Housing Advocates Want MA Developer Credit HDIP To Include Affordability Rules

WORCESTER, MA — There was a time when the phrase "luxury housing" would sound out of place in Massachusetts cities like Fall River, Worcester and Lowell.

But a little known state tax incentive for property developers called the Housing Development Incentive Program, or HDIP, has changed the housing picture in the state's 26 Gateway Cities — former small or medium-size cities that once were industrial hubs. Now, you can rent $3,000 per-month apartments in cities like Lawrence and Worcester that come loaded with amenities geared toward Millennial renters seeking a break from even higher rents in Boston and Cambridge.

"Something that sets our luxury apartments from others in Lowell is our extensive amenities for our residents. Waterhead offers excellent amenities in each apartment and a variety of community features that our residents enjoy," reads the website for the Waterhead development in Lowell, which received $2 million in HDIP tax credits. The complex offers its residents perks like a dog washing station, a media room and a fitness center.

Gov. Maura Healey is making the HDIP program part of her larger push to relieve the statewide housing crunch. Healey has proposed increasing the annual HDIP allotment from $10 million to $50 million in the first year, and then $30 million every year after. That increase was passed to the state Legislature for approval this winter as part of Healey's larger $750 million tax package.

Healey's proposal has thrust HDIP into the legislative spotlight, with some state lawmakers now seeking to require the program come with affordability requirements to subsidize more than just amenity-packed luxury housing in Gateway Cities. The program has provided tax credits totaling about $63.5 million since HDIP started in 2014.

On the other side, municipal economic developers and business groups are cheering the HDIP expansion, saying it will relieve a backlog of developers waiting on credits, and lead to the creation of badly needed housing units. The creation of new units even at the highest price range provide trickle-down relief in the rental market, and so the program can't change, they say.

"HDIP is the state’s most efficient housing development program to date, costing an average of only $23,664 per unit and resulting in the production of 2,687 new units in Gateway City downtowns and transit areas so far," the think tank MassINC said in a recent report on the program.

In mid-June, Healey's tax package, including the HDIP increase, was up for debate on the floor of the state Senate after the House passed its version in April. During the debate, state Sen. Jamie Eldridge, D-Sudbury, offered an amendment to the HDIP law requiring that any development that gets the tax credits must set aside 20 percent of units as affordable.

Eldridge's amendment died in a vote with 30 senators voting against it. State Sen. Robyn Kennedy, D-Worcester, filed an amendment that would require any Gateway City that applies for HDIP funds to have an inclusionary zoning ordinance in place. Kennedy withdrew the motion due to a lack of support.

Eldridge says the fight to make HDIP developments more affordable didn't necessarily die during the June debate. He hopes to push Healey and her new housing secretary, former Worcester city manager Ed Augustus Jr., to include affordability provisions in the program.

Building market-rate housing in cities like Worcester and Malden is not helping drive rents down — quite the opposite, he said.

"In my conversations with my constituents, they're facing these big rent increases," he said. "I suspect that more HDIP market-rate housing is not going to address their concerns."

HDIP reformers also want the program to report on its outcomes better. The Massachusetts Law Reform Institute in April published its own report on the program after failing to find any state-level reporting on HDIP outcomes.

MLRI found that most HDIP funds go toward creating high-end housing with only 40 affordable units created out of the 4,085 total built under the program. And, nearly half of subsidies go to developments in hot real estate markets like Worcester, Malden and Salem.

Worcester has received the most HDIP funds of any Gateway City at $14.5 million total, according to the report. Those projects include the luxury Chatham Lofts downtown, and the Edge at Union Station, a building aimed at students where single bedrooms in larger apartments fetch $1,200 to $1,425 per month.

MLRI says the state has provided no clear evidence if the program has met its statutory goal of "increasing residential growth, diversity of housing supply, supporting economic development and promoting neighborhood stabilization." The state neither reports if those goals are being met nor what the benchmarks are.

"[I]n many cases it cannot be said what benefits, if any, this publicly funded support for expensive apartments has brought to local residents. And although the 26 Gateway Cities vary widely ... HDIP does not differentiate or target distressed areas," the report said.

Proponents of HDIP, however, tout its ability to produce housing — even if it's more expensive — at a lower cost compared to affordable units. HDIP also helps developers make projects more appealing when seeking financing from banks.

The reason Healey has proposed increasing HDIP to $50 million for one year is to relieve a backlog of developers waiting for credits they had previously applied for. Local governments can't offer the credit to new developments until the backlog is clear.

In a March editorial in MassINC's CommonWealth magazine, Fitchburg and Holyoke economic development directors Liz Murphy and Aaron Vega called the proposal to require 20 percent affordability for HDIP "devastating to nearly all Gateway Cities."

"A requirement to include income-restricted units fundamentally changes every project’s ability to find financing," they wrote, citing the high cost of affordable housing versus market-rate.

MassINC says individual Gateway Cities can play a role in using HDIP as part of an affordable housing mix. Cities like Worcester have passed inclusionary zoning ordinances that require new developments have a minimum amount of affordable units.

There's conflicting evidence that high-end developments supported by HDIP have relieved pressure on rent prices further down the economic line. Last week, leaders of the Central Massachusetts Housing Alliance presented new data showing Worcester may be heading toward a homelessness crisis due to factors like low rental vacancies and continually rising rents.

It's unclear how the HDIP will appear in the final version of Healey's tax relief plan. The different House and Senate versions of Healey's tax package are being worked out in a conference committee, and there's no timeline for it to emerge — although lawmakers hope to complete it this summer.