Impact 40B has on the Massachusetts Housing Market

One of the concerns expressed by the present administration is the high cost of housing in Massachusetts. The obvious solution to those who believe in 40B is to expand the number of 40B projects.

These pro-40B lobbyists have lost track of two things:

First, to create one "affordable" home ownership unit under 40B, it builds three market rate units at increased prices to supposedly subsidize the sale of the affordable units. Inflating the cost of market rate housing is driving up the cost of housing in Massachusetts at a rate faster than inflation.

The numbers are dramatic; to build one affordable unit at $150K say we need to build three market rate units at $341K. That is a 14% increase over a free market housing unit that could be built for $300K. The numbers are even more dramatic for a $600K house. They increase the price of a $600K house to $732K, a 22% increase, to supposedly subsidize the cost of building one affordable unit at $150k. This is done despit the fact that nearly all developers profit from the affordable units.

The second issue is who is who can qualify and who can afford a housing unit built under the Massachusetts comprehensive permit statute. Again the numbers tell the story. The price of a housing unit is set relative to the AMI. The price of an affordable unit, is set such that a person must spend no more than 30% of the average median income for their city or town. Using HUD numbers the 30% of the AMI is calculated and the funds available to pay principal and interest is converted to a mortgage and related to a selling price for a home. In the example shown below, the selling price of an affordable unit is set at 70% of the AMI or $159,250 for Arlington. If the person purchasing the unit earns more than 80% of the AMI or $66,150, they will not qualify to purchase the home. The next question is who can qualify for a mortgage. Banks have a formula that determines how much a family needs to earn to qualify for a mortgage. To purchase an affordable home for $159,250 a family must earn at least $58,870 and they must have a 5% down payment.

The home that will sell for $159,250 can be sold to a person that can earn no more than $66,150 and must earn at least $58,870. A range of $7,280. Granted the state has programs to help widen the income range of those that will qualify, but the bottom line is these grants are hard to obtain and sell out quickly.

The bottom line is that there is a huge disconnect between the need for affordable housing and the solution, which is 40B. MGL40B significantly increases the market rate selling prices of home to subsidize the construction of affordable units by 14% to 22%. The homes that are sold are available to a very narrow range of home buyers. Surely not what is mean by providing affordable housing to Massachusetts residents. If increasingly more residents are priced out of the market and are forced to move out of Massachusetts, the economy will continue to struggle.

Moreover, because of these trends, Massachusetts is experiencing record high housing vacany rates. Even with an oversupply of homes on the market, working families cannot keep up. According to developers and Beacon Hill, 40B is supposed to help, but if the housing market continues to slump and 40B developers stop building projects because they aren't as profitable, our situation is only going to get worse. It is time for the Commonwealth to fund and support affordable housing alternatives that will help bring balance back to our economy.