Worcester Business Journal

wbjournal.com | November 8, 2021 | Worcester Business Journal 17 B A N K I N G & F I N A N C E FOCUS Perfect storm A unique housing economy complicates the notion of relying on new developments to increase affordability and availability BY KATHERINE HAMILTON WBJ Staff writer C entral Massachusetts saw an 8% population growth over the last decade, signifying the need for more housing. In response, many communities are constructing new housing developments, but the impact of those projects may actually be leaving significant portions of the population unhoused. "e rate of new construction and adaptive reuse [into] market-rate housing is something we just haven't seen before," said Andrew Howarth, director of development at Worcester Community Housing Resources, a nonprofit which aims to provide affordable housing for Worcester County. "It's a trend that demands a high market rent because construction costs are expensive, and especially expensive nowadays." In theory, increasing the supply of market-rate housing to meet a growing demand eventually gets more residents housed and drives down the median rent. Like everything else, however, the coronavirus pandemic has turned that notion on its head. "All of the academic metrics aren't working," said Howarth. e city of Worcester has a rental vacancy rate of 3.4%, according to a May report from the Worcester Regional Research Bureau, which is about 1 percentage point lower than the state average. Meanwhile, the U.S. Department of Housing and Urban Development reported the rate of homelessness in Massachusetts has grown 11% over the last decade. As Boston development becomes unaffordable, many Boston-area investors are looking toward Central Massachusetts where the cost of real estate is lower, but revenue returns are still high. "We have a surplus of investment cash, a tight tight vacancy rate, and relatively low acquisition costs compared to the Boston market," said Howarth. "Add in doubling construction costs and a pandemic, and that's the perfect storm." A changing market e greatest hole in the housing market is the lack of what Jennifer Schanck-Bolwell calls deeply affordable units. Schanck-Bolwell, WCHR's executive director, said even units designated as affordable are oen inaccessible to those making below 50% of the median wage. Central Massachusetts' low vacancy rates exemplify a need for more housing developments, but incentivizing developers to include affordable units can be a substantial challenge. Municipalities usually try to collaborate with developers by asking them to give something back to the community, such as improving a street, adding some trees, or including a few units of affordable housing, in return for approving a large, high-revenue project. is collaboration can become a delicate balance of not discouraging a developer from creating housing, as adding more than a couple units of affordable housing eats into a developer's rental revenue. "Generally, in a development, they may have deeply affordable ones, but it might be one or two units out of 50 units. So does it help? Of course, every unit put online helps. Does it make a dent? Maybe not as much," Schanck- Bolwell said. As wealthier investors become interested in the region, and inflation rises with a particularly stark impact on construction, developers are looking for even higher revenue returns to offset the cost of building, said Dan Botwinik, who is the founder of Boston real estate company Cougar Capital Management, Inc. and has projects in Leominster and Shrewsbury. Dan Botwinik, founder of Cougar Capital Management Jennifer Schanck-Bolwell, executive director of Worcester Community Housing Resources, stands by Mission Chapel in Worcester, where a seven-unit, market-rate apartment complex is planned. PHOTO/EDD COTE Continued on next page

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