by Mike Kane, Public Policy Associate, Worcester Regional Chamber of Commerce
A Worcester housing unit boom is on the horizon as it’s estimated there are over 3,900 new units of housing that have made their way through or are still in the process of gaining final approval from the City. Just recently, the Worcester Planning Board’s agenda for its meeting on January 15, had around 350 new units slated for development within the City, all of which are much needed to help alleviate Worcester’s housing production shortfall.
According to the MassINC’s Policy Center, a non-partisan think tank focused on economic development, civic engagement, and social policy in the Commonwealth, Gateway Cities like Worcester will be essential to the production of housing in Massachusetts over the next ten years. Released at the Gateway Cities Innovation Summit in Worcester last November, the housing study highlights that Gateway Cities need to produce roughly 36,000 additional homes to meet the immediate housing shortfall state-wide.
Further, over the next 10 years, Gateway Cities, which are midsized urban centers between 35,000 and 250,000 in population size that anchor regional economies around Massachusetts, should aim to produce 83,000 new homes. In Worcester, the study states that the City will have to produce around 8,600 homes over the next 10 years to address its current shortfall while also keeping up with new growth.
However, getting to the point of shovels in the ground in Worcester has been a challenge since the end of the pandemic, as developers face a variety of factors that disincentivize housing production, including higher property values, increased interest rates on loans, and higher construction costs. One effect of higher construction costs for development across the state is that the cost of construction stays relatively the same statewide, but with lower assessed values and lower rental prices the farther from Boston the development is located, the risk on the amount of returns from rental prices to pay for the development in Worcester increases.
The MassINC study and a New Bedford Light article do a great job of por-traying this increased risk, as in Worcester developers could expect to lose over $250,000 for every unit under construction without subsidies, meaning that just rent alone does not offset the costs of construction and the property maintenance of the housing development. However, in the Boston area, this per-unit rate is much lower, as in cities like Chelsea, Everett, Revere, and Salem, their estimated financial gap is around $100,000, due to the higher rents developers could charge with similar construction costs.
At the Chamber, we believe this figure should not be a disincentive for developers to build housing in Worcester and Central Massachusetts, as locally there are funding mechanisms and tax incentives/exemptions that developers and investors can utilize to create the much-needed housing for our community. Programs such as the Housing Development Incentive Program (HDIP), whose funding was expanded by the legislature through a bill signed by Governor Healey in October of 2023, are essential to the creation of housing in Worcester and Gateway Cities. The program has two primary features that are provided to developers, one is a local option real estate tax exemption, known as a TIE, on the new value of the property. This means that properties will still be taxed at their original assessed value, but the tax exemption would be on a percentage of the property’s new value over a certain period of time. The other primary function of HDIP is to provide state tax credits for qualified project expenditures, which are awarded by the Executive Office of Housing and Livable Communities (EOHLC) through a rolling application process, that developers could use to explore funding possibilities.
Most importantly, this program, especially for TIE agreements, brings developers to the negotiating table with the City to promote responsible housing growth to produce a mix of market, affordable, and accessible housing units to reflect the community’s needs. For example, projects in the North Main Street area at 204 Main Street, the Kane Building across from the Worcester District and Superior Courthouse, and 1 Exchange Place, the former police headquarters and Worcester District Court, applied for HDIP/TIE through the City and to the EOHLC. Both properties once completed will create sixty-six (66) units of housing with eleven (11) units reserved as affordable and one (1) ADA-accessible unit, to provide necessary infill development in our Downtown.
As the Chamber estimates there are over 3,900 units proposed for construc-tion, this figure could be even higher as there are many projects throughout the city that are adding only one (1) or two (2) units. To improve the amount of housing in Worcester and meet the 8,600 units to address our current short-fall, holistically we need to continue to both prioritize and incentivize housing development as well as the investment in market rate, affordable, supportive, and ADA-accessible housing for residents of all ages. To do so requires the the government working collaboratively with the private sector to continue to add thousands of new units of housing needed for our City and region.
