Overview
EOHLC estimates that the Affordable Homes Act, when combined with funding authorized by the legislature in the October 2023 tax relief bill, could directly fund or enable the construction or preservation of over 45,000 homes, of which almost half would be reserved for low-income households. The same analysis estimated that the number of units maintained, rehabilitated, indirectly supported, or made accessible, combined with the number of households assisted, would top 28,000 homes and/or households. Meanwhile, the local option transfer fee could raise more than $750 million annually for local housing initiatives. An economic impact analysis conducted by the University of Massachusetts Donahue Institute estimates that the Act's spending and policy proposals would leverage or unlock an additional $13 billion in federal, local, or private funds, creating roughly 30,000 jobs and a $25 billion economic impact over five years.
A high-level summary of the bill’s anticipated outcomes on housing production and householder assistance is provided in the table below.
Affordable Homes Act - Economic Impact Analysis
Click here to read the economic impact analysis report prepared by the UMass Donahue Institute.
The Affordable Homes Act - Transfer Fee Analysis
Click here for a detailed analysis of the local option transfer fee proposal
Production and Preservation
A total of $1.83B of requested authorizations are for core housing production/preservation line items, including Housing Development ($800M), Housing Stabilization Fund ($300M), the Housing Innovations Fund ($200M), Affordability Preservation ($125M), Climate Resilient Affordable Housing ($115M), Facilities Consolidation ($70M), Transit Oriented Housing ($60M), and Community-Based Housing ($55M) and three other line items. Some of these funds are for construction of new housing units; others are for long-term preservation of housing with affordability restrictions that would otherwise expire. For our analysis, all resulting affordable units are considered to be “funded or enabled” by the AHA since they would not exist or would not be available for low-income households if not for the funding in this bill.
Each line item is targeted to a specific application or program and is generally used as “soft debt” in combination with other sources within a multi-part financing “stack” for any given development or preservation project. Other elements of the stack include federal Low Income Housing Tax Credits (Federal LIHTC), Massachusetts Low Income Housing Tax Credits (State LIHTC), tax-exempt bond financing utilizing volume cap, and conventional capital sources (e.g., construction and/or permanent financing from banks and other mortgage lenders).
Federal tax credits constituted about 60% of the funding available for affordable housing in Massachusetts in recent years. These credits are allocated by the federal government to EOHLC using a statutory formula based on state population. EOHLC awards the credits to developers of affordable rental housing projects through a competitive process. (Additional federal credits are made available through MassHousing or MassDevelopment for some developers, but those are not considered here.) Developers that receive tax credits through EOHLC make them available to private investors that acquire equity interests in the projects. These investors can claim the total amount of the credit each year over a 10-year period. Due to a strong market for federal tax credits, each dollar of credit available in each year translates into one dollar (or more) of investment in development projects. In other words, a $20M allocation of federal tax credits in a given year translates into at least $200M of investment. The total combined amount of federal LIHTC used by EOHLC-funded projects over the past few years is approximately $456M annually. EOHLC assumed that this federal resource would be available at the same level for the duration of the proposed bond bill, totaling just under $2.3B over five years.
Massachusetts also has a state low-income housing tax credit program. These tax credits were initially part of the housing bond bill but were already extended by the Massachusetts Legislature in the tax relief package signed into law by Governor Healey on October 4, 2023. That package increased the State LIHTC to $60M annually. Each dollar of tax credits can be claimed by an investor for five years. However, the market rate for state tax credits is generally only 80% of their nominal value (80 cents on the dollar). Therefore $60M of tax credits generates $48M of revenue each year for five years, or $240M total. Since the $60M is authorized each year, that translates to a total of $1.2B available for housing production over five years. Since tax credits are combined with other bond bill sources to create a complete financing stack, both state and federal LIHTC are used in the calculation of bond bill impacts, even though they aren’t part of the bill, strictly speaking.
Based on a review of 28 affordable housing production and/or preservation developments currently awaiting funding, EOHLC estimates that the total combined subsidy from all three sources (“soft debt”, federal LIHTC, state LIHTC) amounts to approximately $353,000 per unit in 2022 dollars. To estimate the total number of units that could be produced or preserved with the available funding, EOHLC combined the requested soft debt authorization ($1.725B), the new state LIHTC amount ($1.2B), and anticipated federal LIHTC ($2.3B) for a total subsidy amount of $5.2B. This amount could subsidize an estimated 14,877 units at a rate of $350,000 per unit. 100% of these units would be available to households below 80% of Area Median Income (AMI), and an estimated 25% of units are likely to be occupied by extremely low-income (ELI) households earning less than 30% of AMI, through the use of mobile or project-based vouchers. (100% of the facilities Consolidation Fund and Community Based Housing funds would be directed toward the lowest income households.)
Public Housing Investments
The bond bill seeks authorization for $1.6B in funding for the state’s public housing portfolio, which consists of over 43,000 units managed by 231 local housing authorities. EOHLC estimates the maintenance backlog for state public housing is at least $4.25B as of late 2023. Furthermore, many public housing units are in need of rehabilitation and renovation to make them fully accessible to people with disabilities. EOHLC will use $1.35B of the Public Housing funds for maintenance and accessibility upgrades. In consultation with the EOHLC Public Housing Division, we assumed per-unit rehab cost of $200,000, and per-unit cost of $250,000 for full accessibility conversions. If 25% of the funds are allocated to accessibility upgrades, the funding could rehab approximately 5,000 units and achieve full accessibility for an additional 1,500 units.
EOHLC also intends to allocate $150M toward the decarbonization of the public housing portfolio. Based on a 2022 report prepared by the Rosen Consulting Group for New York State, EOHLC has adopted an estimate of $50,000 per unit for full electrification of heating, air conditioning, and appliances at public housing developments. At that per-unit cost, the $150M investment could enable the full electrification of 3,000 public housing units.
A $100M line item for Public Housing Demonstration Projects is intended to subsidize the redevelopment of existing public housing developments and the creation of denser mixed income developments that replace all affordable units on site while also adding a substantial number of market rate units. Based on the limited amount of available information about projects underway (such as the redevelopment of Innes Apartments in Chelsea and Bunker Hill Housing in Charlestown), EOHLC assumes a $250,000 subsidy per public housing unit replaced, and a 2:1 ratio of new market rate units to public housing units redeveloped. As a result, a $100M investment could enable the full redevelopment of 400 public housing units and the creation of 800 market rate units.
Middle-Income Housing and Innovation
The bill seeks authorization for $100M for the Commonwealth Builder program, which subsidizes development of for-sale, below-market homeownership units to expand homeownership opportunities for first-time homebuyers and socially and economically disadvantaged individuals. MassHousing manages the Commonwealth Builder program and reports that by the end of FY23, the agency had granted $41,264,000 to 6 Commonwealth Builder projects which were collectively expected to produce 258 units. These figures imply a subsidy of approximately $160,000 per unit. Subsequently, MassHousing recommended that EOHLC use a figure of $250K per unit for estimating impacts of renewed Commonwealth Builder funding. As a result, a $100M authorization could support production of at least 400 middle income homeownership units.
A requested $100M authorization for the Mixed Income Housing Fund will support the development of middle income housing through an existing “Workforce Housing Initiative” managed by MassHousing. This program supports rental housing that is affordable for households whose incomes are too high for most subsidized housing but are priced out by market rents, in the range of 60% to 120% AMI. EOHLC assumed a per-unit subsidy of $250,000 per unit, comparable to the Commonwealth Builder program. Consequently, the $100M investment could support the development of at least 400 new homes for middle-income households.
The bill seeks $100M to establish a new Seeding Innovation for Production fund that would support innovative and nontraditional approaches to commercial/office reuse, modular construction, accessory dwelling units, transit-oriented mixed-use development, and sustainable and climate resilient affordable housing. While it is difficult to estimate the impact of this fund, EOHLC has estimated it would provide a subsidy of $250,000 per unit for a balanced mix of low-income, middle-income, and market-rate units, for a total of approximately 400 units.
HousingWorks and targeted funding programs
The Affordable Homes Act would also authorize $255M for four HousingWorks line items: the HWIP Infrastructure Program ($175M); Housing Choice grants ($35M), Community Planning grants ($25M), and Smart Growth 40R funding ($20M.) These sources do not directly subsidize the construction of homes, but they fund planning and infrastructure that enables both affordable and market-driven housing development. Impacts of these programs were estimated based on consultation with program staff and an expectation that results will be comparable to outcomes during the previous five years of the programs. Accordingly, HWIP is projected to indirectly support the development of 9,000 new homes, of which roughly 35% will be affordable at 80% of AMI (the rest are expected to be market rate.) Program staff estimate that Housing Choice Grants will indirectly support the development of 4,500 units over five years, of which 20% would be affordable. The 40R Smart Growth Zoning program is expected to directly enable 2,500 units over the next five years, of which 25% would be affordable. Community Planning Grants lay the regulatory groundwork for housing development, but HLC did not estimate the impact of this program in terms of units produced or supported.
The bill seeks authorization for a $60M continuation of the Massachusetts Rehab Home Modification Loan Program, which could support accessibility improvements to 3,000 units at an average cost of $20,000 per unit, a figure provided by EOHLC program staff based on their experience with the program.
The requested authorization of $50M for the Neighborhood Stabilization Fund will support community reuse of underutilized or unmaintained properties for rental housing or middle income homeownership. EOHLC program staff estimated a per unit cost of $150,000 for renovation and repurposing of affordable rental housing units; and a per-unit cost of $50,000 for repairs and mortgage assistance for homeownership units. This investment would indirectly support the creation or rehab of 83 affordable rental units and 750 middle income homeownership units.
Tax Credits
The bond bill reauthorizes the Community Investment Tax Credit (CITC) at a higher level and includes a new homeownership production tax credit. Both of these credits will directly fund or enable development, complementing the increase in housing-related tax credits approved by the legislature as part of the October 2023 tax relief bill.
The bond bill not only would increase the CITC to $15M per year but also seeks to make it permanent. These resources go to Community Development Corporations to support organizing and predevelopment activities essential to comprehensive community revitalization. EOHLC assumed that approximately 50% of the CITC funds would be directed to predevelopment activities, reducing the cost of development by a comparable amount. This could enable the creation of an additional 107 affordable units.
The proposed homeownership production tax credit would support new multi-unit homeownership development in which at least 20% of the units would be affordable at the time of initial sale to households having incomes of up to 120% of the area median. This tax credit would close the gap between the construction costs and the sale price affordable to a middle-income buyer. It would complement the Commonwealth Builder Program, providing $50M in credits over the five years of the bond bill to support the creation of 500 new homeownership units at an average subsidy of $100,000 per unit.
It is important to note that two other tax credits, both initially included in drafts of the bond bill, were reauthorized and increased by the legislature in the Act to Improve the Commonwealth's Competitiveness, Affordability, and Equity, the tax relief measure passed by the legislature and signed into law by Governor Healey on October 4, 2030: the Housing Development Incentive Program tax credit and the State Low Income Housing Tax Credit.
The Housing Development Incentive Program provides Gateway Cities with a tool to develop market rate housing while increasing residential growth, expanding diversity of housing stock, supporting economic development, and promoting neighborhood stabilization in designated areas. Impacts of this important housing program are accounted for in our estimates of the bond bill. The $57M authorization for 2023 followed by $30M annually could generate $207M for the production of new homes in weaker-market Gateway Cities. Assuming levels of subsidy comparable to Commonwealth Builder, this would be sufficient to produce over 825 units.
The tax relief bill also increased authorization for the state Low Income Housing Tax Credit program, described earlier, from $40M to $60M annually, and making the $60M authorization permanent. The Low Income Tax Credit is an essential part of the funding “stack” for any affordable housing development, and so impacts of this expanded authorization are described in the section above on Production and Preservation.
Accessory Dwelling Units
Sections 12 and 13 of the Affordable Homes Act would require municipalities to allow accessory dwelling units “as of right” on any lot in a single family zoning district, subject to reasonable regulations related to septic disposal and dimensional requirements. This section would theoretically allow ADUs on 1.43 million single family homes in Massachusetts, though there’s no expectation that all homeowners would create such a unit. In order to estimate how many new ADUs might be created as a result of this change, EOHLC reviewed the literature about ADU creation that occurred in other states with a variety of regulatory approaches.
Some of the most relevant research about ADU creation rates comes from our neighbor to the north. A 2017 New Hampshire law requires localities to allow ADUs but also allows them to impose owner occupancy requirements, require discretionary review, and/or mandate additional parking for the ADU. A 2023 Mercatus Center research brief collected information about annual ADU permitting rates in eight NH municipalities for a five-year period from 2017 - 2021. Permitting rates in these municipalities range from 0.12 annual permits per 1,000 single family homes to 1.46 annual permits per 1,000 single family homes.
Additional insight can be gleaned from the California experience. Up through 2016, Los Angeles was permitting ADUs at an annual rate of about 0.34 per 1,000 single-family houses—at the low end of the 8 municipalities studied in NH. In 2017, California adopted a bill that prohibited owner-occupancy requirements for ADUs. A series of other bills followed, substantially liberalizing the ADU regulatory landscape in California. In 2019, ADUs in the City of Los Angeles were permitted at a rate of almost 8 per 1,000 single family homes.
The California legislation between 2017 and 2019 addressed three regulatory barriers identified by the Harvard Joint Center for Housing Studies as key factors that may limit ADU adoption: Owner-occupancy requirements, parking requirements, and discretionary reviews. Owner occupancy requirements make financing an ADU difficult because the revenue stream from the unit is contingent on the owner living in the unit, so it can't be counted as an income-generating unit that contributes to the appraised value of the property. Owner occupancy requirements also prevent owners from moving and renting out both units and shrink the pool of potential buyers. Parking requirements make ADUs more expensive and less feasible, especially on smaller lots in dense and transit-rich neighborhoods where car-free living is a possibility. If an ADU is proposed for an existing garage, replacing the existing parking and adding another space for the ADU may be infeasible. Discretionary reviews add time, cost, and uncertainty to the permitting process, discouraging homeowners from proposing and ADU and thwarting many who do. The elimination of these barriers in California but not in New Hampshire could explain part of the difference in permitting rates between the two states.
The Affordable Homes Act prohibits owner occupancy requirements, parking minimums within ½ mile of transit, and discretionary reviews, making it more like the California approach than the New Hampshire one. Despite the liberalization of regulations, an ADU will not be feasible on every parcel due to dimensional regulations or limitations of on-site septic disposal; and, of course, not every eligible homeowner will choose to build an ADU. EOHLC assumes that ADUs are feasible on 75% of the single-family parcels in Massachusetts; furthermore, EOHLC conservatively assumes an annual rate of 1.5 - 2.0 ADUs created per 1,000 single family parcels where an ADU is feasible – well below the California rate of almost 8 ADUs per total 1,000 single family homes. As a result, EOHLC estimates creation of 8,025 to 10,700 ADUs over a five-year period.
Based on data from the 2021 American Community Survey, EOHLC estimates that there are approximately 407,000 homeowners over the age of 65 living in detached single family homes. An estimated 85% of these households (347,000 households) have incomes of less than $100,000 per year.. This suggests broad benefits to seniors who are looking to take excess floor area area/yard and turn it into an income stream.
Housing Production Target
With this bill, EOHLC has set a target to build or enable at least 200,000 new homes in this decade in order to house a growing population and tamp down runaway home prices. This figure is based on household and housing demand projections prepared by the Metropolitan Area Planning Council (MAPC) in partnership with MassDOT and the University of Massachusetts Donahue Institute (UMDI.) Creation of updated projections is required on a regular basis to support the preparation of Long-Range Transportation Plans (LRTPs) for each region of Massachusetts. MassDOT contracted with MAPC and UMDI to prepare these projections. Population and industry projections at the regional level were created by UMDI, while household and labor force projections were developed by MAPC. UMDI projections are described at https://donahue.umass.edu/business-groups/economic-public-policy-research/massachusetts-population-estimates-program/population-projections; and MAPC household forecasts and methods are available at https://www.mapc.org/learn/projections/.
The UMDI projections use recent information about births, deaths, and migration to forecast future changes in population by age and sex, at the regional level. MAPC applied age-specific “headship rates” (the probability that someone is the Head of Household) to the forecasted population to estimate the number of future households by age of householder, type of household, size, and other factors. Since both the population and household methods use information from the past 5-10 years to forecast future statewide conditions, they are best understood as a “trends extended” scenario of Massachusetts’s demographic future—one that represents where the state was headed prior to the pandemic. Forces that affect patterns of migration, family formation, and home location could amplify or dampen the effects of the underlying macro trends, resulting in a future that is some variant of this projected future. Despite this uncertainty, these projections provide a plausible and well-grounded baseline for thinking about the future housing environment.
The UMDI population projections suggest that population growth may slow down substantially in the coming decades. High housing costs, reduced international immigration in the years leading up to 2020, and the aging of the population are all key factors. After growing by 7.4% during the 2010s, the state’s population is projected to grow by just 2.4% from 2020 to 2030 if current trends continue. (Of course, changes in economic conditions, home prices, immigration policy, and international conditions may lead to marginally different outcomes.) Because of the state’s aging population and the growing share of small households (most seniors live alone or with only one other person), the number of households generally grows faster than the population. Massachusetts’ households grew by 8.5% during the 2010s. MAPC projects the number of households will grow by just 4.2% from 2020 - 2030, with a projected net increase of 116,000 households. Over the entire 30-year forecast period for MAPC’s projections, nearly half of net household growth will be single person households with incomes of less than $40,000 per year; and most of these will be seniors. These projections suggest a dire need for the creation of homes for the lowest income residents and programs to support the dramatically increasing senior population.
Household growth isn’t the only ingredient of housing demand, however. In order to solve the supply crisis, Massachusetts needs to address the housing shortage that exists today and build enough for new households. The state already has a critically low vacancy rate: only 1.6% of units are available for sale or rent. Both homebuyers and renters face stiff competition for the units that are available, driving up prices and fueling displacement. If more units were available for sale or rent, then movers would have more choice and landlords would have less power to set rents. Housing experts have suggested that a “healthy” vacancy rate is +/- 2% for for-sale units and +/- 6% for rental. MAPC used a blended rate of 4%-5% to estimate the number of additional available units needed to achieve healthy vacancy. MAPC estimates that in 2020, the statewide gap in homes available for sale or rent was at least 52,000 units. After accounting for the anticipated distribution of household demand, in 2020 the state needs an additional 53,500 units over and above household growth in this decade in order to achieve a healthy vacancy rate and reduce pressure in the housing market.
Another element of our current shortage is pent-up, or latent, demand. Thousands of people living with parents or roommates would prefer to have their own home—if there was one they could afford. A recent report from Up For Growth, based on changes in headship rates since 2000s estimated there were 108,000 “missing households” in Massachusetts. MAPC subsequently narrowed this estimate down to 52,000 “missing” single-person or non-family households headed by someone under the age of 45; and recommends a latent demand target of 30,000 housing units in this decade.
All told, Massachusetts needs at least 116,000 units to accommodate new households, 52,000 additional units for sale or rent, and 30,000 units to accommodate “pent up” demand, resulting in a total housing unit need of 200,000 units—at a minimum. A forthcoming report from MAPC is expected to provide more details on the characteristics of household demand. Over the coming year, EOHLC will be preparing a statewide housing plan; as part of that process, we will monitor population trends, develop additional scenarios for potential growth, and update housing production targets if necessary.
| Date published: | January 18, 2024 |
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| Last updated: | January 18, 2024 |