We have proposed three sources of funding for a City Rental Subsidy Program, none of which require city or state legislation (apart from inclusion in the City’s budget). They are:
Regular City Budget.
The City of Boston currently has a $3 billion annual budget. If 1% of these funds were committed to address the city’s housing crisis, Boston could subsidize 3,000 low income renters, indefinitely. The City of Washington, DC, in 2015 committed $37 million from its core city budget, to house 3,248 low income renters, increased to $46 million in 2016. Additionally, Seattle commits $6 million a year from its Housing Levy to support on-going operating funds for 510 affordable households below 30% of AMI. If they can do it, why can’t we?
Some have expressed concern about what would happen in the event of a crash in real estate values or sudden fiscal crisis. We believe that this risk is remote--it would certainly come as a surprise to the bond-rating agencies which have given Boston an Aaa rating in recent years. But in the event of a market crash, it would take several years for Boston to reappraise its property tax base and phase down tax payments--giving time for gradual wind down of subsidy commitments through attrition, to avoid displacement.
Dedicate Future Property Taxes from Million Dollar Condos for Low Income Renters.
Last year, we proposed a variant on the regular city budget proposal: setting aside new property tax revenues from new $1 million+ luxury condos being built across the city.
Boston is currently undergoing a boom in new luxury condo development. More than 2,200 luxury condos reportedly are built or in the pipeline, likely to sell in excess of $1 million each. Millennium Towers, for example, has sold 442 condos averaging $2.4 million each, including one for $37 million. According to Commonwealth Magazine, Millennium Towers will net $10.9 million to the City in new property tax revenue in 2018-- enough to fund more than 1,000 low income rent subsidies, on a permanent, sustainable basis, from this one building alone.
Each year, a $1 million condo generates $10,800 in new property tax revenue for Boston--more for units sold for more than that amount. This is greater than the $10,400 annual cost to subsidize a low income rental unit in a LIHTC building. If the City would dedicate the future property tax revenues from the 2,200 $1 million+ plus condos at Millennium, Dalton and current “pipeline” developments, as many as 5,000 low income families could receive assistance, on a sustainable basis.
Luxury condo development at these price levels act as “price leaders” in a tight real estate market, and have spurred inflated rents and housing costs across the City, as existing landlords and owners have raised their prices correspondingly. Moreover, these buildings are not primarily serving Boston residents; only 23% of the Millennium units have applied for a residential exemption, indicating that foreign speculators and absentee billionaires are the targeted market. Since this is one of the main causes of displacement of lower income renters, it would be an appropriate City policy to tie the revenue from new luxury condos to aid the victims of the resulting market inflation.
Voluntary “Recapture” Agreements for New Development.
For the past decades, the BRA and City have missed out on opportunities to “recapture” gains in value from new development for the City’s use. Cities throughout Europe and Latin America utilize “recapture” agreements both to generate future revenue and to moderate speculative gains of unearned value. Since the City’s investment in infrastructure and planned development is responsible for the creation of these opportunities for wealth accumulation, why shouldn’t the City share the benefits?
A good example to illustrate what Boston is missing out is the Seaport District in South Boston. In the past 20 years, the City has granted development rights and/or sold land parcels to developers who have created a new neighborhood on previously vacant land. As a result, the entire District is now a value generator, multiplying gains in value well beyond the original sale or lease prices.
For example, in 2013, the Swedish development company Skanska spent $33 million to buy the site for 101 Seaport, plus a reported $126 million on construction. Just three years later, in 2016, Skanska sold the building to a German real estate fund for $452 million--a net gain of $293 million. If the BRA had executed a “recapture” agreement at the time, of say 30% of any net gain if flipped within three years, the City would have received back $88 million for affordable housing or other public uses, and the developer would still have made a $205 million windfall profit, on an original $159 million investment, in three years. Why shouldn’t the City recapture some of the gains in wealth resulting from its creation of the Seaport District, beyond the $33 million from selling the land? Needless to say, $88 million from this one sale only would have gone a long way to meeting the City’s affordable housing needs.
We would propose a graduated recapture agreement, with increasing amounts based on duration of the holding (higher for shorter terms) and the extent of gain. This would have the added benefit, of discouraging or slowing speculative “flipping” and moderating gains in residential value, which are driving up rents and displacing tenants across the city. It would also temper the risk of speculative real estate “bubbles” and market crashes which some analysts believe could beset Boston, as occurred in Miami in the past decade.
Although much of the public land owned by the City and BRA has already been transferred, in principal, a graduated recapture agreement could be required of all future BPDA/City land sales for commercial, industrial and resident development. Similarly, recapture agreements could be required of individual condo sales in new residential buildings approved by the BPDA or City.
Revenue from recapture agreements could be utilized as a source for a local rental assistance program or other affordable housing uses. Locally, the Lincoln Institute and MIT scholars have expertise in how recapture agreements are implemented worldwide that could help Boston develop a workable policy.
We have also proposed one funding source that would require legislation at the State House to be enacted:
Graduated Tax on Real Estate Speculation.
Likewise, a graduated citywide tax on real estate transfers would “recapture” speculative gains, moderate “flipping” and real estate “bubbles”, and generate revenue for affordable housing, including but not limited to rental assistance. This would enable the City to recapture some of the speculative gains made by developers like Skanska or absentee purchasers of luxury condos. As in the referendum proposed in 2014 in San Francisco, such a tax could exempt owner occupied homes and condos (or condos priced above $1m); the San Francisco proposal taxed gains at 24% if held for one year, reduced to 14% for five years and none after that. (The San Francisco referendum was narrowly defeated in 2014).
The State of Vermont passed a graduated tax on rural land speculation in the 1970’s, that also taxed higher gains at higher rates. In Massachusetts, Mass Community Action worked with former Rep. Thomas Finneran to file a graduated speculation tax proposal in 1978. The City of Washington, DC, has a long-established, flat real estate transfer tax. In principal, the City of Boston could file a Home Rule Petition for a similar proposal to generate revenues for affordable housing here.