Housing advocates and developers raised concerns about a memo from the Cambridge Community Development Department (CDD) in which city officials suggested multiple options for adjusting the city’s inclusionary zoning requirements in order to boost development.
Under rules adopted in 2017, new residential developments of a certain size must set aside 20 percent of their gross floor area for affordable housing units. But higher interest rates and construction costs have caused development of all sorts to dry up, noted Anthony Galluccio, a real estate attorney and former mayor of Cambridge. “The 20 percent appeared to be working because housing was required to be built as part of contract zoning,” said Galluccio, who is a local counsel for the massive Healthpeak project planned for near the Alewife T station. He referenced a large mixed-use project led by MIT and expected to produce 280 inclusionary units. But that project was approved in 2021, he noted, a time when developers of laboratory space “were granted rights in exchange for housing.”
“[Developers] weren’t building the housing because it made money,” he said. “They were building it because they had to.”
Now, commercial properties are no longer in vogue — commercial vacancy rates were over 20 percent, according to Hunneman’s Mid-Year 2026 Boston Office report, and over the last year, the net assessed value of commercial properties in Cambridge fell by $3.6 billion. According to Galluccio, opportunities to tie housing to commercial projects are all but gone.
The CDD’s report assessed a number of policy options for jumpstarting the market for residential development. Several of them were seen as likely to have little impact. The ones that were deemed most promising included:
- allowing developers to contribute to the Affordable Housing Trust and in exchange reducing required affordable units by up to 50 percent;
- providing tax abatements to developers;
- establishing a low-interest loan program.
- temporarily lowering the percentage of affordable units required;
The CDD memo did not specify a percentage, but an accompanying analysis by Boston-based consulting firm RKG Associates offered scenarios for rates ranging from the current 20 percent affordable units down to 10 percent.
RKG’s analysis suggests that tweaking the rate could help kick start development by offering investors in projects better returns. Rylan Squirrell, investment consultant at Healthpeak Properties, said that lowering the rate was essential for it to break ground on a 400-unit residence planned for 125 Fawcett Street.
He said Healthpeak doesn’t have the cash on hand to finance the project alone, and with Treasury bill rates reaching five percent returns for the first time in nearly two decades, investors have safer options at almost the same level of return.
“Construction costs are crazy right now. They could change at any time. You don’t know what’s going to happen with rent control … There’s so many things that are just so risky,” Squirrell said. Investors “aren’t able to justify it.”
Healthpeak’s plans include high-rises, and taller buildings make the biggest dent in providing inclusionary units. But the RKG report noted that this type of construction is more expensive due to the need for sturdier building materials, reducing the overall financial performance of such projects. In the current environment, an inclusionary rate of “20 percent definitely doesn’t work,” Squirrell said.
Report “a pure work of fiction”
Patrick Barrett, a local developer who is suing the city over the inclusionary requirement, criticized the report. “That report is phenomenal in that it is almost entirely a pure work of fiction,” Barrett said.
He pointed to RKG’s analysis, predicated on interviews with investors who said they demand a minimum year-to-year return on costs of 5.75 to 6.25 percent. To Barrett, that seemed low. He noted the city had previously used a return on cost threshold of seven percent in its MBTA Communities Act filing, at a time when interest rates were lower. To him, this meant RKG’s report over-estimated developers’ willingness to build in scenarios that RKG modelled. (RKG did not run an analysis on a rate of less than 10 percent). Squirrell, who spoke to Cambridge Day before the report was released, independently said that his firm needed to be able to pitch investors at least a 6.5 percent return.
The city council will consider the memo at its meeting Monday, Oct. 5. Barrett added that “If I was a sitting city councilor and the city had given this [report] to me … my only conclusion would be that they think I’m financially illiterate.”
Cambridge Director of Media Relations Jeremy Warnick said the report “will be the subject of a presentation and public discussion at one or more Council meetings. In the meantime, the City does not intend to respond to individual reactions.”
It is unclear what impact the proposed changes could have on Barrett’s lawsuit, or another lawsuit filed against the city by Old North Development over the requirement. Councillors and city officials met in private to discuss the litigation last week, but have offered no additional information on the status of the two cases.
Citing the litigation, Warnick declined to comment on behalf of city officials. Multiple councillors did not respond to requests for comment.
History of inclusionary zoning in Cambridge
Cambridge adopted its inclusionary zoning ordinance in 1998, requiring developers of projects with more than nine units or more than 10,000 square feet of total floor area to set aside 11.5 percent of their space for affordable housing units, in which eligible residents earning 50 to 80 percent of area median income contribute a maximum of 30 percent of their income towards the cost of rent. The city raised the requirement to 15 percent in 2016, followed the next year by a jump to 20 percent, where it remains.
Barrett said that when the city began bumping up its rates a decade ago, it was “fine-tuning our housing policy to the most financially advantageous moment in history. That seems like a mistake.”
According to the city, the program has led to the creation of over 1,100 rental and ownership units for lower-income renters.
But some are skeptical that inclusionary zoning alone was the factor. Galluccio, who as mayor was supportive of the 11.5 percent rate, said it had been most effective when affordable housing was tied to commercial development.
Still, keeping the rate at 20 percent has remained popular enough that Councillor Ayah Al-Zubi, who campaigned for office on a progressive platform that explicitly called for keeping the rate at 20 percent, received the third most votes in Cambridge’s ranked-choice election last year.
Housing advocates react
Representatives from Cambridge’s two biggest interest groups focused on housing also responded to the report. Justin Saif, who leads pro-upzoning A Better Cambridge (ABC) and Suzanne Blier, who leads upzoning and developer-skeptical Cambridge Citywide Coalition (CCC) were on rare common ground sharing skepticism about lowering the 20 percent inclusionary zoning rate for large buildings.
Saif said that rather than fiddling with the ratio, he would prefer the city pursue the options that would help finance projects at the current rate, like offering protection from residential property tax rises and leveraging the city’s AAA bond rating to establish a revolving loan program.
“We’d rather see the … financing options go forward because we support permanently affordable inclusionary housing,” Saif said. “There’s a lot of academic research showing the benefits to the families who are in the inclusionary homes.”
Blier says that she’s in favor of generating as many inclusionary homes as possible, but “let’s make sure it’s integrated into the neighborhoods.” Like Saif, she thinks the city should hold firm at 20 percent for large buildings, but thinks that buildings with 10 to 29 units, which are just over the inclusionary threshold, should receive a rate reduction to 10 percent in order to incentivize building more medium-sized buildings.
Whatever policy lever the city decides to pull, she said, something has to change.
“Developers are stopping at nine units so that they will not have to add any inclusionary [units],” Blier said. “We have to fix that.”
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