New tax credit program could spur new market-rate housing in mid-sized Massachusetts cities

by Jon Chesto
The latest unemployment rates tell you what you need to know about these cities’ economies. Lawrence’s topped the list, at 15.8 percent. Fall River’s wasn’t far behind, clocking in at 15.5 percent. Its South Coast sibling, New Bedford, was at 14.1 percent.
For the umpteenth time, the so-called “gateway cities” had some of Massachusetts’ highest jobless rates. Sure, the rates in February were also high on Cape Cod and the Vineyard. But those economies will come alive in a couple months, as they always do when the weather warms up. The same rebirth won’t happen this spring in many of the state’s old industrial cities.
It’s a problem that has dogged this state for years, if not decades, amid the slow decline of our once powerful manufacturing industry. Mayors of these cities have long pressed state officials for solutions.
Well, there’s at least one possible fix on the way now. The state Department of Housing and Community Development is putting the finishing touches on a tax credit program for projects in these mid-sized cities that would bring new market-rate housing into the mix.
State and federal agencies have plenty of ways to spur the creation of affordable housing. But many city officials don’t want affordable housing to be the sole driving force behind construction work in their downtowns. It’s not easy to build a strong economy on a population that doesn’t have much in the way of expendable income.
Industry experts say there is no tax credit geared for creating homes for the middle class. There are programs that help renovate specific kinds of properties, such as historic buildings or polluted sites. But none are specific to market-rate housing.
That’s going to change with the launch of the Housing Development Incentive Program this spring. As one of his first actions as Gov. Deval Patrick’s new undersecretary of housing and community development, Aaron Gornstein is ensuring this program is ready for developers to apply by sometime in June.
The Legislature authorized the program in a broad economic development bill that passed in mid-2010. But it’s taken this long for the state’s housing agency to pull the details together. The program, at least for now, will be capped at $5 million for each fiscal year – a budget that likely could help finance five to 10 projects each year.
The program will give a developer a 10-percent tax credit on eligible rehab work. Arthur Jemison, a deputy undersecretary at DHCD, says the credits will be capped at 50 market-rate units and at $1 million per project. Because most of these tax credits are sold off at a slight discount, he says, a typical developer could reap up to roughly $900,000.
The credit would only be available for projects in one of 24 designated mid-sized cities. Some already have relatively healthy economies. But others are struggling. Most, if not all, fall under the “gateway cities” umbrella, a term promoted by local think tank MassINC and used frequently in recent years by state policymakers. Most of these cities were once central employment hubs for their respective regions. But many now face constant cycles of high crime rates, low graduation rates and weak employment opportunities.
The cities have to play a role, too, in this new program. Local property tax exemptions need to be offered and city officials have to approve the best places to put such projects.
Developers are already getting interested. John Hixson, development project manager at South Shore Housing Development Corp. in Kingston, says he views this tax credit as an important tool to breathe new life into some of these economically-distressed cities. Hixson says South Shore Housing will approach officials in Brockton, Taunton, New Bedford and Fall River to see if they have any local properties in mind that would be suitable. South Shore Housing might go it alone, or it could partner with a commercial real estate developer for a mixed-use project.
Because of the program’s limited scope, it won’t be right for every project or every city. Joe Kriesberg, president of the Massachusetts Association of Community Development Corporations, says the credits would be best suited for cities that already have some demand for market-rate housing in their downtown areas. Otherwise, a 10-percent credit might not be big enough to draw interest from developers.
That’s the case at WinnCompanies, the Boston-based developer. Managing principal Gilbert Winn says his firm may try to take advantage of the program but it would only work in cities where market-rate housing is viable or close to being viable already. Winn says higher-rent areas, such as Lowell, would be good targets. Regardless of the city, he says lining up these tax credits could mean a significant amount of work for relatively short dollars.
The most successful proposals, according to Prabal Chakrabarti at the Federal Reserve Bank of Boston, would be those that are part of broader redevelopment visions. In some cases, the tax credits could be that one critical piece to get a deal financed, the difference between a loan closing and a loan falling apart. But Chakrabarti says the project can’t exist in a vacuum if it’s going to help rejuvenate a city’s economy in any meaningful way.
This program won’t solve all the problems that these cities face. It’s not going to turn them around overnight, by any means. But it could provide an important spark. Who knows? Maybe it won’t be long before the economies in some of these distressed cities are humming once again.
April 1, 2012
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