As part of Harvard’s Public Leadership Certificate course, I got a chance to analyze the Greater Boston’s Housing market and I really enjoyed the framework and mechanisms to analyze. So sharing it out here.
A breif summary of the course for those interested, Ill use the same framework to analyze
- Values for diagnosing a problem, Eg. Capabilities (HDI), Utilitarian, Justice, Ubuntu, Dhama etc.
- Policy Actors – Market, Government, and Civil Society.
- Strategic Triangle – Policies must be
- Technically Correct,
- Politically Supportable and
- Organizationally Implementable.
- Problem Diagnosis Tools –
- Ishikawa diagrams, (See later)
- Case Analysis Document: Capture notes on readings, document actors, their objectives, decision makers, decisions and their objectives, environment (constraints), and consequences.
- Leverage Point Analysis (See Later)
- Theory of Change: used to validate Technical Correctness, also to monitor for iterative design.
- Stakeholder Analysis: Actors, incentives, support matrix, relationships (influences).
- Organization Capability Analysis:
- Steps,
- Principal-Agent Incentives allignment,
- Capability,
- Risks and Mitigation steps
- Policy Recommendation Matrix, (Evaluate all proposals, highlight possibility, including status quo.
- Policy Brief for tailored to individual actors.
Summary
Increasing affordable housing in Greater Boston Area. (State level)
- Affordable housing in metro city is a public good, to allow cheap labor in local industry.
- Market drives rent, cost up, and make housing targeted to most lucrative, high-end market.
- Complex issue, balance between preserving art, culture, lifestyle, and livability of the city.
- Boston is amongst the top Rent to Income Ratio cities in the US.
- Zoning laws that may adversely impact the housing supply.
- Existing solutions like Section 8 Housing Subsidy are oversubscribed.
- Not enough building permits issued for reaching target goals,
- Building affordable housing is not lucrative for real estate developers.
Values
An entrepreneurship ecosystem relies on a wide range of skill levels and education levels to thrive. A technologically advanced company benefits from engineers having closer access to manufacturing and process ecosystem to reduce the design cycles and production costs. Over time Boston’s economic ecosystem has transformed into Academic, Pharma, Financial and Technology Hubs where design and development is led by high skilled and high paying jobs. But lack of low skilled and lower paying alternatives is forcing the industry to adapt to less productive lifecycles and hollowing out the use of middle-income jobs.
Affordable Housing in a historic area as Boston Ecosystem, is a complex issue, with delicate balance between preserving art, culture, lifestyle, and livability of the city, while providing sufficient supply of housing to new migrants or existing residents who require affordable housing. Boston is amongst the top Rent to Income Ratio cities in the US (DAILYMAIL.COM, 2023), (Harvard JCHS, 2023). Competing interests and existing investment prevent drastic changes in housing supply that may reduce the rent/market costs. Maintenance of livability of cities (Traffic, public spaces, style, and markets) is also key consideration for zoning laws that may adversely impact the housing supply. Lastly, any addition to housing should consider long term growth, and reserving sufficient land for future public spaces etc. Sudden drop in housing prices can lead to excess mortgage/losses for existing residents that makes the political viability of strong housing project supply less likely.
Existing solutions to reduce the housing gap, like Section 8 Housing Choice Voucher program (HCVP) can reduce impacted residents, but do not solve the longer-term problem of affordable housing demand. We need long term solution that can manage slow growth of affordable housing and maintain the residential investments in housing. (National Low Income Housing Coalition, 2022)
As a recent Massachusetts resident myself, I was shocked at the high cost of housing in the area. This adversely impacts the life of students and RA’s working on living wages, as well as prevents students who do not have support from their family/savings to commit to an intellectual aspiration. As a labor economist, I was researching Entrepreneurship Ecosystems, and I see the direct contribution of high housing costs on the viability of certain businesses. Solving the housing issue can bring multi-faceted benefits to the ecosystem, including entrepreneurship.
As a value system, using Justice, and Capabilities approach, Housing and community should be a strength in life, where a house represents a commitment to community and ecosystem around us. House ownership forces us to look beyond our daily life into strength of community, and citizenship. Using housing for long term asset investment and rental assets reduces the values that housing communities can achieve. Due to financial interests and profit maximization, these fundamental tenants of good communal life are impacted. Housing communities are benefited by diversity, but restrictive zoning laws etc. reduce the income/wealth diversity of the residents.
Policy Actors:
Market:
Real Estate Developers:
– Incomplete Markets: Higher profits from high end housing, and unprofitable low-end development
– Negative Externality/Public Goods: Low-income residents/workers priced out.
Renters/Local Businesses Employers: Negative Externality and Inequality caused by high paying jobs pushes out low-income residents from housing.
Investors/Property managers: Principal-Agent: Buying for investment reduces stock, driving-up rent. Higher Rent allows investing in more houses to match mortgage payments.
Civil Society
Homeowners Association: Principal-Agent: Permitting new housing might impact existing real estate value, as well as affordable units can bring lower earning communities to public spaces like schools.
Professional Licensing Lobbyists: Monopoly: Increasinglicensing and permitting requirements prevents smaller firms to enter markets reducing competition. (Urban Institute, NHC, 2016)
Government
Local Government: Principal-Agent: Building Permits for High-end housing increases tax base and restricting redevelopment permits keeps existing prices high. Granting conditional permits like Age Restrictions and Local Preference of applicants reduces affordability. Additionally, restrictive Zoning Laws for existing development restricts new development.
State Governments: Principal-Agent: Targeted to reduce inequality and increase affordability, the Agents (Local Government) are not incentivized to achieve affordability in each sub-region.
Problem Diagnosis
Ishikawa Diagram
Cause/Leverage Points
| Cause/Leverage Point | Solution | Why? |
| Affordable house constructing not lucrative | –Subsidize the construction of affordable houses with open bidding. -Enforce more % of stricter Affordable housing construction as part of new projects. | This targets Principal-Agent problem for realesatate developers. |
| Local govt not providing new building permits for affordable houses (NIMBY) | –Grant additional development local funds if affordable housing permit target met. -Simplify zoning laws, (E.g., NY, Boston), promote mixed use. -Buy up old properties neighborhoods for large scale redevelopment. | -This targets Principal-Agent problem at local govt level, to encourage permits, redevelopment efforts, and provide budget for other development that might be needed to support new population. -Reducing Licensing and building costs can help allow new players to increase competition to fill the gap for low-middle income housing. |
| Commercial use driving up house prices + rent | -Differential property and mortgage tax benefits for residential(owner) vs rented properties to support own housing, drive price down. | This will reduce demand for investment in high end housing. The tax wedge needs to be designed so as not to disincentivize construction altogether. This can only be done when sufficient affordable units are available in market to keep rent down, to not transfer this new tax to rent burden. |
| Affordable housing process tedious | -Empower HUD to publish Data, -Make simplified one click application Process. -Allow Market run discovery and auction of affordable housing. | Technology/Data can be leveraged to autofill the right Federal/Local/State subsidy applications using streamlined single application to get all applicable benefits, reducing cost to end-users |
Theory of Change
Chosen solution: Subsidize construction of affordable housing from state funds incentivize local governments to issue building permits and grant additional development funds for meeting affordable housing goals.
Analysis
The current theory of change relies heavily on impact of construction and land costs and misaligned incentives of real estate developers and local governments on availability of affordable housing. If the market is indeed not able to provide the public good construction of affordable housing, the subsidy is likely to reduce these costs, but may go out of date, as lower availability of land permits for high end housing push rents even further. This will make Input and Output 1 causal chain to break. Or Output 2 to Outcome 2 (Permits issued to construction completed). It was seen in Covid due to supply chain cost overruns, multiple construction works were abandoned as cost became prohibitive (The Boston Foundation, 2022).
Secondly, the theory of change assumes that local governments incentives will align if state government provide subsidies for affordable housing, however, they may still not publish sufficient housing permits to maintain current value of existing houses, or NIMBY effect to not have affordable housing construction in the government area. Alternately, the affordable houses building permits may be given in areas inaccessible to public transportation (The Boston Foundation, 2022).
Lastly, the theory of change assumes that the permits granted based on 150% of 2030 affordable housing action plan will be sufficient. However, if the availability of affordable housing increase the migrants to Greater Boston Area and demand more affordable housing, the outcome2 to impact chain might break. The assumption that 150% should be sufficient can further be breached.
The unintended consequences of subsidizing building permits for affordable housing might be reduction in investment in middle income and high income housing. This might further limit the supply and hence increase the rent/prices of high income housing brining more families in need of affordable housing.
Secondly, the assumption of high rents in Greater Boston area has led to out-migration of residents (Boston Planning and Development Agency, 2022). Increase in availability of affordable housing can incentivize additional in-migration that can further increase the demand for affordable housing, and current permits might not be sufficient.
Lastly, the subsidy can be cost-prohibitive to the state, and the budget can run out.
Analysis for other solutions
- Enforce more % of stricter Affordable housing construction as part of new projects.
- May reduce investment in housing, causing further shortage)
- Strong pushback from business, govt overreach)
- Existing laws, easy to modify)
- Simplify zoning laws, (e.g., NY, Boston), promote mixed use.
- Strong political opposition, why didn’t local govt already do it?
- Buy up old properties neighborhoods for large scale redevelopment.
- Need to incentivize local govt to act.
- Differentiate property and mortgage tax benefits for residential(owner) vs rented properties to support own housing, drive price down.
- Can further reduce development of new units.
- Ownership may not be affordable in the short term.
- Empower HUD to publish Data,
- Make simplified one click application Process.
- Existing application not well done. Harder to implement Good IT solution.
- Allow Market run discovery and auction of affordable housing.
- Can improve the application process, but may not be viable in short term as units are low.
Stakeholder Analysis
| Stakeholder | How is this stakeholder affected by the solution? How can this stakeholder affect its adoption? | Interests/Incentives: What does the stakeholder care about? Is their interest in the solution high, medium, or low? |
| Renters | The increase in affordable housing can give them direct benefits or indirect benefits (decrease in market rents). | HIGH: Affordable housing can cost more than 30% of the income. |
| Tenants (Affordable + other) | Existing housing tenants may see a reduction in income from rents and can make their existing mortgage untenable if rent reduce too much. | Medium: Availability of Affordable houses may not decrease the rent significantly. Getting more Low-Income residents may lead them to oppose the solution (NIMBY). |
| Real Estate Developers | Building affordable houses based on current law requires min % of houses to be affordable. Getting explicit building subsidies can help them construct low-income housing and open a previously unfeasible segment. | HIGH: Since this is going to compete with their existing building work, the potential conflict is visible. But getting large subsidies from government to build housing will increase their turnover. |
| Affordable Housing groups | E.g., The Boston Foundation: This is impacting their direct constituency and will help reach their targets | HIGH: They will want this to pass. Though if the budget cuts into their funding, there might be some backlash |
| Local Governments | Having more affordable housing may bring more taxes, but reduce the value of existing units, and reduce taxes. Additionally, they need to manage opposing tenants who fear low-income residents may impact on an existing environment/culture etc. | HIGH: This directly impacts them. In the past local governments have been given targets that they have not met, they will oppose new units unless they are incentivized. |
| State Government | Gov, Boston Planning and Development Agency (Boston Planning and Development Agency, 2022), They have been dealing with affordable housing issues, they are in favor of public goods, business etc. | HIGH: They are directly impacting local economic development. Though the budget might be too costly. |
| Businesses | Businesses have to pay higher salary due to unaffordable rents. They would be incentivized as well. | Medium: High salary/rent may be incorporated in the cost of doing business. Additionally, not all employees will be impacted. |
| Homeowners | They can see reduced valuation of their houses, and can face lower property taxes | Medium: No guaranteed impact, but NIMBY effect |
Analysis: This issue is heavily discussed in academia, and local NGOs etc. (The Boston Foundation, 2022). Additionally, business have been facing the issue. However, some may assume free market intervention needs to be well justified to compare with Socialist Europe (Mari, 2023). Lastly, local governments, though directly accountable to citizens have incentives to be free riders for this public good and enjoy high rents.
If the Renters, and Businesses are sufficiently mobilized for each local government, only then they may be forced to issue more permits. Additionally, if the subsidization of building of affordable housing brings real estate development on the table, this can incentivize larger tax collection in the long run. To placate the local governments and Homeowners, there needs to be sufficient funds for achieving Affordable housing targets to incentivize local governments to issue building permits. They can use these funds for community development projects for handling additional population.
| Stakeholder(s) | Describe the political vulnerability |
| Homeowners or Tenants | With strong incentives to oppose and being more directly involved in long term relationship with local government, they stand to lose most, and have deep influence on decision makers. They can even make it a strong NIMBY stance to block any new approvals. |
| Real Estate developers | They need to be sufficiently incentivized. Currently building licensing allows restricting new entrants. They can place much higher bids to reduce the chance of acceptance. Or can sit on winning bids. |
| Local governments | With strong incentives for Free Riding the affordable housing boom, the local governments need to be sufficiently incentivized to meet higher targets (150% of target) with community development funds. |
Mitigation:
Homeowners or Tenants Risk:
They need to be countered by Local Business and Renter groups, which are hard to mobilize. Providing mixed zoning laws (Zaveri, 2023) can help reduce their opposition and continue to grow the house values. This may stabilize the price in the long term.
Real Estate developers:
Bids need to be open to national developers and simplify licensing requirements. Additionally, bids need to be time bound and can be taken back if development is not completed.
Local governments
The local governments need to be sufficiently incentivized to meet higher targets (150% of target) with community development fund.
Organizational Implementability Analysis
Analysis
The organization capacity to drive legal contracts, and execute bidding and release of funds is well experienced territory. Additionally, local building permit allocation, and evaluation of offers against existing environment, and community norms can be easily completed.
Experience of real-estate developers to project and plan to submit appropriate bidding and permits is well experienced. Though National developers might face some uncertainty with local laws (Urban Institute, NHC, 2016), definitely construction of affordable housing units based on minimum guidelines is easily achievable.
| Who is involved? | Describe the vulnerability |
| State government, Governor, Legislature | To ensure success of the program, long term bipartisan support or long term legal support for the fund allocation and release is essential. Both for bidding of development and for additional community development funds. |
| Dept of Housing | Existing capacity to manage and evaluate national bidding for construction might not be easy, given validation and capacity for developers and ability to raise funds and complete might be harder for outside firms. |
| National Real-Estate developers | For national developers to develop using local laws, might create some uncertainty in bidding process. The outreach program should make available the local guidelines to ease the process of bidding. Additionally, leaving the project midway due to cost overruns should have a sunset clause allowing to transfer ownership to new bidding. (The Boston Foundation, 2022) |
| Current Residents opposing the development | To calm opposition to the program, local community development funds should be well described and incentivized to bring the right support. |
| Affordable housing applicants | The current application process is convoluted with multiple subsidies etc. Common application process will be needed to streamline application and allotment. (The Boston Foundation, 2022) |
Mitigation
- Need for long term supportability of the program: Strong bipartisan support or pre-allocation of funds for the project is needed for confidence in the program for developers as well as local governments
- To avoid stopping of project development, the legal contract should include a sunset clause to enable the developer to exit without undermining the original bidding process. The state can take over the bidding of the units with appropriate compensation.
- To generate support of Community development funds, participatory budgeting for allocation of the funds can bring in the support for current residents.
- To simplify the application process and allotment of the units constructed in advance, the process needs to be streamlined into single application, and covering multiple state, federal and local subsidies.
Policy Recommendation Matrix
Analysis:
A key requirement for proposal is to increase the number of housing units, and also increase affordable housing units. For short and long term, any approach taken by the State of Massachusetts will need to be to incentivize the local governments in the direction.
Real Estate developers are disincentivized to construct low-income housing, as they can get higher returns on high end houses (Urban Institute, NHC, 2016). Adding additional requirements to build affordable housing units can increase the supply in the short run, but long term this will make housing unit construction unviable. Strong incentives are needed for Real Estate developers to align with low-income housing construction. Solution 1 is a better approach, but is costly, that can be recouped only at state level.
Most satellite cities in Greater Boston area, enjoy rising taxes from rising house prices, and do not suffer the brunt of businesses and employee unaffordability. Cambridge (City for MIT/Harvard) do suffer impact of housing on students, but most students are not voters, so the principal agent incentives for State and Local Governments do not align (Boston Foundation, 2022). A strong incentive for local government is needed, and let them resolve the approach by zoning law changes, redevelopment projects etc. Solution 3 is the right tradeoff, again costly to the State government, but can be recouped by strong growth in economic activity.
Lastly, Complex affordable housing process is causing some distortion, but not a major contributor. Previous attempt to simplify the process improved discovery but not resolved the issue. This shows limitation of government IT capacity, and need for Free market to be incentivized to run these action pools. Solution 9 can be done in combination with Solutions for other problems. (Boston Foundation, 2022)
Policy decision maker
Governor of Massachusetts Maura Healey (Democratic Party)
Governor Healey is Democratic Governor in a traditionally mixed electoral outcomes for Republican vs Democrat for executive of Commonwealth of Massachusetts. Given landslide blue state of Massachusetts have a history of electing republican governors to balance the left leaning legislature (Khalid, 2018). The need for centrist or market friendly policies vs left centric regulation is often more desirable in Governorship (Reilly, 2022).
Strong need to control government overreach needs market solutions. Given strong support of legislature (Democratic), for actions taken for increasing affordable housing, the Governor has strong incentives for Market Friendly centrist policies. Also Establishing notable examples at state level elevates the Governor’s career as long-term centrist democrat at the federal level.
Providing strong business growth, and business friendly environment will align incentives. Solving affordable housing with business growth is a great plank to support and achieve incentives.
Risks
Solution 1 and Solution 3, pose a strong risk for the plan is the Cost, and Cost overruns. Given strong State budget, this is less likely an issue in the short run, and can reduce further being business friendly work around in the long run increasing government tax base.
The opposition to the plan due to left leaning government can be a hurdle, but a strong long term revenue generating plan can reduce the opposition. Additionally, exhaustion of existing policies for reducing conflict with local governments to support building permits can be seen a great compromise for State acting to resolve a Public Good (Affordable Housing), by the Stakeholder (Governor) who has the most benefit of the proposal.
Policy Brief
Next post
References:
DAILYMAIL.COM, R. R. (2023, January 24). Record-high number of people are now spending more than 30% of their income on rent. Retrieved from https://www.dailymail.co.uk/: https://www.dailymail.co.uk/news/article-11670831/Record-high-number-people-spending-30-income-rent.html
Harvard JCHS. (2023). RENTER COST BURDENS REACH RECORD LEVELS. Harvard Joint Center for Housing Studies.
National Low Income Housing Coalition. (2022). Out of Reach, The High Cost of Housing. National Low Income Housing Coalition.
Boston Foundation. (2022, June 28). The Greater Boston Housing Report Card 2022: With special analysis of equity in subsidized housing. Boston: THe Boston Foundation. Retrieved from nonprofitquarterly.org/: https://nonprofitquarterly.org/foundation-report-challenges-greater-boston-to-address-housing-affordability/
Boston Planning and Development Agency. (2022). Boston Housing Conditions and Real Estate Trends Report 2022 (https://www.bostonplans.org/getattachment/066b23c5-cab9-4731-a338-f6e57e3ef55f). Boston: Boston Planning and Development Agency.
Urban Institute, NHC. (2016, July). Cost of Affordable Housing. Retrieved from Urban.Org: https://apps.urban.org/features/cost-of-affordable-housing/
Mari, F. (2023, May 23). Imagine a Renter’s Utopia. New York Times Magazine, p. NA. Retrieved from https://www.nytimes.com/2023/05/23/magazine/vienna-social-housing.html
Zaveri, M. (2023, September 21). In Yards, Offices and Basements, New York Hopes to Build 100,000 Homes. New York TImes, p. NA. Retrieved from https://www.nytimes.com/2023/09/21/nyregion/nyc-housing-plan-adams.html
Khalid, A. (2018, Nov 02). How Massachusetts’ Republican Governor Has Remained So Resilient In A Blue State. (A. T. Considered, Producer) Retrieved from https://www.npr.org/: https://www.npr.org/2018/11/02/663655451/how-massachusetts-republican-governor-has-remained-so-resilient-in-a-blue-state
Reilly, A. (2022, Nov 9). What to expect when you’re expecting Maura Healey. Retrieved from https://www.wgbh.org/: https://www.wgbh.org/news/politics/2022-11-09/what-to-expect-when-youre-expecting-maura-healey
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