Why Adding Boston Housing Is A 'Balancing Act' Between Costs And Incentives

Boston’s strong historical and cultural footprint and myriad job opportunities should be reasons enough for people to want to call the region home — if only there were enough homes to go around.

The city has struggled to increase its housing supply, and much of its housing also comes with escalated rent prices. In October, Apartment Advisor ranked Boston the fourth-most-expensive city for apartment rentals, with the median rent for a one-bedroom apartment listed at $2,800.

Delivering this much-needed housing means getting more developers on construction projects. Karen Knox, senior adviser and relationship manager for insurance broker NFP, said one of the most substantive hurdles for developers is community engagement.

“Each city and town has its own government, and each government has their own objectives, which may or may not always be aligned with the developer and their project,” Knox said. “Smaller communities also often differ on their zoning priorities and requirements.” 

She said Citizens’ Housing & Planning Association unites stakeholders from all the Greater Boston communities for the benefit of affordable housing and helps address the need to educate and engage stakeholders for everyone’s benefit. However, the longer projects take to get off the ground, the greater the expense is for developers and communities.

Knox said this is just one example of why community engagement is critical to address the housing shortage effectively.

Being unable to accurately or comfortably assess profit margin is another hurdle to building much-needed housing in the Boston area, she said.

“Developers must understand the costs of materials, labor and soft costs, like insurance, to bid on projects,” she said. “Since costs have been increasing and are volatile, assessing project costs has been difficult to accurately gauge at bidding for project commencement.”

Knox said that while insurance is only one component of soft costs, it has a great impact on developers. 

“Because project margins are really tight, developers consider if it’s going to be profitable for them to bid on certain projects, and too often the math has not worked,” Knox said. “If we’re able to nail down the cost of insurance, it can be a tremendous help.”

She said that while insurance rates are steadying compared to the last few years, developers and contractors should still be working with an insurance broker from the get-go, as brokers can help with assessing costs as projects, the market and insurance rates evolve. This allows for more accuracy leading up to the build phase, which should translate into a greater willingness to bid at the outset. 

One way developers can stay ahead of and manage unexpected cost increases is to shoulder the insurance cost themselves and cover subcontractors under that insurance, she said. This helps developers maintain contact with their brokers, manage costs of subcontractors better and ensure that prices are still consistent.

Tax incentives at the federal, state and local levels for green development are now a requirement to offset project costs because building green and retrofitting existing property is more expensive, she said.

Knox said Boston's Green New Deal could mean developers realize the support outweighs the increased costs of green construction. The GND is centered around addressing the climate crisis in Boston and focuses on decarbonizing and electrifying new and existing buildings to drastically reduce carbon emissions and promote healthy home and work environments.

She said the city is pursuing federal funding opportunities, including from the American Rescue Plan Act, the Bipartisan Infrastructure Deal and the Inflation Reduction Act, that could support much-needed growth in Boston.

Developers can access federal assistance programs like the Department of Energy's Property Assessed Clean Energy programs and the Inflation Reduction Act, which has opened up several funding pathways, including the expansion of the 179D tax credit, she said.

“For developers, it’s a balancing act between saying, ‘We’re going to spend more money on the project,’ and, ‘We’re going to save some money on insurance and with incentives,’ and what does that process look like?” Knox said. “In order for Boston to require green construction, it has to ensure developers have the assistance available to support the retrofitting of existing buildings and new green construction. Otherwise, the projects won’t pencil and the housing shortage will continue.”

Technology also contributes to the balancing act between cost and incentives for developers: its cost versus the cost reduction of implementing it now and in the long term.

Knox said augmented reality and virtual reality can improve on-site safety, train new hires and enhance collaboration.

“On-site safety is a key consideration for insurance, so leveraging technology to measurably improve outcomes impacts the cost of insurance,” she said. “New building materials and processes support project efficiencies and reduce timelines, which brings down project costs.”

She said that while insurance companies see technology as a way to mitigate risk and be more efficient on projects, using it doesn’t necessarily translate to a major reduction in risk.

“Technology may be one of many improvements a developer could utilize to enhance site safety, and AR, for example, may not be enough on its own to impact the insurance costs at project inception,” she said. “However, utilizing AR could mean fewer work site injuries, which lead to fewer disruptions and a decrease in costs associated with employee injuries and delays.”

She said that as insurance companies review the data around claims and implementation of various technologies, people will better understand the solutions that make the most impact. This will continue to evolve as innovations occur.

Knox said developers should consider how and which innovations can be effectively deployed and contribute to each project in a meaningful and cost-efficient way.

NFP’s construction and infrastructure division assists developers by exploring how technology can be beneficial for their construction projects, she said.

She emphasized that taking a proactive approach and maintaining communication with insurance brokers contributes to the success of a multifamily project. 

“It’s important for developers to find partners who understand how and when to leverage the resources that are available to them,” she said. “It’s not just about selling insurance, it’s about being a strong and supportive business partner.”

This article was produced in collaboration between Studio B and NFP. Bisnow news staff was not involved in the production of this content.

Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.