Next Stop Revere: Inclusionary Zoning

The median household income for a metropolitan area is determined by the federal government. AMI varies based on household size and is used to determine household eligibility for most housing assistance programs. The AMI for a family of four in Greater Boston, which includes Revere, is $120,800. 

Unlike AMI, the City of Revere’s local median household income doesn’t reflect the incomes of surrounding communities. Revere’s median household income is $62,568. 

Households that earn below a certain amount of income (generally 80% or less of AMI) qualify for Affordable Housing. For a one-person household in Revere, 80% AMI is $70,750; for a household of four, it is $101,050. Some Affordable Housing programs have lower income limits, such as 60% AMI. 

Inclusionary zoning ties the creation of Affordable Housing to the production of market- rate housing by requiring a certain portion of units within new private housing development be deed-restricted Affordable Housing for low- or moderate- income households.

Housing that results from market activity based on the regulatory environment without any special subsidies or legal compensation. Property owners and landlords set sales prices and rents for this type of housing based on demand from residents. 

Inclusionary zoning (IZ) is a local policy that requires a certain percentage of units in new housing developments above a certain size to be deed-restricted Affordable Housing for low- or moderate-income households. 

IZ offers developers certain cost offsets in exchange for building the Affordable Housing, such as relief from dimensional requirements, parking requirements, or even reduced local taxes or fees. IZ is part of a city or town’s zoning code and is administered through the permit review and approval processes. 

At least 140 Massachusetts cities and towns have inclusionary zoning. 

Though IZ was first introduced in the U.S. in the 1970s, most IZ policies in Massachusetts and other states have been adopted within the past 20 years in response to rising housing costs. A 2017 analysis by Massachusetts Housing Partnership considered over 180 IZ programs statewide, while a 2021 study found just over 140 programs statewide. 

Inclusionary zoning creates Affordable Housing at a much lower cost to the City than would otherwise be possible. 

IZ is a long-term strategy with cumulative benefits. A core strength of IZ is that it leverages the private market to generate Affordable Housing by tying its creation to the production of market-rate housing. As a result, IZ generates Affordable Housing with limited (sometimes zero) public subsidy. It also typically leads to the creation of mixed-income buildings and neighborhoods, since market-rate development throughout the city is required to include Affordable Housing. Since IZ is written into the local zoning code, it offers clarity and consistency to developers in the permitting and approval process, which makes it easier to get housing built. 

IZ produces Affordable Housing slowly but steadily, typically for moderately low-income families. 

IZ depends on local development activity, meaning that it only works when and where there is demand for new market-rate housing. Because IZ requires private developers to provide a community benefit, it typically doesn’t produce Affordable Housing that’s as deeply affordable as projects benefiting from significant public subsidy. For the same reason, IZ requires a limited percentage of new housing units to be Affordable Housing, typically 10% to 15%. This means it does not deliver many new Affordable Housing units in any one project. IZ is a long-term strategy with cumulative benefits; in any given year, the number of units produced may be relatively small. 

IZ ensures that new developments in Revere of more than a certain number of units will include permanently Affordable Housing. 

Revere is experiencing a housing development boom, with nearly 40 new multifamily projects, totaling over 3,000 units, permitted in the city between 2014 and 2021 (per City permit data). IZ is an effective way for the City to leverage this developer interest and activity to provide community benefits in the form of Affordable Housing. Without a requirement for deed-restricted Affordable Housing, most new housing is likely to be out of reach of many Revere residents. IZ is a way to consistently add to Revere’s Affordable Housing stock and help maintain the diverse community Revere is known for. 

Multiple drivers make the cost of housing construction very high across Greater Boston: it can cost up to $350,000 to build a single one-bedroom apartment today! 

Construction labor and material costs are much higher in Greater Boston than elsewhere in the country and have increased in recent years as the price of raw materials goes up. There are also many costs beyond materials and labor, which comprise about 60% of total development cost. Developers must purchase land, pay architects and engineers to design the building, and take out loans to cover the total cost of construction, which come with upfront costs (like closing fees) and ongoing interest payments that add to the total cost of building housing. Most of these costs are driven by market forces and are outside the City’s or a developer’s control. 

If Revere requires more Affordable Housing than a developer can afford to build, developers will choose to work elsewhere. 

Development finance determines development activity. A developer will not undertake a project that costs more to build than it will generate in income. Development finance informs a good IZ policy by helping determine how much Affordable Housing and what depth of affordability can be required without deterring development altogether in a given area. If IZ requires more Affordable Housing than is financially feasible, nothing—market-rate or Affordable Housing—will be built. At the same time, development finance can confirm that an IZ policy isn’t asking for too little and helps municipalities understand how to get as much Affordability as they can from their IZ policy. 

Balancing the need for Affordable Housing with financial feasibility is crucial for IZ to work. Affordable Housing is very expensive to build, and all-Affordable Housing requires large amounts of subsidy, often well above $300,000 per unit. 

Market-rate and Affordable Housing cost the same amount of money to build. In a market- rate housing development, revenue from rents or sales covers the costs of construction and management, and also compensates the developer for their work and lenders for their investment. Because Affordable Housing rents and sale prices are far below what is charged on the open market, the amount of money generated decreases as the number of Affordable Housing units increases in a building. So, to cover the cost of producing housing, fully Affordable Housing projects require significant public subsidy, often well above $300,000 per unit. 

But public resources for Affordable Housing are very limited across all levels of government. Non-profit mission-based developers, who are the primary deliverers of all-Affordable Housing and deeply Affordable Housing developments today, build far fewer projects than market-rate developers in large part because the public resources they rely on are so limited. IZ is an effective strategy because, rather than relying on limited public funds to subsidize the Affordable Housing units, it relies on the income from market-rate units to make up for the lower-priced Affordable Housing units. 

Revere doesn’t have enough Affordable Housing to meet its residents’ needs. 

Revere’s supply of Affordable Housing is far below the amount needed to serve the city’s low-income and cost-burdened residents. 12,205 Revere households—nearly 60% of all households—are considered low-income because they earn less than 80% of the Area Median Income (AMI) (ACS 2011-15). At the same time, the city has fewer than 1,725 Affordable Housing units (DHCD, January 2021). This means there is less than one deed- restricted Affordable Housing unit for roughly every seven income-eligible households in Revere. 

Revere residents also experience high rates of cost burden, meaning that many pay more for their housing than they can afford. Nearly half (48%) of all households in Revere are cost-burdened, paying 30% or more of their income on housing, including 53% of renters and 44% of homeowners (ACS 2011-2015). Cost burden rates are even higher among low- income Revere residents: 68% of low-income households are cost-burdened (CHAS 2011- 2015). 

Affordable Housing units will generally be affordable to households earning close to the Revere median income of $62,568. 

Housing costs for IZ units are set to be affordable for households earning at or below a percent of AMI. The target affordability for typical IZ ranges from 60% to 80% of AMI. In 2021, the AMI for the Greater Boston region, which includes Revere, was $120,800. But incomes in Revere are much lower than elsewhere in the metropolitan area used to determine AMI. Revere’s median income is $62,568 (2019 ACS) compared to the AMI of $120,800. Here, 17% of households earn between 50% and 80% AMI; 16% earn between 30% and 50% AMI; and 26% earn under 30% of the area median income (CHAS 2011-2015). 

Revere IZ needs to require deeper levels of affordability than typical IZ to be responsive to local needs. That’s why the proposed policy requires units be affordable to households earning at or below 60% of AMI. 60% AMI is $56,400 for a household of one and $80,520 for a household of four (HUD income limits 2021). 60% AMI is the deepest affordability developers can reach given the cost offsets proposed for Revere IZ, including dimensional relief, parking reductions, and a waiver of the building permit fee. The policy would not work if it asked for this level of affordability without offering these cost offsets. 

These Affordable Housing units will generally be affordable to households earning close to the Revere median income. But it’s also important to keep in mind that IZ is just one tool to meet Affordable Housing need, and it cannot create homes for the lowest-income households. To do that, the City is exploring additional tools specifically designed for that purpose. 

Cost offsets, which are small compared to the cost of building a new Affordable Housing unit, make a project with Affordable Housing units financially feasible. Without them, the Affordable Housing units often couldn’t be built. 

IZ requires much less investment from the City to produce Affordable Housing than most strategies. It does not require the significant public subsidy and funding that is typically needed to support Affordable Housing production, which is commonly well over $300,000 for each Affordable Housing unit. 

IZ does require certain cost offsets to developers in exchange for the Affordable Housing, including dimensional relief and parking reductions. These offsets are small compared to the cost of building new Affordable units from scratch, but can make the difference between a project that is financially feasible and one that is not. In Revere, IZ would also offer building permit fee waivers, which facilitates the creation of more deeply Affordable Housing than could otherwise be achieved with IZ. Together, these cost offsets enable private developers to include the amount and depth of Affordable Housing the City will require of projects. In addition to making development financially feasible, cost offsets make IZ legal: municipalities generally cannot require a public good without offering something in exchange. 

Revere IZ applies to both rental and for-sale developments above six units. 

State regulations do not allow cities to require that new homes to be for sale or for rent. New Affordable Housing produced through IZ will be for rent or for sale, depending on the market-rate units in each project. The policy is designed to provide households seeking both rental and homeownership opportunities new Affordable Housing options. 

IZ applies to all new housing developments over six units. Mixed-use projects that include more than six residential units must comply with IZ. Development that only includes commercial space is not subject to IZ. 

IZ is an effective tool for creating new Affordable Housing in market-rate development, but it cannot address all housing needs in Revere. Specifically, it cannot create housing for the households with the lowest-income levels and it cannot respond to housing emergencies that require urgent solutions. 

To create more housing opportunity for households at all income levels, the City is considering a range of other housing tools. This includes zoning for more Affordable Housing or for Accessory Dwelling Units, initiatives to support public housing redevelopment, and City efforts to purchase land for Affordable Housing development. Non-zoning strategies require significant public subsidy, but are better at serving very-low- and extremely-low-income households than IZ. The City has also recently established an Office of Housing Stability to help residents experiencing housing crises. 

IZ is a citywide policy so, once implemented, it applies to any housing development across the city of more than a specified number of units. 

IZ generally does not encourage any additional development beyond what would have occurred without an IZ policy in place. Rather, it creates Affordable Housing units within development that is already taking place and would happen with or without IZ. The new Affordable Housing created through IZ will be located wherever else you see new multifamily housing being built. 

The majority of Affordable Housing built through IZ will benefit existing Revere residents because 70% of units will be reserved for them. 

IZ simply takes advantage of development already proposed for Revere. It doesn’t increase development, so this policy shouldn’t impact population growth. Moreover, the growth in Revere’s population is due to an increase in older and single-person households, not new families with children. Any new families with children who do move into Revere are more likely to occupy existing single-family homes than new multifamily housing subject to IZ requirements. 

Finally, it’s important that Revere remains home to people of all incomes. If population growth were to occur only at the higher end of the income spectrum, the City would receive less in state funding for schools because the state school funding formula typically provides greater funding to communities with a greater portion of lower- income residents. Less school funding would negatively impact all enrolled students, regardless of age, income, and whether they’re new to the city or not. 

For developments subject to inclusionary zoning, the full building permit fee is waived in order to enable developers to meet the Affordable Housing requirements. 

This waiver does not apply to other fees like plan review, inspection, certificate of occupancy, or sewer and wastewater mitigation. It also does not apply to supplemental permits like sign permits. 

Waiving the building permit fee is necessary to provide units that are affordable to households with incomes at or below Revere’s local median. Regulatory cost offsets alone like dimensional relief aren’t powerful enough to cover the cost of housing development at this price point. Without a fee waiver, new development can’t absorb the cost of producing Affordable Housing for households at 60% AMI. Requiring deeper affordability without the waiver will deter development, both market-rate and Affordable Housing. 

Many Massachusetts communities successfully use dimensional and cost offsets to facilitate Affordable Housing development for households at 80% AMI. But that’s not who has significant housing need in Revere; units affordable to households at 60% AMI or below are needed to meet local needs. Development that includes units at 60% AMI will not be built without additional financial support. Building permit fee waivers combined with parking and dimensional reductions is the only cost offset besides significant public subsidy powerful enough to facilitate production of housing at this price point. 

Income-eligible households apply for Affordable Housing through a lottery that is run by the property management company or designated partner. The rules of the lottery are laid out through the City’s or other fair housing market plan. 

The housing lottery for IZ units is the same for any Affordable Housing in Revere that’s rented or sold. In addition to the income criteria of 60% of AMI, Revere IZ has a local preference. This means that up to 70% of new Affordable Housing units in IZ developments will be reserved for income-eligible Revere residents. All eligible applicants for IZ units must apply through the lottery. 

Other cities’ IZ policies typically offer dimensional and cost offsets like parking relief and density bonuses to ensure developments can include the required Affordable Housing. However, other cities also tend to include Affordable Housing that serves more moderate-income residents. To truly meet housing need in Revere, the City needs to use more powerful cost offsets, like building permit fee waivers. 

IZ looks different in each community. Many Massachusetts cities successfully use dimensional and cost offsets to support IZ units that are affordable at 80% AMI. But these policies do not exclusively create housing for households at 60% AMI the way Revere’s IZ policy will. This deeper affordability requires stronger financial support, such as a building permit fee waiver, in order for development to be feasible. 

It will take at least two to three months for the City Council to adopt IZ. 

The zoning must be submitted to Council, then the Council meets and will refer it to a public hearing. Two separate weekly public notices must be posted prior to the public hearing. The Planning Board must also hold a hearing, which can be joint or separate. The zoning will then be referred to the Zoning Subcommittee and possibly the Legislative Affairs Subcommittee, which have to report it out. 

If there’s any objection at the subcommittee meetings, there could be a second reading; if there were an objection at the second reading, there would be a third reading, at which point the Council would vote. The Council must adopt IZ with a two-thirds majority, or eight of the eleven councilors.