New Year, Same Problem: Thousands Of Approved Housing Units Are Stalled In Boston

Though market fundamentals seem to favor new housing construction in Boston, developers are having a hard time getting shovels in the ground.

The city's housing production has remained slow over the last two years due to macroeconomic conditions, restrictive city policies and the rise of new multifamily zoning in the suburban neighborhoods, several industry executives tell Bisnow. Though Boston has seen an aggressive push from city and state leaders, they said a jump in new multifamily shovels in the ground this year is unlikely.

Last year, 144 multifamily projects with two units or more, making up 2,217 units, received permits in Boston — typically one of the last steps before starting construction, according to the Mayor's Office of Housing. That was up from 2,049 units permitted in 2023, but both years were far below 2022’s total of 3,991 units.

The number of units getting permits to start construction over the last two years has been far below what the city has approved for development. The Boston Planning Department approved 3,575 units last year and 7,389 units in 2023.

This means sites that could yield thousands of housing units are sitting inactive across Boston despite receiving BPD approvals.

"If you're a developer, you look at the fundamentals and demand and you're like 'I can do this. I want to build,'" Colliers Research Director Jeff Myers said. "But then you look at all the financing-related constraints, the cost, the length of permitting, especially in the Boston area relative to some other markets, and the ability to exit out of that project, and it becomes a little bit more complicated."

Mayor Michelle Wu’s administration has sought to help more stalled projects begin construction with a $100M Housing Accelerator Fund, which was bumped to $110M in November with the help of the state.

“Boston’s housing crisis is the biggest stress on families across our neighborhoods, so we need to do everything possible for more housing and more affordability,” Wu said in a statement about the fund.

However, developers say some of Wu’s policies have made it harder to make housing projects pencil and move forward with construction in an already difficult financing environment.

In October, the city increased the percentage of required affordability housing in buildings with seven or more units from 13% to 20% through its Inclusionary Development Policy. NAIOP Massachusetts CEO Tamara Small pushed against the decision right before it was implemented, arguing it will hinder affordable housing development rather than help it.

"The regulations will do nothing but further dampen already depressed housing production in the City of Boston, undermining the City’s goals for growth and further driving up the cost of market-rate housing,” Small wrote in a statement to city officials in September.

Wu’s administration pushed a Net Zero Carbon Zoning initiative that failed to pass the Boston Zoning Commission in August. Commissioner Michael DiMella argued that the zoning would exacerbate the affordable housing crisis, saying "It’s going to reduce the equity throughout the city because the cost of housing is so high.”

The Wu administration has also continued to push property owners to comply with the Building Emissions Reduction and Disclosure Ordinance, which targets buildings 20K SF and larger to meet net-zero emissions by 2050. 

A long-awaited city tax break was shelved early last year due to concerns around the uncertainty of interest rates, The Boston Globe reported. The tax break would have been used to ease costs associated with housing projects in an effort to start them in 2024 or this year.

"A lot of the added requirements and regulations just add cost," said Cruz Development Corp. Project Manager Armond McCoy, an affordable housing developer. "You start to wonder why it costs so much to develop an affordable housing unit versus going out and buying single-family housing."

Urban Land Institute Boston/New England Executive Director Michelle Landers said that though local policies are an unwelcome addition for developers, the driving causes of the slowdown are macroeconomic factors, including high interest rates and construction costs. 

"I know there's been reference to affordability requirements and sustainability requirements, but I think it's really the fundamentals that are holding back and not some of these things that get added on," Landers said. "Those maybe on the fringes don't help make the deal look better, but I think that some of the problems are just these bigger macroeconomic factors."

Colliers' Myers said that if developers could build right now they would. Relative to other cities, Boston's apartment market fundamentals are ripe for development — steady rental growth, low vacancy and high demand driven by a statewide housing crunch.

Myers said that developers looking to sell developments in the short term could be faced with less than desirable profits.

"If your goal was to sell [the multifamily development], the impact on interest rates and what it did to cap rates may make it so that it makes it harder to find that exit strategy in a profitable manner," Myers said.

The pandemic-era funding that helped some projects move forward had to be used by Dec. 31, 2024, leaving the city and states to look for funding options to replace it. Boston received $558.7M in American Rescue Plan Act funding, with $241.9M of it going toward affordable housing production and preservation projects.

"A lot of the ARPA money is running out," Massachusetts Housing Investment Corp. CEO Moddie Turay said. "That has been presenting a challenge in terms of having those extra dollars was critical and moving a lot of projects forward that would not have otherwise."

Suburban Development 'Growing At A Faster Rate'

The slowdown in new construction starts over the last two years has occurred across the state, but other cities and towns outside of Boston are seeing more activity from developers looking to break ground soon.

At the end of the year, Massachusetts saw 16,096 units across 89 projects under construction, which made up 5.7% of the total inventory, according to data from Cushman & Wakefield. Prior to the pandemic, projects under construction made up over 10% of the region's inventory.

Myers said some suburbs are seeing increased interest from the development community.

"If we looked earlier in this development cycle, a lot of the construction was really heavily concentrated in Boston and Cambridge," Myers said. "Inner suburban locations are really growing at a faster rate right now than a lot of other places."

Part of this is due to the MBTA Communities Law, former Gov. Charlie Baker's law that requires 177 communities with or adjacent to transit stops to approve new by-right multifamily zoning near them. The law didn't include Boston, given the city already has dense development around transit. 

Over 116 cities and towns approved new MBTA Communities zoning language last year, and, as of November, there have been over 2,800 units proposed across the state because of the law. 

Lexington, which sits in the Route 128 belt just over 20 miles outside of Boston, has seen a surge of interest, with over 1,000 new units proposed last year. 

"I think that, by itself, is a really big deal, because they have now created all of these opportunities to develop housing," Citizens' Housing & Planning Association CEO Rachel Heller said. "I now hear from developers who had not looked at any of these communities before, now seeing opportunities."

The state received a significant victory in its efforts to enforce the zoning law this week: The Massachusetts Supreme Judicial Court upheld the law after the town of Milton rejected zoning changes at the beginning of last year, ruling that the state's attorney general has the authority to sue towns to force compliance.

Other towns have begun to see projects become approved and start construction. In Westwood, town officials approved Petruzziello Properties' 160-unit multifamily development at 22 Everett St. in its MBTA Communities zoning area. The project broke ground in September.

"That feels very fast for a big state-mandated change to go ahead and get zoning approved, and for a project to be approved is really great news," Landers said of the Westwood project.

The state is also pushing out funds to help bring development to the finish line. As part of Gov. Maura Healey's $5B Affordable Homes Act signed in August, there is a $50M momentum fund targeting mixed-income, mixed-use projects that have stalled.

While the Massachusetts Housing Investment Corp. is based in Boston, Turay said it has looked at many deals outside of the city and some even outside of the state. Last year it provided $8M in financing for the Dexter Street Commons mixed-use development in Pawtucket, Rhode Island. 

"We're seeing activity all over," Turay said. "It is hard in Boston proper for deals to pencil out. It's one of the most competitive markets in the country, so just by its very nature it's going to be difficult, but we're seeing a lot of deals outside of Boston proper."