Betteridge’s law of headlines scores another goal: No, building dense new housing does not lose money for the city. But understanding the fiscal benefits of new housing can reveal interesting lessons about how the city gets paid, how it pays for things, and what it means for us all.
Let’s start with a different question: Does any housing lose money for the city? According to a report the city commissioned almost a decade ago, some kinds of housing do lose money for the city. Specifically, the report says that our standard Neighborhood Residential zones, with one to three homes per lot, cost the city about 18% more in services than they generate in tax revenue. Most of that is down to who lives in them: residents in these homes are more likely to have children, those children go to school, and schools are expensive to operate.
So what about denser homes? According to that same report, homes in our Midrise districts are generally smaller and more densely built, in accordance with our zoning, building code, and economics. The report calculates that this type of residence generates 11% more revenue than costs for the city. In other words, dense housing is better for the city’s bottom line.
These aren't isolated findings. The city has repeated this analysis for new housing for several planning efforts over the past decade and reached the same conclusion each time. Research from Smart Growth America has found the same results in other cities, as well.
As part the Union Square Neighborhood Plan, the city did another fiscal analysis of the new development. The plan states that “only deed-restricted affordable units in Union Square lose money for the City,” (pg 254) because they have lower values and therefore generate less tax revenue. However, because they’re bundled with more profitable market rate homes, the overall effect is still fiscally positive.
During last year’s considerations of upzoning around Gilman Square, the city did another fiscal analysis. It found that converting 5 homes into 30 homes would yield $28,000 per year in net revenue for the city — similar conclusions to the prior analyses.
Across all of these analyses, the same pattern appears repeatedly: costs are driven primarily by school enrollment, while revenues depend heavily on assessed property values. That means deed-restricted affordable housing and our 35% owner-occupied tax exemption reduce net revenue, while market-rate multifamily housing contributes more than it costs.
But that doesn't mean some housing is "good" and other housing is "bad." Every tax system redistributes resources. The real question is who we choose to support and who pays for that support.
In Somerville, we make several deliberate choices. We spend heavily educating children because an educated population benefits all of us. We collect less tax from deed-restricted affordable housing because we want lower-income neighbors to be able to remain in the city. We also provide a substantial property tax exemption to owner-occupants, shifting part of the tax burden onto renters.
The first two are explicit investments in our future and in helping neighbors who need support. The third is different: it subsidizes homeownership regardless of need. Whether that's fair is a political question, but it is still a redistribution of resources just as surely as any other tax preference.
Opponents of new housing often argue that growth means higher taxes or cuts to city services. But Somerville's own analyses tell a different story. The additional revenue from new multifamily housing does not hurt our city finances. It provide more money to support our schools, parks, libraries, public services, and — most importantly — the people that make Somerville a great place to live.