As two lawsuits challenge Cambridge’s inclusionary housing ordinance and the city considers the first amendments to its 2025 zoning overhaul, developers, economists and urban planners gathered at MIT on Friday to debate whether affordability requirements help address the housing shortage or discourage development.
The Oct. 16 symposium, titled “20% Affordable, Give or Take: A Spotlight on Inclusionary Zoning,” was hosted by MIT’s Center for Real Estate.
The economics of affordability
Tod McGrath, an MIT lecturer and vice president of finance at Boston Properties, illustrated the financial trade-offs with a hypothetical $50 million, 100-unit apartment development. Reserving 20% of apartments for tenants paying half the market rent, he calculated, would reduce annual net operating income from $3.5 million to $3 million and projected investor returns from 24% to roughly 5%.
“If we could cut the price of the land in half, the IRR [rate of return] would go up to 15%. It’s usually pretty easy to get the seller to cut their price in half, right?” McGrath asked, to laughter from the audience. “So, land use policies are critically important. They touch all of us. They shape what gets built and how we live. But what gets built requires a lot of capital.”
Cambridge’s inclusionary housing ordinance now requires qualifying developments to reserve 20% of residential floor area for affordable housing, up from 11.5% before the requirement was expanded in 2017. The 2025 Multifamily Housing Ordinance retained that requirement while allowing multifamily housing citywide, including buildings of up to six stories instead of four in residential neighborhoods on lots of at least 5,000 square feet (if they meet the affordability requirement).
Melissa Schrock, managing director of development at the Davis Companies, a Boston-based real estate investment and development firm, argued that rising construction costs, interest rates and inflation have made housing increasingly difficult to finance. Additional density can offset affordability requirements, she said, but may not be enough when developers compete globally for investment capital.
“From a developer’s perspective, it’s a math equation. The math has to math,” Schrock said. Investors, she said, are driven by a return on their money. “Capital is detached from any physical location. It’s global, and it’s going to find the sectors and the locales and the industries where it feels like it’s going to get a risk-adjusted rate of return.”
A constitutional question
The symposium included a mock trial that explored whether inclusionary zoning was constitutional, which is being tested in an actual court case involving a property in Cambridge. Attorneys argued a hypothetical lawsuit challenging a fictional Massachusetts municipality’s requirement that a developer reserve 20% of a residential project’s floor area for affordable housing.
David Deerson, a Pacific Legal Foundation attorney involved in lawsuits challenging inclusionary housing requirements in California and Colorado, argued that conditioning building permits on affordable housing violates the Fifth Amendment because it effectively takes private property without compensation. That argument is at the heart of both lawsuits challenging Cambridge’s ordinance.
“Property under the Fifth Amendment is not just land; it’s also the rights that are associated with that land,” Deerson said. “Infringing on your right to exclude others from your land is a taking of that portion of your property.”
Mina Makarious, an Anderson & Kreiger attorney representing the fictional municipality, countered that “All of our bread-and-butter land-use regulations potentially reduce the value of the property,” Makarious said. “If I buy this parcel of land, and it’s zoned for a single-family detached home, that is probably worth less than if it were zoned … for a multifamily residential or commercial building.”
More than a numbers game
The symposium’s final panel turned to the policy trade-offs of inclusionary zoning through a discussion among developers and urban planners. Justin Steil, an MIT professor of law and urban planning, pointed to New York City, where housing continues to be built despite affordability requirements of 20% to 25%, as evidence that inclusionary zoning does not necessarily discourage construction.
“We’re not building enough housing. I think there’s agreement on that,” Steil said, referring to the Greater Boston area. “But then the question is … is inclusionary zoning the easiest target, or is it the right target? And I fear it’s more the easiest than the right one.”
Steil said market-rate housing alone cannot resolve affordability problems in expensive cities like Cambridge and Boston, where developers have incentives to build high-end housing, emphasizing inclusionary zoning’s role in combating economic segregation by allowing residents of different income levels to share communities. “Inclusionary zoning is one of the most crucial tools to try to address the increasing income segregation that we’re seeing in cities across the country,” Steil said.
Kairos Shen, Boston’s chief of planning, countered developers’ supply-side arguments by making the case that cities must balance the social benefits of economically diverse neighborhoods with the financial realities of housing development. He cited Boston’s property tax abatements and zoning revisions as efforts to encourage construction, while expressing his personal support for relaxing inclusionary zoning requirements when economic conditions make projects difficult to finance. He acknowledged that reducing affordability requirements could come at a political and social cost.
“We’ve developed a lot of very strong checks. We don’t have enough balance,” Shen said, arguing that regulations intended to protect the public interest must be measured against the need to make housing development financially viable. “I’m an advocate for more balance.”
Shen also questioned whether governments should rely so heavily on private developers to provide affordable housing, arguing that housing should be treated as essential public infrastructure, like roads and bridges. Asked whether governments should return to building housing themselves (something the Cambridge Housing Authority does), he expressed openness to the idea.
“I wouldn’t rule it out,” Shen said. “There was a long period where the public sector was building housing, right? It was actually the developers who said, ‘Hey, why are you guys doing things that we can do better?’ Well, turns out I’m not sure they’re doing it better.”
A stronger
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