Local leaders work to increase affordable housing access.
It’s hard to find an apartment in Boston – let alone make rent. With record low housing inventory translating to rent increases that outpace wage growth, 50% of Boston renters spend more than 30% of their income on housing. Rising rents have coincided with increasing economic inequality, bringing the accessibility of affordable housing to center stage ahead of November’s City Council elections.
Nationwide, a decade of historically low interest rates following the Great Financial Crisis has given way over the past year and a half to a higher interest rate paradigm. As the Federal Reserve has increased its target rates, residential mortgage rates have followed suit.
Most United States home-owners who signed a 30-year fixed rate mortgage before early 2022 would need to finance a new home purchase at a meaningfully higher rate. This decreases their willingness to sell, lowering available housing stock for purchase and increasing demand for rental units.
This supply squeeze is heightened by idiosyncrasies in Boston’s housing market. First, Boston’s housing stock is old – 50% was built before 1940 – and requires significant ongoing maintenance on existing inventory. Second, labor shortages have driven increases in local construction costs, disincentivizing new builds. Third, Boston has strict zoning and land use laws. For example, per non-profit Abundant Housing Massachusetts, “Boston is unique among major American cities in that the vast majority of new residential construction requires a zoning variance.” Consequently, town hall has to process 700 to 1,000 applications for zoning relief annually, relative to fewer than 150 for other major metro areas.
Net net, nationwide macroeconomic dynamics and quirks of the Boston market have driven vacancies down and rents up. Average rent for a one-bedroom unit is $2,562, per BostonPads, up 10% over the past year and 28% cumulatively over the past two years. After a flurry of mid-pandemic relocations, availability rates have fallen to roughly 1%.
Since taking office in 2021, Mayor Michelle Wu (BA ’07, JD ’12) and City Council have spearheaded a series of initiatives to address Boston’s housing challenges. In February, Wu launched a $67 million plan to create and preserve 802 income-restricted homes. The 17 projects contemplated span eight neighborhoods, and 160 units will be designated for senior housing. Wu said, “We are partnering with community and using every tool that the City has to urgently address Boston’s housing crisis.” The initiative incorporates $13.9 million from the Neighborhood Housing Trust Fund, which is funded by developers of large commercial projects and is designated to support affordable housing.
Moreover, the city is advancing legislation to expand rent stabilization and reorganize its housing oversight committee. On March 7, City Council approved two proposals presented by Wu on these topics, both by votes of 11-2. The first proposal would link annual apartment rent increases to inflation, capped at 10%. With certain smaller and newer units exempt, this would impact roughly 55% of Boston’s rental stock. The second proposal would formally disassemble the Boston Planning and Development Authority (BDPA), replacing it with a newly formed housing oversight entity reporting directly into the mayor’s office. Both are currently pending approval by the state legislature.
All the while, Boston is gradually modernizing its zoning laws. In 2021, the state passed legislation designating special zoning treatment for “MBTA communities” near transit stations, in which multifamily housing is zoned by right, rather than by variance. In the same year, the city eliminated minimum requirements for parking space in residential developments with at least 60% affordable units. While detractors argued this change created inequality in access to transportation, Wu and supporters emphasized its role in freeing up space for additional housing.
Perhaps most notably, Boston’s Inclusionary Development Policy (IDP) mandates that new residential development projects requiring zoning relief designate 13% of units to be affordable. In July, the BDPA approved Wu’s proposal to increase this to 17% (plus 3% for Section 8 voucher holders) while expanding the scope of projects subject to this mandate. With 19.2% of total housing stock designated as income-restricted, Boston has the highest proportion of income-restricted housing among all major United States cities. Notably, while an impressive 44% of new build approvals in 2022 were designated as income-restricted, the total number of net units approved fell to 2,647.
Taken together, these initiatives and others are competing for limited funding. The city earmarked $234 million from the American Rescue Plan Act (ARP) of 2021 for housing, but local leaders have expressed concern that existing funding sources are running dry. In October 11 testimony before a joint Massachusetts State House and Senate panel, Wu said, “We’re doing everything we can at the city level, overhauling our zoning code for more housing and more affordability; restructuring our planning department to ensure we’re using every bit of land possible; providing tax incentives for converting offices into residential buildings; and providing down payment assistance and interest rate subsidies to homebuyers to accelerate wherever we can.” Importantly, Wu’s testimony included a petition for the state to let Boston introduce a new 2% transfer fee on real estate transactions over $2 million. If in effect in 2021, Wu noted, this fee would have raised more than $100 million from over 700 transactions.
Zooming out, Boston exemplifies a broader statewide and national push to lower housing costs and augment supply. On October 18, the Healey-Driscoll Administration launched a $4 billion statewide initiative dubbed the Affordable Homes Act, which would be the largest housing investment in Massachusetts history. The plan – in addition to authorizing real estate transaction fees of 0.5-2.0% on deals above $1 million – will create 40,000 new homes statewide and implement a series of development tax credits to incentivize building. Nationally, the Biden-Harris Administration is pursuing the Housing Supply Action Plan, aimed to guarantee access to a “safe and affordable home.” Key initiatives include “reducing barriers to build housing” (e.g., restrictive land use and zoning regulations); “expanding financing for affordable, energy efficient, and resilient housing;” and “promoting commercial-to-residential conversion.”
As City Council elections approach on November 7, many candidates have found common ground in the mission to increase housing access. District 5 offers a telling case study. Both candidates competing for District 5’s seat – Enrique José Pepén and Jose Ruiz – have prioritized the housing crisis in their campaigns, drawing on personal experience. Originally from rural Puerto Rico, Ruiz helped found Villa Victoria, a public housing neighborhood in the South End community where he grew up. Pepén, who grew up in a Boston Housing Authority development, told the Dorchester Reporter that his top priority is, “Holding developers accountable and fighting for housing affordability.” “When wages aren’t rising at nearly the rate of housing prices, it is crucial to protect tenants,” Pepén said. Both candidates are focused on increasing residential units in new builds and securing both housing affordability and housing security. For voters in District 5 and across Boston, it will more often be a question of how, rather than if, their candidates will seek to tackle this issue.
Tim Ford (MBA ’25) is originally from New Jersey. He graduated from the University of Virginia with degrees in Commerce and Spanish in 2018, and completed an M.Phil. in Latin American Studies at the University of Cambridge in 2019. Prior to the HBS MBA, Tim worked in growth equity in San Francisco.
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