Everybody hits rough patches in their life, and when I got divorced in 2005 and became a part-time single dad with two young children, the city of Lawrence embraced me.
I came to Lawrence for multiple reasons. First, I was already working full-time on the city’s revitalization as an employee of a local nonprofit. Second, I had a wonderful support network there of friends, colleagues, and neighbors. And third, I could afford it.
I could get a place with enough room for my kids on a nonprofit salary while I held together a single-income household.
Like me, lots of people come to our Gateway Cities to get their feet under them. Most of us don’t come for subsidized affordable housing (more accurately called “income-restricted housing”) but rather because of family, social ties, and most importantly, naturally-occurring affordable housing.
Naturally-occurring affordable housing is provided by the private market—oftentimes apartments rented by landlords in small multifamily homes, or units in older apartment buildings.
The MassINC Policy Center’s 2024 Housing Monitor found that Gateway Cities have two-thirds of the naturally-occurring affordable housing for all of Massachusetts, narrowly defined as unsubsidized units affordable to households making under 50% of the state median income.
Only 22% of Lawrence’s rental units still meet this criterion, although surely that number is far less than when I moved there. In 2005, there was an abundance of reasonably priced rental units on the market. And even today in communities like Fall River, New Bedford, Holyoke, and Westfield, naturally-occurring affordable housing still constitutes a majority of the overall housing market.
Yet that number has dwindled in Lawrence and other cities over the last 10 years. While metro Boston has flourished with jobs, investments, and amenities, housing scarcity has pushed low and moderate-income residents further out to find housing opportunities. As a result, my colleagues at the Policy Center found that newcomers to Gateway Cities have slightly lower incomes than residents already living in those communities. In the overwhelming number of cities, we’re not seeing higher-income newcomers out-compete residents, but rather housing scarcity itself restrict options and raise prices.
Between 2012 and 2022, Gateway Cities added 16,000 more households than new housing units. Households in their adjacent suburbs outpaced construction by 6,000 more. In other words, while housing stock grew by 5% in both Gateway Cities and their suburbs, the number of households grew by 8.2% in Gateway Cities and 6.7% in the suburbs.
The result has been a sharp drop in the vacancy rate, and higher rents.
To reverse these trends, Gateway Cities must build much more new housing—36,000 units just to overcome the ongoing housing shortage, and a total of 83,000 over the next 10 years to accommodate future growth.
Unfortunately, construction costs have ballooned. Every single Gateway City in the state has a financing gap to build rental units. These gaps range from $79,000 per unit close to Boston to nearly $300,000 per unit in the regions furthest away.
To unleash housing production, projects and communities must overcome this gap. Compared to the overall need, few projects will do so relying on subsidies for income-restricted affordable housing. We need only look at the state’s funding round earlier this year to see that $158 million supported the construction of only 14 projects statewide, funding which includes a recent 50% increase in state low-income housing tax credits.
This kind of direct subsidy is one way forward, although the total amount of public dollars required to build each low-income-restricted unit can reach $550,000. These units are incredibly important. Winning an income-restricted unit is as impactful to someone’s life as winning a lottery ticket—but almost as rare.
At that price, we would need nearly $20 billion in public subsidy to address the existing deficit of 36,000 units in Gateway Cities alone.
We need additional approaches.
Another tool could be called shallow subsidy, or just enough subsidy to make the numbers work for private developers building market-rate units. This can unlock an additional set of projects with smaller financing gaps.
The Gateway Cities Innovation Institute, working with its municipal partners, has championed this approach with the Housing Development Incentive Program, or HDIP. Established as a pilot program that issued its first grants in 2014, HDIP remained capped at a meager $10 million for nearly a decade. That changed last year, when the Governor and Legislature expanded the program to $30 million annually — along with an additional $57 million to address the five-year backlog of applications.
We’ve seen the results: when Gov. Healey announced the latest round of 2024 awards last week, it represented a total of $72 million invested in 35 projects that will create 1,544 new homes in Gateway City downtowns. Most of these projects will restore vacant or deteriorated properties. They represent the kind of middle-income housing that appeals both to young people and seniors who want to stay in their community, and which the market has not been able to build.
I’ve spoken to several housing directors who independently told me that, if additional funding were available, 4-6 more housing projects in their community could move forward. All are currently stuck in the financing stage. The need for some kind of subsidy to overcome the gap pushes nearly all of these projects into the competition for scarce public dollars.
From 2014 to 2023, the average HDIP subsidy per unit was only $23,000. More recently, following inflation and rising construction costs, that has increased to $46,000, but that remains about one-thirteenth of overall cost.
Expanding shallow subsidies to more projects would get market-rate projects out of the deeply subsidized housing pipeline and allow those funds to go to the projects that serve the neediest. For an unprecedented housing crisis, we need to be willing to do things differently. We must state plainly a simple, evident truth: traditional affordable housing programs alone will not solve the housing crisis for most of our families and neighbors. Once we can accept that, effective out-of-the-box solutions like shallow subsidies to maximize supply become clear. The current trend has been to spend more and more money to produce fewer and fewer units. To paraphrase the popular saying, we can’t expect the same actions to produce different results.
André Leroux is Program Director of the Gateway Cities Innovation Institute at the MassINC Policy Center.