivably increase the developers’ cost of producing new housing • In sum, modifications to 40A, while potentially desirable in themselves, can reduce total housing production and stimulate significant opposition to the passage of OZDs

  7. 4. Incentive Payments • Current proposal offers one-time $4,000 incentive for each unit of market rate housing and $8,000 for each unit of affordable housing • Problem: One-time incentive payment does not cover on-going costs of additional services related to new housing for most communities. Thus, this is unlikely to be a sufficient incentive to create enough OZDs to effectively increase the supply of housing

  8. Affordable Housing • The Romney Proposal does not include any funding for subsidizing the production of additional affordable housing. • The Romney Proposal has no mandated affordable housing in the OZDs • Without state subsidies and without mandated affordable housing, there is little likelihood of meeting the housing needs of first-time homebuyers or younger workers

  9. CHTF Approach Superior • Up-front density bonuses plus 100% assumption of school costs should provide sufficient incentive to create a surplus of zoned land to meet housing needs and moderate housing price increases • Includes mandated affordability within OZDs and provides funds for underwriting subsidies for this housing • Includes funds for community technical assistance for development of OZDs • The annual average cost of the CHTF Plan (for housing inside OZDs, including subsidy for affordable units) is $57 million (over ten years) vs. $50 million for Romney plan (without affordability)

  10. School Costs Analysis • Based on actual housing built in 1999, not denser, less expensive housing as envisioned in CHTF proposal • Based on unrealistically low estimate of school aged children per new housing unit • Based on assumption that all additional revenue goes to schools, not for other local public services

  11. Re-analysis of A&F Report - I • Given the report’s assumptions of # of additional school kids, use of current assessed values on new homes, and that all additional local revenue is used for schools, 171 communities out of 243 (71%) can afford to build new housing • HOWEVER, only 50 communities (23%) can afford to build new housing if local revenues must also cover other additional public service costs (based on existing split in revenue use)

  12. Re-analysis of A&F Report - II • MOREOVER, if new housing under CHTF proposal is more affordable and assessed at 90% of current new housing, only 153 communities (63%) can afford new housing – if all additional revenue goes for schools • AND, If assessments are 90% and revenues are split between schools and other local needs, only 43 communities (18%) can afford to build new housing

  13. Re-analysis of A&F Report - III • WORSE YET, if new housing under CHTF proposal is more affordable and assessed at 90% of current new housing and the number of school-aged kids is .74 per unit, only 66 communities (27%) can afford new housing – if all additional revenue goes for schools • FINALLY, If assessments are 90%, the number of school-aged kids is .74 per unit, and revenues are split between schools and other local needs, only 25 communities (10%) can afford to build new housing. (All of these are low-income communities where the state is already picking up the overwhelming majority of school costs

  14. SUMMARY: Percent of Communities that can afford to build new housing (N=243) Source: Simulations based on Carlos DeSantis, “Fiscal Impact of New Housing Development” (Mass Executive Office of Administration & Finance) 10/28/03

  15. Conclusion • Additional school costs are indeed a serious barrier to communities that might otherwise be willing to permit the construction of higher density housing • Dealing with this barrier head-on is likely to be the only effective way to incentivize enough new housing construction in the Commonwealth to meet current and projected housing needs

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