Inclusionary housing requirement may hold back affordable housing construction

A policy aimed at increasing the number of affordable housing units constructed in Cambridge, Mass., may actually be responsible for a drastic reduction in housing projects.

At issue is a city requirement that most new housing developments set aside units at below-market rents—20% of the building’s units—a level that is among the highest in Greater Boston. When the policy was set a few years ago, requiring 20% affordable set-asides was economically feasible.

Today, higher construction costs and interest rates make it nearly impossible for new multifamily projects to pencil, developers say. Some local officials appreciate developers’ point of view and are wondering if inclusionary policies might be doing more harm than good.

Housing production in Cambridge, where demand for housing is red hot, has plummeted over the past three years. Between 2011 and 2021, builders in the city broke ground on an average of 790 units annually. In 2023, developers only finished construction on 39 units.

Neighboring cities with lower inclusionary requirements have fared better in generating new housing. Everett has seen a building boom on formerly industrial land, with an inclusionary requirement for projects on polluted parcels of 5% that was recently increased to 10%. Other Everett lots have a 15% requirement.

Having seen a slowdown in housing construction, Cambridge’s neighbor Somerville, which has 20% set-aside rule, plans to reconsider its inclusionary housing policy.