Boston’s reliance on new housing to help fund affordable units, periodically escalating since 2000, is facing pushback in this year’s race for mayor, amid wider political and economic disruption.

Last week, mayoral challenger Josh Kraft called for reducing the share of income-restricted units for projects in Boston to 13 percent, the base figure set under former mayor Marty Walsh, and he proposed easing affordability requirements for the units to as high as 120 percent of the area median income (AMI), or $156,720 for a household of two. And, in contrast to Mayor Michelle Wu’s support for a rent stabilization measure, Kraft favors a voluntary program that would be incentivized by tax breaks for property owners.

Following changes made by Wu, the “Inclusionary Zoning” (IZ) program that took effect in October 2024 requires a set-aside of as much as 20 percent for projects with at least 7 units. Wu also deepened the affordability requirement for income-restricted units, from 70 percent of the AMI to as low as 50 percent.

As with her unsuccessful attempts to provide more affordability through rent control and a transfer fee on real estate sales worth at least $2 million, the debate about IZ—and its predecessor, the “Inclusionary Development Policy” (IDP)—has also pitted housing activists against business groups. And the debate is taking place when the financial climate for new housing production is less friendly.

In February 2000, then-Mayor Thomas Menino introduced Boston’s IDP at the peak of an economic boom that would soon give way to collapse of the “dot-com bubble.” At the time, the interest charge on a 30-year-fixed-rate mortgage was around 8 percent, but high-rise luxury developments were going up—without affordable set-asides, and Boston’s housing prices spiked in the first quarter by 23 percent over the same quarter in the previous year.

Despite the dot-com collapse and ensuing “Great Recession,” the Boston area would emerge in the same decade as one of the country’s leading “innovation clusters.” A sequel to the post-industrial growth in the “New Boston,” the cluster of highly educated talent was hailed as a magnet for high-paying jobs enabled by private investment, but also by public funding for anything from life science research to military procurement.

By 2010, the urban studies theorist Richard Florida had identified credentialed “human capital” as “the key engine for economic growth and development,” channeling innovative stimulus from diverse, mixed-use environments celebrated by an earlier theorist, Jane Jacobs.

As early as 2006, while ranking Boston among the nation’s “superstar cities,” Florida acknowledged that the same new growth would ripple out in rising property values, with displacement of middle- and lower-income residents. “Superstar cities are, by their nature, exclusionary,” he observed in The Atlantic, “and there is good reason to believe they will become more so in the future.”

Almost ten years later, when a 30-year fixed-rate mortgage was down to 3.65 percent, Menino’s IDP was adjusted by his successor, Marty Walsh. The 2016 IDP report from the Boston Planning and Development Agency (BPDA) made Florida seem prophetic: “Development in downtown neighborhoods is proceeding at a furious pace, while unsubsidized development of housing for middle income families in outer neighborhoods is still needed.”

Under Walsh, the connection between affordable set-asides and more permissive zoning that began with Menino became more explicit and more targeted, with planning initiatives that increased density in parts of South Boston, Roxbury, and Jamaica Plain. Walsh also boosted off-site contributions for affordable units from projects in downtown Boston and adjacent areas, including Jamaica Plain, Mission Hill, and Allston-Brighton. As noted by consultants for IDP changes advanced by Wu, set-asides for affordable housing were sometimes exceeded as a result of negotiations for permitting.

A fast-forward to Wu’s first term coincides with post-pandemic inflation and a surge in interest rates in 2022, followed by limited relief as of early 2025. It was in December of 2022 when Wu proposed her more ambitious IDP requirements that would be renamed as “Inclusionary Zoning” (IZ). At the same time, she expanded efforts to make Boston’s zoning less restrictive and haphazard, strategically encouraging higher density near public transportation and commercial centers.

Wu’s 20 percent set-aside—for rental developments with at least seven units citywide and similar ownership projects in more expensive core neighborhoods—included a 3 percent component with federally funded vouchers, which could yield rents as high as 165 percent of the AMI. But a feasibility report on Wu’s policy, prepared by RKG Associates, warned that even “small percentage changes” to Boston’s relatively high construction and development costs could have “substantial impacts on returns.” The report added that changing target income levels for affordable units could have “notable impacts” on a project’s financial feasibility.

The warnings were re-echoed later in 2023 by the Greater Boston Chamber of Commerce, just before a vote on the IZ policy by the City Council. In a post on its website, the chamber stated that it was “deeply concerned that the City is advancing a policy that has no clear goals and makes housing development infeasible in Boston.”

In an email statement this month, the chamber’s president and CEO, James E. Rooney, affirmed neutrality toward candidates, while adding, “Housing is indeed an important issue for the region, and we look forward to this issue being a central focus of the campaign.”

Greg Vasil the CEO of the Greater Boston Real Estate Board, advanced a similar position. “To increase housing supply and lower costs,” he said in an email statement this month, “Boston’s leaders must reduce government red tape. We remain firmly opposed to any policy that would stifle housing creation and disincentivize apartment upkeep and maintenance like the traditional rent control or rent stabilization legislative efforts.  A voluntary rent cap with an owner’s tax break is a different approach. We are interested in learning more about proposed voluntary policies that also benefit owners. The city is desperately in need of innovative housing solutions to overcome this unprecedented affordability crisis.”

But, in a website post on Feb. 13, the Wu administration was touting “accelerated housing production.” Over the past three years in Boston, more than 17,000 units had been built or started undergoing construction, surpassing the amount for any other three-year period since 1998. The average annual build-out under Walsh, slightly about 4,000 units per year, was surpassed by Wu’s average over more than 5,000 units. The more recent figure included units that were authorized under her predecessors, as well as housing supported by federal money for pandemic recovery.

Based on figures for 2021-2023, the 2024 “Housing Report Card” issued by The Boston Foundation showed that the level of production under Wu has shifted dramatically, following a steady decline in the city’s new housing production going all the way back to 2015. The more abrupt regional downturn in 2023, in line with a national pattern, came right after the surge in interest rates in 2022.

“A substantial portion of the 2023 decline,” the report concluded, “can be traced to a sharp downturn in the City of Boston, where new construction approvals plummeted. In Boston, the number of multifamily housing permits dropped from 3,992 units during a relative peak year in 2022 to just 1,878 units in 2023, a decrease of more than 50 percent.”

Kraft went even further than the report in questioning housing production figures from Wu, citing numbers on permits from the city’s Inspectional Services Dept. He also pointed to the number of housing units authorized by the city but still not under construction. A review by the Federal Reserve Bank of Boston found that the number went from a peak of 41,000 in 2022 to 23,000 in July of 2023, rising two months later to 34,000—more than double the figure at the onset of the Covid-19 pandemic.

The merits of “IZ” have also been disputed by university researchers and think tanks, alternating between qualified support and opposition.

A 2023 report by the Harvard Kennedy School found that IZ policies were most effective when “targeted at affordable rental units for low to moderate income earners,” especially if supported by density bonuses and more limited requirements for off-street parking. “Inclusionary Zoning may not be appropriate for every community,” the report cautioned. “Even where it is, IZ’s capacity to produce affordable housing units is limited by its reliance and sensitivity to market conditions.”

Connor Harris, a fellow at the Manhattan Institute for Policy Research, which is funded by corporations and conservative foundations, expressed a preference for IZ coupled with incentives, but warned that it could still “create perverse political incentives” to make market-rate housing artificially scarce and expensive. “And in any case,” he argued, “IZ produces too few units to be more than a minor part of an affordable housing strategy. There is no substitute for broad liberalization of zoning policy to lower market rents and housing prices, with all of the compromises and political fights that this inevitably entails.”

In his housing plan, Kraft claimed that his IZ “reset” could help advanced “stalled units” while affordability requirements closer to market levels could “allow more of Boston’s middle-class workers to qualify for quality income-restricted housing while also jump-starting the 26,000 units in the pipeline.”

City figures show that inclusionary policies in Boston, from 2011 through 2024, have resulted in 13,210 income-restricted units. That’s in addition to units created in the policy’s first decade under Menino. Though activists have sometimes faulted the units with being unaffordable for average households in areas most vulnerable to displacement, they also contend that housing needs in the city cannot be met solely by increasing supply.

“Kraft’s proposal would drastically reduce affordability in new developments by rolling back the hard-fought progress made under Mayor Wu,” argued Armani White, the executive director of the housing advocacy group Reclaim Roxbury. “The notion that weakening IZ would meaningfully increase housing supply is not supported by the city’s own economic analysis. The study that informed Wu’s policy found that developers could absorb the increased affordability requirements while still producing housing. If Kraft’s plan were in place today, thousands of affordable units that are now required simply wouldn’t be built.”

Kraft said that Wu’s policy is ignoring the city’s middle-class residents, while setting aside income restricted units for which “working-class” residents would not qualify. But Markeisha Moore, a community organizer and housing advocate with Dorchester Not 4 Sale, said that many others would find Kraft’s income ceilings out of reach.

“We cannot afford to go backward,” she said. “Boston is already unaffordable for too many, and Kraft’s plan would only make it worse by allowing more luxury development without ensuring real affordability. Kraft’s plan would prioritize creating 100 percent AMI units, which is $2,756 a month for a one bedroom.”

Mike Prokosch, a member of Codman Square United, argued that Kraft’s IZ proposal “cuts the number of affordable units developers must build by one-third; cuts the units the average Dorchester household can afford by three-quarters; and pays for the plan with a housing construction plan that won’t work.” 

He dismissed Kraft’s housing plan as “a house of cards built upon a fantasy,” questioning its claims for new supply and property tax revenue. “The overwhelming reason why new housing construction is stalled – in Boston and across the country,” he wrote in an email, “is that interest rates are too high for developers to get financing from banks and other investors. They can make as much money if they buy US Treasury notes, and it’s much less risky. Until the Federal Reserve Bank cuts interest rates, Kraft’s plan will be pie in the sky.”

For his part, Reclaim Roxbury’s White points out that figures on housing construction, whether completed, in progress, or stalled, almost entirely predate Wu’s IZ revisions. And the contributors to stalled projects identified by the 2024 Housing Report Card were the high costs of materials and financing.

The Savin, a condo development at the corner of Savin Hill Avenue and Sydney Street, was supposed to market one of its 14 units as affordable, according to the city’s BPDA. Chris Lovett photo

Some developers have already been hit with higher construction costs due to tariffs introduced under President Trump. And some observers fear that rates could be pushed even higher if his administration moves ahead with plans to privatize Fannie Mae and Freddie Mac, two leading backers of mortgage securities. The firms have been under government control since their bailout 17 years ago, and supporters of privatization—including shareholders who stand to profit from the change—say it could help borrowers by fostering more competition.

The privatization was also proposed in Project 2025, a conservative policy blueprint that also recommends changes in many other programs, including supports for healthcare, housing, and research in life science and public health. The results could affect the Boston’s area’s standing as an innovation hub, at a time when the post-pandemic demand for office space has been cooled by the partial shift to remote work—more prevalent among the “creative class” highlighted by Richard Florida more than twenty years ago.

In the intervening years, Florida expanded his focus to housing unaffordability, income inequality, and geographic gaps between segregated populations. The “means migration” of creative capital to “talent clusters” was followed by another migration, described by Florida in a June 2024 interview with the online publication Vital City.

“The economy is the most productive and innovative it’s ever been,” he said. “but, where does that productive and innovative surplus go? It goes into dirt — real estate. Instead of it going into more education and training and better ways of life, better quality of life, better healthcare, it just goes right into dirt. Now, we’re just paying more money for the same dirt.”