Factors of Upzoning

Everyone knows that the single biggest factor in the price of a home is its location. A home in Somerville costs more than a similar one in Lowell, for example, and a home near Davis Square is more valuable than a similar one right next to I-93. The price for a location reflects its desirability. If we want to build homes where people want to live, we need to understand what kind of upzoning will help us reach that goal.

Earlier, we covered the basic economics of home building, which tell us that construction is economically viable if the cost of land and construction is sufficiently lower than the revenue it will create. We also know that revenue is highest in the most desirable locations, which means we should expect to see most development on desirable areas. Why don’t we? Why isn’t the amount of housing built closer to the zoned capacity, the amount that is legal to build?

There are a few things that typically stand in the way. First, the zoning has to allow enough construction that profits cover not only construction costs but also purchase costs. Research from NYC indicates that happens when it’s possible to build at least two to three times more floor space than is currently on any given location. This means it is harder for smaller incremental upzonings to be effective: they simply don’t create enough of a financial incentive to build.

There are also procedural barriers, often in the form of “required” variances, special permits, and other discretionary tools cities use to control construction. They can be something big like the master plan for Union Square, or just a laundry list of conformity issues like setbacks and lot coverage ratios. The latter was particularly a problem before our 2019 zoning rewrite, when it was difficult to plan construction because variances and special permits caused such unpredictable delays and costs.

What kind of upzoning would actually produce significant amounts of new housing in Somerville? In an world with minimal procedural issues, a project’s revenue becomes the dominant decision maker in home building happening. So let’s do analysis based on that.

First is the average sale prices across the city broken down by census tract:

As we can see, prices are fairly steady across much of the city, with the highest prices near Union and Davis Square. They stand out with high capacity transit, great walkability, and vibrant commercial zones.

We can look at rents as well:

Unsurprisingly, the newer buildings in Assembly Square command high average rents, as do apartments near Davis Square and Union Square. Assembly Square is already zoned for height, so if we want to unlock new construction we’ll need to look along the Cambridge border and in the expensive Davis Square neighborhood.

The exact outcome will depend on many factors, but we can tell from these maps that a small or single-neighborhood change may not create enough economic incentive to build new housing, even if a map suggests that more housing would be allowed. Meanwhile, a large per-parcel increase could be profitable everywhere, which would match expectations of what an upzoning would do.

When we change our zoning, even for just a handful of parcels, we must be cognizant of the real change it will make. Not every change will have a big impact, but through planning we can figure out how to create the homes we need.

P.S. This analysis does not align with the trends of the city’s Financial Feasibility Analysis. Most likely this is due to different underlying sources, different slices of the data, different assumptions, and the FFA’s focus on only rents.