UMass Study: Tax Revenue From New Housing Offsets Any Local Negative Impacts

Researchers examining the soaring cost of housing in Massachusetts say the problem has been exacerbated by low rates of home building across the state, which over the past decade has averaged roughly a third of what it was during the tech boom of the 1980s.

The researchers say local resistance to building is partly to blame.

“One piece of the challenge has to do with our archaic planning and zoning rules at the state level,” says Michael Goodman, executive director of the Public Policy Center and associate professor at the University of Massachusetts Dartmouth. “Another has to do with the reluctance of many communities in Massachusetts to approve housing, in part because they are concerned about the potential financial risks to their community.”

Much of this anxiety around allowing new development comes from local fears that it will burden public schools and other municipal services.

But a new study — co-authored by Goodman and fellow researchers at UMass Dartmouth, and published in conjunction with the Massachusetts Housing Partnership, a public nonprofit working to expand affordable housing in the state — finds that the negative impacts from new housing developments on local institutions are often low, and even when the strain is felt, the increase in tax revenue generated by new residents greatly exceeds the costs to towns and cities.

“The bottom line is that there is substantially more state tax income and sales tax revenue generated by these developments -- more than enough to provide for any local shortfalls,” Goodman says.

Goodman and his colleagues revisited research conducted in 2007 that analyzed the impact six new housing developments had on communities across the state. In three of those communities — Brookline, North Hampton and Peabody — the new developments had no negative impact on public services. And while developments in the three other communities — Falmouth, Sandwich and Wilmington — did create “modest” negative consequences, they were more than offset by the value of new tax dollars generated for the state by residents who moved in from out of state.

“In fact, less than one in three of those net new state dollars would be required to make these communities whole,” Goodman says.

While the research indicates that new housing means new revenue for the state, it’s less clear how these benefits might trickle down to the local level. Currently there is no mechanism in place for redistributing these specific revenue increases to affected cities and towns in any targeted way.

But a bill introduced in the Legislature this year would seek to reduce barriers to housing development — while also offering a pathway for areas with new housing to receive set-aside funds.

The bill would amend the state’s “smart-growth” law, paving the way for towns and cities to more easily create denser zoning districts for multifamily housing, in part by lowering the amount of votes needed for a local legislative body to pass such zoning revisions from two-thirds to a simple majority. The bill would also allow these new districts to offset the cost of educating additional children via an existing education fund, and give them priority in an existing infrastructure funding program.

“We need denser housing, we need more participation and we need a regional approach,” says Rep. Kevin Honan, a Boston Democrat and co-sponsor of the legislation, H-1111. “Right now Boston is carrying most of the load. So in order to encourage municipalities to allow for density, you have to address their financial concerns. They think the additional housing is going to bring additional school children and that it’s going to be cost-prohibitive for them to expand. So we are seeking in this legislation to allow 40S, which are school payments that the commonwealth pays when a municipality zones for greater density.”

Goodman and housing advocates at the Massachusetts Housing Partnership hope their findings will help inform the Legislature’s push to encourage more housing in the state.

“Taking some of these net returns, placing them in a dedicated fund, and allowing communities that can demonstrate that they have net negative fiscal impacts to tap that fund to make themselves whole,” Goodman says. “I’m not naive enough to think that all the concerns about housing development at the local level are based on fiscal concerns, and so this would be one step towards a better solution, a more efficient market, and a mechanism that would allow the development of the housing that the commonwealth needs.”

According to the Metropolitan Area Planning Council, a regional planning agency, some 435,000 units of new housing -- mostly multifamily and mostly in urban areas — will need to be built in the state by 2040 to keep up with job growth.

While housing production did pick up slightly last year, a recent state Senate report found that the state needs nothing short of a “revolution” in housing production -- not just to keep pace with demographic trends, but to ease the burden on people at all income levels.

State lawmakers will discuss the bill, H-1111, Tuesday on Beacon Hill.