Despite how much Boston’s two leading politicians might wish it to be so, luxury product’s large share of the housing units built in recent years cannot be blamed on a caricature of “the greedy developer.”
City Councilor At-Large Michelle Wu issued a 72-page indictment last Monday of the city’s independent planning agency and its land-use policies, blasting developers for building large amounts of luxury housing and the Boston Planning & Development Agency for letting it happen.
Mayor Marty Walsh took his own swipe at commercial developers and investors a few days later, accusing them of forgetting the social cost of too much luxury building and blaming them for putting profit above the common good.
Both Wu and Walsh, experienced with land use issues, should know better. For many traditional developers, market-rate housing is the only thing that’s practical to build.
An iron triangle governs development costs: Land, labor and materials. Developer profit comes in a distant fourth when ranking the contributions to a unit’s cost.
Estimates by CBRE’s Boston multifamily team, calculated for Banker & Tradesman, show just how high those costs are today.
A contemporary triple-decker costs between $295,000 and $385,000 per unit to build, when hard costs, soft costs, profit and land are factored in. A 4-story building with an elevator costs between $310,000 and $400,000 per unit. A 5-story building with a concrete or steel podium – the most common type of large multifamily building – costs between $390,000 and $500,000 per unit.
While they don’t solely govern prices set in response to market conditions, these costs create a floor below which prices can’t practically be driven. And they can’t simply be wished away.
And with Low-Income Housing Tax Credits and other affordable housing financing tools in short supply, the only other way to substantially lower a building’s overall cost per unit is to break that iron triangle.
Absent a state-run steel mill or massive pay cuts for the state’s hard-working construction workforce, land is the easiest leg to influence.
The Walsh administration has done good work in this regard, working to free up around 3 million square feet of city-owned land for development and in many cases prioritizing affordable developers when doling it out.
The other way to help bring land prices down is to massively increase supply. In fact, a bill sits on Beacon Hill awaiting action from the legislature as you read this that would go some way toward boosting the number of developable sites in Boston’s suburbs.
Gov. Charlie Baker’s Act to Promote Housing Choice, supported by both the commercial real estate industry and the association representing the state’s municipalities, would lower the threshold for zoning votes required by most multifamily projects from a two-thirds supermajority to a simple majority vote. While it would not, as some more aggressive legislators want, mandate multifamily zoning in areas around transit stops or in town centers, it would pave the way for progressive towns to rezone for density and others to spot-zone new projects.
With Greater Boston nearly 100,000 homes short of demand today, further delays on this issue are unconscionable no matter NIMBY rumblings against the bill.
