Options to meet 40B affordable housing plan in Acton


Acton is a small town of 25,000 residents, about 30 miles from MA State House, with $120k medium family income. It has 7,627 housing units, with 2,580 condos / apartments as of Spring 2016.

In the state of Massachusetts, there is an affordable housing plan, called 40B. It requires 10% of the town residential housing units used as "affordable housing" units. It means Acton needs to have 763 home units for 40B.

Currently, Acton has 6.5% home units under 40B, and it needs another 3.5% home units to meet the 10% requirement. This 3.5% amount is 266 housing units.

There are multiple options to implement Acton’s 40B plan. Before 3 options are discussed below, some assumptions are used to make the calculations simple and more straight forward.

Acton Property Tax rate: 2%
Medium house price: $560,000 (as of 2016 data)
No inflations.

Option 1: Rolling snow ball

To speed up the process to meet 40B, building more high density apartment complexes were proposed. Most common practices are 25:75 ratio for new condo complex construction, i.e., 25% units are for 40B, 75% units are for builder profits.

For example, like last year's Kelly Corner project, build 192 apartment units near Main st and Massachusetts Ave. While only 25% of 192 units would be applied to 40B plan, it means to meet 266 units, 4 times of 266 apartment units need to be built in the coming years.

4 x 266 = 1,064 units.

But with this new 1064 units built, it requires another 10% of 1,064 for 40B, which means 106 more units needed for 40B.

To meet this new 106 units, it needs to build 4 x 106 which is 424 apartment units.

Repeat above procedure:

42 x 4 = 88 units.

9 X 4 = 36 units

Plus a few SFHs which could be used for 40B.

Conclude above calculations:
To meet 266 affordable housing units for 40B eventually, 636% apartment complexes need to be built.

266 x 4 + 106 x 4 + 42 x 4 + 9 x 4 = 1,692 units.
1,692 / 266 = 636 %

More SFH will be built at much smaller scale due to land limitation. We can assume 10% of 1,692 SFH built in coming years.

How many apartment complex unit and multiple family units are there in Acton? As of last spring, Based on data collected from Town Hall: 2,532 condo units plus 48 apartment units, adds up to 2,580 units, which is 34% of Acton total residential housing units.

Add 2,580 to 1,692, we are looking at almost 4,272 condo / apartment units when 40B plan is eventually met.

With total Acton housing number reaches
7,627 + 1,692 + 170= 9,489 (not counting new 40b units for the 170 SFHs)

The condo / apartment units will take 4,272 / 9,489 = 45% of Acton residential housing units.

So when 45% housing units are condos / apartments, the medium house price will move down to $400,000 level from $560,000. The property tax collected from medium price house will go down to $8000 from $11,200 (apply 2% tax rate). In order to match the medium price house tax collected, the tax rate needs to go up 40%. So the new tax rate will be 2.8%, raised from 2%.

Option 2: Build 100% 40B use condo complex

Build a 266 condo building, 100% used for 40B. This option meets 10% requirement with one-time effort.

But who is going to build it if there is NO profits?

Consult Town of Concord.

Concord’s Mews affordable housing plan built a 350 unit complexes near Maynard / Acton was done a few years ago. Concord met the 40B plan with one-time effort when this 350-unit was 100% used as affordable housing plan.

If Acton can build a 300 unit 100% use for 40B, Acton can meet the 40B easily too. So the condo units only increases by 300 units, adds up to 2880 condo / apartment units. It only slightly increases the condo ratio from 34% to 35.5%, the medium housing price is slightly lower than $560,000. So the new medium priced house will generate slightly lower tax, for example, 3% lower.

In order to match the $560k home tax amount, the tax rate needs to be raised from 2% to 2.06%.

Options 3: Buy ready condos in multiple years

There are 2,580 condo / apartment units in Acton, 500 of them are in 40B plan. The 266 units can be purchased on market.

Market price for a one bedroom condo is about $140k, 2 bedroom condo is about $170k, and 3 bedroom condo is around $200k. The average condo price is at $170k for 1-3 bedroom.
Acton can purchase 20 units each year. The total capital is $3.4M, which is less than 5% of the total property tax collected annually.

Cash flow:
The maintain cost for each condo includes tax, HOA fee, insurance, repair etc. The actual number is around $800 a month.
Rent is about $1,200-1,500 market. For affordable housing, the rent is 30% lower. So the subsidized rent is about $900-1,000.
Cash flow is the rent income minus the cost. It leaves $100-200 a month, or $1,200-2,400 a year.

For 20 units each year, the generated cash flow is $24,000 to $48,000.

Buy 266 units in 13 years. The total cash flow will reach $300-600K annually.

How to fund the purchases: levy 5% extra tax for 15 years, the tax rate is increased from 2% to 2.1%. When all units are purchased, the levy can be removed. The annual cash flow can be used to purchase 1-2 units each year.

Pros: the total condo units stay at 2580 forever, the medium housing price increases as more SFH built, more tax income can be generated from higher medium home prices even with the same tax rate. Positive cash flow properties, more town owned assets. Condo ratio goes down each year. Fiscally healthier.

Cons: higher tax rate from 2% to 2.1%

Acton will be a lower income town with option 1 when 45% housing units are affordable condos, apartments.

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Comments

Misunderstanding of 40B rental buildings

I think there is a misunderstanding in this analysis, unless I'm missing something: If a developer puts in a 40B project that is all rental--and it meets the threshold of having 25% (or is it 20%? Can't remember!) of its housing units deed-restricted "affordable," ALL of those rental units count towards the 10% threshold, NOT just the deed-restricted. So this changes the calculus considerably. So the Concord Mews project that is in Concord is like this, as far as I understand. So these buildings can still be very profitable for developers.

MWBusse

Option 2: Mews project

25% if used for below 80% medium income families, or 20% if used for below 50% medium income families, and all other units are used as rental properties.

That is the option 2: Concord’s Mews project.

Is Acton moving towards this option? It is great news if Acton is doing this.

Thanks for commenting!