A loophole in a 40-year-old ballot initiative explains much of our love for development
This isn’t Manhattan. It’s the Cambridge skyline as seen from The Esplanade in Boston. (Photo: Philip Sego)
In the 1970s, America was in the midst of an economic downturn. Municipal tax revenues were falling, as was personal income. Unemployment was increasing. The inflation rate was nearing an all-time high. Cities and towns struggled to pay for essential municipal services such as teachers, police, fire protection and trash pickup.
Throughout the United States, local governments began to increase taxes to make up for this shortfall. This led to a backlash from cash-strapped homeowners. In California in 1978, a tax revolt took hold in which voters passed a landmark law that severely limited the ability for municipalities to raise taxes. Dubbed “Prop 13,” it passed by a nearly 2-to-1 margin.
In Massachusetts, leaders in the anti-tax effort created “Proposition 2½,” modeled on California’s tax-cutting measure. Proposition 2½ was created by the Citizens for Limited Taxation, a conservative group headed by crusader Barbara Anderson. It promoted smaller government and fewer regulations. This law was ultimately passed by Massachusetts voters 56 percent to 40 percent.
Prop 2½ offered the following changes:
- The annual excise tax on cars fell 60 percent, to $25 for every $1,000 of value, down from $66/thousand.
- The total annual property tax raised by a municipality cannot exceed 2.5 percent of the assessed value of all taxable property in it.
- The annual property tax increase cannot exceed 2.5 percent.
Since the inflation rate was between 6 percent and 12 percent immediately after passage of Prop 2½, the state’s communities were reeling. With lowered tax revenues, many city services were cut, libraries were closed, teachers were fired and playgrounds and parks deteriorated. The only way a municipality could stay afloat was to curtail spending on expected and essential services.
As the situation became more dire, municipalities latched onto a loophole: increasing property taxes on new construction. To keep city services running and to keep up with inflation, the only option was to encourage new construction that could generate high revenue every year.
Cambridge was well-positioned for development. The city had recently upzoned – changing its zoning to encourage denser development. The eastern part of the city, including Kendall Square, Lechmere and North Point, were largely abandoned properties and brownfield. Being almost next to downtown Boston and on the green and red subway lines, these locations were highly desirable. The Alewife area was also largely undeveloped. There were pockets of former industrial zones in Cambridgeport. A large number of residential properties throughout the city had significant “headroom” (the difference between what was allowed by zoning and what had been built).
The city embarked on an enormous fiscal development plan harnessing the energy of the newly developing tech and biomedical industries. As their new workers sought local housing, the city passed zoning “reforms” allowing denser construction. Communities near Kendall Square and Lechmere, formerly occupied by moderate-income families, became hot properties, and sale prices went up.
In 1995, Cambridge lost rent control through an effort led by, among others, Denise Jillson, the current executive director of the Harvard Square Business Association. It’s estimated that more than 15,000 residents were forced to leave their homes as rents skyrocketed. Property owners began converting former rental properties to condos that could sell at high prices. A “townhouse” ordinance allowing denser zoning started creating tear-downs and infill buildings. The destabilization of the surrounding neighborhoods that had begun after Prop 2½ had burst onto the residents.
Under the reign of former city manager Robert W. Healy, the city concentrated on creating a steady stream of new construction, filling the city’s coffers with new tax revenues exempt from Prop 2½ limitations. At the same time, city salaries of top administrators were increasing, requiring larger budgets. To maintain these larger budgets, the city needed a constant and reliable flow of new construction. And since commercial construction was taxed at approximately double the rate of residential construction, the city looked at building more dense tall buildings.
Citizen groups began to push back. As a result of increasing traffic, the city’s air quality had been worsening steadily. The city had been disregarding an order by the Environmental Protection Agency that banned new commercial parking garages, approving multiple garages. A neighborhood group, the Cambridge Citizens for Livable Neighborhoods, filed suit and forced the city to comply.
Other communities, from Alewife to East Cambridge, began to push back against the onslaught of construction and destabilization. But with the enormous financial incentive and the city manager’s control of boards and commissions, the battles were typically lost. Although a few members of the City Council objected to the rampant development, they too were drowned out by the tidal wave of money and the inherent weakness of Cambridge’s “Plan E” form of government. Many councillors cozied up to the developers, knowing that with proportional representation voting, their chances of reelection actually increased by using municipal money to bring their constituents new schools, nice parks, senior centers, youth centers and programs, a new library, and the other trappings a wealthy city can buy.
In an ominous warning, in 2014, a past director of the Community Development Department was asked what the city would do when Lechmere, Kendall, North Point, “Simplex” and Alewife were fully developed: “We’ll start redeveloping.” This means upzoning an area, tearing down what’s there, and building something bigger and denser. And if anyone is paying attention to new building throughout Cambridge, it is clear that “redevelopment” is happening now. Throughout the city, backyards are being filled with multi-unit condos; a new tower was built at Massachusetts Avenue and Main Street. Another tower is planned for The Middle East site. The list goes on.
Developers make stunningly large profits in Cambridge. They have created a message that the only way to bring down the cost of housing is to create more of it, as if it followed the laws of supply and demand like eggs or milk. The obvious flaw in this is that demand is, for all intents and purposes, infinite, while the city’s infrastructure can carry about 120,000 – close to our current population.
It has been estimated that 1 million people wish to call Cambridge their home (and far more wish to live in the Boston metro area), though that’s open to debate: That estimate, done years ago by the Cambridge Citizens for Livable Neighborhoods, is based on an insatiable, overheated real estate market. With an average annual increase in home values of 8 percent to 12 percent, buying property in Cambridge has attracted buyers from around the globe, and bank interest rates hovering at less than 1 percent and a doubling of the world’s money supply in the past decade has placed enormous property speculation pressure on the entire Boston area. What’s driving the market is outside investors and real estate investment trusts, yet the trusts don’t even need to rent out the properties they buy or build; just owning them yields a handsome return on investment.
While there may be a few zoning “activists” who believe zoning is simply bad, and that the city should not have limits of height or density, it’s important to remember that not long ago, slaughterhouses clustered around Gore Street were built by a residential area because there was no zoning. Tanners dumped carcinogens, glass companies belched coal ash tainted with lead, arsenic and other toxins and the city’s less affluent neighborhoods suffered from pollutants and waste. Anyone who had lived near a restaurant or bar learned that zoning restrictions protect residents. Zoning also sets the character of a community. People who wish to live in a condo with restaurants and bars nearby have zones that allow this; others who wish a small yard for their children can have that. This isn’t “exclusionary” – it’s setting aside some areas with different characteristics and protecting all residents regardless of their economic status.
There are good arguments for development. Providing affordable housing can be a good reason. Zoning variances that allow an increase in affordable units, especially near transportation hubs, can be a very important tool. Unfortunately, this is too often subverted by greedy developers who push for an enormous zoning increases by throwing in a few affordable units. But common sense tells us that building a tower with dozens of condos selling for $2 million and a few affordable units does not contribute to a diverse city.
There are numerous problems with the haphazard, unbridled growth Cambridge encourages. Besides the obvious problems of traffic, exceeding the capacity of the T, city services and existing utilities and increasing pollution, the greatest problem that cannot be avoided is climate change. Much of the city is already prone to flooding, and the eastern third is built largely on landfill – much of it merely 7 feet above sea level. A storm surge will soon inundate a portion of the city. The areas directly by the river are likely to become uninhabitable by the end of this century.
The addiction to growth is also short-sighted because infrastructure isn’t exactly scalable – utilities will need to be replaced, not simply expanded. Streets that handle 1,000 cars a day can’t simply handle double or triple the volume. Schools, fire protection and police will all need new facilities. One could argue that the city needed a new police station and a new water facility. But the question isn’t whether we need these; the question is why: It’s like a Ponzi scheme in which we need to rebuild infrastructure because our population is increasing because we want more development to pay for more infrastructure – with no end in sight.
When will it be enough? How many people should we have? Who has the right to answer this critical question? Right now, it is the developer’s voice that prevails, supported by the city’s insatiable appetite for more tax revenue and protection of a meaningless bond rating.
Proposition 2½ created a loophole that demands continued development to support an ever-expanding city budget. It is time for a serious conversation about salaries in our city, a reasonable and sustainable budget, and a vision for how large we want Cambridge to be. It should be led by Cambridge citizens, and not by developers.
Phil Sego is a resident of Norfolk Street and the author of numerous zoning petitions.
“Developers make stunningly large profits in Cambridge.”
Citation needed? I’ve seen charts comparing developer profits to the amount that homeowners have made through simple appreciation … the homeowners have made many, many times more.
Since 1980, Cambridge has added 45,000 jobs, but only 13,000 units of housing. At a February City Council hearing, Jeff Roberts, Cambridge’s director of zoning, said that a number of times in the past half-century, the city has adopted new zoning designed to allow new housing, only to have it rolled back a few years later due to neighborhood backlash. So perhaps the “author of numerous zoning petitions” should do some reflection on the role he and the “Cambridge Citizens for Liveable Neighborhoods” have played getting us into this mess.
I only know a handful of developers. All of them have become quite wealthy. But you’re right; I imagine that there are impressively bad developers who lose money.
Of all of Cambridge’s upzonings, I only know of one that was rescinded. Can you provide a list of rescinded upzonings?
The most concise and neutral accounting of rezonings that I know of is in the CDD memo on the recent MMH petition: https://www.cambridgema.gov/-/media/Files/CDD/ZoningDevel/Amendments/2021/missingmiddle/zngamend_MMH_CDDMemo_20210325.pdf
Pages 3 through 9 give a thorough history of neighborhood zoning changes. Page 6 notes (referring to map changes, but dimensional standard changes follow the same trend): “An exhaustive review of all such changes has not been completed, but the apparent overall trend has been a shift from less restrictive to more restrictive zoning classifications in many residential areas.”
Pages 7 and 8 tell that the 1976 townhouse ordinance and the 2001 rezonings were both followed up in subsequent years by new restrictions that curtailed their provisions to the point of uselessness. They also mention the Cambridgeport rezoning, as well as the 1995 and 1999 rezonings, all of which restricted residential development in neighborhoods.
The story of Cambridge development in the past few decades has included some big developers building big buildings in areas such as Kendall, Alewife, and North Point – much of it commercial – while residential development has been frozen if not eliminated in neighborhoods. See https://crschmidt.net/housing/cambridge/history/ for graphs.
Blaming Prop 2.5 for that is misguided, however, as Cambridge’s residential property taxes are the lowest in the state and well below their Prop 2.5 limits. If you don’t like that our tax base comes from commercial development, you shouldn’t blame Prop 2.5, you should blame the homeowners who have both fought tooth and nail to resist new housing in their backyards, as well as fighting to resist raising property taxes on existing housing.
Mr. Sego is correct in his evaluation of how things work in Cambridge. My neighbors in East Cambridge and I have fought for years for more housing and less commercial development, and it is the developers, who make far more money on the commercial development, and the City of Cambridge, which depends on the continued flow of that sweet, sweet commercial real estate tax money, who have stymied us every single time. The only reason there’s as much housing as there is around here is because we fought for it. The reason the inclusionary percentage went up was years and years of lobbying by the very people Angstrom vilifies.
Right on, Mr. Sego. We do need to talk for real, with real information about what can actually be done rather than airy-fairy wishful thinking about what would be cool to house people who make lots of money if developers decided to do what they imagine instead of what developers assure us they could and would do, given the opportunity. To name just one example, why did Eversource nearly site a very large substation in the middle of a residential neighborhood (in fact, on land zoned Res. C-1)? Could it have anything to do with the fact that the city administration has refused to talk about the logistics of what we’re doing and the consequences of all of this development, other than the money that keeps pouring into the city’s coffers?
If the 20% inclusionary housing requirement were put into dollar terms, it would be a fee on residential development on the order of somewhere between $50/sqft and $100/sqft. That’s between 2.5 and 5 times higher than the amount we charge commercial development.
Just so I have this straight – fighting to create an extremely high tax, on residential development only, is “fighting for more housing”?
(To be clear, I’m not saying that IZ is a bad policy – that tax revenue is specifically earmarked for affordable housing, which is great. But it would be even greater if the tax revenue came from other sources, like property taxes or fees on commercial developments. And the same political tribes that HeatherHoffman references with “My neighbors in East Cambridge and I” have consistently opposed rezonings for more housing, whether specifically affordable like the AHO or not. So my point is simply that I find “have fought for years for more housing” to be an extremely hard claim to believe.)
(3 comments is my per-article limit, apologies, enjoy.)
Angstrom is obviously completely ignorant of what I have supported in my twenty years of civic engagement. Neither s/he nor anyone else gets to define the terms of debate solely on the basis of agreement with a particular point of view or not. I can guarantee that I have advocated for more housing that has actually been built in Cambridge than Angstrom and that my opposition to upzonings has been based on the imbalance between commercial and residential development, which, as Mr. Sego has shown, has fueled the insane rise in real estate prices in Cambridge. In fact, my arguments in that regard are persuasive enough that a certain PAC that arrogates to itself the role of final arbiter of what makes someone pro-housing has stolen them, without attribution, I might add. I at least credit my sources and thank them for educating me.
“Streets that handle 1,000 cars a day can’t simply handle double or triple the volume. ”
This is a feature not a bug. Let’s abandon the idea of making Cambridge just another suburb in an endless sea of bland sprawling suburbs built solely to move cars. Build dense, walkable, bikeable, and transit heavy communities. In fact let’s do that for all of the urban areas and inner suburbs of Boston. That is the only way to reign in the inflated and artificially constrained housing market in the region.
Yes, it’s complicated. There are MANY issues that surround development, and my oped attempts to explain only one: why has the CITY (meaning the City Managers) been so pro-development? Anyone who claims that it’s really altruism may be interested in a bridge that I’m selling.
It’s estimated that 1 Million people wish to move to the Boston metro area. Many already live in outlying areas and face long commutes. Some are from recent arrivals to America, fleeing war and violence. Some live in other parts of the country where jobs are scarce. In any case, Cambridge cannot singlehandedly create enough housing for all of them. The Metropolitan Area Planning Council (MAPC), recognizing the need for regional housing, has set goals for all the communities around Boston. Cambridge has exceeded these goals by far.
With the staggering housing pressure on the city, the only ones who seem to have no trouble finding housing here are those with a LOT of money. Four condos on my block just sold for $2 million EACH. These probably didn’t go to middle-income house-hunters. Every time that a property gets redeveloped, moderate income residents are forced out and high-income individuals move in. This is displacing thousands of Cantabrigians annually. We’re losing far more moderate income housing annually than we can/should possibly build.
Perhaps it comes down to whether someone wants to live in a denser city or whether Cambridge, being the 10th densest in the USA, is already where it should be. I moved here decades ago because I like it here. If I had wanted to live in Manhattan or some other extremely dense urban setting, I probably would have done that (if I could have afforded it). I’m not sure why some people move here only to “Manhattanize” it. It just doesn’t make sense.
Oh Cambridge. God bless the “want to have their cake and eat it too” view point.
Do you want new schools, new libraries, new parks, etc and still keep taxes reasonable on residential dwellings?
Do you want to build a world-class city which draws people in ever increasing concentration?
Then you’re gonna have to give up some of that cake.
I understand that some residents may desire more space around their home, but I take issue with the claim that single-family residential zoning in Cambridge is not exclusionary. Per Zillow, the median value of a single-family home in Cambridge is over $1.6 million. About 10% of Cambridge’s land is currently zoned exclusively for single-family housing. This effectively renders a full tenth of Cambridge’s precious land inaccessible to anyone who does not have a least $300k in the bank. This seems, well, exclusive.
Angstrom complains that the residential inclusionary zoning requirements amount to a fee that is “between 2.5 and 5 times higher than the amount we charge commercial development.” Perhaps that’s why developers prefer to build so much new commercial space rather than enough new residential units???
Mr. Sego is correct- the City incentivizes commercial development. In my opinion, the solution isn’t to require a lower IZ percentage on residential projects as Angstrom suggests, but to instead raise the commercial fees we demand from lab and office developers to a commensurately high level.
I agree with kinkemamon’s excellent point. Our future (not just Cambridge’s) simply cannot be car-based. Unfortunately, our PRESENT is largely car-based, and no matter how bad this is and how much we wish and hope for a car-free future, any transition is going to take time.
The late Peter Roudebush, well-known in traffic planning circles, summed it up 25+ years ago: “the only way to get people out of their cars is with a shotgun and a crowbar; the crowbar to pry their dead fingers off the steering wheel.” We therefore need to plan for reality AND invest in the future.
Thanks for an interesting article, I look forward to more.