Building new homes is absolutely critical, but it’s also expensive. Just a few years ago, the Globe estimated that multifamily buildings cost at least $600,000 per home, and a 100% affordable building that just broke ground in Union Square will cost more than $800,000 per home! If we don’t want to pay for construction ourselves, we need businesses to do it. And if they’re going to do it, they need to make money. Most people, even at nonprofits, don’t work for free.
It’s a simple fact that if the revenues from a project can’t cover the cost of land, labor, materials, services, and financing, it won’t get built. And costs add up quickly.
Consider a simplified example. Suppose a developer and bank require a projected 15% profit before greenlighting a project — a buffer against market downturns, construction setbacks, and material cost spikes. In a hypothetical world with no regulations, that same project might yield 50% profit. But add building codes, worker protections, affordability requirements, and green space mandates, each cutting about 10%, and the margin falls below that 15% threshold. The project dies. Nobody gets paid to build it, nobody gets to live in it, and it generates no tax revenue for the city.
So which requirement killed it? All of them, and none of them individually. The cumulative burden is what tips the balance. Each of those things are important and good, but demanding all of them at once can leave us with nothing.
There are two ways out of this trap: reduce costs by removing barriers, or increase the potential profits with changes like allowing taller buildings or greater density so that more homes can spread fixed costs across more units.
Non-profit and social housing developers face a version of the same challenge. Rather than chasing profit, they're trying to stretch limited funding as far as possible. As costs rise, fewer homes get built with the same dollars. Larger projects help, since they lower the cost per unit, but the underlying tension remains. As nonprofit leaders like to say, “no margin, no mission:” if an organization can’t keep revenues above costs, it will not achieve its goals.
In Somerville, our costs are higher than most other places in the Boston area, and we’ve reaped the results in the form of not enough construction: aging buildings, excessive pavement, questionable environmental performance, and less affordable housing than we need. Restrictive zoning, even well-intentioned, locked in that status quo. If we want the city to work for more people, we need regulations that encourage construction.