Is New Worcester Housing Affordability Law A Done Deal? Last Hearing Before Vote

WORCESTER, MA — A final public hearing to debate the outlines of Worcester's new "inclusionary zoning" affordable housing ordinance will be held Wednesday, but the finer points of the ordinance — including how much affordable housing it will mandate — may already be decided.

Key city hall decision makers have signaled support for an inclusionary zoning (IZ) policy that allows developers to offer units that are a little more expensive than what affordable housing advocates had wanted.

On Wednesday, the Worcester City Council's Economic Development Committee will hold a final hearing on the IZ ordinance. It will be the last opportunity for the public to give feedback on the policy before an expected vote in front of the full council on March 21.

District 1 Councilor Sean Rose, who chairs the Economic Development Committee, said he favors the more conservative IZ ordinance. There's fear that a stricter policy could scare off developers, which would undercut housing production — a concern representatives from the Worcester Regional Chamber of Commerce and the Worcester Business Development Corp. have also voiced.

"For me, doing it a little bit more cautiously and scaling it back makes more sense to me," he said, referring to possible updates to the ordinance in the future.

Fear of dropoff

Both Rose and Mayor Joseph Petty have pointed to Boston as an example where a strict IZ policy has slowed development. Boston's IZ policy was approved in 2000 and was last updated in 2015. Boston Mayor Michelle Wu in December proposed strengthening the policy.

Rose said he received information that units approved for construction in Boston dropped from over 10,000 in 2020 to about 2,600 in 2022. That drop also coincided with the COVID-19 pandemic.

A BPDA spokesperson said the city's IZ policy did not cause the drop in construction, but typically change due to the city's approval process, called Article 80. Boston had an out-sized figure in 2020 due to the approval of the redevelopment of Suffolk Downs, which contains 7,100 units alone.

"There is no indication that Boston’s Inclusionary Development Policy (IDP), has caused a slowdown in development," the spokesperson said. "The numbers the councilor is referring to are of residential units that the BPDA Board has approved year over year, not entire projects. The amount of units approved by the BPDA Board fluctuate significantly from year-to-year based on the size of projects that are going through the Article 80 review process, and are not an indicator of the number of units being built each year."

Petty also referred to the drop in Boston's units on the Talk of the Commonwealth radio show last week while discussing an IZ policy favored toward developers.

"It's been proven, if you go too low on the [affordability minimums], developers may stop coming," he said.

Boston has 46,000 units in its development pipeline, which includes 23,000 that have been approved not permitted. Boston also saw a recent high in 2022 of income-restricted, affordable housing units approved for construction.

A Harvard Kennedy School report on IZ in Massachusetts released in January said IZ ordinances can influence the profitability threshold where developers might decide to abandon a project, called a "hurdle rate." But factors like interest rates and housing market demand are also big factors. It's difficult to assess whether IZ policies prevent development, the authors said, because it's impossible to know if development would've slowed even without the policy in place.

"While the IZ policy may be one factor developers consider, it does not seem to be a decisive one," the authors wrote. "Cities said that developers did not cite an IZ policy as a reason they chose not to build in their city. Peer cities shared that if an IZ policy is implemented without doing the proper quantitative analysis prior to implementation, developers will pass by such communities."

Developers can also partially recoup possible IZ profit losses by getting tax incentives, or by other zoning sweeteners like reduced parking minimums — a major added expense for developers. Worcester often offers residential developers tax-increment exemption plans, which reduce property taxes over a set number of years.

Dueling proposals

In general, IZ laws require developers to set aside a share of units as affordable as a condition of receiving municipal approval to build. The depth of that affordability varies by community, but inclusionary zoning policies measure affordability against the local area-median income (AMI). About 140 communities in Massachusetts have some type of IZ policy or ordinance

The Worcester Together Affordable Housing Coalition wants Worcester's IZ policy to require any new development with 12 or more units to set aside 5 percent of units as affordable for households earning 80 percent of the AMI ($61,900 for a single person) and 5 percent of units as affordable for households earning 60 percent of AMI ($46,440 for a single person). The coalition also wants 2-1/2 percent of the 60 percent AMI units to be accessible for the disabled, and for 99-year terms for affordable units.

The city's proposal — also the one favored by business groups like the WBDC and chamber — is either 15 percent of units at 80 percent AMI or 10 percent at 60 percent AMI, or a combination. The city's proposal does not set aside a minimum number of units as ADA-accessible, and limits the affordable units to 30-year terms.

According to calculations by the coalition, the city's plan would mean more profit for developers, but not much.

Under the city's plan with 15 percent of units set aside at 80 percent AMI, a hypothetical building with 100 units each renting at $2,200 per month would generate about $217,000 in revenue per month.

If that same building used the coalition's proposed split — 5 percent of units at 80 percent AMI, 5 percent at 60 percent AMI — total building revenue would be about $300 less per month.

Both proposals would require developers to make a payment to the city if they want to sidestep IZ requirements, but the coalition wants to set it higher at 5 percent of the value of a project's building permit versus the city's 3 percent proposal. Both sides also agree that the project size minimum should be 12 units.

Both sides also agree that incentives like reduced off-street parking requirements and relief from lot dimension restrictions could be useful. Worcester's off-street parking requirements vary by building, but multifamily apartment buildings are required to have two parking spaces per unit, which means developers often have to build parking garages alongside larger residential buildings.

More housing needed

Last week, Gov. Maura Healey stopped in Worcester to tour a new affordable housing development built by the Main South Community Development Corp. along Grand Street. Main South CDC Executive Director Steve Teasdale told officials during the tour that 1,700 people applied to live in the 46-unit development, highlighting an extreme need for affordable housing in Worcester.

The city has estimated there's a pipeline of about 3,000 new units planned in the downtown and Canal District areas, with 163 units of those to be set aside as affordable.

Rose said the city is largely at the mercy of developers — and the banks that provide capital for their projects — to increase Worcester's housing stock. The city has not built enough housing to keep pace with a growing population, he said, and can't risk developers leaving town and cutting off any new housing supply.

"At the end of the day, the leverage is on the side of developers and banks because the city has not kept up with its housing stock; it's created this logjam," he said. "The housing stock has dwindled over the years, that's become the leverage point. I'm not saying it's right, I'm not saying it's just."

The Worcester City Council's Economic Development Committee is set to meet Wednesday at 5:30 p.m.