Nexus Study 2015: My Thoughts

It’s no secret that commercial development in Cambridge benefits our local economy - and no secret that there are serious detrimental effects that development and displacement have on our city. As a result, the City periodically studies how these developments affect Affordable Housing and how major commercial developments should be required to support affordable living in Cambridge.

The most recent iteration, called the Incentive Zoning Nexus Study, allows us to start this conversation, assess updated mitigation fees, and ultimately fund Affordable Housing in Cambridge. The study suggests a fee increase from $4.58 to a range between 8 and 24 dollars. The strongest specific recommendation in the study is ultimately that the city should choose a $10.00-$12.00 per square foot rate in order to remain competitive with other cities’ fees. After reviewing communications from residents, community groups, and local businesses, I recommend a $14.00-$15.00 per square foot range, with annual increases. Here’s why:

What’s my take?

To deliver the greatest benefit to affordable housing in Cambridge, the following are three major changes we must make as a community when charging mitigation fees to large commercial developments:

  1. Raise the linkage fee to a range between $14-$15 from its current rate of $4.58.

  2. Require developers to pay linkage fees for all new non-residential developments over a set amount of square feet, and expand the definition of an incentive zoning project to include: hotels and motels, radio and television studios, educational, social service, and healthcare facilities that are private, non-governmental, light industry wholesale business or storage, and heavy industry.

  3. Work with neighboring municipalities to coordinate linkage fee rate hikes and timing in the future, thereby preventing a race-to-the-bottom to be “competitive on linkage fees,” which hurts our affordable housing funding collectively.

What is a linkage fee?

Linkage fees are costs charged to developers constructing large commercial projects. The developer is charged a one time fee, calculated per square foot, which is put into Cambridge’s Affordable Housing Trust to create and preserve Affordable Housing in Cambridge.

What does Cambridge currently charge?

Cambridge charges developers $4.58/sq. ft. for developments over 30,000 square feet of floor area. This fee is only triggered when developers obtain a special permit to build beyond their “as of right” dispensation. A special permit is requested by developers for many reasons, including a desire to build more housing units, a change in the allowed size of the project, or an expansion of the requested dimension or rate of parking requirements.

Why our linkage fees should be more comprehensive:

Cambridge’s background with linkage fees is a troubled one; the fee hasn’t been updated in over two decades and has failed to reflect community needs and commercial development impacts. From the Affordable Housing perspective, at least 3.9 million dollars and 13 housing units have been lost as a result of this oversight. In 1988, the city commissioned an initial nexus study on the effects of office development in Cambridge on the housing market, which determined a fee of $3/sq. ft. would be appropriate to compensate for large commercial impact. Other than adjusting for inflation, this fee has not been raised since then, despite an updated study in 2002 recommending an increase to $7.83/sq. ft.. For context, the amount recommended in the previous study is similar to Somerville and Boston’s current linkage fees (5.15 and 10.01, respectively) – 12 years later. By not updating the linkage fee to better reflect drastic market changes since the initial study over two decades ago, Cambridge has allowed large development interests to dominate Cambridge without their influence being fairly mitigated by a meaningful contribution to affordable housing. In many cities, such as San Diego, Seattle, and Boston this type of fund also contributes to workforce development programming, which is desperately needed in Cambridge.

So what does the most recent study say?

The Nexus Study made 4 key points:

  1. Mitigating the impact of new commercial development in Cambridge requires:

    1. 108 low income units (referring to a household at 50% of the Boston area median income)

    2. 231 moderate income units (80% of Boston area median income)

    3. 354 middle income units (at or below 120% of Boston area median income).

  2. A linkage fee of $24.30 per square foot would be the maximum subsidy recommended under the current incentive zoning policy.

  3. The city should set a fee in the range of $10-$12 as a compromise to remain competitive with the Greater Boston Area– not even half of the original suggested fee.

  4. Increase the contribution from large non-residential development projects by expanding the range of what qualifies as an incentive zoning project.

Why we should be coordinating regionally:

Much of the reticence towards raising our linkage fees to a meaningful amount stems from the perception that a larger fee will dissuade larger developers from continuing to build in Cambridge. Despite looking costly on paper, these one time fees end up paling in comparison to the amount of profit generated by many of these projects. Developers are paying $400, $500, $600 per square foot, so the difference between $10 and $15 is minimal. For a 30,000 square foot project, that’s a difference at the most of $150k, a pittance to developers. It would be a mistake to keep this from the affordable housing trust out of misplaced fear that this one number will shatter developer finances and move them to I-95 or Somerville. Even if Cambridge charged $20/ sq. ft., most developers would not consider this fee a deterrent.

Affordability is also a regional problem, and – as with many other city initiatives – Cambridge has not looked into solving the housing crisis in partnership with the rest of the Greater Boston Area. Our decision making process has been complex and exhaustive, but the concern for keeping Cambridge competitive regionally has not been explored in great enough depth. Instead of raising our fees with an eye towards our neighbors, we should be working in tandem with Somerville, Boston, and the rest of the Greater Boston Area to keep the entire region affordable. Raising our fees in lockstep could ensure the entire issue of competitiveness is bypassed completely.

 Cambridge Community Development Department. 2015. “Incentive Zoning Nexus Study.”

Levy, Marc. “‘Linkage’ of $3.9M for affordable housing was left on table by city since 2002 advice”. Cambridge Day, September 15, 2014

Levy, Marc. “Linkage fee study: Don’t scare builders, charge only up to $12 per square foot” January 26, 2015

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